Accounting Scandal Updates on December 31, 2002
Bob Jensen at Trinity University

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


Is it the financial reporting and auditing system operating under securities laws?  
I don't think so given the repeated cycles of scandals, including the two most recent periods of scandal (i.e., the 1980s S&L scams and the 1990s financial and auditing scandals).  Business firms keep watering down the laws and auditing firms are compensated in a way that defies the logic of fairness and independence.

Is it the tort system that makes makes corruption too expensive for corporations and executives?
I don't think so given the fact that executives can salt away stolen fortunes with relatives, friends, and foreign hideaways that remain cached after the lawsuits and even some country-club prison sentences come to an end.

Is it the free press?
If I had to point to the one thing that keeps American capitalism moving on an upward trend during the economic cycles, it is the free press that has become ever more effective in the age of instantaneous world wide networking via email and the Internet.  The free press is the the sunshine that brings dark things to light.  It is never perfect, and crime often pays.  But crime will not destroy the system as long as crime does not stamp out our freedom of the press.  

My wrap up of the Year 2002 scandals, including a summary of the largest lawsuits against accounting firms, is provided in this final update on fraud for the Year 2002.

Humor forwarded on December 21, 2002 by Miklos A. Vasarhelyi [

The corporate scandals are getting bigger and bigger. In a speech on Wall Street, President Bush spoke out on corporate responsibility, and he warned executives not to cook the books. Afterwards, Martha Stewart said the correct term was to saute the books.
Conan O'Brien

Martha Stewart denied allegations that she had been given inside information to sell 4,000 shares of a stock in a biotech firm about to go under. Stewart then showed her audience how to make a festive, quick-burning yule log out of freshly-shredded financial documents.
Dennis Miller

In New York the other day, there was a pro-Martha Stewart rally. Only four people showed up ... and three of them were made out of crepe paper!
Conan O'Brien

When reached for comment on the charges, Martha didn't say much, (only) that a subpoena should be served with a nice appetizer.
Conan O'Brien

NBC is making a movie about Martha Stewart that will cover the recent stock scandal. They are thinking of calling it 'The Road To Extradition."
Conan O'Brien

Things are not looking good for Martha Stewart. Her stock was down 23 percent yesterday. Wow, that dropped quicker than Dick Cheney after a double-cheeseburger.
Jay Leno

Tom Ridge announced a new color-coded alarm system. ... Green means everything's okay. Red means we're in extreme danger. And champagne-fuschia means we're being attacked by Martha Stewart.
Conan O'Brien

In January 2002, Senator Joseph Lieberman appeared on CBS' Face The Nation talking about the revelations that Arthur Andersen destroyed documents in the Enron investigation. Lieberman prophetically declared that, "this Enron episode may end this company's history." Even the brilliance of hiring Paul Volcker to reform the firm didn't help Andersen. Within two months Andersen was indicted on criminal charges. Three months later the firm was found guilty, and two months after that formally surrendered it's license to practice auditing. As clients, partners and staff bailed out throughout the year, the 89-year- old giant of the accounting profession was painfully put to rest. View more information on this topic at 

Related Articles

01/11/02 Andersen Admits Destroying Enron Documents

01/21/02 States May Revoke Andersen's License to Practice

01/29/02 Andersen Named in Class Action Suit

02/04/02 Andersen Hires Paul Volcker to Reform, Restore Trust

03/15/02 Andersen Indicted on Criminal Charges

03/28/02 Andersen's Global Network Merger Plans Unravel

06/17/02 Andersen Found Guilty

06/17/02 Andersen to Cease Auditing Publicly-Held Companies

09/03/02 Good-Bye Andersen: Venerable Giant Will Audit No More

09/13/02 Judge Refuses Andersen's Request for New Trial

A complete digest of all Anderson/Enron related stories is available.

A list of Andersen client defections is also available (including where they migrated for future audits)

02/05/02 The 'Angel of Accounting Death' Looms on Wall Street

06/26/02 Andersen Embroiled in $4 Billion WorldCom Accounting Fraud

06/28/02 Adelphia Goes Into Bankruptcy as Deloitte's Role is Questioned

08/16/02 AOL Swears To Financials But Warns of Accounting Errors

08/21/02 Accounting Scandals Take a Toll on Bank Lending Practices

09/16/02 SEC Charges Former Tyco Officers With Fraud

11/25/02 Ex-Peregrine Official Pleads Guilty to Fraud Charges

12/24/02 Time Names Whistle-Blowers as Persons of The Year

Bob Jensen's Summary of Events, Including Weekly Update Links --- 

"Time Names Whistle-Blowers as Persons of the Year", Reuters, December 22, 2002 --- 

Time Magazine named a trio of women whistle-blowers as its Persons of the Year on Sunday, praising their roles in unearthing malfeasance that eroded public confidence in their institutions.

Two of the women, Sherron Watkins, a vice president at Enron Corp., and Cynthia Cooper of WorldCom Inc., uncovered massive accounting fraud at their respective companies, which both went bankrupt.

The third, Coleen Rowley, is an agent for the Federal Bureau of Investigation. In May, she wrote a scathing 13-page memo to FBI Director Robert Muller detailing how supervisors at a Minneapolis, Minnesota field office brushed aside her requests to investigate Zacarias Moussaoui, the so-called "20th hijacker" in the Sept. 11th attacks, weeks before the attacks occurred.

"It came down to did we want to recognize a phenomenon that helped correct some of the problems we've had over the last year and celebrate three ordinary people that did extraordinary things," said Time managing editor Jim Kelly.

Other people considered by the magazine, which hits stores on Monday, included President Bush, al Qaeda leader Osama bin Laden, Vice President Dick Cheney and New York attorney general Eliot Spitzer.

Bush was seen by some as the front-runner, especially after he led his party to a mid-term electoral upset in November that cemented the party's majority in Congress.

However, Kelly said "some of (Bush's) own goals: the capture of Osama bin Laden, the unseating of Saddam Hussein, the revival of a sluggish economy, haven't happened yet. There was a sense of bigger things to come, and it might be wise to see how things played out," he added.

Watkins, 43, is a former accountant best known for a blunt, prescient 7-page memo to Enron chairman Kenneth Lay in 2001 that uncovered questionable accounting and warned that the company could "implode in a wave of accounting scandals."

Her letter came to light during a post-mortem inquiry conducted by Congress after the company declared bankruptcy.

Cooper undertook a one-woman crusade inside telecommunications behemoth WorldCom, when she discovered that the company had disguised $3.8 billion in losses through improper accounting.

When the scandal came to light in June after the company declared bankruptcy, jittery investors laid siege to global stock markets.

FBI agent and lawyer Rowley's secret memo was leaked to the press in May. Weeks before Sept. 11, Rowley suspected Moussaoui might have ties to radical activities and bin Laden, and she asked supervisors for clearance to search his computer.

Her letter sharply criticized the agency's hidebound culture and its decision-makers, and gave rise to new inquiries over the intelligence-gathering failures of Sept. 11.

Reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU

As a new member of the WorldCom board of directors, and as of last week the Chairman of its audit committee, I can assure you that Cynthia Cooper is the "real deal." There are many others to blame for these terrible problems occurring in the first place. However, Cynthia had both the tenacity and courage to speak up immediately when she first discovered the problem. I can't comment about the two other "Persons of the Year" but I assure you that Cynthia Cooper is my personal hero.

Denny Beresford 
University of Georgia

Bob Jensen's threads on whistle blowing are at 

"Staggering Lawsuits Hit CPA Firms," AccountingWEB, December 27, 2002 --- 

04/12/02 Xerox to Pay Record Financial Fraud Penalty, Investigation Turns to KPMG

04/26/02 Three Big Five Firms Get Sued over 'McScandal'

05/07/02 Andersen Reaches Settlement in Baptist Foundation Lawsuit

06/11/02 PwC Finds Accounting Lawsuits Broke Records in 2001

06/24/02 BDO Seidman Nears End of Case Involving Criminal Charges

07/18/02 PwC Settles Rash of Auditor-Independence Violations

07/29/02 KPMG Gets Probation For Bungling Orange County Audit

08/28/02 Andersen Worldwide To Pay $60 Million in First Enron Settlement

08/29/02 Andersen Worldwide Faces $350 Million RICO Action

09/24/02 Peregrine Files For Bankruptcy, Sues Andersen For $1 Billion

10/22/02 PwC Named in $100 Million Lawsuit

10/29/02 PwC Pays $21.5M to Settle Case With Anicom

11/08/02 H&R Block Slapped With $75 Million Kickback Ruling

12/24/02 E&Y Slapped With $1 Billion Lawsuit

Audits: The Red Flags of Cooked Books, SmartPros --- 

Dec. 19, 2002 (Partner's Report The Monthly Update for CPA Firm Owners)
Red flags: cooked books. Redwood, Calif.-based Camico Services has identified several signs that should raise suspicions.

Although Camico uses the soon-to-be-upgraded SAS 82, Consideration of Fraud in a Financial Statement Audit, as a partial source for these issues, it also incorporates suggestions from the Association of Certified Fraud Examiners (ACFE). As a result, these will continue to be valid areas on which CPA firm auditors should train a sharp eye:

Revenue substance vs. form. 
Actual revenue (substance) can be manipulated by transactions that change it from one form to another and can be misstated by the use of fake customers, receivables, and shipments. Beware of "significant, unusual, or highly complex transactions, especially those close to yearend, that pose difficult 'substance-- over-form' questions," warns SAS 82.

Inadequate disclosures. 
Confusing footnotes, such as those used for Enron's special-purpose entities (SPEs) transactions, can cast doubt on the financial statement. If the client includes both a governing board and management personnel, consider whether disclosures are made to both board and management-dual disclosure often makes sense.

Related party transactions. 
Using Enron as an example again, its SPEs, such as limited partnerships with outside parties, allowed the company to increase leverage and return on assets without having to report debt on the balance sheet. There is also a potential conflict of interest if managers' or owners' self-interest is-or appears to be-in conflict with the best interests of the company and its shareholders.

Improper asset valuations. 
Accurate valuation often requires special expertise. Without quoted prices as the base for valuation, a company could develop and use discretionary valuation models based on its own assumptions and models.

Premature revenue recognition. 
Two examples: In the first, the company takes subscription revenue for a multi-year period, obligating it to multi-year expenses, and then recognizes all the revenue in a one-year period. The second is "billing and holding," which creates accounts receivable but lets the company hold the goods, sometimes to ship later, sometimes not at all. This is often used with just a few large customers. Large journal entries at year-end can be the tip-off for this and other frauds.

Percentage-of-completion accounting. 
Multi-year projects for which most of the cash is paid in the first year but revenue is spread over the project's duration often indicate fraud. This is especially common among contractors, who are prone to estimating that a project is closer to completion than it really is, which lets them recognize more revenue sooner than they should.

Improper treatment of sales. 
Conditional sales -- those contingent on other transactions, which are sometimes counted as final sales -- are an example. Sometimes final sales are reversed but are not indicated as such on the books and, therefore, are not reconciled with inventory. Inventing customers, accounts receivable, and shipments is another way to misstate sales.

Deferral of costs and expenses. 
WorldCom's classic misstatement of operational expenses as capital expenditures is a horrifying example of what this can mean. Expenses may be deferred simply by not posting costs and expenses until the next period.

Other indicators:

-- Business relationships deteriorating because those involved in fraud have little respect for others.

-- Auditor independence breaking down from complacency and over-reliance on management representations. Juries are more likely to believe CPAs know about fraud in companies with which they had long relationships.

-- Successful companies are less likely to have their operations questioned than those that are in trouble.

Source: Impact 57 (Fall 2002), Camico (  )

In a decision that broke new legal ground, a federal judge in Houston ruled yesterday that banks, law firms and investment houses that helped construct Enron's off-the-books partnerships could be sued by investors seeking to regain billions of dollars they lost when the company collapsed.
"Ruling Leaves Most Players Exposed to Suits on Enron," The New York Times,  December 21, 2002 

The AICPA and the Association of Certified Fraud Examiners have jointly developed a one-hour training course that can be used by businesses and given to clients. The course is entitled "How Fraud Hurts You and Your Organization." 

In a Washington speech addressing CPAs and regulators, William F. Ezzell, Chairman of the American Institute of Certified Public Accountants, affirmed the accounting profession's resolve to uphold the public trust and support the provisions of the Sarbanes-Oxley law --- 

Everyone - Congress, the GAO, the SEC, financial executives, CFO groups, overseas regulatory agencies, the AICPA and other organizations - weighed in on "the new way" that auditors should perform their duties, and CPA firms should be policed. But two people stand out from the crowd and leave their mark - Senator Paul Sarbanes of Maryland and Representative Michael Oxley of Ohio, the authors of the Sarbanes-Oxley Act that will redefine the accounting profession and corporate financial reporting for years to come. View more information on this topic at 

William Donaldson has the right credentials to head the commission. He'll need a lot more than that, though, to change Wall Street's ways 

President Bush selected former investment banker William H. Donaldson to head the Securities and Exchange Commission and to restore confidence in markets shaken by a wave of corporate financial scandals. His mission, as outlined by Bush on Tuesday: “to vigorously enforce our nation’s laws against corporate corruption.” --- 

President Bush's nominee to lead the Securities and Exchange Commission is targeted in a class-action lawsuit by investors accusing him of fraud for failing to disclose financial problems at Aetna Inc. when he was its top executive --- 

GAO Blames Robert Herdman
The U.S. General Accounting Office is expected to release a report next week on the events leading up to the appointment of William Webster as Chairman of the Public Accounting Oversight Board. The report is expected to place the lion's share of the blame on former SEC Chief Accountant Robert Herdman, while lightening up on outgoing SEC Chairman Harvey Pitt --- 

Chairman Pitt resigned on Election Day after being widely blamed for forcing the other SEC Commissioners to vote on Mr. Webster's candidacy without knowing vital information about his background. The Commissioners later learned of a lawsuit involving actions taken by Mr. Webster as audit committee chairman of US Technologies. Calls for Chairman Pitt's resignation escalated after Mr. Webster told the media he had alerted Chairman Pitt to the lawsuit prior to his appointment.

The draft of GAO's report confirms that Mr. Webster warned Chairman Pitt of a potential problem. Chairman Pitt asked Mr. Herdman to investigate, and SEC's enforcement division told Mr. Herdman's staff of an investigation into the financial dealings of senior management at US Technologies. Even though this information was not related to Mr Webster's position on the audit committee, Mr. Herdman did pass along the information to Chairman Pitt.

Later, however, SEC's division of corporation finance told Mr. Herdman (or his staff) that BDO Seidman, US Technologies' auditor, had raised problems with the company's internal financial controls and that the auditor had been fired soon after. But Mr. Herdman did not pass along this second piece of information to Chairman Pitt. ("Pitt set to escape full blame for SEC debacle." Financial Times, December 11, 2002)

Chairman Pitt is remaining in the role of chairman until his successor can be named. Earlier this week, President Bush nominated William Donaldson, a Wall Street veteran, to chair the SEC.

"The Rise and Fall of Dennis Kozlowski," Business Week, December 23, 2002
How did he become so unhinged by greed? A revealing look at the man behind the Tyco scandal.

With every passing month, Tyco International Ltd.'s (TYC ) Leo Dennis Kozlowski looms larger as a rogue CEO for the ages. His $6,000 shower curtain and vodka-spewing, full-size ice replica of Michelangelo's David will not be soon forgotten. At the office, too, Kozlowski's excess was legendary. He was the most prolific corporate acquirer ever, gobbling up 200 companies a year--nearly one every business day--at the height of his hyperactivity. If Wall Street saw Tyco's seventyfold increase in market cap under Kozlowski as proof of his genius, who was he to disagree? In 2001, Kozlowski proclaimed his desire to be remembered as the world's greatest business executive, as a "combination of what Jack Welch put together at GEand Warren Buffett's very practical ideas on how you go about creating return for shareholders." 

Kozlowski's claims to greatness were shredded this year by his indictment on two sets of charges brought by Manhattan District Attorney Robert M. Morgenthau. The first startled in the pettiness of the greed it exposed: A mogul worth at least $500 million chisels New York City out of $1 million in sales tax due on fine art. But the second indictment, handed down on Sept. 12, shocked in the scale of corruption alleged. In essence, prosecutors accused Kozlowski and former Chief Financial Officer Mark Swartz of running a criminal enterprise within Tyco's executive suite. The two were hit with 38 felony counts for pilfering $170 million directly from the company and for pocketing an additional $430 million through tainted sales of stock. "My client believes that the charges filed against him are unfounded and unfair," says Stephen Kaufman, Kozlowski's lawyer. Swartz also pleaded not guilty. Both Kozlowski, 56, and Swartz, 42, declined to be interviewed.

The story of Dennis Kozlowski's rise and fall--told here more completely than ever before--is a tragicomedy for our times. The history of American business contains few figures who were unhinged by greed as theatrically as was Tyco's burly ex-boss. But perhaps because Kozlowski is so apt a symbol of Bubble Era excess, the question of why he did what he did has gone unanswered and, in fact, has rarely been raised in print. In hopes of completing the unmasking begun by the twin indictments, BusinessWeek spent three months researching every aspect of Kozlowski's life. What emerges is a portrait of a man who was at once more admirable and more deceitful than the debauched Roman emperor of a CEO that the world has come to know and disdain.

Continued at

"What About Enron's Lawyers," Business Week, December 23, 2002
Enron's auditors and bankers have been under the spotlight. Now, Business Week reveals the attorneys' role

These are not happy days for Enron Corp.'s hired hands. The company's auditor, Arthur Andersen LLP, has been driven out of business. Its bankers, including Citigroup (C ) and J.P. Morgan Chase & Co. (JPM ), have been pilloried repeatedly, most recently in the Senate on Dec. 11.

But one group of professionals has so far escaped the inquisition: the energy giant's lawyers. They have been accused of no crimes, have paid no big fines, and are taking a hard line against critics. "There's nothing that I'm aware of that we would change," Joseph C. Dilg, managing partner of the Houston-based law firm Vinson & Elkins, told the House Energy & Commerce Committee in March. "We never saw anything at Enron that we considered illegal."

Are the lawyers as innocent as they claim? V&E and Enron's other outside law firms have taken far less heat than the company's accountants and bankers, but they played an equally important role in concocting the controversial transactions that allegedly concealed the company's true performance. Indeed, there's no way Enron's left hand could have sold so many assets to its right hand without creative input from both inside and outside counsel.

So far, this piece of the Enron drama has gone largely untold. But using recently released documents, as well as interviews with corporate insiders, BusinessWeek has assembled the most detailed picture yet of how attorneys assisted Enron's financial engineers. The lawyers not only drafted the documents that brought the company's deals to life but also wrote opinion letters that vouched for the legality of the company's acrobatic maneuvers--a little-understood piece of the puzzle that had to be completed before some of the deals could go ahead. By writing those opinion letters, attorneys blessed several transactions now being attacked as deceptive. "It takes a lot of little pieces of paper for an Enron to happen--and lawyers wrote a lot of those little pieces of paper," says Susan Koniak, a professor of legal ethics at Boston University School of Law, who is writing an analysis of the company's lawyers.

Enron is far from the only case in which lawyers helped executives accused of ripping off shareholders. But while accountants will be answering to a new independent oversight board and investment banks are facing the involuntary restructuring of their research units, lawyers are looking at only some modest new regulations that the Securities & Exchange Commission is scheduled to implement in January. Many experts question whether the proposed reforms go far enough. "It is still part of the mythology of the profession that lawyers serve as brakes on bad conduct," says New York University School of Law legal ethics expert Stephen Gillers. "What we've seen in the past 20 years is that client pressures have turned them into more of a gas pedal."

Enron's attorneys insist that they violated none of their legal, ethical, or moral obligations. Whether they worked inside or outside the company, they all mount the same defenses: that the deals they worked on were legal, they had nothing to do with the company's accounting, and they didn't have enough facts to grasp the big picture at Enron. "If you are working on a deal, you don't always see the rest of the elephant," says V&E partner Harry M. Reasoner.

Ignorance may yet prove to be a legitimate excuse for many of Enron's lawyers, if only because, in its heyday, the company handed work to more than 100 firms and employed 250 in-house attorneys. The vast majority got nowhere near the deals Enron allegedly used to conceal its bad investments.

In fact BusinessWeek has learned that a fairly small group of lawyers handled the most controversial transactions at Enron. In-house, the key players were a few attorneys assigned to Enron Global Finance (EGF)--a legal team created to assist former Chief Financial Officer Andrew S. Fastow. The aggressive CFO seemed to think of EGF's top lawyer as "[his] attorney, rather than Enron's attorney," according to a summary of an interview with associate general counsel Rex R. Rogers conducted by the special investigative committee of Enron's board of directors. Fastow declined comment through his attorney, and Rogers did not return BusinessWeek's phone calls.

Fastow rewarded favorite lawyers with juicy carrots. Former EGF general counsel Kristina Mordaunt invested $5,800 in Fastow's LJM1 partnership and saw a return of more than $1 million within months. Mordaunt's attorney did not respond to BusinessWeek's calls. Lawyers Fastow disliked were clubbed with big sticks. According to several sources, he fired Mordaunt's successor, Scott M. Sefton, and attempted to sack EGF staff lawyer Joel N. Ephross because both resisted his direction. "Andy clearly surrounded himself with people he thought would be loyal to him and whom he could influence or pressure," says a high-ranking exec who participated in many of the deals. Sefton and Ephross declined to comment.

Continued at 

In the May 28, 1999 Edition of New Bookmarks, I wrote the following at 

I just want to congratulate two of my former students ( RRRRR  SSSSS, President/CEO &  XXXXX  YYYYY, Vice President/Operations) and who, along with another Trinity University graduate ( TTTTT UUUUU, Vice President/Software Engineering), formed an Internet solutions company (especially database installations) that is booming. Another one of my students, Brian Clarke, graduated in May and has now become the Chief Financial Officer. This company is so successful that it now leases some of the most expensive office space in the tallest building in San Antonio. Good work in this venture guys and congratulations on some new contracts from major companies like IBM! I found your server to be a bit slow, but the web site has helpful information. 
(The above Atension link is now defunct.)

Subsequently, on December 16, 2002, Trinity University accounting and computer science graduate,  XXXXX  YYYYY, saw his picture on Page C1 of The Wall Street Journal, but he prefers it would have been for a different reason.  The startup company referred to below was founded in San Antonio by  XXXXX and two other Trinity University graduates ( TTTTT UUUUU, and  RRRRR  SSSSS).

"Aftermath of a Market Mania: Memories of Euphoria, Despair," by E.S. Browning and I. J. Dugan, The Wall Street Journal, December 16, 2002 ---,,SB104001124869303513,00.html?mod=todays%5Fus%5Fmoneyfront%5Fhs 

 XXXXX  YYYYY shut his office door and turned on his computer to check his stock portfolio. He threw himself on the floor, rolled around and laughed wildly.

It was late 1999. He was 23 years old. He had just sold his Texas start-up company to a dot-com, and now, on paper, had become one of the young Internet millionaires he had been reading about.

Fast forward. Dennis Jacobs, a Florida contractor, is on the phone trying to reach the head of Mr.  YYYYY's company, having lost tens of thousands of dollars investing in the now-crumbling stock. When he can't get the executive on the phone, he leaves a threatening voice-mail message for which he is obliged to apologize.

What happened between that euphoria and that despair was the most wrenching bear market in stocks since the Great Depression. Close to $7 trillion has been wiped out of investors' portfolios, largely as a result of a three-year collapse in technology stocks that many investors had ridden to the top, only to lose everything. Since its peak, which followed an unprecedented run-up, the Nasdaq Composite Index has fallen 73% -- the steepest drop for any major U.S. market index since the 1930s. The Dow Jones Industrial Average is 28% off its record and the Standard & Poor's 500-stock index is off by 42%.

Not only did the boom represent all the classic signs of one of history's great manias, but it created some remarkable shifts in the way the economy and financial markets worked. Ordinary Americans took up stock investing as never before, and, often working on home computers, became the drivers of the market. Some company employees preferred stock options to a salary.

The stock market, in turn, came to dominate economic life, as soaring share prices fueled mergers and a spending boom, leaving behind a hangover of excess that will take years to work off.

[The bulk of the above article is not quoted here.  It discusses the boom and panic phases of the 1990s and is an excellent summary of stock market psychology, mania, and despair.]  

Mr.  YYYYY got a job in a company that develops software to help other companies manage employee benefits.

He is manager of product evolution, earning about $80,000 a year

Bob Jensen's threads on the recent accounting, finance, and business scandals are at 

Five Ways Financial Institutions Can Rebuild Public Trust, SmartPros, December 18, 2002 --- 

On the basis of the research, PricewaterhouseCoopers identified five ways which could help management of financial institutions to play a leadership role in the restoration of public trust:

1) The industry should lend its support to moves by regulators to formulate consistent international accounting principles. Consistent standards enable investors and underwriters to gain a clearer picture of an institution's performance. Financial institutions should use such standards in their own disclosure and demand their use from client and investee companies.

2) Financial institutions must rethink their own standards of disclosure, and especially non-financial disclosure. The survey showed that they remain wary of disclosing more than they are required to -- most internally available information is not revealed to investors. Within individual institutions, the gap between internal and external reporting practices needs to narrow.

3) Financial institutions and regulators must work together to develop Internet-based reporting standards. Harnessing the Internet's capability to improve the timeliness and relevance of reporting, particularly through the use of Extensible Business Reporting Language (XBRL), will make analysis of performance easier for everyone

4) Whenever financial institutions provide capital to companies, they should seek to strengthen standards at those companies

5) Financial institutions must do more to establish the appropriate checks and balances on their own top managers. If financial institutions are to hold other companies to the highest standards of governance through their capital-allocation activities, their own house must be in order

Source:   "The trust challenge: how the management of financial institutions can lead the rebuilding of public confidence" 
               by PricewaterhouseCoopers.

"Stock-Option Frenzy: What Went Wrong?" Matt Murray, The Wall Street Journal, December 17, 2002 ---,,SB1040087291317375553,00.html?mod=todays%5Fus%5Fmarketplace%5Fhs 
Recipients' Fixation on the Share Price, Meant as Golden Carrot, Proves Costly

Stock options were once championed by consultants, professors, investors and politicians as the ideal golden carrot -- an incentive for executives and valued employees to improve corporate performance by aligning their fortunes with those of shareholders.

And that has happened -- occasionally.

At the same time, many current corporate ills, from frequent job-hopping to outright fraud, can be traced at least in part to the proliferation of options in the 1980s and early '90s, according to regulators, investigators and even some of the beneficiaries themselves.

What went wrong?

For one thing, the option-as-carrot premise assumes that self-interest dictates prudence. Not so -- in fact, often just the opposite. "When everything you've worked for and built is at stake, when your entire ability to go through the rest of your life is at stake, there's a tendency to take extra risk," says Steven M.H. Wallman, a Securities and Exchange Commission member from 1994 to 1997.

Federal Reserve Chairman Alan Greenspan this year blamed "poorly structured" options as a major contributor to the "infectious greed" that gripped business in the 1990s. "The incentives they created overcame the good judgment of too many corporate managers," he testified before the Senate Banking Committee.

Edward F. Walsh, a compensation consultant who helped to design option plans for Campbell Soup Co. and PepsiCo Inc., recalls how options first gained currency when business was struggling in the early 1980s. The theory "was that it would be good if you walked in the same shoes as the shareholder," says Mr. Walsh, who served as Campbell's human-resources head in the mid-1980s.

Mr. Walsh believes ownership stakes underlay necessary downsizing, mergers and other corporate restructurings that took hold during the 1980s. But the churn extended too far into the 1990s, he says. "It went way too far," he says. "The whole game came around to, 'How fast can I get my money out? How am I going to get mine?' "

At the same time, options rarely received scrutiny from corporate directors -- or anyone else. "The money to be made through the appreciation of stock value was for the most part unchecked," says Jacob Frankel, a partner at Smith Gambrell & Russell LLP in Washington, who was at the SEC from 1988 to 1997 as a senior counsel in enforcement. He adds: "The absence of checks and balances, which would have been the responsibility of boards and other gatekeepers, permitted various forms of looting."

Federal tax and accounting policies, which kept options tax- and expense-free, tended to feed the frenzy. Investors' focus on company stock prices only increased, for instance, after the SEC began requiring companies to include stock-performance charts in their annual proxy filings.

In Silicon Valley, where options were a popular form of compensation for start-up technology companies, employees at first had modest expectations for their options.

"The general concept of a stock option was, 'If things go well, I'll be able to buy a house with my stock options,' because you couldn't buy a house with your salary," remembers Ken Pelowski, who received his first option grant when Intel Corp. hired him out of business school in 1987. "No one really thought about the grand-slam home runs," says Mr. Pelowski, now a 43-year-old managing director at Redpoint Ventures, a venture-capital firm in Menlo Park, Calif.

By the early 1990s, that had changed. More tech companies were going public, stock markets were rising and the economy was booming. With every report of a newly minted "Microsoft millionaire," and every increase in CEO compensation, stock ownership was trumpeted as the embodiment of classic American ideals of independence and entrepreneurship -- and a way for everyone to get rich.

Even so, the benefits were mostly limited to the upper ranks. "It's probably the case that 80%, and probably higher, of the value of all options goes to senior executives," says Corey Rosen, executive director of the nonprofit National Center for Employee Ownership in Kansas City, Mo.

As start-ups in search of talent littered the landscape with options, some people amassed unimaginable fortunes by job-hopping. Honorio Padron, a onetime NASA engineer and son of Cuban immigrants, became a millionaire thanks to option packages received while moving through executive postings at PepsiCo's restaurant unit, retailer CompUSA Inc. and energy provider Exelon Corp.

"It was fantastic, a quantum leap," says 50-year-old Mr. Padron, who is now chairman and chief executive officer of Padron Group LLC in Chicago, his own investment group. "My standard of living got totally transformed -- bigger house, wife didn't work, kids going to the best private schools in the country."

Lawyers that served growth companies grabbed pieces of hot companies they represented before their public offerings. Some firms awarded partnership stakes to young lawyers far earlier than was traditional, just to keep them from bolting. "It was a heady time," says Keith C. Wetmore, chairman of law firm Morrison & Foerster LLP. "There were greater opportunities in firms for equity participation and seemingly unending equity upside in the landscape of lawyer compensation. You felt like you were part of not only a transformation of the economy, but the law."

But as options became the currency du jour for executives, the fixation on an employer's near-term stock price grew apace, to the dismay of more cautious souls. In the late 1990s, as national sales director for McAfee Associates Inc., a Santa Clara, Calif., software company, that widely distributed options, Mark Friedberg grew disconcerted by associates' obsession with the share price. McAfee executives "were getting wildly wealthy, and became extremely aggressive with bookkeeping and accounting and managing sales channels," says Mr. Friedberg. He adds: "Inventories would come in and go out to make sales better. When you'd go to a sales meeting and the first thing the vice president does is put up a chart and says, 'The stock is at 10, it will be a 100 next year if we do this,' you'd think, 'Maybe we should do this the other way around. We should focus on engineering products, and if we have happy customers, maybe the stock will hit 100.' "

Sylvia Garcia-Lechelt, senior vice president, human resources at Network Associates Inc., which was created in 1997 when McAfee merged with Network General Co., says stock options are "foundational" to the company, widely distributed as "a way to get people engaged. There's no promise -- in fact, most people don't get wealthy just from options. Its just a little piece of the compensation picture."

Mr. Friedberg himself wasn't immune from the fixation on options. "It skewed my thinking and let me trade salary for a higher upside," he says. He left McAfee in early 2000 to take another job and today is consulting.

Mr. Friedberg's thoughts weren't widely shared at the time, to the subsequent regret of people like software executive Katrina Roche, who twice took generous options in lieu of large salaries.

Ms. Roche was hired for the first of those jobs, at Baan Co., Europe's second-largest software company, in 1998. Her new boss figured her options eventually would be worth at least $7.7 million. But the day she started work, the company announced it would miss earnings -- and the share price began a downward spiral. "There was no hope I was going to see money from those options," she says.

After several years at Baan, she joined i2 Technologies Inc. in Dallas as chief marketing officer, again receiving a large option grant. But the stock started downward soon after she joined, and Ms. Roche, a single mother of an infant son, realized that her salary alone would be insufficient to provide for her child, who today is 19 months old. She recently left i2 but hasn't forsaken options altogether. She is now president and chief operating officer of Nonstop Solutions, a closely held company with no current plans to go public, where she received options to buy a certain share in the company over time.

In a handful of cases, overreliance on expected option wealth led desperate executives to commit fraud, say law-enforcement officials and regulators. "The rapid growth of an executive-compensation shift to enormous stock options, stock grants, perks and nontraditional benefits such as off-balance sheet activities distorted the core roles of executives, their responsibility and accountability," says Brent Braun, a special agent for the Federal Bureau of Investigation in Los Angeles who has investigated white-collar fraud.

Such cases were almost inevitable, suggests Mr. Wallman, the former SEC commissioner. "We sowed the seeds and got what we sowed," he says.

But have lessons been learned? It's hard to tell. Today, even with the stock market in tumult and the benefit of hindsight, much of the options debate is focusing on technical questions, such as whether to expense them or to require executives to hold them for a certain duration.

Plenty of companies, especially in the high-tech arena, continue to favor the status quo. Expensing options "is really a red herring in the whole debate," says Piper Cole, vice president of global public policy for Sun Microsystems Inc. "People who violated the law should be punished, but I can't see any benefit in mandating a change. It's not going to make people less greedy. To do away with options, Ms. Cole says, "would hurt employees, because they won't get that kind of ownership and potential upside."

Dennis DeAndre, founder and co-chairman of LoopNet Inc., an online real-estate listing service, appreciates the value of options as incentives but thinks they are also capable of considerable harm. "They did create a lot of hope" at LoopNet, a closely held company, Mr. DeAndre says. "They fostered a very strong culture in the company, encouraged people to work endless hours. For the first time ever there did appear to be a shortcut for reaching your financial goals."

But for most, there was no shortcut. "The worst thing that happened to our company was the boom," Mr. DeAndre says. The subsequent market tumble "deflated a lot of expectations that should never have been built up to that level before," he says. "People realize now that to get financial security is a long task that will take a lot of years, and they were misled."

Big Four firm KPMG has been named as the defendant in a lawsuit filed by the Missouri Department of Insurance. The suit, filed in Jackson County Circuit Court in Kansas City, Missouri, alleges that KPMG contributed to the 1999 downfall of General American Holding Company. 

Believe it or not, while the accounting industry news from Wall Street has run the gamut from bad to horrible this year, the news from Main Street, USA is actually very encouraging. 

. . . 68 percent of small business owners say they are very satisfied with the service they receive from their CPAs (another 25 percent say they are satisfied) makes it evident that CPAs have worked hard to earn the trust of their small business clients, and translates into increased opportunity for CPAs.

Main Street accountants are obviously perceived much differently than the handful of financial professionals at the center of the maelstrom on Wall Street. Despite the Enron scandal, 88 percent of small-business owners say they have not lost confidence in their own accountants and will continue to trust them for counsel. But while CPAs have worked hard to earn the trust of their clients, small business owners must also do their part to maintain this trust and continue growth. This is why it’s also important for them to do their homework when looking for the right accountant for their business:

The optimism and confidence of small business owners is best seen in the fact that by yearend Americans will have launched approximately 575,000 new businesses that employ workers other than the owners. (Even more will hang their shingles as one-person shops.) Two-thirds of these fledgling firms will still be open for business two years down the road. Wall Street may be under a dark cloud of suspicion these days, but the American dream is alive and well on Main Street, and America’s accounting professionals are helping more people realize that dream than ever before.

December 2, 2002 message from Judge Pepple [

Dear Professor Jensen,

In skimming your online versions of outlines of your presentation concerning Enron and its lessons, I would like to point out that there seems to be missing in all of the literature the role the practice of law by accounting firms may have had in the debacles facing the accounting profession, investment fraud, and the list of companies with similar problems.

Andersen's website bragged about owning 36 law firms around the world. Of course, the intense lobbying efforts of accounting firms to own law firms has been successful around the world, except here in the U.S., where the repeated efforts to allow "multi-disciplinary practice" have thus far fallen short. Accounting firms have long wanted to own law firms, and to control the legal fees and control the clients. Accountants and lawyers have had difficulty in "controlling" clients when the clients receive contradictory advice from independent professionals, and each have resented the other. Of course, that very situation has sometimes put clients in the quandary of who to believe or whose advice to follow, when conflicted. It also, however, has helped to provide a check and balance which inures to the benefit of the client [ultimately the investor] when neither firm has total "client control."

What has amazed me is that no one has bothered to examine "Who set up the off-shore entities used by Enron to divert losses and skew the accounting reports and SEC filings?" Were the law firms owned by Andersen used to set up these entities? Are these law firms being pursued? As everyone was so worried about the shredders working in Andersen's offices, no one mentioned the shredders working in the various law firms that helped set up the various entities involved. Why?

I would invite you to follow up on the questions raised by the Enron accounting/auditing/business planning functions of Andersen, and ask similar questions about the legal functions which were engaged in setting up the entities. Examine the locations of these entities, and the law firms used. Examine the regulations of the venues concerning multi-disciplinary practice by Andersen and its wholly owned, or partially-owned law firms. Examine the personnel, their history, their transfers, and their ties with governmental officials in the various venues where these shams were located.

I would suggest that the Enron debacle goes beyond what we have heard, and that accountants have avoided the multi-disciplinary practice aspects of the debacle because the greed is still powering and driving the attempts by the accounting industry to "link" the accounting function and the legal function. In an era that has seen Andersen forfeit its "linking" of the auditing function with other business planning and accounting functions, it is amazing that the "linking" of the legal function with the various accounting functions have flown under the radar of the debate. Why???

Thank you for your time and consideration. Any remarks you may have would be of interest to me, as I have long believed that the independence of the legal and accounting practices is essential for avoiding conflicts and maintaining integrity in the financial and legal arenas.

Judge Fred Pepple Auglaize County Court of Common Pleas Wapakoneta, Ohio

P.S.--By the way, I toured Trinity University in San Antonio with our son who chose to attend Case Western Reserve University instead, but Dr. Mahbub Uddin gave us a very interesting tour in 1998.

My advice to Judge Pepple is to carefully study the document at 

From The Wall Street Journal Accounting Educators' Reviews on December 13, 2002

TITLE: Lawmakers Toughen Rules, but Toughness Can't Be Legislated 
REPORTER: Jonathan Weil and Dennis Berman 
DATE: Dec 09, 2002 
TOPICS: Audit Committee, Accounting, Accounting Fraud, Auditing, Corporate Governance, Financial Accounting, Fraudulent Financial Reporting, Sarbanes-Oxley Act

SUMMARY: In response to recent accounting scandals, the Sarbanes-Oxley Act alters the requirements for corporate audit committees. Questions address the role of the audit committee in financial reporting and the likely impact of the recent changes.

1.) Explain the role of an audit committee. In what situations do companies benefit from maintaining an audit committee? What companies are required to have an audit committee?

2.) What changes related to audit committees are required under the Sarbanes-Oxley Act? Discuss the advantages and disadvantages of the required changes.

3.) Discuss the lessons that are presented in the article. Do the changes mandated by the Sarbanes-Oxley Act ensure that future audit committees do not repeat these mistakes? Support your answer. What, if any, additional changes do you propose?

4.) How do the changes in audit committee responsibilities impact the auditing profession?

5.) Refer to the related article. What is a financial expert? Discuss the importance of financial expertise for audit committee members.

Reviewed By: Judy Beckman, University of Rhode Island 
Reviewed By: Benson Wier, Virginia Commonwealth University 
Reviewed By: Kimberly Dunn, Florida Atlantic University

TITLE: Defining Moment for SEC: Who's a Financial Expert? 
REPORTER: Cassell Bryan-Low 
ISSUE: Dec 09, 2002 

Program professors can search past editions of Educators' Reviews at  
Go to the Educators' Review section and click on "Search the Database." You can also change your discipline selection or remove yourself from the mailing list.

Stephen Cutler, Director of SEC's Enforcement Division, warned accounting firms of tougher penalties ahead for audit failures. He also provided practical advice on how to avoid the penalties. 

"Year of the Whistleblower:  The personal costs are high, but a new law protects truth-tellers as never," Business Week, December 16, 2002 --- 

When Martin L. Grass, the former Rite Aid Corp. (RAD ) chairman and CEO, was indicted in late June along with three other company managers, prosecutors tipped their hats to Joe Speaker--a little-known executive at the drugstore chain. Soon after becoming acting chief financial officer at Rite Aid in 1999, Speaker uncovered numerous errors in the company's accounts. He told Grass that the problems were serious enough to require a major restatement but feared the CEO would brush them aside. At the time, the Camp Hill (Pa.) company desperately needed to raise capital to pay debt from an acquisition spree. Grass was pleading with banks to extend a line of credit while trying to persuade the Securities & Exchange Commission to stop holding up a share offering. 

What the then 40-year-old Speaker did next went beyond the call of duty. He contacted and personally hired Ralph C. Ferrara, a former SEC general counsel recommended by his brother Pete, a lawyer. Ferrara arranged a private meeting with Rite Aid's audit committee, led by Loews Corp. (LTR ) Co-Chairman Preston R. Tisch. Days later, the brothers drove to a secret Manhattan meeting.

Over the next several hours, the acting CFO nervously relayed an incredible story of accounting chicanery. Inventories had been overvalued, bills were being paid out of reserves set aside to close stores, and millions in expenses had not been properly booked. According to one person present, he warned: "I'm in over my head." Stunned, Tisch and other board members, including former Primerica Corp. Chairman Gerald Tsai Jr. and Hartz Group Inc. Chairman Leonard N. Stern, authorized him to hire whatever help he needed to dig into Rite Aid's books. In the end, $541 million in earnings over the previous nine quarters became $1.6 billion in losses.

Speaker will be a main government witness when Grass and three lieutenants go on trial early next year. All four have pleaded not guilty. A Rite Aid spokeswoman declines to comment. Speaker, son of a former Pennsylvania attorney general, also won't discuss his role in stopping what prosecutors say was one of the most audacious capers in corporate history. "Joe is an ordinary man who was put in an extraordinary position," says his lawyer, Philip S. Khinda. "And he responded in just the way we all hope we would."

This year, dozens of ordinary people have been put in extraordinary positions throughout Corporate America, and like Joe Speaker, they blew the whistle. Some are now familiar names, such as Enron Corp.'s Sherron S. Watkins (page 110) and WorldCom Inc.'s Cynthia Cooper. But most are middle managers who want to avoid the limelight. Behind the scenes, they have all played a critical role in providing enforcers with virtual road maps around complex accounting maneuvers. "Whistleblowers give us an insider's perspective," says Linda Chatman Thomsen, the SEC's deputy director for enforcement, "and have advanced our investigations immeasurably."

Continued at  

Bob Jensen's threads on whistle blowing are at 

In its comment letter on proposed Regulation G, the American Institute of CPAs asked the SEC to clarify the unaudited nature of pro forma data and reconciliations. 


The comment letter is available at 

According to a report in the Financial Times, PwC is warning audit clients of higher fees, greater client selectivity and other steps PricewaterhouseCoopers is taking in response to the Sarbanes-Oxley Act. 

PwC's CEO Samuel DiPiazza has indicated:

Mr. DiPiazza told the Financial Times: "If we have an audit client unwilling to pay what we feel are fair audit fees or that restricts our scope of services to the point where we are concerned about the quality of that audit - either of those can cause us to walk away from the relationship. I think that is going to happen."

The FT explains the steps are a business reaction to the loss of lucrative non-audit work, such as tax planning, from audit clients. The foregone revenues from this type of work will make it harder for PwC and other audit firms to offer significant discounts to audit clients based on the range of services provided.

Continued at  

Forwarded by Miklos on December 12, 2002

Bristol-Myers Dn 4%:WSJ Says Co Used Creative Accounting 
DOW JONES NEWSWIRES By Hollister H. Hovey Of DOW JONES NEWSWIRESNEW YORK -- Shares of Bristol-Myers Squibb Co. (BMY) were down Thursday after a report in The Wall Street Journal said the company had been using creative accounting to bolster its profits. Bristol-Myers officials have denied the accusations to the newspaper but were unavailable to comment to Dow Jones Newswires.The company has admitted it manipulated the inventories of its drugs to skew financial results in 2001. However, in the Journal article more than two dozen former and current executives described questionable financial wrangling that went beyond channel stuffing. Those moves included dipping into restructuring reserves to bolster operating profits; making repeated asset sales - small enough to escape disclosure - that boosted operating profits; and taking an excessive research write-off after an acquisition. Gerard Klauer Mattison analyst Larry Smith thinks these issues were already being discussed on the Street. "We think that most of these allegations made in this article are correct," he said in a Thursday note. "However, there was nothing in the article that comes as a surprise. These issues have been widely discussed and played a prominent role in the stock's precipitous drop from the high forties to a low of $19 over the past year."Smith isn't a Bristol-Myers share holder and Gerard Klauer has no investment banking relationship with the company. The 144-year old drug maker is facing slow sales of its current stock of drugs and does not have many big potential blockbusters hitting the market soon. It's in the midst of restating two years of its financial reports as a result of stuffing as much as $2 billion worth of drugs onto distributors' shelves to pump up sales during most of 2001. Shares are down almost 50% this year after hitting a year-high of $53.51 on Dec. 26. By July 11, the stock was down to $19.49. Shares are currently trading down 6.4% to $25.41 on volume of 6 million compared with average daily volume of 6.9 million.Most of the accounts cited in The Wall Street Journal article "are conjecture and at this time we have no real way of confirming or denying these allegations," Banc of America Securities analyst Scott Kay wrote in a Thursday research note.He maintains his market performer rating due to the uncertainty that the company's earnings and revenue restatement might bring, his cautious stance on management and the $2.5 billion or more in upcoming patent expirations through 2006.Banc of America has no investment banking relationship with Bristol-Myers and Kay owns no shares.The analyst is enthusiastic about the recent launch of schizophrenia drug Abilify, which Bristol co-markets with Japan's Otsuka Pharmaceutical Co. But with Bristol receiving only 27% of the alliance's revenue, he doesn't believe the revenue from Abilify will be able to solve the overall operational concerns he has with the company, he said.

From The Wall Street Journal Accounting Educators' Reviews on December 13, 2002

TITLE: International Body to Suggest Tighter Merger Accounting 
REPORTER: Silvia Ascarelli and Cassell Bryan-Low 
DATE: Dec 05, 2002 
TOPICS: Advanced Financial Accounting, Financial Accounting, Financial Statement Analysis, Goodwill, International Accounting, International Accounting Standards Board, Restructuring

SUMMARY: The International Accounting Standards Board (IASB) is proposing a new standard for business combination accounting. The proposal prescribes accounting treatment that is more stringent than U.S. standards. For example, it disallows recording restructuring charges at the outset of a business combination; such charges must simply be recorded as incurred.

1.) Compare and contrast the standard for business combinations proposed by the IASB to the current U.S. standard. To investigate these differences directly from the source, access the IASB's web site at

2.) Why are U.S. companies expected to be concerned about recording restructuring charges as they are incurred in the process of implementing a business combination, rather than when these anticipated costs are identified at the outset of a business combination? Do these two accounting treatments result in differing amounts of expense being recorded for these restructuring charges? Will such U.S. companies be required to report according to this IAS, assuming it is implemented?

3.) How are the goodwill disclosures proposed in the IAS expected to help financial statement analysis?

4.) How are European companies expected to be impacted by this proposed IAS and future proposals currently planned in this area of accounting for business combinations? Provide your answer by considering not only the article under this review, but also by again accessing the IASB's web site referenced above.

Reviewed By: Judy Beckman, University of Rhode Island 
Reviewed By: Benson Wier, Virginia Commonwealth University 
Reviewed By: Kimberly Dunn, Florida Atlantic University

Program professors can search past editions of Educators' Reviews at  
Go to the Educators' Review section and click on "Search the Database." You can also change your discipline selection or remove yourself from the mailing list.

Bob Jensen's threads on accounting theory are at 

Companies will have to place intangible assets, such as customer lists and customer back orders, in their financial statements, under proposals released last week by the International Accounting Standards Board --- 

Bob Jensen's threads on accounting for intangibles are at 

Facing a shrinking budget and limited resources, the IRS is using every available resource it has to catch tax cheats, which outgoing Chairman Charles Rossotti identifies as the biggest problem facing the IRS today. Random audits are back after a 14-year hiatus, and the IRS is using the long arm of the law to prosecute legitimate promoters of questionable tax shelters, forcing credit card companies to assist in identifying offshore havens for tax cheats, and utilizing aspects of the new Homeland Security bill to identify those individuals and corporations who are abusing the system to shelter, hide, or otherwise cheat the US government out of the taxes it is due. View more information on this topic at 

New Ideas from Todd Boyle
Accounting Hypercubes on the Internet --- 

Transaction systems are gradually, and very cautiously, being interconnected via the internet. In 2002 the country is busy rolling out bill presentment and payment, integration to online storefronts, web-based business services, and all manner of B2B and supply chain connections.

Clearly, in the future, our transaction infrastructure will be better evolved both in internal information management, and its communications. It will become effortless for individuals and small companies, to remit funds, send invoices, order goods, etc. with browsers or network devices.

The emergence of internet payments technologies and high-powered accounting hosts on the internet has been sudden. It may take a decade or more for large numbers of individuals to wake up to the potentials. Some of the most explosive potentials are already possible, today.

The online payments and accounting infrastructure enables individuals, for the first time, the creation of partnership accounting systems that are capable of operating mostly automatically, with feedback to the participants in real time.

These would enable individuals (or companies) to participate in collaborative ventures of arbitrary complexity by enabling allocations of revenue they helped to generate, or in allocations of costs or cost pools from which they have drawn resources by their activities.  There is nothing preventing this from being realized. 

Millions of people are familiar with, shared calendars such as  Yahoo Calendars on internet. Many are aware of other collaboration platforms like Groove, or services like E-room or or open source communities/portals, which enable shared discussion and files as well as calendars. (There are hundreds of project and collaboration websites equally as good for particular needs.) 

Now, imagine these with a powerful accounting hypercube beneath, where you could view every cent of every transaction of the venture, and the way it was allocated to members. Imagine these with realtime facilities that give you the power, every day, to control and limit your exposure:

Todd also has some radical proposals for public access to what is now considered private insider information --- 

Petition for a Change of Leadership in the AICPA --- 

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: