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The Business and Accounting Advisor

Business survivability in this economy is difficult at best. This blog will offer useful business and accounting advise and ideas for ongoing business and competitive advantage.

OH NO, we made a mistake.

May 17th, 2013 at 12:23 pm by glennsmith
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OH MY GOD, we have done something wrong.

I have to laugh with people who look at a number of groups of people and think oh these people must be perfect. The groups include, pastors, politicians, surgeons, air traffic controllers, and so many more. The problem is people are NOT PERFECT nor will they ever be. We look at children and expect them to make mistakes but we look at those individuals who take the position of leadership and demand infallibility from them. How strange we are. So what happens when these people do make mistakes? Hopefully the redundant systems keep these mistakes from costing lives. As far back as the 70’s Aviziens (1976) argued redundant systems don’t work.

I love reading in the Voice of the Valley Chuck Hardaway’s writing. I especially like his title. Whomever came up with that title was brilliant, “One man’s opinion.” An opinion is not right or wrong. An opinion is simply what one person believes and shares. You know something interesting about that? Opinions change. There is nothing wrong with being wrong. Most people will be from time to time and should that stop us from exploring or advancing? I do not believe it should.

Lately, I have enjoyed greatly writing and reading editorials. I like sharing my “opinion” through the marvelous invention of writing. Yes it was an invention at one point thousands of years ago and we don’t always get it right. Sometimes our “opinions” are just wrong. Now don’t get me wrong. I still stand by my opinions and believe them to be correct. I still think Maple Valley made mistakes in deciding upon how to handle the legal situations and not thinking through the problems of firing the lawyer we had before we had and I made comment on an article that had already been written. I wrote about Maple Valley not having legal representation because someone else had written the article.

I also wrote lately that some people throughout the world think of the United States as a bully. This is a fact, deal with it. I personally lean to the conservative side and even fancy myself a near republican independent. This is also an “opinion.”   How interesting that some people would argue that people who not have an opinion and share it. These same people are just like those that told Columbus He should not go into sailing, George Washington, that independence was not worth fighting for, and Jesus that he should just keep His mouth shut. Jesus, however, I believe (my opinion is) never made a mistake. Then again He had an inside knowledge base that was better than our own. Likely this is why we call Him Lord and Savior.

It is interesting how many people do not believe people should make mistakes. Not only should they make mistakes but Schoemaker and Gunther (2006) argued some forward thinking companies advanced their companies bottom lines by deliberately making mistakes. I encourage my students in school to deliberately make mistakes and when they don’t know a question on a test guess. The worst thing that can happen is you will be wrong. The best thing that might happen is you may learn something. Oh no. Learn? Yes! Learn! That’s what we do. Even teachers learn.

So what do we do when people make mistakes? Most of us condemn them and say they should never do another thing and should go hide their heads in shame and be dismissed from the job they are doing. I say they should learn and continue so they don’t make the same mistake next time. For those people who would condemn people for making mistakes I simply say, think again. It’s ok to make mistakes and share your opinion. Even when people disagree with you go ahead and make them. For those who hold jobs where mistakes can be costly I say make sure your redundant systems are operating so these mistakes don’t cost people’s lives.


Aviziens, A. (1976). Fault-tolerant systems. Computers, IEEE Transactions on, 100(12), 1304-1312.


Schoemaker, P. J. H., & Gunther, R. E. (2006). The wisdom of deliberate mistakes. . Harvard Business Review, 84(6), 108-115.



Money can prolong life.

February 10th, 2013 at 5:36 pm by glennsmith
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Quite recently my admired colleague Chuck Hardaway, a man deserving respect in the community wrote an interesting article regarding wealth not assuring health.  This last summer I asked him if he would write on something I could write an opposing viewpoint for. The only problem is 99 percent of what he writes I am in solid agreement with. This time, however, he has come through for me Chuck, wealth does too assure health.

In this wonderful article of health Chuck argued, “the latest comprehensive study puts us last in health compared to other prosperous nations.” This may be true but here is the catch Chuck. Those individuals with money can afford to travel to other parts of the world to seek better health treatment than those of us without. Not too long ago I knew a man who traveled once per year, more often when necessary, for medical checkups in other nations. Do we really think someone without the wealth to conduct such activities have a truly fair medical system in this country?

Again, in the next paragraph, Chuck argued, “our nation’s health disadvantages don’t apply just to our minorities.” The counter argument to this of course is seen in the General Social Survey of the United States which directly proves in both the 2008 and 2010 study minorities have a greater difficulty finding and achieving the same work and pay advantages as white males and females. Many authors addressed this situation in peer reviewed research articles demonstrating the proof that both women and racial minorities are less likely to be promoted than white males counterparts (Carnes & Radojevich-Kelley, 2011; Pendakur, Pendakur, & Woodcock, 2008; Yap & Konrad, 2009).

Chuck did state one thing we do agree on. Our nation’s health disadvantages are not a product of a single political party but the nature of the way we as American’s choose to live. Perhaps it is in part the adventure we have chosen. Perhaps it is the high life society Americans choose to partake in. We have an individual freedom in the United States that does not exist in most parts of the world. This is both good and bad because we use it to bring freedom to other parts of the world but we also use it to further greed in what we can have ourselves, over what we share with other individuals around us. The United States is one of the greatest nations for economic fruition of other nations but we have stopped taking care of our own people. We are selfish when it comes to our own people. Perhaps our giving financial supports to enemies such as those that turn terrorist activities toward our own nation could stop in favor of bringing comprehensive health reform to the country we actually live within.

Wealth may not assure health but it can assure a better opportunity to afford health care. Money can bring an individual to places where better doctor exist. Does anyone really believe that if a man with unlimited wealth and a poor man both need a heart transplant the poor one will have the same chance for an operation?

In the end, Mr. Hardaway and I agree it will be interesting to see if and when our country wakes up and starts supporting its own people. While we in the United States have one of the richest economies, if not the richest, we have an obscenely high poverty rate. As Chuck stated, “emotional greed, special interests, and politics must sit in the dugout” if we intend to win the international game. Make no mistake; this is a commodities and wealth war. We are engaged in a competitive struggle with international players in ways we have never seen in any other time throughout history. We must win and we must change how we play if we hope to succeed and not end up the next, soon to be, Greece.


Carnes, W. J., & Radojevich-Kelley, N. (2011). THE EFFECTS OF THE GLASS CEILING ON WOMEN IN THE WORKFORCE: WHERE ARE THEY AND WHERE ARE THEY GOING? [Article]. Review of Management Innovation & Creativity, 4(10), 70-79.

Pendakur, K., Pendakur, R., & Woodcock, S. D. (2008). A Representation Index: Measuring the Representation of Minorities in the Income Distribution. [Article]. B.E. Journal of Economic Analysis & Policy: Advances in Economic Analysis & Policy, 8(1), 1-19.

Yap, M., & Konrad, A. M. (2009). Gender and Racial Differentials in Promotions: Is There a Sticky Floor, a Mid-Level Bottleneck, or a Glass Ceiling? [Article]. Diferenciales de género y de raza en las promociones: ¿existe un piso pegajoso, un cuello de botella de nivel medio o un techo de vidrio?, 64(4), 593-619.


The future of accounting research and education.

December 11th, 2012 at 1:25 am by glennsmith
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The future of accounting research is huge and as diverse as the organizations that use accounting knowledge. The reason I originally went into accounting 10 years ago was that no matter the economy everyone will always use accounting and accountants will always have work to do. In growing economies, organizations desire accountants to tell them how to invest their excess monetary funds. In shrinking economies organizations desire accountants to tell them how to cut costs. One thing I am sure of is the growing international market place equates to accounting theory extending into the worldwide marketplace to a much greater degree.


There is a large debate proceeding regarding the future of accounting research. Baxter, Boedker, and Chua (2008) argued strong changes are coming to interpretive accounting research. This accounting research is many times met with or examined by qualitative research. The networks of collective knowledge in accounting are growing and changing.


Accounting research is becoming decentralized and moving out among dispersed networks of connective knowledge. Armstrong (2008) argued interpretive accounting theory operates as an alternative to positivistic theory. Many authors contribute heavily and believe that positivistic theory holds the future of accounting research.


Many authors produce clearly empirical research in accounting. Merchant (2010) argued the top “A-level” accounting journals publish these predominantly empirical tests motivating researchers to conduct certain types of research including SSCI citations. This stark concentration of one type of research is closing the door to many important research areas and squeezing out topic, discipline, and research according to Merchant. Accounting, organization, and society in management accounting hold large concentration of research while various research topics, such as financial accounting research shows considerable lack of research. Merchant concludes that other types of research than empirical tests are starved from the top ranking journals. This lack of research is affecting the tenure of faculty members who become marginalized if they do not produce empirical research. While there is enough material to continue to publish empirical articles the gaps are quickly hurting knowledge management in the accounting discipline and the future is in question.

Many dissertations, peer-reviewed journal articles, and top rated A-level articles are continuously published but it will take brave publishers and researchers to conduct research in areas fought against to maintain a steady stream of diverse accounting knowledge management. It is not a new fact or understanding that accounting knowledge management holds steady importance in research. Teece (1998) argued in the 90s scholarly inquiry should maintain a sensitivity toward preserving and building significant literature in “technology management, entrepreneurship, innovation and business strategy.” As firms grow and change in the quickly advancing competitive market of the global marketplace research must follow to support this development. It will take strong institutions of higher education such as the University of Phoenix to support and foster researchers willing to do the work needed for organizational development. It might surprise some people to see this universities as visionary but it has held vision that others turned cold toward and missed opportunities. Online education holds a place in global education when students who otherwise could not attend school can partake in classes over e-learning modalities. I am strong believer in blended learning and while some schools teach accounting in strictly face-to-face mediums others follow strictly e-learning methods. Capella has offered a blended learning modality that offers a new and fresh idea for accounting training that will change the face of worldwide education.


Great changes are coming and I for one look forward to the future.


Warmest regards,


Glenn Smith






Armstrong, P. (2008). Calling out for more: Comment on the future of interpretive accounting research. Critical Perspectives on Accounting, 19(6), 867-879. doi:


Baxter, J., Boedker, C., & Chua, W. F. (2008). The future(s) of interpretive accounting research—A polyphonic response from beyond the metropolis. Critical Perspectives on Accounting, 19(6), 880-886. doi:


Merchant, K. A. (2010). Paradigms in accounting research: A view from North America. Management Accounting Research, 21(2), 116-120. doi:


Teece, D. (1998). Research Directions for Knowledge Management. California Management Review, 40(3), 289-292.



Do Companies Really Learn?

July 3rd, 2012 at 2:22 am by glennsmith
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This is an interesting question and I believe we can learn the answer from one particular fraud case ZZZZ Best and Barry Minkow. Barry committed fraud 20 – 30 years ago. He went to jail for 7 years came out and made a fortune from catching fraud. Did he learn his lesson? His current residence is the federal prison system. I guess we have the answer to your question. Business is about making money and greedy business leaders will do so at the cost of whatever it takes. Hopefully there are other business leaders out there we can learn from.


Introduction to the ZZZZ Best Fraud Case and Barry Minkow:

ZZZZ Best is an accounting cases instructors use the most to teach aspiring accountants the importance of forensic accounting and fraud investigation. Barry Minkow started ZZZZ Best in his sophomore year in high-school in his parent’s garage with four phone lines and three employees. Unfortunately, business pressures, unpaid bills, and inadequate age to run a business created a shift in Minkow from a young entrepreneur to a young fraud perpetrator. People have a lack of desire to see fraud in young entrepreneurs. Stice, Albrecht, and Brown (1991) argue that during this fraudulent activity very few saw or wanted to see that the company ZZZZ Best was in trouble but study of this case can help both management and accountants prevent future fraud.

Within five years of starting operation Barry Minkow with the help of Tom Padgett turned ZZZZ Best Carpet Cleaning Company to ZZZZ Best building restoration shell-company. The reason it was a shell company is Minkow and his employees never performed any building restorations. Minkow rented a downtown office building, paid security guards $50 to recognize them as they walked in and built a virtual Hollywood set to fool auditors inspections. He also borrowed letterhead and forged signatures. Minkow built the entire building restoration business on a farce.

Barry Minkow became one of the youngest business success stories from a company he started at the age of 13. Within five years he took ZZZZ Best public. Minkow built ZZZZ Best on lies. By the age of 20 Minkow was in court on fraud charges. Minkow received a sentence of 25 years in federal prison for fraud. Understanding Barry Minkow is important to develop an understanding of why fraud took place (Wells 2001).

Unfortunately, like many crimes perpetrators the fraud triangle was not broken in his life. In 2001 Minkow once again returned to crime committing fraud. Whelan (2011) argued that this last guilty plea was Mr. Minkows latest fall in an up and down financial career.


The nature and extent of the ZZZZ fraud case

The nature and extent of the ZZZZ fraud case includes check kiting, loan fraud, bribery, and fictitious record keeping. Trusts taken advantage of in this case include shareholders, accountants, and investment bankers. Additionally elements involved in the environment of this case include phone loan files, phony check registers, phony general journals, and phony accounts receivable invoices. Naff (1994) argues the ZZZZ Best fraud case raised and spent about $50 million with between $100 and $150 million traded on the stockmarket.

Understanding ZZZZ Best and its chief perpetrator Mr. Minkow assists future stakeholders understandings. Fraud of this nature is not a one-time occurrence. Steinberg (2011) argues Minkow and other cases, such as this demonstrate the reason investors should hold upper-level management to a higher integrity level.


The organization and environment surrounding the ZZZZ Best fraud case.

The environment surrounding the ZZZZ Best case was one of youth entrepreneurship. Gite (1990) argued that young entrepreneurs are increasing rapidly, and the world is looking at these children as if they are the heroes of the hour. At the time of ZZZZ Best this was true. This has not seen any decrease. Investor expectations placed extreme pressure on Minkow to perform.

Kanberg (1995) argues that the environment surrounding the ZZZZ Best was perfect for young genius Barry Minkow to generating publicity and instill confidence in investors. Minkow was a young man with a dream of financial and entrepreneurial success. Dorminey, Fleming, Kranacher, and Riley (2010) argued money, ego, and entitlement were three contributing factors to the ZZZZ Best fraud perpetration.

These and many other factors surrounded the ZZZZ Best fraud case. Minkow must have had his ego boosted when auditors allowed ingratiation to stir their decisions. Robertson (2010) argued auditors results vary because of factors, such as ingratiation. Ingratiation may feed ego and ego may have factored into the fraud case.

An examination of the fraud triangle links the three elements existed as the building block of this fraud. Kranacher, Riley, Jr. and Wells (2011) argued the fraud triangle includes perceived opportunity, rationalization, and perceived pressure. Minkow faced overwhelming pressure, opportunity, and rationalized his youth.

ZZZZ Best was heralded on tv and Radio including shows such as Oprah as the young star. This pressure to perform was overwhelming. The same pressure exists in the ministry. Many people look at the ministry as a place where failure is taboo. Osborne Jr (1987) argued most failures are never heard about. ZZZZ Best and Minkow was not only heard about but a topic of conversation from the day he opened a successful business. Minkow rationalized the white-collar crime he committed by believing it was up to him to rescue his failing business. Zeff (2003) argued Minkow embarrassed the accounting professionals of his day. The embarrassment included Ernst and Young or Earnst and Whinny as the company was called in the 80’s. Many regulators of banking and finance practice the same sort of deception. If they are doing it, the rational following might seem to ask, why everyone else should not attempt this deception. Minkow fell susceptible to this rationale. The opportunity to use the press granted by success of youth was the third and closing argument in the environmental case to commit fraud.


The fraud methodologies used to carry out the ZZZZ Best Fraud Case.

Minkow employed numerous methodologies and elements to perpetrate this fraud. These included accounts receivable fraud, check kiting, loan fraud, bribery, fictitious record keeping, broken trusts, phone loan files, phony check registers, and phony general journals. Perhaps the worst of these was the embezzlement of millions of dollars for fancy sport cars and high living.

Minkow admits after his jail period and although he fought against fraud that accounts receivable fraud was to his benefit because it increases profits while explaining an absence of cash.  Wells (2001) argued that CPA’s need to understand both the method and motivations of fraudulent chief executives. Understanding Accounts Receivable is important in the Minkow case. When perpetrators make purposeful attempts to book income not expected to occur, they commit fraud. Wells argued perpetrators cannot commit financial statement fraud by accident.

Check kiting was one type of fraud perpetrated in the ZZZZ Best case. Reilly (2003) argued check kiting exists when a bank customer take advantage of check collection systems through timing deposits and withdrawals. Banks that allow payments on uncollected funds run the risk of perpetrators of check kiting frauds. Frauds perpetrated in the ZZZZ Best case included check kiting. Pressly (1996) argued Minkow paid for his check kiting schemes with stolen jewelry from his grandmother and staging phony break-ins to create false insurance fraud claims. These were only the beginning of the fraud involved in this case. Through broken promises, phony loan files, fictitious record keeping, and running a shell company Minkow stole millions from investors.


Internal controls violated in the case.

Examining the success of internal controls to perform as expected is a major responsibilities of auditors. The auditors failed dismally in the ZZZZ Best fraud case. Enofe (2010) argued the definition of internal control is the process management places in the company to safeguard assets from theft, misappropriation, and abuse. That the chief executive officer of this ZZZZ Best case was the chief perpetrator included his overlooking the internal controls. These controls at times were simply ignored.

A thorough audit of all ZZZZ Best company operations would have disclosed the fraudulent activity taking place. Barry Minkow was a mastermind manipulator and double dealer. He was successfully able to redirect auditor attention. Minkow kept auditors attention on the legitimate side of the business while redirecting their attention away from the fraudulent building restoration scheme. Minkow admitted to going as far as getting to know the auditors spouses to enable the blackmailing of the spouses into granting positive audits. The financial statements contained errors that auditors would catch under a diligent audit (S 2010).

The questions abound of what the auditor missed in the ZZZZ Best case. Zeune (1996) argued auditors must examine and assess management responsibility, ability, pressure, style, and attitude regarding internal controls. Professionals simply ignored many internal controls. These included falsified general journal entries, undocumented records, and falsely documented sales to non-existent customers.

The auditors for the ZZZZ Best case that signed off on the audit were found not liable for their part of this fraud. Without their help this fraud may not have happened. Sohr, Lifson, Manisero, and Rosario (2009) argue that in similar cases CPA’s risk liability exposure. The one thing that saved ZZZZ Best from further damage from reliance by third parties was the refusal of the organization to issue a clean audit statement.  Baliga (1991) argued that ZZZZ Best only received a review letter from Ernst and Young not an audit report.


Violations of tax, regulatory, and corporate law. Nature and consequences of the violations.

The corporate law violations that took place with ZZZZ Best are numerous. Blanchini (1997) explains that material misrepresentation like that found in the ZZZZ Best case are important because a clear distinction of responsibility is set up. Determinations of parties’ guilt can include accountants, lawyers, and even management, and even congress (Turner 2006).

The courts convicted Barry Minkow on 54 counts, including racketeering, securities fraud, laundering money, embezzlement, mail fraud, tax evasion, and bank fraud. When an individual choose to invest money into a business the investor is placing trust in the management and executives of the company to act honestly and in their best interest. This does not always happen and opens the door to various crimes, including embezzlement. Pressman (1998) argued this is exactly what occurred in the case of Barry Minkow. Minkow took the investors money and instead of putting it to work in the business spent it on sports cars, women, and partying.

The consequences of this case are severe. First, because this paper is written for the benefit of Ernst and Young it is important to note that this case damaged both the credibility and reliability of Ernst and Young. The company was fortunate to have issued a review instead of a positive audit. Ernst and Young escaped serious repercussions had the auditors granted a positive audit letter. There were things missed that auditors should have identified.  Ernst and Young must correct these mistakes in future audits. The SEC enacted Sarbanes Oxley laws to benefit the investors in companies but this does not remove the requirement for auditors to practice due diligence.

Mr. Minkow received sentencing on 57 criminal counts and a prison term of 25 years. In the end Minkow served seven before parole. He then went to work on behalf of the investors catching other fraud cases. His actions are questionable as he returned to prison and resides there today. He was not the only person sentenced to prison for the ZZZZ Best case. Akst (1987) argued four other defendants received legal punishment including Thomas Padgett who received payment from Minkow for restoration jobs that never happened and Mark Morze. Morze aided Minkow in committing these crimes. In total the courts charged eleven individuals with wrong doing in this case.

Barry Minkow was charged with and convicted for tax fraud. Wells (1993) argued when Minkow needed to pay investors he went to the bank with fake tax returns and fake financial statements to gain bank loans. The bankers did not verify the facts of the tax returns. This opened the door for the fraud to continue.


Fraud participants.

The participants in the ZZZZ Best Fraud case include both primary and secondary parties. The primary parties include Barry Minkow and his partner Mark Morze, in ZZZZ Best. The secondary parties to this fraud case include accountants, lawyers, and bankers. Backer (2003) argues each of these parties have a responsibility to the public to provide investor protection.  Ernst and Young were found not liable for actions in this case but involvement occurred and items were missed.

The courts charged eleven other participants with crimes involved in this massive ponzi scheme. (Dingle 1988) argued cases, such as ZZZZ Best, demonstrates that the accounting audit community cannot afford to tolerate failure to meet the public’s expectations in regard to audits. The audit team after discovering the ZZZZ Best fraud resigned without telling anyone about the ongoing fraud.

Bankers should have verified tax returns and financial statements before approving high-risk loans for Minkow. Bankers could have but did not verify facts behind faked tax returns and financial papers. Wells (1993) argued these faked documents were part of the fraud perpetration. With credit stretched to the limit banks still granted him loans. Wells continued to argue that Minkow played on the competitive nature of the accounting business by telling the (independent) auditors he could always go to another accounting company to get the work needed completed.


The investigative, regulatory or audit participants and the role they played in the fraud or subsequent investigations.

Accounting faculty used the ZZZZ Best case to instruct courses in forensic accounting for the last two decades. Scholars termed this the fraud of the century. Regulatory rules, procedures, and laws, such as the Sarbanes Oxley Act, have resulted from this case and others. Siegel, Franz, and O’Shaughnessy (2010) argued cases, such as ESM Government Securities, and ZZZZ Best, resulted in congressional hearings on the accounting profession. The American Institute of Certified Public Acountants, the Institute of Management Accountants, the Institute of Internal Auditors, the Financial Executive Institute, and the American Accounting Association examined fraudulent reporting citing the ZZZZ Best case among others.

Minkow himself faulted the auditors, bankers, lawyers, and investors in this case. These parties were too trusting. There is some validity in caveat emptor. The saying fool me once shame on you, fool me twice shame on me become relevant with Minkows latest criminal activity. Wells (1993) argued the fraud was not discovered by auditors, bankers or lawyers but by a diligent housewife defrauded of money. Auditors, audit firms, and audit firm management need to develop procedures to ensure investor protection so they are the first to find fraud not the last left holding the bag.


Board of directors actions that could have made a difference. Subsequent actions that could take place to prevent similar occurrence.

When the CEO of a company as small as ZZZZ Best turns to fraud it is difficult to for the board of directors to stop the fraud. Ernst and Young at the time could have performed better audits and certainly could have informed officials of suspected fraud. Instead Ernst and Young simply walked away from ZZZZ Best without reporting anything. Over the last two decades the accounting instructors use the ZZZZ Best case heavily in accounting classes and schools to demonstrate changes in the profession to prevent similar occurrence. Wells (2004) argued the public is crying out for changes in investor safety.

One things Ernst and Young needs to do is invest in the quality of audits. Wells (2004) argues Ernst and Young must examine past and current forensic accounting practices and critical thinking exercises. Many experts believe internal control can prevent fraud. Wells argued this is fiction. Fraud still occurs even in the best internal control environments. Internal controls can play a vital role in deterrence but management and investors need to consider these as deterrents not guarantees against fraud.  Wells offers a partial list of factors affecting occupational fraud. Simply going by this list certain items avail themselves to deterring fraud. These include possessing and maintaining a dedication toward better internal controls, having, and maintaining an organizational desire for integrity, and commitment to an organizational value system. The ZZZZ Best case demonstrates how the pressure to show and maintain a profit risks the temptation of fraudulent reporting. Ensuring maximizing shareholder wealth is not the only priority is useful to deterring fraud. Swiftness and severity of fraud punishment assists organizations in deterring fraud.  Maintaining a sensitivity to negative peer pressure for Ernst and Young’s top directors to the lowest employees can assist in better performance of audits. Reward systems for ethical behavior can help any organization and ensuring proper organizational culture and dynamics is essential.

Audit firms cannot prevent fraud completely, even though the public expects auditor firms to do so. Adopting a more holistic approach to fraud deterrence is a healthy start toward better organizational performance. Maintaining a list of best practices assists in fraud deterrence. Ernst and Young should not wait until the answers are achieved. Instead beginning and maintaining these practices will enable the organization to meet the requirements of the organizational stakeholders. Fraud may not be entirely preventable but better procedures will ensure improved performance in the conduct of audits and public confidence will grow (Wells, 2004).





Akst, D. (1987). Suit by ZZZZ Best Accuses Founder, 4 Others of Fraud. Wall Street Journal. New York, N.Y., United States, New York, N.Y.: 1-1.

ZZZZ Best investors filed a civil court suit against Barry Minkow. Minkow resigned as the board of directors chairman when he was 21 years of age. The suit charged Mr. Minkow anf our others of criminal activity. This suit alleged Minkow cost the company more than $25 million. This report identifies Mark Morze as the co-conspirator of the ZZZZ Best fraud case. Akst argued 4 other defendants received legal punishment including Thomas Padgett who received payment from Minkow for restoration jobs that never happened and Mark Morze. This paper uses this reference to identify the co-conspirators for this case.


Backer, L. C. (2003). “The Duty to Monitor Emerging Obligations of Outside Lawyers and Auditors to Detect and Report Corporate Wrongdoing Beyond the Federal Securities Laws.” St. John’s Law Review 77(4): 919-1018.

The ZZZZ Best case is about investor protection. The public was violated by the ZZZZ Best management team and let down by auditors, bankers, and management. The SEC has enacted many new duties for parties involved in the investment trade of public securities. Backer’s article discusses these emerging obligation and this report uses these facts to detail what parties should do differently form the parties associated with the ZZZZ Best case. Backer argues parties have an active role in investor protection rather than a passive role.


Baliga, W. J. (1991). “California Supreme Court Vacates Union Bank Case.” Journal of Accountancy 172(2): 25-25.

This article reports on the ruling by the California Supreme Court in regards to Union Bank v. Ernst & Whinney (aka Ernst & Young). The appellate cour ruled Ernst was not liable for $7 million in credit to ZZZZ Best Company for reliance on the audit review performed by Ernst & Whinney. Baliga (1991) argued that ZZZZ Best only received a review letter from Ernst and Young not an audit report.


Blanchini, P. (1997). “The statement someone else makes may be your own: Primary liability under section 10(b) after Central Bank.” St. John’s Law Review 71(4): 767-793.

Blanchini reports on the Central Bank of Denver v First Interstate Bank of Denver (1994) case. The US Supreme Court ruled private plantiffs may not maintain aiding and abetting suits under section 10(b) of the federal securities laws. Investor protection plays a pivital role in the ZZZZ Best case. Under this provision primary actions are not the responsibility of secondary actors. This report uses Blanchini’s article to demonstrte where seconary actors made mistakes that allowed the ZZZZ Best case and Minkow’s Perpetration of the crime.


Dingle (1988). “Hearings Focus on ZZZZ Best.” Journal of Accountancy 165(4): 80-80.

Dorminey, J. W., A. S. Fleming, et al. (2010). “Beyond the Fraud Triangle. (cover story).” CPA Journal 80(7): 16-23.

This article introduce the fraud triangle and the environmental factors necessary for fraud perpetration. The characteristics that created the ZZZZ Best fraud are examined. This paper uses this article to introduce money, ego, and entitlement as three factors causing Barry Minkow to enact fraud.


Ernst and Young (1991). “Ernst & Young Not Liable In ZZZZ Best Case.” Journal of Accountancy 172(1): 22-22.

Ernst and Young was found not liable for the audit report used in the lending decision to extend $7 million to ZZZZ Best Co. The article presents a court case between Union Bank of California and Ernst & Young. An appellate court in California found Earnst and Young not liable to Uniion Bank of California even though the bank relied on the auditors report to extend a loan to ZZZZ Best. Provessionals involved with ZZZZ Best included Ernst. California case law states independent auditors owe a duty of care to reasonably foreseeable plantifs who rely on the reports they produce. This report uses this article to posit the question of the responsibility Ernst and Young play in the ZZZZ Best case.


Gite, L. (1990). “These kids mean business.” Black Enterprise 21(5): 48.

Gite explores the growing number of ‘kidpreneurs.’ ‘Kidpreneurs’ are pre-adult business owners who started and operated businesses before they turned 18. Gite provides suggestions to parents to help these young entrepreneurs. Gite argued that young entrepreneurs are increasing rapidly and the world is looking at this kids as if they are the heroes of the hour. This paper uses this article to demonstrate one environmental variable playing a signficant role in this fraud case.



Kanberg, J. H. (1995). “When professionals become victims.” International Commercial Litigation: 18-18.

Many authors including Kanbert agrue the public assumption is bankers, lawyers, and accountants owe a duty of diligence of protection against the risk of fraud. One byproduct of this assumption is the considerable lawsuits that follow fraud cases including ZZZZ Best. Many accounting and auditing instructors use the ZZZZ Best case as a case study. The vulnerability of those assumed to be owed a duty of protection makes this fraud case an excellent source of information. The unfortunate lessons is how little attorneys, accountants, and bankers can do to protect themselves from liability. This paper uses this article to examine the environment allowing the perpetration of the ZZZZ Best fraud.


Kranacher, M.-J., J. R. A. Riley, et al. (2011). Forensic Accounting and Fraud Examination. Danvers, MA, John Wiley & Sons, Inc.

Kullberg, D. (1988). “Commentary on The Profession.” Accounting Horizons 2(3): 108-109.

Kullberg reported in this article the 8-K public filing triggered by the resignation of auditors without completing the public audit. While the audit party was eventually found not guilty of particpation in this fraud scheme duties of due diligence were missed. This report uses the Kullberg article to demonstrate good and bad results from actions taken by Earnst and Young.


Naff, K. C. (1994). “Z scam of Z century: An interview with ZZZZ Best’s Mark Morze.” Business Credit 96(9): 33-33.

Mark Morze and Barry MInkow perpetrated the ZZZZ Best Carpet Cleaning fraud. In this fraud they obtained between 100 and 150 million dollars. May auditors, lawyers and investment bankers acted severly negligently in this case. This negligence could have cost them dearly including but not limited to jail terms and fines. This paper uses Naff’s article to introduce the ZZZZ Best case.


Osborne Jr, A. E. (1987). “Understanding Entrepreneurship.” Business Forum 12(4): 12.

Osborne Jr. explores entrepreneurship and itss process in the U.S. Osborne Jr. argued most failures are never heard about.


Pressly, T. R. (1996). “Recent publications.” Ohio CPA Journal 55(4): 60.

Reviews the book `Clean Sweep,’ by Barry Minkow.


Pressman, S. (1998). “On Financial Frauds and Their Causes: Investor Overconfidence.” American Journal of Economics & Sociology 57(4): 405-421.

Pressly argued Minkow paid for his check kiting schemes with stolen jewelry from his grandmother and staging phony break-ins to create false insurance fraud claims. This paper uses this article to examine the methodologies used in this fraud case. \


Robertson, J. C. (2010). “The Effects of Ingratiation and Client Incentive on Auditor Judgment.” Behavioral Research in Accounting 22(2): 69-86.

Evidence from practice demonstrates auditors can be ingratiated by strategic and tactical inducements. These inducements can facilitate persuasion of auditors with less than 100 percent integrity. Robertson argues ingratiation appears to magnifty client incentive on auditor judgment. Auditors faced with ingratiating clientelle may comply with client requests that are not completely ethical. This paper uses this article to demonstrate that ingratiation played a part as a strong factor in the ZZZZ Best audit case.


S, J. (2010). “Now You Don’t See It.” CFO 26(2): 17-17.

Distraction and deception played important part of the perpetration of the ZZZZ Best fraud. Auditors were purposely distracted away from errant financial statements. This paper uses this article to examine internal controls that failed to deter the ZZZZ Best audit.


Siegel, P. H., D. P. Franz, et al. (2010). “The Sarbanes-Oxley Act: A Cost-Benefit Analysis Using The U.S. Banking Industry.” Journal of Applied Business Research 26(1): 73-83.

Sarbanes-Oxley effected the american banking and accounting industries in many ways. Cases such as ESM Government Securities, and ZZZZ Best resulted in congressional hearings on the accounting profession and changes in laws including the Sarbanes-Oxley Act. This paper uses this article to examine investigations taking place because of the ZZZZ Best fraud case.


Stice, J. D., W. S. Albrecht, et al. (1991). “Lessons to Be Learned – ZZZZ Best, Regina, and Lincoln Savings.” The CPA Journal 61(4): 52-52.

The ZZZZ Carpet Cleaning Company fraud case is a text book accounting fraud case used in many accounting schools and university programs. Many lessons can be learned from the study of this case including the importance of accountants exercising better diligence and more care in the future. Frauds cannot be completely eliminated but through proper internal controls and audit exercises they can be decreased. This article introduces the ZZZZ Best case including lessons to be learned for the accounting profession. This paper uses this article to introduce both the case and the problems associated with it.


Turner, L. E. (2006). “Learning from Accounting History: Will We Get It Right This Time?” Issues in Accounting Education 21(4): 383-407.

Many parties played important roles in the perpetration of this fraud. Parties involved included accountants, lawyers, and most directly company management. The United States has faced economic turmoil because of fraud perpetration and investor mistrust of publicly traded securities. This article posits the theory that the accounting profession should work toward better regulation for investor protection. This paper uses this article to demonstrate parties guilt in the ZZZZ Best scenario.


Wells, J. T. (1993). “Financial frankensteins.” The Internal Auditor 50(2): 52-52.

Newer and tougher standards help auditors reduce financial fraud such as ZZZZ Best. Wells identifies significant frauds and their effect on accounting procedures developed in the 90′s and 2000′s. Wells argued the fraud was not discovered by auditors, bankers or lawyers but by a diligent housewife defrauded of money. This paper uses this article to demonstrate the failed audit particpants in this case.


Wells, J. T. (2001). “Follow fraud to the likely perp.” Journal of Accountancy 191(3): 91-94.

This article argues financial statement fraud cannot be accidental. The authors posit someone must have trickery in mind in these situations. Barry Minkow was found guilty of that financial trickery. This paper uses this article to introduce Barry Minkow and directly trace the perpetration of this fraud back to Mr. Minkow.


Wells, J. T. (2004). “New Approaches to Fraud Deterrence.” Journal of Accountancy 197(2): 72-76.

The public is crying out for greater integrity in public investment. Certified public accountants owe a duty of due diligence to third parties relying on information they release about companies trading publicly. This article argues increasing penalties has not deterred or prevented crime. Internal controls have also proven inadequate for fraud prevention. Although the United States has some of the harshest penalties toward white collar crime the United States also has one of the highest rates of white collar crime. Auditors are tempted to avoid the responsibilty of fraud detection because they become liable for crime they had little or no opportunity to detect. This paper uses this article to illustrate changes occuring in the prevention and deterrance of fraud.


Whelan, R. (2011). Global Finance: U.S. Charges Fraud Sleuth in Fraud — Barry Minkow Faces Up to Five Years in Lennar Stock Case; Guilty Plea Planned. Wall Street Journal. New York, N.Y., United States, New York, N.Y.: C.3-C.3.

Barry Minkow, the perpetrator of the ZZZZ Best fraud case is back in prison on fraud charges. This article discusses the current fraud case and the chief conspiritor Nicolas Marsch. This paper uses this article to introduce the latest fraud perpetrated by Mr. Minkow.


Zeff, S. A. (2003). “How the U.S. Accounting Profession Got Where It Is Today: Part II.” Accounting Horizons 17(4): 267-286.

This article discusses the historical development of the U.S. Accounting profession. The Securities Exchange Commission attitude toward audit firms has changed over the last few decades of the 20th century. Bank failures during the 80′s raised troubling concerns.. Auditor independence theory is examined in this article. This paper uses the article by Zeff to posit the question of why the audit firm was embarrassed by Minkow when they missed very clear signs of fraud.


Zeune, G. D. (1996). “Auditors will be required to detect fraud.” Business Credit 98(8): 16.

The American Institute of Certified Public Accountants require auditors to detect material fraud. Auditors are expected to understand and examie fraud and financial statement material mistatements. Auditors must examine and assess management responsibility, ability, pressure, style, and attitude regarding internal controls. This paper uses this article to examine why many of the internal control violatinos were missed by auditors in the ZZZZ Best fraud case.




Publicly Traded Stock

July 3rd, 2012 at 1:52 am by glennsmith
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Share prices of companies.

As a finance and accounting instructor many students ask questions about market price and price per share for publicly traded companies. Share prices are the price that someone is willing to pay for one share of ownership in a company. Take for example McDonalds. If someone wants to own one share or one vote in the future happenings of McDonalds they can buy a share of the company. McDonald’s is publicly traded which means that anyone can buy some of the ownership of the company. The greater the demand for shares of ownership in the company the higher the price will be. Check out the YouTube video’s on market share and earnings per share.

So what does it mean to own one share of the company? Every publicly traded company must release an annual report each year audited by an independent certified public accountant. If you look at the McDonalds annual report you will find McDonalds has 165.0 shares issued to the public. That is a lot of stock compared to the one share purchased.

There are three categories of shares important to understand what issues shares represent. The categories are authorized, issued, and outstanding. Publicly traded companies must gain permission in the United States from the Securities Exchange Commission to trade publicly. Companies are authorized to issue a certain number of shares but rarely issue all the shares they are authorized to issue. They issue, or sell, shares to the public to raise money quickly for various endeavors. Companies can also buy shares back from the public for different reasons such as to maintain control of company profits. Each share of stock sold represents a partial ownership of the company. Owners of the company share in the profit of a company. The less shares outstanding means the less profit companies may have to give away. Consider an example, if a company is authorized to issue 200 million shares they may choose to only sell ten percent of those shares. This means that 20 million shares will be issued. If the company was only able to sell them for one dollar each they would raise 20 million dollars, plus or minus some for underwriting and brokerage fees. The company may never pay dividends.

A popular question is why would anyone buy shares if they won’t earn dividends? Remember if you buy a share you can also sell it to anyone wanting to buy it. If you buy for a low price you can sell for a high one. You can even sell it minutes, hours, or days later. You can hold on to the ownership as long as you desire. Consider another example. If someone desires to buy in the morning a share of stock they can turn around and sell it in the afternoon. This would be considered day trading and many people participate in ongoing activity.

Another popular question dealing with the market is how preferred stock compares to common stock. Common stock is the typical voting stock that people consider when they talk about the price of stock or owning stock in a company. Preferred stock is a secondary type of stock with the typical disadvantage of having no voting rights. So what makes this type of stock preferred? It has elements of a liability in that owners of preferred stock receive money before owners of capital stock. Typically, two situations should be considered to illustrate how this preferred quality works.

The first situation where preferred stock is paid before common stock is in bankruptcy. Companies do not have to pay stockholders back for their stock. If a company goes bankrupt assets are sold to cover company debts. The first payments are made to creditors or those owed money by a company. These are the liabilities of the company. The second group paid is preferred stockholders and if anything is left common stockholders share in the financial remains.

The second situation is in dividends. Preferred stockholders may be owed cumulative dividends in arrears. Companies never have to declare dividends but once dividends are declared they become a liability and must be paid. Preferred stockholders get paid first before common stockholders. If preferred stock is cumulative in arrears each year dividends were not paid up to the current year is counted and multiplied by a percentage agreed upon in the sale of the preferred stock. For more information on this other great YouTube videos are available.

Trading is risky but well worth the investment for those willing to explore the market. Enjoy.

The New International Reporting Standards Board – Will it affect you?

January 13th, 2012 at 1:23 am by glennsmith
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In my teaching of accounting and finance classes potentially nothing is more important than the inexorable shift the accounting profession is going through away from United States Generally Accepted Accounting Principles to the new International standards. With the importance of factors in consideration when both large, medium and even small businesses are going global as is the nature of many businesses today both accounting and finance factors are facing new challenges and obstacles. The largest two groups of bodies working on bringing these standards together are the Financial Accounting Standards board and the International Accounting Standards Board.

 In finance the ability to raise capital in order to further the future of the business (or individual) is essential. There are basically two ways to raise capital in the capital market. These are owners’ equity and liability generation. Liability generation is debt capital. Owners Equity is generated by selling stock and profits created by the business. One of the largest changes taking place is in the revenue recognition and new standards of recognizing revenue have been released by the FASB and IASB.

 FASB and IASB released in conjunction a single revenue recognition standard. This actually is a good place to start with my own person dissertation topic which, while I won’t reveal the entirety of it here is concerning economic principles and how they play on the principles of accounting. This standard was designed for three reasons. First it was needed to streamline accounting across industries. Second it was needed to correct inconsistencies and finally it aids by forcing businesses to reveal more information. My first concern would be that this revelation of business data may actually hurt a company and aid its competitors. Fortunately IASB and FASB released detailed guidance along with this section. This was non surprisingly completed because of receipt of over 1000 letters to the outreach activities.

 These revisions were largely brought about by the AICPA’s comment letter urging the boards to re-expose and deliberate. This speaks volumes to me about the pressure that the United States is able to place upon International Regulations and I can’t say I am sorry that this is possible.

 Revenue’s core definition is the same in the old as the new draft, “A entity would recognize revenue from contracts with customers with it transfers promised goods or services to the customer.” (Lamoreaux, 2012)

 My question about this particular issue is if there is so little change between the old definition and the new does this not simply show the capability of a single nation to object and insist on a change in code? Is it simply a rattling of sabers so to speak?

 There is, however, some excellent additions to this change including guidance on how to determine when a good has been transferred creating revenue. Simplification has also been added making report preparation easier. The bad side of this is that simpler does not necessarily mean better. Another problem may be in the need to maintain different information including POS software changes.

 The changes do not take place until 2015 but early adoption has been permitted by IASB.

 The five step process will be:

1.) Identification of the customer contract.

2.) Specification of contractual performance obligations.

3.) Price determination of the transaction.

4.) Allocation of the price to the performance of the contract duty.

5.) Revenue recognition as the business satisfies performance.

 As stated previously:

 Net profit creation is part of the capital consideration through owners’ equity. Businesses not earning a profit or operating at a loss have a tendency to lose shareholders and have a more difficult time raising capital through stock sales. The other logical options then are creation of financial capability through sales of assets or the raising of debt. The regulations in the capital markets are also changing and the IASB and FASB are making important changes especially if we consider how much of the financing taking place in the United States today is taking place from monies raised from organizations, individuals, businesses and governments outside the United States of America. When considering the raising of capital for business faithful representation and full disclosure importance cannot be overestimated in my opinion and this is why it is so important to know what the IASB advisory board the Capital Markets Advisory Committee is doing. The release of GMAC final 2011 meeting minutes happened on the 6th of January. Some of the highlights that I found important are as follows:

 The London meeting took place on October 12, 2011. Four IASB members and staff were in attendance. Rita Ogun and Thomson Reuters presented the Thomson Reuters’ model for taxonomy where Reuters cautioned the committee not to compare the US GAAP taxonomy with around 13,000 tags to the IRFS taxonomy which has only 3,400. It seems that much of the chaff has been cut through by the IFRS but the problem may be that with so many different types of entities in existence today all of these tags may be essential and cutting them down may or may not be the best idea. While these tags may be important they do reduce cross entity comparability.

 Reuters is not wrong. When companies present their financial information differently comparability is diminished. This has been the reason for the creation and importance of the IASB and an International GAAP standard. The push and pull is therefore between flexibility, which according to Reuters is gained by a child parent relationship to understand where varied entities relevancy stands, and rigid rule creation. IFRS is after all more principle based than US GAAP although this is an opinion. Potentially global tags could be used to make up the difference but these global tags would not have strict definition. (Mintz, 2011)

 Other discussions took place including the risk free rate of return, financial instruments impairment, transition disclosures in the time between when IASB standards are issued but are not yet mandatory. As can certainly be seen from this information this committee will be an important one to watch and changes and advisory suggestions coming out of this committee to the IASB will be essential.

 One thing to watch in the upcoming future will be an online survey that CMAC staff will be using to obtain input from users. I strongly suggest those interested parties pay strong attention to this survey because it will play a large part of what will happen in regulations over their financial reporting requirements in the future.

 IFRS. (2012) Meeting Summary of the Capital Markets Advisory Committee. Retrieved from

  Mintz, S. M. (2011). Ethics, Professional Judgment, and Principles-based Decision Making Under IFRS. [Article]. CPA Journal, 81(1), 68-72.


Mintz, S. M. (2011). Ethics, Professional Judgment, and Principles-based Decision Making Under IFRS. [Article]. CPA Journal, 81(1), 68-72.



Congratulations Layne, Linda, Sean and Noel.

November 9th, 2011 at 10:41 pm by glennsmith
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There are a couple of wonderful lessons I have learned by this latest election here in the greatest city in Washington State, Maple Valley. The first one was something that I learned long ago and am consistently reminded of the public speaks and the people in political power should listen. I believe that Noel Gerken should listen well to the fact that the election was VERY close. When Laure Iddings was mayor there was NEVER an election between her and a rival that was this close. Noel would do well to pay attention to the things that the citizen voters of Maple Valley are trying to tell him. Noel you need to pay attention, respect the businesses that already exist in Maple Valley and work closely with the Chamber of Commerce. The second less was a hard one for me to learn.

What do you do when two of the people you respect and even would call friends run against one another. There really is only one thing you can do. You have to follow your heart and if the man you endorsed does not win then be happy for the friend that did. Sean Kelley is a good man, a true worker for our city and I hope that he does well as a city council member. I would give him my most heartfelt congratulations in winning his election. I would then tell him that he needs to stand up and not be wishy washy. Be a leader Sean. The ball is squarely in your court and you have the opportunity to show the people of this city that voted for you and the people that voted for your opponent that you can do the job and that you are not just a follower who is going to be in the pocket of the political party that happens to be in power at the moment. I believe you can do the city proud but you now you have to prove it.

All in all I believe this was an excellent election and even though Karen and Bill will not be serving on this term on the city council I hope they both will return and serve in the future. The city still needs your support, your dedication and your input.

Congratulations to the winners. Layne and Linda keep up the good work that you have been doing and I look forward to communicating with both of you in the future.

Warmest Regards,


Glenn Smith

Accountant, Citizen, and ex council member.

Teachers Pay and the Economy.

October 26th, 2011 at 11:21 pm by glennsmith
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My poor wife, I was sitting tonight reading over the article on suppressor variables and found it so fascinating that I just had to share it with her. Now understand my wonderful bride is in her undergraduate studies today. She has been with me through my entire college experience from undergraduate to my current PhD pursuit. She has heard no ends of information that means nothing to her but today I found the suppressor variable information beyond fascinating. I bet no one reading this ever thought they would think that even if you do agree with me. What I found interesting was the discussion of X1 and X2 effect on each other and thereby X1’s effect on Y even if Y and X have near zero correlation. What this means to me at least to my own dissertation topic which I will share only the highest level here with you is the economic effect of one nation on the accounting principles used by another. Governmental leaders then in China for example could, if the theory holds true wreak havoc on Paraguay by making decisions that affect the China’s economy even if they have no direct influence to Paraguay. Now this is not a suppressor variable unless you find in some way where Paraguay is in direct competition with China for some reason and on some level. We have to find a topic where suppression would be better understood and this can be seen in the educational level of what I like to call political idiots. Education seems to lead at least by this discussions argument which I happen to disagree with to greater liberalism. Income would lead to conservatism (possibly to protect what they have). Income may be a suppressor variable to liberalism and socialism? If it is a suppressor variable then because it has positive effect on education then would it be an additive suppressor both drawing away and adding to the liberal and social attitudes?


A test would have to be devised to test all three of the scenarios. First, we may have to test and see if the political attitudes of students in the undergraduate levels changed from those of the graduate levels. I can say that my own personally have not but then it is conjecture and opinion. You could compare two groups but this would also be problematic. We would need to actually take an undergraduate study and then 4 or 8 years later ask the same group their philosophy to find out if the attitudes had changed. We could examine voting records of the same individual or control group members to determine if the changes occurred but even then I may argue that what was considered a liberal attitude a decade ago is not the same as it is today.


We would then need to examine the indirect effect of income on political attitudes to determine if the indirect or suppressor variable has any effect on variables with little correlation on the r scale. I would believe that direct effect of education on political attitudes would be a more useful study but could not fault either of the studies and suggest they are both hand in hand in importance.


David Castle (2005) argues that his replicated study of findings by McCully and Downey’s identify a suppressor variable in years of service to salary of faculty members. Castle continues to argue that community and technical colleges have a more demonstrated effect here than do research institutions. The research institutions reward publishing and the community college’s and institutional colleges reward years of service. This suppressor variable can only be found when colleges face tight economic problems or funding restrictions and therefore do not even give the teachers raises in salary to meeting the barest consumer price index increases. This would further my argument significantly which states that economics would in fact change principles of accounting use. If CPI or COLA is ignored or not met by institutions employees would be forced to change principles of accounting due to economic times faced by them.  In the same way that length of service may be considered a positive the fact that wage increases do not match over time the CPI increases over time makes the length of time a suppressor variable this same variable would be applied to my own dissertation topic even at the highest level.


Ranson (1993)  agrues that in most industries years of service is typically usually leads to higher pay. Ransom continues to argue that this is central to many theories of life-cycle structure of pay. This is not the case in education where a monopsony exists. Ransom argues that discrimination toward longer serving teachers is a suppressor variable causing difficulties for teachers today and hurting the educational system within the United States.

Glenn Smith is a teacher and college instructor at the University of Phoenix, the International Academy of Design and Technology and the Roskilde school of Denmark.


Castle, D. S. (2005). Estimating Seniority Effects in Faculty Salary Studies: Measurement and Model Specification. [Article]. Public Personnel Management, 34(4), 377-384.


Henard, D.H. (1998). Suppressor variable effects: Toward understanding an elusive data dynamic. Houston, TX


Ransom, M. R. (1993). Seniority and monopsony in the academic labor market. [Article]. American Economic Review, 83(1), 221.


Regional Representation or Local business support. The argument for Karen Crowe.

October 18th, 2011 at 1:05 am by glennsmith
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Completeness and accuracy is an interesting concept in accounting. To be complete would normally mean all inclusive but the problem with including everything at least in accounting is that there are principles such as the cost benefit principle. Including every item of information in the financial statements would make the smallest company’s financial statements unmanageable. Too much information is definitely applicable here. Consolidations and management accounting would become more than burdensome. Comparing industries information of the size possible would be difficult so what do we do as a profession? We begin to use comparisons such as means, standard deviations from the norm and other variables. We will examine two information streams to understand this concept better.

If we examined, for example, working capital only we miss large amounts of related information. Working capital is simply current assets minus current liabilities. Any positive value means that a company has current assets to use for company growth purposes. Knowing that company has working capital is not a largely useful piece of information. We must make both horizontal and vertical analysis. We can take comparisons over the entire company financial information as long as we use information spread out over years. We can use company to company information as long as we don’t use to many companies. Not using enough companies or even industries we may lack some credible and important information.

This is one large reason for the advice I received by many of the Tier three participants of the last Colloquia. They told me that I should not try to change the entire world with my dissertation but save changing the world until after the doctorate was earned. I agree. A dissertation topic of attempting to determine how much affect a larger city has on smaller cities. Affect in what way? Having simply one piece of information may not be helpful. Having one measure, for example, the total population size of the big city to the total population size of a small city may not be a helpful comparison. If we were to take every city around the city of Seattle and compare standard deviations this may be much more useful. Understanding city size across the United States may be too much information but if we were to look at standard deviations and means of these comparative cities we may find some excellent useful information such as presented by the Center for City Park Excellence (Excellence, 2010).

The Center for City Park Excellence took the population sizes of the 85 different cities and coming up with the mean for all the cities. Taking the standard deviation for the cities to compare the total land area of each city compared to the population and population density was the next step. It was interesting to me to find that the population of Seattle is vastly superior in regards to land size than the mean. This may be useful in explaining the city size growth of many of the smaller and midsize cities such as Maple Valley and Covington. Taking this information and comparing it against growth in the population size could easily highlight some interesting informational statistics and possibly change the attitudes and actions of elected officials. This could easily change public opinions about those representatives in our area, for example, such as our own Mayor Gerken who take the time to develop regional connections and relationships. On the other hand it could argue for those that take more time developing the city of Maple Valley businesses and less time neglecting the needs of smaller cities such as ours according to Garmenstani, Allen, Gallagher, and Mittelstaedt (2007) smaller cities exhibit higher growth rate. Unfortunately, Garmenstani, Allen, Gallagher, and Mittelstaedt do not use standard deviations, or means to demonstrate the quantifiable information necessary to make the best possible assessment.

Fee and Hartley (2011) argue that population growth is largest in east coast, west coast, and warmer cities within the United States. They use population means and average but do not report standard deviations making a comparison more difficult because of the simple size of the comparative base. Fee and Hartley make the claim that average January temperatures explain 11% of the population growth variation. I find it difficult to back up their information due to the lack of data comparisons offered. Fee and Hartley do argue that another contributing factor to population declines can be attributed to employment decreases in the manufacturing sector for the United States. Those individuals in office and have not supported local business within our area would do well to notice this correlation. Again this author used only mean and average comparisons. Seeing the standard deviations would have been helpful. The author gives no report on sample size. The author did state they received their information from the U.S. Census of 2000 and 2010. A statement that I find difficult to back up stated that it is equally possible that people are moving where jobs are or that companies are locating where population density is growing. Neither of the last two sources reported standard deviations.

Excellence, C. f. C. P. (2010). City Population Density.

Fee, K., & Hartley, D. (2011). Growing Cities, Shrinking Cities. [Article]. Economic Trends (07482922), 27-29.

Garmestani, A. S., Allen, C. R., Gallagher, C. M., & Mittelstaedt, J. D. (2007). Departures from Gibrat’s Law, Discontinuities and City Size Distributions. [Article]. Urban Studies (Routledge), 44(10), 1997-2007. doi: 10.1080/00420980701471935

Shoud Joint Costs dictate prices between Products?

September 9th, 2011 at 1:10 am by glennsmith
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From a decision point of view Garrison, Noreen and Brewer (2010) argue that a great difficulty can come with the attempt to allocate costs among joint products. They provide in their text a story of a company that dumped a perfectly useful and sellable product instead of selling it for fertilization purposes. This was a mistake that was rectified and then because of misallocation of joint costs remade. The allocated costs were not directly tied to the new fertilizer product. This is the difficulty faced when costs are allocated among joint products.

Borland and Howsen (2009) argue that the problem with the case presentation by Garrison, Noreen and Brewer is that it is an oversimplification that rules out relevant costs. Garrison, Noreen and Brewer describe the situation with dumping but leave out the fact there may be fees associated with dumping that may very easily total more than the $25,000 additional cost placing the creation of the product back into a profitable category.

The difference between making one product and making many can easily be argued as the reason for cost allocation between products. I would argue that understanding of the products sold may be missing if a company truly believes there is only one product. There may be many but the significance of the products are overlooked as they are typically small in nature. Take for example a great Maple Valley company Bike Masters and Boards. This company is a retail bicycle sales, service, repair and rental company. They sell many products but their main focus is on bicycles. The fact that the bicycles sold may be their number one product could be the keypoint to a mistake of cost production. All costs may be assigned to this one activity while many different products are sold such as bicycle gear and even skateboard.

In the same way lot sizes may be an area where joint costs can be allocated. Perhaps sales lot sizes differ in such a way that allocating costs between the various sales lots may be beneficial. Teunter, Bayindir and Heuvel (2006) argue that lot size can be a determination when considering the allocation of costs.

There are a few different ways to allocate percentages of costs. The time it is typically done is the split off point. When the same product is used to create by products such as rubber making tires for both bikes and automobiles the costs would be allocated upon the split off or sales potential at split off point.

Borland, M. V., & Howsen, R. M. (2009). Course Presentation of the Joint-Products Problem with Costs Associated with Dumping. [Article]. Journal of Economic Education, 40(3), 272-277.

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2010). Managerial Accounting (13th ed.). Boston, MA: Mcgraw-Hill Irwin.

Teunter, R. H., Bayindir, Z. P., & Den Heuvel, W. V. (2006). Dynamic lot sizing with product returns and remanufacturing. [Article]. International Journal of Production Research, 44(20), 4377-4400.

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