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  • Robert E Jensen

    Kaplan University --- https://en.wikipedia.org/wiki/Kaplan_University

    After being essentially "given away" by Jeff Bezo's Washington Post, the former Kaplan University is now named Purdue Global University ---
    https://www.chronicle.com/article/Offspring-of-Purdue-s/242213?cid=wcontentlist_hp_latest&elqTrackId=770cf49d644648389c4d60f584981a5b&elq=ec436abaed344d3f9ca010248f72e80e&elqaid=17423&elqat=1&elqCampaignId=7621

    The offspring of Purdue University’s purchase of Kaplan University has been christened Purdue University Global. In a news release, Purdue said the name would become official if the regional accreditor, the Higher Learning Commission, approves the deal.

    That review is scheduled for February 22, according to the news release. The Indiana Commission for Higher Education and the U.S. Department of Education have already signed off on the deal.

    “Our campuses are typically named after the physical locations where they hold classes. Purdue University Global can be accessed from anywhere in the world, at any time,” said Purdue's president, Mitch Daniels. “The name proved appealing and meaningful to our various stakeholders – most importantly prospective students.”

    The new name omits mention of Kaplan University, which currently serves 29,000 students online and in person in Iowa, Indiana, Nebraska, Maryland, Maine, Missouri, and Wisconsin.

    Betty Vandenbosch, president of Kaplan University, would become chancellor of Purdue University Global.

    “The name is respectful of Purdue’s exceptional reputation, but also distinct from Purdue’s other campuses,” she said.

    Purdue’s decision to buy the for-profit university has stirred debate since news of it broke in April. Faculty members and students questioned the public university’s motives, with one equating the deal to selling the university’s brand to Wall Street. Others have raised concerns that Kaplan would retain control over the institutions it currently has while receiving a facelift from the Purdue brand.

    Jensen Comment
    Roughly speaking, Purdue University had 30,000 undergraduate and 10,000 graduate students before taking on Kaplan's 29,000 students. This makes the acquisition of Kaplan University a pretty big deal for Purdue and greatly changes its outreach mission. Online universities typically have much lower admission standards than flagship state universities. It will be interesting to see how Purdue maintains traditionally high admission standards and graduation standards. in its new Purdue Global University. My guess is that the 29,000 figure will shrink for degree-seeking graduates, but nobody knows by how much at this juncture.

    Many of the PGU students may become non-traditional students seeking technical badges/certificates rather than transcript credits. That may become typical in many of our flagship universities as employers seek greater specialization skills of new employees, often technical skills not being taught in flagship universities at the moment. For example, until now employers would not recruit on flagship university campuses for accountants specialized in cross-currency swap accounting or accountants trained in derivative financial instrument valuations using Bloomberg terminal yield curves. That could change as badges and certificates become increasingly popular.

    Bob Jensen's threads on learning seekers apart from degree seekers ---
    http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI

  • Robert E Jensen

    Auditors had identified material weaknesses in financial reporting at about 30 percent of the companies that later disclosed accounting problems. Chief executives were named in 111 of the 127 fraud cases, and chief financial officers were identified in 108 of the cases ---
     New York Times:  Sarbanes-Oxley, Bemoaned as a Burden, Is an Investor’s Ally ---
     https://www.nytimes.com/2017/09/08/business/sarbanes-oxley-investors.html

  • Robert E Jensen

    From the CFO Journal's Morning Ledger on August 29, 2016

    FASB issues cash-flows standard
    The Financial Accounting Standards Board on Friday issued a new standard for reporting cash-flow statements, in an effort to streamline reporting and clarify aspects of generally accepted accounting principles that are unclear or absent, the Journal of Accountancy reports.

    Which is More Value-Relevant: Earnings or Cash Flows?
    http://www.trinity.edu/rjensen/theory02.htm#CashVsAccrualAcctg 
     

  • Robert E Jensen

    Accounting History Corner
    Matching Principle --- https://en.wikipedia.org/wiki/Matching_principle

    A nice timeline on the development of U.S. standards and the evolution of thinking about the income statement versus the balance sheet is provided at:
    "The Evolution of U.S. GAAP: The Political Forces Behind Professional Standards (1930-1973)," by Stephen A. Zeff, CPA Journal, January 2005 --- http://www.nysscpa.org/cpajournal/2005/105/infocus/p18.htm
    Part II covering years 1974-2003 published in February 2005 --- http://archives.cpajournal.com/
    The module for 1940 is as follows:

    1940
    The American Accounting Association (AAA) publishes Professors W.A. Paton and A.C. Littleton’s monograph An Introduction to Corporate Accounting Standards, which is an eloquent defense of historical cost accounting. The monograph provides a persuasive rationale for conventional accounting practice, and copies are widely distributed to all members of the AIA. The Paton and Littleton monograph, as it came to be known, popularizes the matching principle, which places primary emphasis on the matching of costs with revenues, with assets and liabilities dependent upon the outcome of this matching.

    Comment. The Paton and Littleton monograph reinforced the revenue-and-expense view in the literature and practice of accounting, by which one first determines whether a transaction gives rise to a revenue or an expense. Once this decision is made, the balance sheet is left with a residue of debit and credit balance accounts, which may or may not fit the definitions of assets or liabilities.

    The monograph also embraced historical cost accounting, which was taught to thousands of accounting students in universities, where the monograph was, for more than a generation, used as one of the standard textbooks in accounting theory courses.

    1940s

    Throughout the decade, the CAP frequently allows the use of alternative accounting methods when there is diversity of accepted practice.

    Comment. Most of the matters taken up by the CAP during the first half of the 1940s dealt with wartime accounting issues. It had difficulty narrowing the areas of difference in accounting practice because the major accounting firms represented on the committee could not agree on proper practice. First, the larger firms disagreed whether uniformity or diversity of accounting methods was appropriate. Arthur Andersen & Co. advocated fervently that all companies should follow the same accounting methods in order to promote comparability. But such firms as Price, Waterhouse & Co. and Haskins & Sells asserted that comparability was achieved by allowing companies to adopt the accounting methods that were most suited to their business circumstances. Second, the big firms disagreed whether the CAP possessed the authority to disallow accounting methods that were widely used by listed companies.

    Continued in article

    "Global Financial Reporting: Implications for U.S.," by Mary Barth, The Accounting Review, Vol. 83, No. 5, September 2008 
    On Page 1166 she flatly asserts:

    First, there is no “matching principle.” That is, matching is not an end in itself and matching is not an acceptable justification for asset or liability recognition or measurement. The conceptual framework explains that matching involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events (FASB 1985, para. 146; IASB 2001, para. 95). Matching will be an outcome of applying standards if the standards require accounting information that meets the qualitative characteristics and other criteria in the conceptual framework. Matched economic positions will naturally result in matched accounting outcomes. However, the application of a matching concept in the conceptual framework does not allow the recognition of items in the statement of financial position that do not meet the definition of assets or liabilities (IASB 2001, para. 95). Thus, there would be no justification for deferring expense recognition for an expenditure that provides no future economic benefit or for deferring income recognition for a cash inflow that will not result in a future economic sacrifice.

    Jensen Comment
    But matching still seems to prevail even though there is no more "matching principle according to the IASB and the FASB. The answer is that revenue can be deferred when there will be "future economic sacrifice." Sounds like matching to me. Neither domestic nor international standards allow early realization of revenue before it is legally earned. The standards just do not allow automobile inventories to be written up to expected sales prices until those sales are finalized. Carrying the inventories at something other than sales value is part and parcel to the "matching principle" eloquently laid out years ago by Paton and Littleton. Both international and domestic standards still require cost amortization, depreciation, and creation of warranty reserves. These are all rooted in the "matching principle" which has not yet died when defining assets and liabilities in the conceptual framework. In most instances the historical cost is still being booked and spread over the expected life of future economic benefits. Even if a company adopted a replacement cost (current cost) adjustment of historical cost of a depreciable asset, those replacement costs still have to be depreciated since old equipment cannot simply be adjusted upward to new, un-depreciated replacement cost.

    Paton and Littleton never argued that the "matching principle" for expense deferral applies to assets that have "no future economic benefits." In that case there would be no benefits against which to match the deferred expense. Hence there's no deferral in such instances. I do not buy Barth's contention that there is no longer any "matching principle." If there are potential future benefits, the matching principle still is king except in certain instances where assets are carried at exit values such is the case for precious metals actively traded in commodity markets and financial assets not classified as "held-to-maturity."

    The Matching Principle lives on when there are expected "future economic sacrifices."

     

    The Matching Principle Revisited
    SSRN, April 8, 2016
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2766630

    Authors

    Aleksandra B. Zimmerman,  Case Western Reserve University; Northern Illinois University - Department of Accountancy

    Robert Bloom, John Carroll University

    Abstract

    This paper reassesses the significance of the concept of matching expenses to revenues as an accounting principle. We compare and contrast the historical views of authoritative bodies and the various scholars and practitioners who analyze this subject, drawing implications for future standard setting. Through this historical retrospective on matching, which includes a review of more contemporary research and thought, we find that matching as an approach to income measurement can be helpful in forecasting earning power. Consequently, we conclude that matching should be retained as a long-standing fundamental accounting principle in standard-setting and in practice.

    Conclusion
    Accounting theory professors should not simply declare the matching principle dead!

  • Robert E Jensen

    Columbia University's Open Syllabus Project Gathers 1,000,000 Syllabi from Universities & Reveals the 100 Most Frequently-Taught Books ---
    http://www.openculture.com/2016/01/the-open-syllabus-project-gathers-1000000-syllabi-from-universities.html

    These are 51/200 hits at at http://explorer.opensyllabusproject.org/  after filtering on "Business"

    1 444 87.4
    Ross, Stephen A.
    2 348 74.5
    Kieso, Donald E.
    3 232 75.9
    Bodie, Zvi
    4 220 58.2
    Garrison, Ray H.
    5 201 48.2
    Ross, Stephen A.
    6 199 88.8
    Kotler, Philip
    7 129 81.9
    Brealey, Richard A.
    8 127 74.8
    Robbins, Stephen P., 1943
    9 126 34.5
    Bodie, Zvi
    10 123 41.0
    Brigham, Eugene F., 1930
    11 96 26.0
    Romney, Marshall B.
    12 96 92.2
    Due, Jean M.
    African Studies Review
    13 94 49.8
    Keller, Gerald
    14 91 59.9
    Case, Frederick E.
    15 90 96.1
    Deitel, Harvey M., 1945
    16 84 32.6
    Malkiel, Burton Gordon
    17 83 24.5
    Horngren, Charles T., 1926
    18 77 100.0
    Strunk, William, 1869-1946
    19 77 27.1
    Brigham, Eugene F., 1930
    20 75 20.3
    Wild, John J.
    21 68 31.8
    Cateora, Philip R.
    22 65 72.5
    Drucker, Peter F. (Peter Ferdinand), 1909-2005
    23 65 60.4
    Collins, James C. (James Charles), 1958
    24 63 19.6
    Berk, Jonathan B., 1962
    25 59 24.1
    Levy, Michael
    26 59 23.9
    Brealey, Richard A.
    27 58 19.4
    Benninga, Simon
    28 58 72.7
    Hull, John, 1946
    29 57 15.5
    Kotler, Philip
    30 56 67.1
    Kotler, Philip
    31 54 17.3
    Libby, Robert
    32 54 13.1
    Winer, Russell S.
    33 47 29.9
    Hill, Charles W. L.
    34 44 18.9
    Eun, Cheol S.
    35 43 19.2
    Reilly, Frank K.
    36 43 15.0
    Higgins, Robert C.
    37 43 38.9
    Hill, Charles W. L.
    38 40 67.6
    Kotter, John P., 1947
    39 40 12.7
    Gitman, Lawrence J.
    40 38 26.9
    Armstrong, Gary
    41 38 9.7
    Brigham, Eugene F., 1930
    42 37 23.4
    Cochrane, John H. (John Howland)
    43 36 84.3
    Fisher, Roger, 1922-2012
    44 36 44.3
    Moore, David S.
    45 35 10.3
    Raabe, William A.
    46 35 24.8
    Perrin, Robert, 1950
    47 35 6.1
    Kerin, Roger A.
    48 35 12.4
    Block, Stanley B.
    49 34 30.6
    Kerr, Steven
    The Academy of Management Executive (1993-2005)
    50 34 41.5
    Grant, Robert M., 1948
    51 34 5.0
    Holden, Craig W.

    Continued up to 200 at http://explorer.opensyllabusproject.org/  after filtering on "Business"

    Bob Jensen's threads on open sharing ---
    http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

     

  • Robert E Jensen

    Bob Jensen's Links to Open Sharing Materials, Videos, Tutorials, and Courses in Various Academic Disciplines ---
    http://www.trinity.edu/rjensen/bookbob2.htm

    Directory of Open Access Journals --- http://doaj.org

    The Journal of Electronic Publishing --- http://www.journalofelectronicpublishing.org/

    VYOM eBooks Directory --- http://www.vyomebooks.com/

    Search for electronic books --- http://www.searchebooks.com/ 
    There were 293 hits for accounting books.

    Bob Jensen's threads on electronic books are at
    http://www.trinity.edu/rjensen/ebooks.htm

    Internet Resources --- http://www.internet-resources.com/writers/wrlinks-wordstuff.htm

     

    Carnegie Mellon Libraries: Digital Library Colloquium (video lectures) --- http://www.library.cmu.edu/Libraries/DLColloquia.html

     

    Free Merriam Webster Online Dictionary/Thesaurus --- http://www.m-w.com/

    Literary Terms --- http://www.tnellen.com/cybereng/lit_terms/index.html

    Literary Criticism --- http://www.ipl.org/div/litcrit/

    “PoemTalk” Podcast, Where Impresario Al Filreis Hosts Lively Chats on Modern Poetry ---
    http://www.openculture.com/2013/02/poemtalk_podcast_where_impresario_al_filreis_hosts_lively_chats_on_modern_poetry.htm

    Internet FAQ Archives --- http://www.faqs.org/faqs/

    JURN (search engine for humanities and social science research) --- http://www.jurn.org/

    Grad Life: McGill University Blogs --- http://blogs.mcgill.ca/gradlife/

    Bob Jensen's threads on listservs, blogs, and the social media ---
    http://www.trinity.edu/rjensen/ListservRoles.htm

    Also see
    http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

  • Robert E Jensen

    Teaching Case on Pending Lease Accounting Rule Changes
    From The Wall Street Journal Accounting Weekly Review on September 5, 2014

    The Big Number: Changes in Lease Accounting Rules Draw Closer
    by: Emily Chasan
    Sep 01, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Debt Covenants, Financial Accounting, Lease Accounting

    SUMMARY: U.S. and international accounting-rule makers are edging closer to completing a decade-long effort to overhaul lease accounting rules. The rules, which could be issued in 2015, threaten to bring roughly $2 trillion of off-balance-sheet leases onto corporate books. But adding assets and liabilities for store leases, airplanes and the like could force companies to renegotiate the terms of their loans with lenders. Banks and lenders often require companies to maintain covenants, such as a specific debt-to-equity ratio, fixed-asset ratio or earnings metric, which could all be thrown out of whack by such a significant accounting change.

    CLASSROOM APPLICATION: This is an interesting article about the changes to lease accounting because it highlights an important ripple effect: calculations for debt covenants will be affected. This is important to note for students that any change to accounting rules can change the financial statements and any corresponding financial statement analysis calculations. These ripple effects can cause problems for the firms and should be anticipated and addressed.

    QUESTIONS: 
    1. (Introductory) What changes have been proposed for accounting for leases? Why are rule-makers working on these changes?

    2. (Advanced) What are some of the ripple effects resulting from the changes to the lease rules? More specifically, what is the impact on calculations for debt covenants?

    3. (Advanced) How should lenders react? Should they adjust their calculations? How should they approach enforcing existing contract requirements?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "The Big Number: Changes in Lease Accounting Rules Draw Closer," by Emily Chasan, The Wall Street Journal, September 1, 2014 ---
    http://online.wsj.com/articles/the-big-number-changes-in-lease-accounting-rules-draw-closer-1409613447?mod=djem_jiewr_AC_domainid

    50%

    Percentage of global companies with bank-debt covenants potentially affected by lease accounting changes

    U.S. and international accounting-rule makers are edging closer to completing a decadelong effort to overhaul lease accounting rules. The rules, which could be issued next year, threaten to bring roughly $2 trillion of off-balance-sheet leases onto corporate books.

    But adding assets and liabilities for store leases, airplanes and the like could force companies to renegotiate the terms of their loans with lenders. Banks and lenders often require companies to maintain covenants, such as a specific debt-to-equity ratio, fixed-asset ratio or earnings metric, which could all be thrown out of whack by such a significant accounting change.

    Some 50% of global companies have business loans with debt covenants that could require them to repay a loan if they break any covenants, according to a survey of more than 2,000 directors and C-level executives by accounting firm Grant Thornton International Ltd. But only about 8% of those companies currently believe that putting leases on their balance sheet will affect their compliance with bank covenants.

    "Many companies are in for a big surprise when this comes out and they have to go to the bank," said Ed Nusbaum, chief executive of Grant Thornton International. "They need to start talking to their bankers."

    In North America, about 75% of the executives polled said their loans could be recalled if they break this type of covenant, but less than 5% of executives thought the lease accounting change would affect them.

    The American Bankers Association has been pushing rule makers to build a long transition period into the new rules, so that they wouldn't take effect until at least 2018.

    "There has to be a huge amount of education for loan officers, who have to start figuring out what the right ratios are and what they will have to adjust," said Michael Gullette, vice president of accounting and financial management at the ABA.

    From EY:  FASB addresses sale and leasebacks, US GAAP topics in leases project
    http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2822_Leases_3September2014/$FILE/TothePoint_BB2822_Leases_3September2014.pdf
    What you need to know

    • The FASB decided that repurchase options exercisable at fair value would not preclude sale accounting for sale and leaseback transaction s involving non - specialized underlying assets that are readily available in the marketplace .

    • The FASB decided that l essees that are not public business entities could make an accounting policy election to use the risk - free rate for the initial and subsequent measurement of lease liabilities. This is consistent with the Board’s 2013 proposal.

    • The Board affirmed its 2013 proposal to eliminate today’s accounting model for leveraged leases but decided that leveraged leases that exist at transition would be grandfathered.

     • The Board also affirmed its 2013 proposal for lessees and lessors to account for related party leases on the basis of the legally enforceable terms and conditions of the lease .

    Overview

    The Financial Accounting Standards Board (FASB or Board ) continued to redeliberate its 2013 joint proposal 1 t o put most leases on lessees’ balance sheets . At last week’s FASB - only meeting, the Board made more decisions to clarify the proposed guidance on the accounting for sale and leaseback transactions. The Board also affirmed its 2013 proposed decisions about the discount rate for lessee entities that are not public business entities (PBE) , the accounting for leveraged leases and the accounting for related party leasing transactions. The Board’s latest decisions, like all decisions to date, are tentative. No. 201 4 - 333 September 2014 To the Point FASB — proposed guidance

    Continued in article

    Bob Jensen's threads on lease accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#Leases

     

  • Robert E Jensen

    Special Problems in Accounting for Law Firms

    "ABA urges federal lawmakers to NIX draft provision requiring law firms to adopt accrual accounting." by Martha Neil, ABA Journal, January 16, 2014 ---
    http://www.abajournal.com/news/article/ABA_urges_federal_lawmakers_to_nix_draft_provision_requiring_law_firms/?utm_source=maestro&utm_medium=email&utm_campaign=weekly_email

    • The American Bar Association is urging federal lawmakers to rethink a possible plan to require businesses to use the accrual method instead of traditional cash accounting in the discussion draft Tax Reform Act of 2013.

      Accrual accounting would be more complex and expensive, the ABA's president writes in letters to lawmakers, than the system currently used by many law firms, which recognizes income and expenses for tax purposes when money is actually received and paid out, respectively. A number of others also have objected to forcing businesses to adopt the accrual method, which could require companies and law firms to pay tax on income they not only haven't received but may never receive, according to the ABA and The Hill's On the Money blog.

      "Although we commend you for your efforts to craft legislation aimed at simplifying the tax laws—an objective that the ABA and its Section of Taxation have long supported—we are concerned that Section 212 would have the opposite effect and cause other negative unintended consequences," President James R. Silkenat wrote in Jan. 13 letters to leaders of the Senate Finance Committee (PDF) and the House Ways and Means Committee (PDF).

      "This far-reaching provision would create unnecessary complexity in the tax law by disallowing the use of the cash method; increase compliance costs and corresponding risk of manipulation; and cause substantial hardship to many law firms and other personal service businesses by requiring them to pay tax on income they have not yet received and may never receive," Silkenat continues. "Therefore, we urge you and your committee to remove this provision from the overall draft legislation."

      The potential law in its present form would apply to businesses with annual gross receipts above $10 million.

      Jensen Comment
      The FASB requires cash flow statements as supplements to accrual accounting financial statements. Accrual accounting for revenues (apart from mark-to-market accounting for financial instruments) recognizes revenues when they become legally earned irrespective of the the timing of payments. Cash flow accounting without accrual accounting as well is frowned upon because management can manipulate (manage) earnings by simply writing contracts that time collections in advance of or after legally earning revenues.

      There can also be misleading matchings expenses against cash flow revenues. For example, in one year firms can take an "earnings bath" by timing cash outflows for the purpose of next year showing an enormous jump in cash flow earnings because so many expenses were deducted the year before the revenues they helped generate are realized in cash.

      Accrual accounting is generally required for firms that sell their stocks and bonds to the public. It is also generally required for firms that borrow money from financial institutions. Law firms are different in that partners of a law firm can usually choose most any accounting method they want since outsiders are less impacted by "misleading" financial statements.

      Law firms have special problems with accounting.
      Most of the expenses are for relatively high priced labor. Many of the cases have great uncertainties as to when and if they will generate revenues. Whereas medical and accounting firms are relatively assured of collecting fees for cases, it's sometimes very hard to over many years to account for pending law firm cases that are still open on the books. Capitalized (accumulated prepaid expenses) cases are soft assets that are not as a rule traded among law firms like pending oil wells can be traded among oil firms.

      I suspect there's a history of student projects and term papers focused on accounting for law firms. If not, now is a very good time to consider such projects that demonstrate how memorized bookkeeping in textbooks can become difficult to apply in the real world.

      Bob Jensen's threads on accrual versus cash flow accounting are at
      http://www.trinity.edu/rjensen/Theory02.htm#CashVsAccrualAcctg

      Bob Jensen's threads on earnings manipulation are at
      http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

  • Robert E Jensen

    Teaching Case on the Allowance for Doubtful Accounts accrual accounting (under the Matching Concept) Versus
    the Cooke Jar Accounts accounting (under the Profit Smoothing Concept)

    Either the banks are illegally using the Allowance for Doubtful Accounts ledger inappropriately as cookie jar reserves or there is something that I'm not aware of that suddently allows USA banks to use cookie jar accounts apart from accounting rules and regulations for other companies.

    The Allowance for Doubtful Accounts ledger accounts were never intended to be cookie jar income smoothing accounts.

    The bottom line is that I do not understand the article below by Michael Rapaport.

     

    From The Wall Street Journal Weekly Accounting Review on November 1, 2013

    Reserve Funds Pad Profits
    by: Michael Rapoport
    Oct 26, 2013
    Click here to view the full article on WSJ.com
     

    TOPICS: Allowance For Doubtful Accounts, Bad Debts, Banking, Earnings Management, FASB

    SUMMARY: The article focuses on bank loan loss reserves, but the parallel to income effects from any reduction in bad debt provisions can be highlighted to students. At the end of the article, the FASB's proposed changes to an impairment model for loan losses-looking to future expectations of realizable cash flows rather than only past collectability of receivables-is discussed.

    CLASSROOM APPLICATION: The article may be used to cover banking or any loan loss allowance. It also may be used to cover the FASB/IASB project on Financial Instruments--Credit Losses.

    QUESTIONS: 
    1. (Introductory) What area of bank reporting has the Wall Street Journal analyzed for this article? How are bank regulators also looking at this issue?

    2. (Advanced) What are loan loss reserves? What alternate term does the accounting profession use in place of "reserves"? In your answer, contrast this term with the word "provision."

    3. (Advanced) Summarize the accounting for allowance for uncollectable accounts. How is an allowance for uncollectable accounts (or allowance for bad loans or receivables) established? What happens when an uncollectable account is written off?

    4. (Advanced) What happens when an allowance for uncollectable accounts is reduced because of improving economic conditions leading to better collectability of receivables? Specifically address the statement in the article that "accounting rules allow the money to flow directly into profits."

    5. (Introductory) What is the concern with the timing of banks improving profits with the "release" or reduction in allowances for uncollectable loans?

    6. (Advanced) "Bankers say current accounting rules essentially compel them to release reserves when loan losses ease..." Explain this statement.

    7. (Advanced) "Rule makers at the Financial Accounting Standards Board have proposed changes..." in a project on Financial Instruments-Credit Losses. Access the summary of this Proposed ASU on the FASB web site at http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176160587228 Summarize the reasons for the project.

    8. (Advanced) Again return to the FASB proposed ASU. How does an impairment model consider future cash flows better than traditional methods of establishing an allowance for uncollectable accounts? To answer, describe the process of determining an impairment of an asset and compare to the description you wrote in answer to question 3 above.
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Reserve Funds Pad Profits," by Michael Rapoport, The Wall Street Journal, October 26, 2013 ---
    http://online.wsj.com/news/articles/SB10001424052702304682504579155931092819234?mod=djem_jiewr_AC_domainid

    Federal regulators have warned banks to be careful about padding their profits with money set aside to cover bad loans. But some of the nation's biggest banks did more of it in the third quarter than earlier this year.

    J.P. Morgan Chase JPM -2.02% & Co., Wells Fargo WFC -0.95% & Co., Bank of America Corp. BAC -1.41% and Citigroup Inc., C -2.21% the nation's largest banks by assets, tapped a total of $4.9 billion in loan-loss reserves in the third quarter, up by about a third from both the second quarter and the year-ago quarter after adjustments. All the banks except Citigroup showed significant increases compared with the second quarter.

    Accounting rules allow the money to flow directly into profits. In all, it made up 18% of the banks' third-quarter pretax income excluding special items, the highest percentage in a year, according to an analysis by The Wall Street Journal.

    The moves come at a time when banks are being slammed by revenue slowdowns. Big commercial banks have suffered from a double whammy of plunging mortgage lending and trading activity. Third-quarter revenue for the four banks dropped an average of 8% from the previous quarter. The KBW Bank Index has declined 2% in the past three months, while the S&P 500 stock index has gained 4% over the same period.

    The accounting maneuvers show how banks can prop up earnings when business hits a rough patch.

    "You've seen reserve releases improve the stated numbers," said Justin Fuller, a Fitch Ratings analyst. "Going forward, I think there's fewer levers to pull for the banks."

    Investment banks are feeling the squeeze as well. Goldman Sachs Group Inc. cut the funds it set aside for compensation in the third quarter, a move that bolstered its results in the face of a 20% revenue decline from the same quarter a year earlier.

    Such moves are "very emblematic of what's going on," said Charles Peabody, partner in charge of research at Portales Partners LLC, a financial-services research firm. The degree to which the banks' earnings rely on loan-loss reserves "exposes the lack of growth" in their traditional businesses, he said.

    The banks justify the releases. They cite improvements in credit quality and economic conditions—which make it less necessary for them to hold large amounts of reserves as a cushion against loans that go sour—and they say they are following accounting rules that require them to release funds as losses ease.

    A Bank of America spokesman said "the significant impact in credit quality we've seen in the last 12 months" has driven the reserve releases. J.P. Morgan, Wells Fargo and Citigroup all pointed to previous comments their top executives recently made indicating that reserve releases were merited because of factors like improving credit quality and the recent increase in housing prices.

    But the Office of the Comptroller of the Currency, which regulates nationally chartered banks and federal savings associations, is reiterating warnings to banks about overdoing it.

    In a statement to the Journal, Comptroller Thomas Curry said the OCC is monitoring banks' loan-loss allowances "very closely" and that "we continue to caution banks not to move too quickly to reduce reserves or become too dependent on these unsustainable releases." He didn't comment specifically on the banks' third-quarter releases, but said OCC examiners "will continue to challenge allowances on a bank-by-bank basis if necessary."

    If the regulator finds problems with a bank's reserves, it can issue a "matter requiring attention," a specific finding of a deficiency that a bank must address, an OCC spokesman said. The agency has thousands of such findings outstanding on a variety of subjects, but the OCC spokesman wouldn't say how many, if any, were related to banks' reserve releases.

    Mr. Curry has been vocal on the issue for more than a year. In September 2012, he called it a "matter of great concern," warning banks that "too much of the increase in reported profits is being driven by loan-loss-reserve releases."

    Last month, Mr. Curry said in a speech that when economic growth is slow, as it is now, banks might take more risks to maximize their returns, and so it is "particularly important" they maintain appropriate reserves. While some level of reserve releases is "certainly warranted," he said, the ease of boosting earnings through the practice "has proved habit-forming" at some banks, though he didn't single out any specific institutions.

    Mr. Curry said his previous concerns initially seemed to get banks' attention, and reserve releases temporarily eased, but that was "an anomaly." Since then, he said, the releases have increased again, despite "loosening credit underwriting standards" that suggest banks are facing higher risks.

    The OCC isn't alone in its concern. Last year, Federal Deposit Insurance Corp. Chairman Martin Gruenberg said the trend of earnings driven by lower loan-loss provisions "cannot go on forever." An FDIC spokesman said Friday, "We will continue to evaluate and confirm the ongoing adequacy of reserves during our regular examinations."

    Other banks are releasing reserves, as well, though the amounts drop off drastically below the top four. In the second quarter, the most-recent period for which industrywide figures are available, nearly 40% of all FDIC-insured banks released reserves, according to the FDIC. As of June 30, the industry's bad-loan reserves had fallen to their lowest level as a percentage of total loans since before the financial crisis began, according to FDIC data.

    J.P. Morgan released $1.8 billion in the third quarter, including $1.6 billion from its consumer and community banking unit, accounting for 19% of its pretax income after the bank's giant litigation expenses in the quarter are excluded. That is higher than in recent quarters, though the bank's nonperforming assets have declined 18% over the past year, helping to justify a larger release.

    Bank of America released $1.4 billion, comprising 29% of pretax income, and Wells released $900 million, or 11% of pretax income, its biggest release in more than two years. Citigroup released $778 million, down slightly from the second quarter, and the release amounted to 18% of pretax income. At all three, the percentage of pretax income was up from the second quarter, and nonperforming assets have fallen at all four banks at least 18% compared with a year ago.

    Continued in article

    Jensen Comment

    This teaching case will be very confusing to accounting students learning from traditional textbooks. In those textbooks the Allowance for Doubtful Accountants ledger account has nothing to do with cash in reserve funds, cookie jar accounting, or profits smoothing funds. The Allowance for Doubtful Accounts is simply a contra account to receivables assets in the accrual system that forces companies to currently expense the portion of receivables that is estimated will not be collected. It is a way to anticipate bad debt losses that are anticipated will not be collected. Bad debt losses are not to be estimated in advance only when there is no reliable statistical basis for estimating them in advance such as when a company has only a few customers (like Boeing) as opposed to millions of customers (like Sears). Sears can statistically estimate with great accuracy what portions of credit sales this year will not be collected in later years.

    The key issue that will be confusing to students is what triggers a debit (reduction) in the Allowance for Doubtful Accounts ledger account.
    Our USA textbooks teach that this Allowance for Doubtful Accounts ledger account deibt (reduction) comes when an account is ultimately written off as a bad debt. The expense for this was estimated in an earlier year of a sale under the Matching Concept that tries to match expenses in the same year that those expenses are associated with the revenues they helped generate. Hence current revenues and profits are not reduced due to bad debt write offs from sales made on account in prior years.

    Cookie Jar Reserve Funds for Income Smoothing Rather Than Bad Debt Accruals
    One difference in the past between USA accounting and European accounting (especially in Switzerland) was that USA GAAP discouraged having rainy day "cookie jar" reserve accounts that were set up to smooth profits rather than merely satisfy better matching of revenues and expenses under the matching concept.
    Bob Jensen's thread on Cookie Jar Accounting at
    http://www.trinity.edu/rjensen/Theory01.htm#CookieJar

    Question
    What is cookie jar accounting and why is it generally a bad thing in financial reporting?

    Answer
    Cookie jar is more formally known as earnings reserve accounting where management manipulates the timings of earnings and expenses usually to smooth reported earnings and prevent shocks up and down in the perceived stability of the company. European companies in the past notoriously put deferred earnings in "cookie jars" so as to picture themselves as solid by covering bad times with deferrals out of the cookie jar that mitigate the bad news and vice versa for good times. The problem with too much in the way of a good time (in terms of financial reporting) is that accelerated growth rates in one year cannot generally be maintained every year and it may be a bad thing, in the eyes of management, to have investors expecting high rates of growth in revenues and earnings every year.

    What's wrong with cookie jar reporting is that it allows management wide latitude in discretionary reporting that is a major concern to both investors and standard setters. Accounting reports become obsolete when they mix stale cookies from the cookie jar with fresh sweets and lemon balls of the current period.

    Also see http://en.wikipedia.org/wiki/Cookie_jar_accounting

    You can read more about FAS 106 at http://www.fasb.org/st/index.shtml
    Scroll down to FAS 106 on "Employers' Accounting for Postretirement Benefits Other Than Pensions"

    Now let's consider the following article:
    "Reserve Funds Pad Profits," by Michael Rapoport, The Wall Street Journal, October 26, 2013 ---
    http://online.wsj.com/news/articles/SB10001424052702304682504579155931092819234?mod=djem_jiewr_AC_domainid

    Federal regulators have warned banks to be careful about padding their profits with money set aside to cover bad loans. But some of the nation's biggest banks did more of it in the third quarter than earlier this year.

    Jensen Comment
    Firstly, in USA textbooks we teach that money (cash) is not usually set aside for the Allowance for Doubtful Accounts. Presumably cash could be set aside that is earmarked for future bad debts, but this result in the opportunity loss on what that cash could earn when invested in more profitable operations rather than being stored in a savings account.

     

    "Reserve Funds Pad Profits," by Michael Rapoport, The Wall Street Journal, October 26, 2013 ---
    http://online.wsj.com/news/articles/SB10001424052702304682504579155931092819234?mod=djem_jiewr_AC_domainid

    J.P. Morgan Chase JPM -2.02% & Co., Wells Fargo WFC -0.95% & Co., Bank of America Corp. BAC -1.41% and Citigroup Inc., C -2.21% the nation's largest banks by assets, tapped a total of $4.9 billion in loan-loss reserves in the third quarter, up by about a third from both the second quarter and the year-ago quarter after adjustments. All the banks except Citigroup showed significant increases compared with the second quarter.

    Accounting rules allow the money to flow directly into profits. In all, it made up 18% of the banks' third-quarter pretax income excluding special items, the highest percentage in a year, according to an analysis by The Wall Street Journal.

    Jensen Comment
    In USA textbooks we teach that money does not flow directly into profits when receivables are declared bad debts and written off against the Allowance for Doubtful Accounts contra account. Firstly, there's usually no cash that's been set aside for such purposes. Secondly, the bad debt expense was estimated and written off earlier in the year that the loans were made so that profits were not overstated in those earlier years.

    It would be a violation of USA GAAP if a bank used the Allowance for Doubtful Account reduction for anything other than a legitimate admission that a receivable must be at last deemed as uncollectable. It is the uncollectablity of the account that triggers the write down of the Alllowance for Doubtful Accounts. This contra account should never be a cookie jar account for the purpose of smoothing profits independently of actually writing off of uncollectable accounts.

    Either the banks are illegally using the Allowance for Doubtful Accounts ledger inappropriately as cookie jar reserves or there is something that I'm not aware of that allows USA banks to use cookie jar accounts apart from accounting rules and regulations for other companies.

    Didn't Fair Value Accounting for Financial Instruments Eliminate the Matching Concept and the Allowance for Doubtful Accounts?
    Yes and no.
    If JP Morgan bought $10 million worth of Greek bonds, USA GAAP dictates that the value of those bonds should be written up and down for their estimated value in the financial markets. (Rules for this have recently changed, but I will not go into all of that here.)

    But if Sears has 25 million accounts receivable on the books, including the account of Bob Jensen, it is beyond comprehension that Sears will will track the current fair value of the $29.18 that Bob Jensen currently owes Sears or the current fair value of each of the other tens of millions accounts receivable. Instead Sears with set up an aging schedule for the millions of  active accounts and estimate what portions of all accounts in each age class will eventually be written off as bad debts. Then in the year of sale those estimates will be expensed and credited to an Allowance for Doubtful Accounts ledger account under the Matching Concept just as literally all the USA accounting textbooks have explained for decades.

    Similarly, JP Morgan and other large banks will use fair value accounting for large-account financial instruments but will not use fair value accounting for 33 million small loans of under $500 to customers. Thus even though fair value theorists would like to kill and bury the Matching Concept, this concept is alive and well due to the total impracticality of tracking fair values of millions and millions of small accounts receivable and small loans by banks.

    But the Allowance for Doubtful Accounts ledger accounts were never intended to be cookie jar income smoothing accounts.

    The bottom line is that I do not understand the article above by Michael Rapaport.


    "Banks Need Long-Term Rainy Day Funds: Accounting rules prevent banks from building loss reserves until shortly before a bad loan is actually written off. That's just too late," by Eugene A. Ludwig and Paul A. Volcker, The Wall Street Journal, November 16, 2012 ---
    http://professional.wsj.com/article/SB10001424127887324556304578120721147710286.html?mg=reno64-wsj#mod=djemEditorialPage_t

    Governments around the world are taking bold steps to minimize the likelihood of another catastrophic financial crisis. Regulators and financial institutions already have their hands full, so the bar for adding anything to the agenda should be high.

    However, one relatively simple but critically important item should move to the top of the list: reforming the accounting rules that inexplicably prevent banks from establishing reasonable loan-loss reserves. If reserve rules had been written correctly before 2008, banks could have absorbed bad loans more easily, and the financial crisis probably would have been less severe. It is now time, before the next crisis, to recognize that reality.

    Loan-loss reserves get far less attention than capital or liquidity requirements, which are subject to specific government regulations. Nevertheless, the "Allowance for Loan and Lease Losses" should be an essential part of assessing the safety and soundness of any bank. The ALLL—not Tier 1 capital or even cash-on-hand—is the most direct way a bank recognizes that lending, including necessary and constructive lending, entails risk. Those risks should be recognized in both accounting and tax practices as a reasonable cost of the banking business.

    However, banks are now only allowed to build their loan-loss reserves according to strict accounting conventions, enforced by the Securities and Exchange Commission. Reserves have to be based on losses that are strictly "incurred," in effect shortly before a bad loan is written off. Bankers have been prohibited from establishing reserves based on their own expectations of future losses.

    The practical result is that in good times real earnings are overrated. Conversely, the full impact of loan losses on earnings and capital is concentrated in times of cyclical strain.

    Why have accounting conventions created this perverse result? Some accountants claim that giving banks flexibility with their reserves is bad because it lets bankers "manage earnings"—that is, to raise or lower results from quarter to quarter to look better in investors' eyes. This is a weak argument, because the ALLL reflects a banking reality, and the allowance itself is completely transparent.

    No one is misled when sufficient disclosures exist. The size of the bank's reserve cushion will be on the balance sheet, and it would need to be recognized as reasonable by auditors, supervisors and tax authorities. Importantly, from a financial policy point of view, reserves will tend to be countercyclical, likely to discourage aggressive lending into "bubbles" but helping to absorb losses in times of trouble.

    Capital is vital to the safety and soundness of banks. It is the ultimate and necessary protection against insolvency and failure. However, permitting a more flexible allowance for loan-loss reserve, an approach that gives banks and prudential regulators the right to exercise reasonable discretion to build a more flexible cushion in case of loss, is a must. Accounting rules need to change to permit this to happen.

    Mr. Ludwig, the CEO of Promontory Financial Group, was Comptroller of the Currency from 1993 to 1998. Mr. Volcker, former chairman of the Federal Reserve System, is professor emeritus of international economic policy at Princeton University.

     

    Bob Jensen's threads on where fair value accounting fails ---
    http://www.trinity.edu/rjensen/Theory02.htm#FairValueFails

     

    Jensen Conclusion
    Apparently it's not too late under the current wild west accounting our our big USA banks.

  • Robert E Jensen

    From the Scout Report on October 11, 2013
    Modeling And Simulation Tools For Education Reform ---  http://www.shodor.org/master/

    Created by the Shodor Education Foundation, Inc., the Modeling And Simulation Tools for Education Reform (MASTER) provide useful educational tools that help students and teachers learn through observation and modeling activities. The Shodor Foundation worked in tandem with the National Center for Supercomputing Applications, George Mason University, and other educational organizations to craft these tools and visitors can access all eight of them here. The Fractal Modeling Tools are a good place to start as visitors can download the required software or take in some instructional materials, such as the interactive fractal microscope and the snowflake fractal generator. Other notable areas here include The Pit and the Pendulum, which offers the work of Edgar Allan Poe as a way to learn about better reading through computation.

    Bob Jensen's threads on Tools and Tricks of the Trade ---
    http://www.trinity.edu/rjensen/000aaa/thetools.htm

    GeoGebra (resources, including software, for teaching and learning mathematics) --- http://www.geogebra.org/cms/en/

    Statistics Explained Through Modern Dance: A New Way of Teaching a Tough Subject ---
    http://www.openculture.com/2013/10/statistics-explained-with-modern-dance.html

    Mathematical Association of America: Reviews
    http://www.maa.org/publications/maa-reviews

  • Robert E Jensen

    Deloitte's New Site for International Accounting Teaching, Scholarship, and  Research ---
    http://www.iasplus.com/en/news/2013/02/research-and-education

    We have created a new page on IAS Plus that is tailored to help users easily locate academic accounting material and resources relevant for educational research that is available on IAS Plus and other useful sites.

    Bookmark this site ---
    http://www.iasplus.com/en/resources/research-and-education

    Bob Jensen's helpers for accounting educators ---
    http://www.trinity.edu/rjensen/default3.htm

    Bob Jensen's helpers for accounting researchers ---
    http://www.trinity.edu/rjensen/default4.htm

    Bob Jensen's threads ---
    http://www.trinity.edu/rjensen/threads.htm

  • Robert E Jensen

    How could this be if the Matching Principle is dead?

    September 1, 2012 message from Scott Bonacker

    If you need an example for a class, here is one about how third party developers and the way they offer products through Intuit  is being changed -

    At a high level, the current changes are the result of revenue recognition requirements as determined by the Intuit auditors. The short story is that if Intuit sells the QuickBooks desktop product, they are required to recognize the revenue over the time period that the customer receives services related to that product. For example, if a customer is using QuickBooks 2010, and Intuit is providing support for the sync manage for that product, then (in theory) the time period for the revenue recognition is not when the software was sold. The revenue should be allocated over the time period that Intuit is incurring costs for that product. In this case, if they provide support for the Sync Manager until the product is sunsetted, then the time period could be 3 plus years as compared to recognizing the revenue in the year of purchase.

    More in the article

    http://www.sleeter.com/blog/2012/08/intuit-app-center-changes-and-how-they-affect-you/

     

    "Global Financial Reporting: Implications for U.S.," by Mary Barth, The Accounting Review, Vol. 83, No. 5, September 2008 ---
    Not free at http://www.atypon-link.com/AAA/doi/pdfplus/10.2308/accr.2008.83.5.1159

    This paper identifies challenges and opportunities created by global financial reporting for the education and research activities of U.S. academics. Relating to education, after overviewing the relation between global financial reporting and U.S. GAAP, it offers suggestions for topics to be covered in global financial reporting curricula and clarifies common misunderstandings about the concepts underlying financial reporting. Relating to research, it explains how and why research can provide meaningful input into standard-setting, and identifies questions that can motivate research related Go topics on the International Accounting Standards Board’s technical agenda and to the globalization of financial reporting.

    . . .

    Globalization of financial reporting is becoming a reality. However, many challenges remain. There are many around the world unfamiliar with independent standard-setting and an investor focus for financial reporting. They are struggling with the changes but are learning. No change is universally popular, and revolutionary “big bang” change is very difficult. Evolutionary change is somewhat easier to implement and absorb, although changing multiple times is costly. We also have not yet fully resolved the issue of individual country modifications to standards, which stand in the way of truly global financial reporting. Outside of the U.S., there is a concern that the U.S. will dominate. This concern relates not only to our thinking about issues, but also to the way the standards are written. In particular, there is a concern that the U.S. tendency to provide considerable detailed guidance will manifest itself in global standards. Inside the U.S., there is a concern that IFRS lack rigor and, thus, are not high quality. There also is a concern that the standards are not specific enough and enforcement around the world is not strict enough to ensure consistent application. Clearly, there is a tension. However, progress in the last five years toward global financial reporting has been breathtaking, and it continues apace. The SEC permitting use of IFRS in the U.S. would be a major step forward.

    The implications for U.S. academics are profound. The U.S. is deeply involved in and will be affected by global financial reporting. U.S. academics need to educate first themselves and then their students to be able to participate in a global world. There also is a myriad of open questions for research that U.S. academics can address. The capital markets are demanding a single language of business. They are demanding that the single language of business be developed internationally, not solely in the U.S. This demand for a single global language of business will be met. The market forces are too great to stop. The question is how, not whether, it will happen, and how, not whether, U.S. academics will participate.

    On Page 1166 Mary flatly asserts:

    First, there is no “matching principle.” That is, matching is not an end in itself and matching is not an acceptable justification for asset or liability recognition or measurement. The conceptual framework explains that matching involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events (FASB 1985, para. 146; IASB 2001, para. 95). Matching will be an outcome of applying standards if the standards require accounting information that meets the qualitative characteristics and other criteria in the conceptual framework. Matched economic positions will naturally result in matched accounting outcomes. However, the application of a matching concept in the conceptual framework does not allow the recognition of items in the statement of financial position that do not meet the definition of assets or liabilities (IASB 2001, para. 95). Thus, there would be no justification for deferring expense recognition for an expenditure that provides no future economic benefit or for deferring income recognition for a cash inflow that will not result in a future economic sacrifice.

    But matching still seems to prevail even though there is no more "matching principle according to the IASB and the FASB. The answer is that revenue can be deferred when there will be "future economic sacrifice." Sounds like matching to me. Neither domestic nor international standards allow early realization of revenue before it is legally earned. The standards just do not allow automobile inventories to be written up to expected sales prices until those sales are finalized. Carrying the inventories at something other than sales value is part and parcel to the "matching principle" eloquently laid out years ago by Paton and Littleton. Both international and domestic standards still require cost amortization, depreciation, and creation of warranty reserves. These are all rooted in the "matching principle" which has not yet died when defining assets and liabilities in the conceptual framework. In most instances the historical cost is still being booked and spread over the expected life of future economic benefits. Even if a company adopted a replacement cost (current cost) adjustment of historical cost of a depreciable asset, those replacement costs still have to be depreciated since old equipment cannot simply be adjusted upward to new, un-depreciated replacement cost.

    Paton and Littleton never argued that the "matching principle" for expense deferral applies to assets that have "no future economic benefits." In that case there would be no benefits against which to match the deferred expense.  Hence there's no deferral in such instances. I do not buy Barth's contention that there is no longer any "matching principle." If there are potential future benefits, the matching principle still is king except in certain instances where assets are carried at exit values such is the case for precious metals actively traded in commodity markets and financial assets not classified as "held-to-maturity."

    The Matching Principle lives on when there are expected "future economic sacrifices."

    September 1, 2012 message from Scott Bonacker

    If you need an example for a class, here is one about how third party developers and the way they offer products through Intuit  is being changed -

    At a high level, the current changes are the result of revenue recognition requirements as determined by the Intuit auditors. The short story is that if Intuit sells the QuickBooks desktop product, they are required to recognize the revenue over the time period that the customer receives services related to that product. For example, if a customer is using QuickBooks 2010, and Intuit is providing support for the sync manage for that product, then (in theory) the time period for the revenue recognition is not when the software was sold. The revenue should be allocated over the time period that Intuit is incurring costs for that product. In this case, if they provide support for the Sync Manager until the product is sunsetted, then the time period could be 3 plus years as compared to recognizing the revenue in the year of purchase.

    More in the article

    http://www.sleeter.com/blog/2012/08/intuit-app-center-changes-and-how-they-affect-you/

  • Robert E Jensen

    "At Yale, Online Lectures Become Lively Books," by Jennifer Howard, Chronicle of Higher Education, April 26, 2012 ---
    http://chronicle.com/blogs/wiredcampus/at-yale-online-lectures-become-lively-books/36162?sid=wc&utm_source=wc&utm_medium=en

    The Massachusetts Institute of Technology, Stanford University, and other institutions are old hands now at taking course material from the classroom and lab and putting it online for learners anywhere to use. Yale University may be the first to reverse the process, using its Open Yale Courses as the basis for an old-fashioned book series.

    This month, Yale University Press released the first batch of paperbacks based on lecture courses featured in the online-learning program. Priced at $18 and available in e-format too, the books are meant to expand the audience for the course material even further, according to Diana E.E. Kleiner. A professor of art history and classics at Yale, Ms. Kleiner is the founding project director of Open Yale Courses.

    “It may seem counterintuitive for a digital project to move into books and e-books, because these are a much more conventional way of publishing,” she says. But the Open Yale Courses are about “reaching out in every way that we could.” That includes posting audio and video versions online (via Yale’s Web site, YouTube, and iTunes), and providing transcripts and now book versions of the lectures.

    Having transcripts of their lectures to work with gives faculty authors a jump-start. “It was incomparably the easiest book I have ever written,” says Shelly Kagan, a Yale professor of philosophy whose lecture course on death has become one of the Open Yale program’s most popular offerings. “I just started with the transcripts and treated that as a first draft.” The book that resulted, also called Death, has already been reviewed in the Wall Street Journal.

    Other books have taken him 10 years, Mr. Kagan says. This one took only a few months. Talk to him in detail about the process, though, and it’s clear he put a lot of fresh labor into the project, in addition to the years of work that went into creating the lectures in the first place.

    Even very good lectures contain grammatical mistakes, jokes or asides, or physical cues that don’t work on the page, and other unfelicities that might distract or annoy a reader. Mr. Kagan polished those away and restructured some of the discussion so that it followed a more logical order. He changed some descriptive details.

    He preserved the freewheeling, more personal style he uses in the lecture hall. “Although I changed the setting, and some of the examples, cleaned up the grammar, moved points around, and so forth and so on, I tried very hard to keep the conversational tone from the lectures,” he says. ” The subject matter is heavy—I am talking about death, after all—but I don’t think we have to discuss it in a ponderous, inaccessible, ‘academic’ fashion.”

    He doubts he would have turned his lectures on death into a book at all without the transcripts and the feedback from people outside Yale “suggesting there’s a hunger for this stuff.” Since his lectures went online, he’s heard from people all over the world. He’s even become a kind of philosopher-guru in China, where volunteers created Mandarin subtitles for his videotaped lectures.

    “I’ve just had the most amazing experiences with it,” he says of his participation in Open Yale. “I get e-mails from people in all walks of life, from literally all corners of the globe.” Some want to engage him in philosophical debate; others share stories about their own grappling with life-and-death issues. In many cases, “people were striking a deeply personal note,” he says. “The whole range of it has been humbling and gratifying.”

    Laura Davulis, associate editor for history and large digital projects at the Yale press, edits the series. Because the authors are so steeped in their material, and because the idea is to preserve the original spirit of the lectures, “I definitely have a lighter hand” in editing, she says. “My role is really more guidance in terms of how to take material that’s spoken and turn it into something that’s appropriate for a reading audience but still has that friendliness and accessibility of sitting in a course and listening to the lecture.”

    The books in the series aren’t peer-reviewed as outside manuscripts would normally be, according to Ms. Davulis, but they’re approved by the press’s acquisitions panel and its faculty committee. Although the series is aimed at readers beyond Yale, it makes for a nice on-campus partnership between Yale’s press and the online-education project. “One of the things we wanted to play up was the Yale connection,” she says.

    Bob Jensen's threads on Tools and Tricks of the Trade ---
    http://www.trinity.edu/rjensen/000aaa/thetools.htm

    Bob Jensen's threads on free courses, lectures, videos, and course materials from prestigious universities ---
    http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

     

  • Robert E Jensen

    Khan Academy --- http://en.wikipedia.org/wiki/Khan_Academy
    Khan Academy Home Page --- http://www.khanacademy.org/

    On March 11, 2012 CBS Sixty Minutes broadcast a great module on the Khan Academy ---
    Khan Academy: The future of education?  Click Here
    http://www.cbsnews.com/8301-18560_162-57394905/khan-academy-the-future-of-education/?tag=contentMain;cbsCarousel
     

    With the backing of Gates and Google, Khan Academy and its free online educational videos are moving into the classroom and across the world. Their goal: to revolutionize how we teach and learn. Sanjay Gupta reports. Web Extras

    Khan Academy: The future of education? Khan Academy: School of the future Khan Academy in the classroom More »

    (CBS News) Sal Khan is a math, science, and history teacher to millions of students, yet none have ever seen his face. Khan is the voice and brains behind Khan Academy, a free online tutoring site that may have gotten your kid out of an algebra bind with its educational how-to videos. Now Khan Academy is going global. Backed by Google, Gates, and other Internet powerhouses, Sal Khan wants to change education worldwide, and his approach is already being tested in some American schools. Sanjay Gupta reports.

    The following script is from "Teacher to the World" which aired on March 11, 2012. Sanjay Gupta is the correspondent. Denise Schrier Cetta, producer. Matthew Danowski, editor.

    Take a moment and remember your favorite teacher - now imagine that teacher could reach, not 30 kids in a classroom, but millions of students all over the world. That's exactly what Sal Khan is doing on his website Khan Academy. With its digital lessons and simple exercises, he's determined to transform how we learn at every level. One of his most famous pupils, Bill Gates, says Khan -- this "teacher to the world," is giving us all a glimpse of the future of education.

    35-year-old Sal Khan may look like a bicycle messenger, but with three degrees from MIT and an MBA from Harvard, his errand is intensely intellectual. In his tiny office above a tea shop in Silicon Valley, he settles in to do what he's done thousands of times before.

     

    [Sal Khan: We've talked a lot now about the demand curve and consumer surplus. Now let's think about the supply curve.]

     

    He's recording a 10-minute economics lesson. It's so simple - all you hear is his voice and all you see is his colorful sketches on a digital blackboard.

    Watch Internet phenomenon Sal Khan's video lessons

    [Khan: In this video we are going to talk about the law of demand.]

     

    When Khan finishes the lecture, he uploads it to his website - where it joins the more than 3,000 other lessons he's done. In just a couple of years he's gone from having a few hundred pupils to more than four million every month.

     

    Sanjay Gupta: Has it sunk in to you that you are probably the most watched teacher in the world now?

     

    Khan: I, you know, I try not to say things like that to myself. You don't want to think about it too much because it can I think paralyze you a little bit.

     

    [Khan: So if we get rid of the percent sign, we move the decimal over...]

     

    He's amassed a library of math lectures...

     

    [Khan: 12 plus four is sixteen...]

     

    Starting with basic addition and building all the way through advanced calculus.

     

    [Khan: We are taking limited delta x approach to zero. It's the exact same thing.]

     

    But he's not just a math wiz, he has this uncanny ability to break down even the most complicated subjects, including physics, biology, astronomy, history, medicine.

     

    Gupta: How much reading do you do ahead of time?

     

    Khan: It depends what I'm doing. If I'm doing something that I haven't visited for a long time, you know, since high school I'll go buy five textbooks in it. And I'll try to read every textbook. I'll read whatever I can find on the Internet.

     

    [Khan: Let's talk about one of the most important biological processes...]

    Continued in article

    The Always-Popular Open Sharing Salmon Khan
    "An Outsider Calls for a Teaching Revolution," by Jeffrey R. Young, Chronicle of Higher Education, February 26, 2012 ---
    http://chronicle.com/article/An-Outsider-Calls-for-a/130923/?sid=wc&utm_source=wc&utm_medium=en

    In just a few short years, Salman Khan has built a free online educational institution from scratch that has nudged major universities to offer free self-guided courses and inspired many professors to change their teaching methods.

    His creation is called Khan Academy, and its core is a library of thousands of 10-minute educational videos, most of them created by Mr. Khan himself. The format is simple but feels intimate: Mr. Khan's voice narrates as viewers watch him sketch out his thoughts on a digital whiteboard. He made the first videos for faraway cousins who asked for tutoring help. Encouraging feedback by others who watched the videos on YouTube led him to start the academy as a nonprofit.

    More recently Mr. Khan has begun adding what amounts to a robot tutor to the site that can quiz visitors on their knowledge and point them to either remedial video lessons if they fail or more-advanced video lessons if they pass. The site issues badges and online "challenge patches" that students can put on their Web résumés.

    He guesses that the demand for his service was one inspiration for his alma mater, the Massachusetts Institute of Technology, to start MITx, its self-guided online courses that give students the option of taking automatically graded tests to earn a certificate.

    Mr. Khan also works the speaking circuit, calling on professors to move away from a straight lecture model by assigning prerecorded lectures as homework and using class time for more interactive exercises, or by having students use self-paced computer systems like Khan Academy during class while professors are available to answer questions. "It has made universities—and I can cite examples of this—say, Why should we be giving 300-person lectures anymore?" he said in a recent interview with The Chronicle.

    Mr. Khan, now 35, has no formal training in education, though he does have two undergraduate degrees and a master's from MIT, as well as an M.B.A. from Harvard. He spent most of his career as a hedge-fund analyst. Mr. Khan also has the personal endorsement of Bill Gates, as well as major financial support from Mr. Gates's foundation. That outside-the-academy status makes some traditional academics cool on his project.

    "Sometimes I get a little frustrated when people say, Oh, they're taking a Silicon Valley approach to education. I'm like, Yes, that's exactly right. Silicon Valley is where the most creativity, the most open-ended, the most pushing the envelope is happening," he says. "And Silicon Valley recognizes more than any part of the world that we're having trouble finding students capable of doing that."

     

    Jensen Comment
    Important takeaways from the Sixty Minutes video is that there are currently 40-50 million users of Khan Academy. This has to be the future of learning technical modules, although inspiration, learning motivation, and learning certification (e.g., grades) must have other sources. I might note that the video modules used in the Khan Academy are very similar to the Camtasia Videos that I prepared to teach technical details to my students in accounting theory and AIS ---
    http://www.cs.trinity.edu/~rjensen/video/acct5342/
    These videos may not run on Windows 7 machines because of something bad that happened with Windows 7 ---
    http://www.cs.trinity.edu/~rjensen/video/VideoCodecProblems.htm

    The $50 million grant from the Gates Foundation enabled the Khan Academy to hire some sophisticated engineers who, among other things, have written software for tracking learning progress of users.

    The most wonderful feature of the technical learning modules at the Khan Academy is that there are thousands of them and they are all free. Students aged 10-100 can learn a vast amount of technical things if they are inspired and motivated to do so for learning's sake. They are great supplements for courses being taken for grades and transcripts. But they still only cover selected disciplines in math, science, technology, and social science. The coverage is still lacking in fields like accounting, law, and business except where quantitative methods like statistical analysis may come into play. But the Khan Academy is not finished adding new modules by any means.

    I might add that I found some relatively advanced-level accountancy modules at the Khan Academy such as CDO accounting and fair value accounting. But the Khan Academy still does not come close to covering what we teach in accountancy, auditing, tax and AIS relative what is taught in a mathematics curriculum.

    I suspect it may one day become a little like YouTube where experts will add video modules to Khan Academy. However, the postings to Khan Academy will no doubt be subjected to quality control filters.

    This is the wave of technical learning in the future. Video modules will not, however, replace the importance of team learning, studies of complicated cases that do not have definitive solutions (e.g., Harvard Business School Cases), and interactions with faculty and students that inspire and motivate students to want to learn more and more and more.

    Lastly, I want to note that I don't see any way possible not to love Sal Khan. He's an inspiration to the world.

    Saylor.org: Free Education --- http://www.saylor.org/

    Khan Academy Home Page --- http://www.khanacademy.org/

    Free lectures, videos, courses, and certificate credit from prestigious universities (including MITx) ---
    http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

  • Robert E Jensen

    Five Free Courses from Stanford Start This Month --- Click Here
    http://www.openculture.com/2012/03/5_free_courses_from_stanford_start_this_month.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

    Stanford’s big open course initiative keeps rolling along. On March 12, three new courses will get underway:

    Then, starting on March 19, two more will take flight:

    The courses generally feature interactive video clips; short quizzes that provide instant feedback; the ability to pose high value questions to Stanford instructors; feedback on your overall performance in the class; and a statement of accomplishment at the end of the course.

    And, yes, the courses are free and now open for enrollment.

    As always, don’t miss our big list of 425 Free Online Courses. It may just be the single most awesome page on the web.

    Story via Stanford University News. Algorithm image courtesy of BigStock.

    Bob Jensen's threads on the MITx Certificates and other free courses, lectures, and learning materials from prestigious universities ---
    http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI