I stumbled upon a pretty cool feature on facebook's redesign a few days ago, stats for categories such as music and movies for networks. If you're a facebook user and wanna check out what I'm seeing click on Networks, scroll down and you should see a "Network Statistics" section on the right side. If you're not a facebook user, check out the pics below:

University of Massachusetts at Amherst Network Stats:

No suprises here, Sublime and Family Guy top their respective charts, half the school is apparently not interested (or at least not affiliated) in politics, maybe that has something to do with the fact that a 1/3 of the campus is single and on the prowl?

Northeastern University Network Stats:

Northeastern has some similarities with Umass, a lot actually. 1/3 of the campus is single and 1/2 are not affiliated with a political view, the top TV show is Family Guy and the top book, like Umass is Harry Potter.

University of North Carolina at Chapel Hill Network Stats:

Hey, here's something interesting, UNC has only 1% less students who call themselves "liberal" (18%) than Northeastern and Umass (both at 19%)! Harry Potter once again tops the books list, but the Bible (something not on either of the other two networks) comes in at #2! facebook also backs up the popular claim that there are more girls than boys at the campus (46% female to 35% male).

In general, all three campuses have pretty much the same interests even though they have slightly different demographics. There's some grumblings on the Northeastern network page about the "masculinity" of their campus due to Jack Johnson being the #1 musical artist but at least they don't have Coldplay topping their charts like UNC! Sorry Coldplay fans, no me gusta...and of course Ben Folds joins the top ten list (they are from Chapel Hill), and the Fray make it into UNC's top ten list.

University of Southern California Network Stats:

From my personal experience at USC, the campus was a great source of new music and movies as many of the students had connections within the music industry either through friends in bands, or internship experience and of course the USC Film School is one of the best such programs in the country so I was expecting for USC's musical and cinematic preferences to be different from other schools, yet the facebook network stats doesn't back up this hypothesis. There are some slight differences, for instance USC has Gladiator and Zoolander in it's top ten movies and John Mayer in it's top ten music list, but other than those two slight differences, USC students like the same things UNC, Umass, and Northeastern students like. Not a very groundbreaking statement there, considering how students from everywhere attend schools everywhere and we're all so connected it's tough not to watch the same movies and listen to the same songs.

Let's see if these stats change any for the City of Boston network:

Aaargh, Coldplay at #1 again. Other than Rap and R&ampB making their way into the top ten list, there's not much of a difference between the Boston network page and the four colleges we've looked at. Looking at a few of the other cities across the country generally leads to the same results. There are differences in musical tastes between say Cincinatti, Ohio and Boston, Massachusetts but not a huge difference. What does this conformity say about our society? Are we all really that similar?

In late 2000, American International Group (AIG), one of the largest insurance companies in the world, struck an intentionally fraudulent deal with General Re Corporation, a Berkshire Hathaway company, so that AIG could add $500 million in reserves to its balance sheet for the last quarter of 2000 and first of 2001. In a plot conspired by multiple top executives, including AIG's then CEO Maurice Greenberg, General Re purchased reinsurance from AIG to cover some of Gen Re's insurance contracts. AIG treated the $500 million in acquired premiums as revenue, adding $500 million to its reserves, thus satisfying critics of AIG's low reserves balance. The individuals involved created phony documents to help support the false AIG accounting entries, which essentially falsely inflated the company's value by approximately $100 million since 2000.¹

The fraudulent transaction came to light in 2004 as part of a continuing investigation into the insurance industry's accounting practices, during which the Attorney General's office and NY Insurance Department began looking more closely into AIG. The SEC had previously expressed curiosity in AIG's business practices, in particular, the SEC was troubled by a product called “loss mitigation insurance” which AIG advertised to corporations through a brochure. The SEC brought litigation against AIG and several companies they believed AIG helped disguise losses in their financial statements. All of these trials were settled out of court. The investigation then turned to whether AIG had manipulated its own financial statements , which brought to light the shady accounting of the reinsurance transaction, as well as several off shore entities practically owned by AIG. According to one critic,

It's been an open secret for years on Wall Street that no one outside the company really understood its accounting. AIG has long been called ‘opaque' on Wall Street, which is what analysts say when they can't figure out a company's books because much of the detail is off the books.²

The SEC, in conjunction with the U.S. Department of Justice, New York Attorney General, and New York State Department of Insurance, again filed litigation against AIG shortly thereafter.

In the 2005 court proceedings, General Re executives admitted they knew ahead of time that AIG would plan to use a reinsurance transaction to increase its loss reserves, as AIG had been under scrutiny by analysts because of the low balance in their reserves. Many AIG executives admitted the transaction should have been classified as a loan, not as insurance. A crucial grey area here, which the Sarbanes-Oxley Act does not truly address, is how reinsurance should be categorized. As reinsurance is usually a loan, should it be classified as debt? Insurance companies such as AIG traditionally use reinsurance to protect themselves from risk. Reinsurance involves one company, AIG, ordering insurance from another company, Gen Re, to cover an insurance policy they wrote to a customer [insurance for insurance]. In particular AIG has been criticized for wrongly categorizing the finite insurance they purchased from Gen Re. Finite insurance, in essence, distributes the cost of a large insurance policy over several years. In the event that AIG is forced to pay a claim to its customer during the first few years of the policy being in effect, they would file a claim with Gen Re. During this short time period AIG is paying Gen Re a large premium, in effect paying the cost of the insurance policy it granted to its customer over several years. If no claims are made, most of the premium AIG paid is returned to AIG. Accounting standards in this area are open to interpretation,

…there is a question about the accounting for finite policies. 'Whether it's an attempt to trick people or not depends on how you are using it,' Shore notes. 'The question is: To what extent is this not insurance? To get paid a dollar today in exchange for a dollar tomorrow … that's not insurance.'³

The real red flag here, is that the reinsurance roles were switched in this case. AIG paid Gen Re $5 million to move $500 million of insurance contracts and their corresponding $500 million worth of premiums to AIG. Then, AIG claimed their cash reserves increased by $500 million, where in essence they had actually taken out a loan. If no claims were made to Gen Re within the specified time period, AIG would return the majority of the $500 million, hence why most accountants would classify this transaction as a loan. The grey area here is that for this cash movement to be considered insurance, some risk has to be transferred between the insuree and insurer. The common thought in this scenario is that risk was not transferred and thus the $500 million should be classified as a loan, thus increasing AIG's liabilities. The intent of the Sarbanes-Oxley Act is to prevent companies from hiding losses or reporting unearned revenue, in this aspect AIG adhered to the Sarbanes-Oxley Act perfectly,

Early in January, auditors reported that they had finished a yearlong effort analyzing A.I.G.'s internal controls as required under the Sarbanes-Oxley Act, the tough securities law adopted in the wake of the Enron and WorldCom collapses. A.I.G. scored quite high, the auditors proudly reported.⁴

As a result of the investigation, AIG restated five year's worth of financial reports, lowering its net income by 10%. In February 2006, the SEC filed an enforcement action against four Gen Re (former) employees and one AIG employee, finding that they violated anti fraud and other federal securities laws. Final settlements call for AIG to pay $1.64 billion toward a combination of shareholder lawsuits, SEC-monitored funds for investor payments, and underpayment of workers' compensation premium taxes in all 50 states.

Sarbanes-Oxley Act of 2002: Potential Effects

The Sarbanes-Oxley Act of 2002, had it been in place at the time of the 2000 and 2001 fraudulent events by AIG and Gen Re, may have helped prevent it from happening in the first place. One of the act's primary goals is to enforce auditor independence and require companies like AIG to have their own independent audit committees to monitor the company interaction with it auditor. Had these and other more strict internal controls been in place, both AIG's own self-monitoring and their auditor, PricewaterhouseCooper (PwC) LLP's, would have raised the red flag and possibly prohibited AIG from classifying the $500 million as revenue.

In fact, after the AIG fraud came to light, investigation into PwC revealed that it had been dishonest in its long-time auditing relationship with AIG, and that PwC had knowingly ignored warning signs and “red flags” regarding AIG's poor accounting methods. The audit committee of AIG's own board of directors repeatedly insisted it could not verify AIG's accounting methods. In a 2005 Washington Post article, the effects of the Sarbanes-Oxley Act on responsibility was emphasized. According to a spokesman for PwC, prior to the Sarbanes-Oxley Act,

Auditors would not have seen this as a 'red flag' or a scope limitation, as the board's proxy language simply described what was and what was not the responsibility of its audit committee at that time. Auditors also would not have been surprised to see that descriptive language changed after the passage of the Sarbanes-Oxley Act in 2002. The act was designed to make executives responsible for their companies' accounting.⁵

Among the other impacts the Sarbanes-Oxley Act could have had on the AIG/Gen Re scam is a potential fear factor that might have prohibited executives from getting involved in the first place. Under the Act, the penalties—both monetary and in terms of jail time—are much harsher than they once were for executives who knowingly commit fraud by misstating financial statements. In the SEC investigation of the Gen Re and AIG executives who concocted the plan, the fraud was treated lightly, and even joked about on recorded phone lines, as if there were to be no consequences. In testimony, former Gen Re executive John Houldsworth's phone records were revealed. Houldsworth, who pleaded guilty to criminal charges of misstating AIG's finances, was recorded as laughing about the scam: "They'll find ways to cook the books, won't they?" he said to CFO Elizabeth Monrad.⁶ She was reported to joke back. Had the Sarbanes-Oxley Act been in place, the risk on consequences for committing fraud may have been no joking matter.

One of the issues here with how the Sarbanes-Oxley Act applies to AIG & Gen Re is that the Sarbanes-Oxley Act's main purpose was to prevent companies from using loopholes and hiding their activities. At AIG and Gen Re, high-level executives conspired to miscategorize insurance as revenue. AIG intended to commit fraud, planned how to cover the fraud, committed the fraud, and then put into action their cover up plan. No act, no matter how strict, can force someone to tell the truth and to play the game fairly.

For many years, the standards that dictated the accounting industry on an international setting were as diverse as the world's population. Each country used to have their own accounting standards applicable in their country. As many corporations have become international, these individual standards caused a large amount of rework and comparison issues for accountants and auditors; they would have to prepare and analyze financial reports in accordance with their country's group of standards, as well as in accordance with the accounting standards for countries in which the corporation is listed on exchanges. Recently, however, many countries have begun adopting the International Financial Reporting Standards [IFRS] as their country's set of accounting standards. Notably, Russia, Turkey, Australia, Japan, the United Kingdom and the members of the European Union have either adopted or begun converging their own standards to match the IFRS¹.

Here in the U.S., collaborative convergence efforts have begun between the Financial Accounting Standards Board [FASB] and International Accounting Standards Board [IASB]². Although, the FASB creates and publishes accounting standards for domestic companies in the U.S., they have recognized the rising popularity of the IASB and their IFRS publication. Even though the FASB has joined the global accounting standard setting discussion late, they are still exerting a significant influence over how these international standards are being defined, as noted by the FASB:

In April 2004, to further the goal of promoting convergence of accounting standards used internationally, the Boards decided to combine their respective projects on the reporting and classification of items of revenue, expense, gains, and losses. In agreeing to pursue their similar projects jointly, the Boards agreed to take a fresh look at the presentation of information in the financial statements. The joint project has an expanded scope beyond presentation and display of items of income and expense; the project addresses presentation and display on the face of the financial statements that constitute a complete set of financial statements.³

As the American economy is such a large part of the global economy, this makes sense and benefits the global economy, in addition to our domestic market.

There exist several crucial differences between US GAAP and the IFRS system now used by a majority of countries around the world. For instance, in IFRS LIFO [Last in-First out] and extraordinary items are prohibited⁴. Note that by prohibiting extraordinary items, the IFRS also differs in how EPS is reported on the Income Statement. This and many other differences affects the way investors, analysts, creditors, government agencies, and business analyze financial statements. All of the parties just mentioned would agree that a global set of standards would reduce the complexity of these statements and thus reduce the time needed to properly utilize the financial statements:

By placing Global GAAP [Generally Accepted Accounting Principles] at the base of the new reporting model, the authors acknowledge the importance of being able to compare business results regardless of where a company is located. As barriers to international trade continue to get knocked down (through efforts that include the North American Free Trade Agreement and establishment of the European Union), and cross-border capital flows more freely, investors and others want reliable standards that share common metrics. In contrast, as DiPiazza and Eccles note, public capital markets today may use local GAAP, or principles based on national or international standards. Further, 'the quality of these standards varies widely as does how well they are applied'⁵

Many complications exist in converging the IFRS and U.S. GAAP, because of this level of difficulty the IASB and FASB have publicly acknowledged that this is a long-term project with a final solution many years in the future.

The IFRS uses more principles bases accounting versus the rules based accounting of GAAP in the U.S., as noted in this article from the Wharton Business school at the University of Pennsylvania, "For example, while U.S. GAAP is based on rules and specific details, International Financial Reporting Standards tend to be more broadly based on principles."⁶ The IFRS's reliance on principles over rules based accounting inherently increases the potential for different interpretations, but also provides guidance in more areas. A key debate in the convergence project between FASB and IASB, is whether the final accounting standard which emerges should be rules or principles based. Arguments from the IASB propose that the explosion in accounting frauds in the US are due to corporations following the letter of the law, rather than the spirit of the law. The FASB counters that real-world accounting contains literally an infinite amount of exceptions and unique situations, that a principle based system will never be able to fully describe how to act in all situations.

As a principle is more open to interpretation than a rule, the FASB does possess a valid point in their argument; however, a principle based accounting system has many more merits than the one currently employed by the FASB. Grey areas in principles can be clarified by the standards setting board, and cover more areas and provide for less exceptions than a rules based system. Thus a principles based system is easier to adhere to and less convoluted for outside parties to understand. International companies tend to agree with the IASB, as Mark Armour, Chairman of the FTSE 100 has stated, "We have a sensible accounting regime, the IASB is adopting a principles-based approach, and that should not be sacrificed on the altar of convergence on a global basis."⁷ In the FASB's domestic market, most concerned entities seem to align their opinion with that of the president and CEO of Nokia, Olli-Pekka Kallasvuo, who was quoted as saying,

I see a danger of bipolarization when it comes to global accounting,' Olli-Pekka Kallasvuo told a corporate-governance seminar, according to Reuters. 'There should be a really strong effort to make global harmonization possible. We need less discussion on whose rule is better[and] more on how to make [harmonization] possible.'⁸

Due to the uncertainty of what the future American accounting standard will be, individuals and organizations in the US, would rather have the FASB pick one of the options and declare that it will stick with it, rather than debate for eons over the positive and negative aspects of the principles and rules based approach. Due to the massive number of accounting frauds here, I do believe this is an area in which the FASB should cede to the IASB, especially as I consider the IASB's principles based method better. This difference in methodology is partly the reason for an indefinite time window on completion of the convergence.

We are already on track to a Global GAAP, as the IASB and FASB are in constant talks on how to converge both IFRS and U.S. GAAP. I applaud the FASB's efforts here to bring its accounting standards more in line with those of the IASB. As many prominent countries are already using the International Financial Reporting Standards, the representatives of American accounting must act now to align us with the IFRS; otherwise we face potentially being shut out from the formation process of these standards which will affect all international companies. As Mr. Cummings points out:

CFOs of U.S.-based companies would be well advised to get up to speed with IFRS, according to a new PricewaterhouseCoopers paper that explores the implications for U.S. companies of what it calls 'global GAAP.' 'The train heading towards global GAAP has left the station,' notes Marie Kling, senior manager in PwC's national office in Florham Park, N.J., and author of the paper. While it won't reach its destination overnight, there's no turning back. 'Even a U.S.-based company with no international operations will be affected by the move towards convergence,' she reports.⁹

The FASB's cooperative work with the IASC will result in a true Global GAAP; once the IFRS is aligned with the U.S. GAAP system, the American companies will issue statements according to the IFRS, as the SEC has declared that "it will remove the reconciliation requirement once it is satisfied that IFRS are of a sufficient standard."¹⁰ The completion of convergence will be a boost to the global economy, and inherently, all underlying economies, as it will standardize the practice of accounting, allowing more work to go into principles and theory research, and increase the pool of available and applicable accountants. No longer will investors have to reconcile financial statements to an accounting style they are familiar with and neither will accountants have to prepare statements differently in various countries.

I have a vision and several goals in my mind for this blog, one of which is to build credibility for my current school, the University of Massachusetts at Amherst. This college is my fourth in the past five years and will hopefully be my last one for my undergraduate career. I graduated from the uber-prestigious Boston Latin School in 2002 and enrolled at the University of Southern California that year in their Business Scholar program (which allows freshmen to begin taking business classes, 2 years ahead of the regular track, they've recently adjusted their degree program to allow all freshmen to immediately enroll in the business school).

Although I had an amazing time at USC, I decided to transfer to a more competitive business school, and enrolled the next year at the University of North Carolina at Chapel Hill. I performed poorly there in a few classes outside the business major (due to poor attendance more than anything else) and was thus denied admission the the Kenan-Flagler business school, even though I performed extremely well in my business classes (usually in the top 2-3 of the class). Due to the Kenan-Flagler's inflexibility and personal issues I was struggling with at the time, I decided to withdraw from UNC-Chapel Hill in the middle of Spring 2005 semester and move back home to Boston.

I then worked some odd jobs, such as loading trucks in a Home Depot warehouse and valeting at the Boston Harbor Hotel (a very nice hotel in Boston, highly recommenced for anyone with the money to splurge) before landing a job temping at the State Street Corporation (here's the wiki on SSC) in Quincy, MA (my second stint at State Street, I also worked for them for a very short time as a high school intern many years ago) in October 2005. SSC is a global custodian (basically a bank for mutual funds and other institutional investors) with nearly $11 trillion assets under custody and $1.5 trillion assets under management. I came into SSC to assist in finalizing the integration of Deutsche Bank's custodial business onto State Street's books, which was acquired in March of 2003. Being an accounting and finance geek, I was very happy to be working on such a high-profile project.

Having stabilized my professional life and found a job I enjoyed, I decided it was a good time to go back to school part-time and enrolled in two online classes at UNC-Chapel Hill, Management Accounting and a Communications class. I was considering, at the time of re-enrolling at UNC-Chapel Hill as I wanted to prove to the school, myself, and friends and family that I could earn a degree from their Kenan-Flagler school.

After doing a lot of thinking, I decided it was impractical to go back to UNC-Chapel Hill as it would add to my massive debt (whereas if I stayed at SSC, they would cover the cost of tuition) and add a lot of stress to my life as I had a multitude of problems with UNC-CH's administration. I stayed un-enrolled until SSC's tuition benefits would kick in, 6 months after my hire date. On April, 10, 2006 I became a full-fledged State Street employee and would become eligible for tuition benefits in 6 months.

I then took two classes at Northeastern University in Boston, Financial Reporting & Analysis and Business Law in the second half of the Fall 2006 semester (both courses were 6 week intensive courses). I originally wanted to take classes at the University of Massachusetts at Amherst, but my tuition reimbursement eligibility did not kick until after the Umass-Amherst classes already started for the Fall '06 semester.

Finally, I come to my point for this post; I'm currently enrolled in the online Bachelor's degree of Business Administration, with a focus on Management, at Umass-Amherst. Due to my extensive experience with college coursework at multiple institutions, I can be a great evuluator of the effectiveness of the online program at Umass-Amherst (although admittedly biased). My thesis is that the educational value of my Umass coursework will at least match the value I received from USC, UNC-Chapel Hill and Northeastern.

I'll be posting essays, solutions and other classwork from my previous and current classes in the Education section. I'll also periodically comment on my progress in posts. I welcome any comments on the coursework I post in the Education section and will eventually formulate a conclusion. If I find that the value of the online program is lacking, I will let everyone know, but so far after completing one course and currently taking two courses, the evidence is supporting my thesis. In fact, the Principles of Management course I already completed was one of the most educational classes I've ever taken!