IFRS Confusion Abounds

In the past few years, much has been made of the plans to merge the accounting standards used in the US with those used by much of the rest of the developed world. In 2002, the US standards setter and the international standards bodies agreed to a framework for convergence of US generally accepted accounting principles (US GAAP) with the International Financial Reporting System (IFRS) in a document known as the Norwalk Agreement.1 Since then, the US and international bodies (known, respectively, as the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board, or IASB) have worked to align their respective standards so that, eventually, developed nations will have a homogenous accounting system. One particular point of difficulty in this effort, however, has been the issue of fair value accounting. The economic recession that began in 2007 further complicated convergence efforts as attention was drawn away from reconciliation efforts and focused on both placing blame and reforming the practices that caused the crisis. Then, with the election of President Barack Obama, the entire convergence movement was threatened when the newly-appointed chairwoman of the Securities and Exchange Commission announced that she would not “feel bound”2 by the convergence roadmap established by her predecessor.

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Separating CEO From Board of Directors’ Chairmanship Shouldn’t Be Mandatory

In the world of corporate governance, American companies espouse certain managerial practices found almost nowhere else in developed economies. A prime example of this disparity lies with the dual roles of Chairman of the Board of Directors and Chief Executive Officer (CEO) often being bestowed upon a single individual. As The Economist magazine recently reported, a Norwegian pension fund operator is encouraging certain US companies to separate the roles, but doing so does not necessarily enhance an organization’s corporate governance. The Economist’s article, which appeared in its Schumpeter column, notes that some 30 academic studies produced over the last 20 years have failed to show that either combining or separating the roles has any meaningful impact on an organization’s management. Instead, the decision should be made on an individual basis, selecting the most-appropriate option for a particular company’s circumstances. Nonetheless, some members of Congress would rather see the roles separated at all US companies, and a “Shareholder’s Bill of Rights” introduced by New York Senator Charles Schumer would do just that. Opponents of the measure fear that forcing all corporations to separate the roles may place an undue burden on smaller entities and could lead to internal disagreements and managerial gridlock if the individuals appointed to the two roles cannot work together. Rather than requiring all companies to split the duties of CEO and Chairman of the Board of Directors, Congress should require that corporations justify their decisions to either combine or separate the positions.

The Shareholder’s Bill of Rights Act of 2009, Senate Bill 1074, was introduced on May 19, 2009 and referred to the Committee on Banking, Housing, and Urban Affairs, where no further action has been taken.

Recession Doesn’t Lead To More Fraud, Just Redistributes It Among Industries

According to a study by international consultancy Kroll, while overall occurrences of fraud affecting businesses have not increased since the global recession began, the industries impacted have changed. Eighty-five percent of companies surveyed reported financial losses due to fraud, averaging a loss of $8.8 million. The losses, however, have shifted between industries disparately impacted by the recession, as the following table shows.

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Clinton Secures Release of Current.tv Reporters Jailed by North Korea

Citing North Korean state media, numerous major media outlets are reporting that Euna Lee and Laura Ling have been released from a North Korean prison following an unannounced visit to the country by former President Bill Clinton. During his visit, Mr. Clinton met with North Korean leader Kim Jong Il, but all reports have indicated that the meeting was focused on securing the release of the two journalists detained since March 17 of this year. According to the BBC, the North Korea News Agency released a statement saying Kim Jong Il “granted a special pardon” to the journalists.

It is unclear whether or not North Korea’s nuclear ambitions were discussed, but all indications are that the meeting focused on the reporters. North Korea’s lead nuclear negotiator did, however, greet Mr. Clinton at the airport while Kim Jong Il was absent.

The reporters were working along the North Korea-China border on a documentary about North Korean refugees for Current.tv, a project of Al Gore’s, when they were arrested for crossing illegally into North Korean territory.

Flipper’s Ric O’Barry Reveals Japanese Dolphin Slaughter

In the forthcoming documentary The Cove (http://thecovemovie.com), Ric O’Barry reveals a horrifying, secretive tradition in Japan. O’Barry, who trained the five dolphins used to film the 1960’s TV show Flipper, is now an animal rights activist focused on freeing dolphins from captivity and preventing their abuse.

As he discussed on WBUR’s Here and Now (“Flipper’s Trainer, Now Dolphin Activist”), following his experience with the dolphins trained for Flipper, O’Barry realized that these animals, being predominantly auditory animals, cannot thrive in the concrete environments that typically house them. Since the death of the original Flipper, which O’Barry witnessed, he has worked tirelessly, and often outside the law, to protect dolphins. O’Barry has been both arrested and sued, but neither could dissuade him from his passion. Because of his dedication and perseverance, he and a team captured rather horrifying footage that became the documentary The Cove. The film reveals an annual ritual in the Japanese town of Taiji which sees young female dolphins auctioned off to willing buyers while thousands of unwanted dolphins are killed for their meat. This meat, high in many toxins including mercury, is sold to the Japanese public without their knowledge of its health hazards. The subject matter is horrifying to be sure, but I look forward to seeing the film. A PG-13 trailer is available at http://thecovemovie.com.

In support of the film, a new awareness site was created at http://www.savejapandolphins.org/. The site includes a message from Ric O’Barry, as well as information on getting involved in the fight against dolphin and whale slaughter.

‘1984’ Comes to Life in UK Surveillance Plan

In an attempt to improve the lives of children in 20,000 “problem” households, the UK government plans to install surveillance cameras in the homes to provide 24-hour monitoring by the government. The program is focused on ensuring children are attending school, eating well, and sleeping enough. Parents will also be monitored for substance abuse problems, and support will be provided. To enforce the program, the British government has created a private guard to perform home checks and ensure that families are abiding by their “behavior contracts.”

The plan, dubbed the Family Intervention Project, is expected to cost £400 million (just shy of $678 million today) and is being put forth by the UK’s Children’s Secretary. In response, the opposition party has blamed the moral decay this program is intended to correct on the ruling party, and said the program is “too little, too late.”

What amazes me most about the program is that 2,000 families are already participating. Given the already-pervasive use of camera surveillance throughout Great Britain, I suppose this announcement shouldn’t come as a surprise. It is strange how much this plan mirrors the telescreens of Orwell’s 1984 though.


A “Highly Unusual” Situation

Amidst all the news surround the Sirius-XM merger here in the US, we seem to have forgotten about their Canadian counterparts. Sirius XM Inc., the recently-adopted name for the combined company, holds a 23.3% ownership interest in XM Canada and a 20% interest in Sirius Canada. The former is a publicly traded company run by Canadian Satellite Radio Holdings, while the latter is a private partnership between Standard Radio and the Canadian Broadcast Corporation. While the two companies no longer compete in the US, they continue to do so in Canada. This presents Canadian competition officials with a very bizarre situation. They are asked to regulate two separate companies over whom one entity has significant control.1 A Canadian merger would likely face scrutiny similar to that which the US merger encountered, and neither company has indicated a strong desire to merge. Ultimately though, the decision to merge likely lies with Sirius XM Inc., not its Canadian partners.

Source:XM, Sirius merger in U.S. raises competition concerns in Canada,” CBC News, July 30, 2008.

1. Accounting standards generally consider 20% or greater ownership significant enough to allow the holder to control the entity

Iran Launches 4 (Or Is That 3?) Missiles In Show of Force

Apparently no one ever told the Iranians that once you put something on the internet, it’s there forever. Yesterday, the public relations arm of Iran’s Revolutionary Guard released photos of its missile test showing four missiles lifting off from the Iranian desert. Unfortunately for the Guard, Iranian news site Jamejam had already posted images of the launch, where the fourth rocket is clearly seen sitting on the ground on its launcher. This discrepancy was quickly picked up yesterday by a New York Times photo editor, exacerbated by the poor quality of the Photoshopping on the fourth rocket. As seen below, the left image is an unaltered look at the failed launch, while the right image shows the changes made by the Revolutionary Guard.

The left photo shows the failed fourth rocket, while the right image shows all successfully launched.

This just goes to show how little the Iranians understand about the internet. Did the Revolutionary Guard honestly think no one would notice this?

Source:Picture: Iran ‘fakes’ missile launch after misfire,” Times Online, July 10, 2008.

Tanker Contract Reopened

As was expected, the Department of Defense yesterday announced it would reopen the bidding process on its $40 billion aerial refueling tanker contract. The move was widely expected following last month’s GAO report (see my post here) which found several significant deficiencies in the way the contracts were awarded. This announcement is welcome news for Boeing, which lost the contract to Northrup Grumman in February and immediately filed a complaint with the GAO.

In response to the GAO criticisms of the Air Force’s selection process, Secretary of Defense Robert Gates decided that his procurement director, Undersecretary John Young, will personally oversee the rebidding process. But, in what is certainly welcome news for Air Force brass, the Secretary said he doesn’t think that problems identified by the GAO warrant removing senior Air Force officials from their posts.

This newest round of bidding represents the third time the Air Force has sought a contract to replace its aging fleet of refueling tankers. On the first go around, Boeing received a no-bid contract to provide new tankers. Following widespread criticism and scandal at both Boeing and within the Air Force, the contract was reopened for bidding, which Northrup Grumman won in February. Then Boeing complained, and here we find ourselves. For the sake of American taxpayers, let’s hope the adage “Third time’s a charm” holds true.

Source:Boeing Gets Chance to Wrest Tanker Job From Northrop,” The Wall Street Journal, July 10, 2008.

Credit Crunch Knows No Bounds: Town Hopes to Secede

The credit crisis has had wide-ranging effects, from a shortage of mortgage funds to excess housing supplies to a lack of student loan money. But none seems stranger than the plight of a small, north England town. The town of Berwick-upon-Tweed, located on the North Sea, would rather be Scottish. Having changed hands 13 times in conflicts between England and Scotland, the town doesn’t necessarily identify itself with either country anyway. Its distance from London and proximity to the Scottish capitol Edinburgh further confuses the issue. And both countries haven’t always been sure where the town belongs; laws and other official dealings written in the 1500s cite the “Kingdom of England, Scotland, and Wales and the town of Berwick-upon-Tweed.” It is a combination of this uncertain history and the current economic malaise that pushes this small port town towards secession.

As it turns out, Scotland has better social welfare programs. The health care is superior, Scots’ university tuition is covered by the state, and the unemployment benefits are more generous. In a time of economic uncertainty, people increasingly look to the government for support, and the residents of Berwick would rather turn to Edinburgh than London. That the town has one of the lowest average wages in England and highest unemployment rates further sweetens the Scottish appeal. It doesn’t help that Berwick, being substantially closer to the Scottish capitol, feels that London is out of touch with its situation. Given these economic and political conditions, some Berwick residents are pushing for drastic changes.

Already this year, realtor Euan Aitchison has sold 25 Scottish properties to Berwick residents. Most of these properties are so close to the current border that it is no more than a 10 minute drive back to Berwick. This has allowed many of the transplants to maintain their jobs in England while simultaneously enjoying the benefits of Scottish residency. But if certain members of the Scottish and UK parliaments have their way, these efforts may soon be moot. A motion has already been introduced in the Scottish Parliament calling for the town to return to Scotland, while UK Parliamentarians have vowed to prevent the town from moving. Debate in both Parliaments is sure to be lengthy and contentious, even though 79% of the town’s residents support the border change. Even if the change is approved by the necessary legislatures, executing the move faces substantial hurdles. For starters, the English and Scottish legal systems are quite different, as are the educational systems. Nonetheless, the town’s residents are drawn to the idea by the benefits. A simpler solution may be to provide Scottish-style services to the residents of North Northumberland, as Berwick’s Liberal Member of Parliament Alan Beith has suggested.