Introducing Our Contributing Columnists

In the early days of the global economic meltdown of 2008 and 2009, Peter J. Wallison, the Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute, declared:

Fair value accounting is clearly the reigning orthodoxy among accountants, but is that the right test? Accounting is simply a measurement system. What we want to know determines what and how we measure.

Which is more important, the balance sheet or the income statement? Do we want to measure financial strength or earnings per share or cash flows? Is the purpose to inform equity investors or creditors and counter parties? Does one measurement system meet all of these objectives?

Given its impact on institutions and whole economies, common sense suggests that we consider whether one means of measurement is the only one we should be looking at. The world view of accountants at a particular time should not determine the answers to these questions. It is important to recall the famous remark of Clemenceau that war is too important to be left to the generals.

Many such issues impact the public interest. We, the Public Interest Section of the American Accounting Association, believe in addressing such topics with vigorous and spirited discussion in a social media forum.

Accordingly, we are proud to announce the introduction of a new feature for our social media network. Five distinguished thought leaders have agreed to serve as Contributing Columnists for the Section’s blog, newsletter series, and web site.

The five Columnists are:

Steven Mintz, Emeritus Professor, California Polytechnic San Luis Obispo, USA; Prem Sikka, Emeritus Professor, University of Essex, UK.

Michael Kraten, Associate Professor, Providence College; Richard (Rick) Kravitz, Editor-In-Chief, CPA Journal; Sri Ramamoorti, Associate Professor, University of Dayton.

Each of these individuals has agreed to contribute two editorial essays per year for publication by the Public Interest Section. Our current plans include the distribution of two guest editorials per year from other colleagues, resulting in a full year of monthly thought pieces.

We are immensely grateful to these individuals for supporting our growing presence in social media. Please join us in welcoming their contributions to our intellectual content.

Source Credits: We thank Sri Ramamoorti for suggesting the quote by Peter J. Wallison. It appeared in the April 30, 2008 edition of the Financial Times, in an article entitled “Judgment too important to be left to the accountants.”

Unintended Consequences of Supreme Court Whistleblowing Decision

Editorial Note: We are delighted to publish this “opinion piece” by Dr. Steven Mintz, a frequent contributor to our social media blog. As always, when you read his contribution, we ask that you keep in mind that the opinions expressed therein are those of the author. They do not represent the position of the AAA or of any other party.

The U.S. Supreme Court may have turned whistleblowing on its head with the decision on February 21, 2018 in the case Digital Realty Trust, Inc. v. Somers. The ruling is likely to encourage employees, managers, and compliance officials to blow the whistle on retaliation as soon as it begins, and not after a sometimes-lengthy process plays out to convince superiors to change the accounting and financial reporting. Essentially, employees who choose to inform the SEC of financial wrongdoing under the Dodd-Frank Financial Reform Act must now inform the SEC while the issue with the employer is unfolding to be eligible for Dodd-Frank protections.

The key issue in the Digital Realty case is the interpretation of who is a whistleblower under Dodd-Frank, and when does a would-be whistleblower qualify for protection against retaliation. The statute defines a whistleblower as a person who reports potential violations of the securities laws to the SEC.

The SEC had been interpreting the Act with respect to the retaliation provision broadly, thereby allowing the protections to apply to internal company reporting even if the individual did not report to the SEC. The Supreme Court disagreed with that interpretation. Writing for the Court in its 9-0 unanimous decision, Justice Ruth Bader Ginsburg put it this way: “A whistleblower is any person who provides … information relating to a violation of the securities laws to the Commission” [emphasis added]. “That definition,” she added, “describes who is eligible for anti-retaliation protection if the individual engages in any of the protected conduct enumerated in the [Act]. Moreover, she observed, “this interpretation is consistent with the ‘core objective’ of Dodd-Frank’s robust whistleblower program,” … [which] is ‘to motivate people who know of securities law violations to tell the SEC.’”

Ginsburg also made an interesting observation about the Sarbanes-Oxley Act. She said: “By comparison, SOX had a broader mission to “disturb the ‘corporate code of silence’ that ‘discourage[d] employees from reporting fraudulent behavior not only to the proper authorities, such as the FBI and the SEC, but even internally.’”

One thing that Ginsburg failed to address is that SOX retaliation claims must be filed within 180 days of discovering the act, not much time to get the information straight. Dodd-Frank, on the other hand, has a three-year period to file. The reality is that very few SOX filings have been successful, in part due to the fact that filings go to the Department of Labor whereas Dodd-Frank filings go the SEC. We may not be a fan of the SEC’s regulatory speed and efficiency. but it’s light years ahead of the DOL.

Prior to the ruling in the Digital Realty case, employees would almost automatically first report the alleged violation internally and take the matter up the chain of command all the way to the board of directors before going to the SEC. Informing the SEC was seen as a last resort. A typical scenario is: an employee jumps through the hoops internally, fails to induce change, may be demoted, treated badly, or fired, and then files for whistleblower protections under Dodd-Frank. If successful under the SEC process, the whistleblower could be reinstated and receive back pay. There is even an award if the SEC brings a lawsuit based on original information voluntarily provided to the SEC that leads to sanctions in excess of $1 million. The award is between 10%-30% of the total sanctions. This provision does not seem to be disturbed by the ruling since the SEC, presumably, would have first been informed of the retaliation.

Here’s the problem in a nutshell. Let’s assume an employee reports wrongdoing. Will that employee go to the SEC first before informing his or her supervisor? If I were the CEO and found out one of my managers went straight to the SEC without giving me a chance to first fix the matter, well you fill in the blanks. Just imagine an employee goes to the SEC to qualify for whistleblower protections, the organization finds out because the SEC starts investigating, the employee is then fired. What should the employee do next? Go back to the SEC and say, “Now look what you’ve done.”

The Supreme Court ruling is counter-productive to the intent of Dodd-Frank, which is to protect whistleblowers, but also to encourage internal reporting. In fact, the SEC has openly promoted internal reporting, especially for compliance officials. The bottom line is that the ruling will have unintended consequences, whether it is to heighten the pressures internally on an employee who wants to do the right thing and must now first report to the SEC, or to create a floodgate of reports that the SEC won’t be able to handle because its resources are limited. Either way, the ruling is a loss for whistleblowers and, most likely, companies because more employees will run to the SEC.

Dr. Steven Mintz is a Professor Emeritus at Cal Poly San Luis Obispo. His website is

How Should We Teach Sustainability?

It’s difficult to teach a topic like sustainability, isn’t it? On the one hand, it’s one of the most important public policy challenges of our era, a topic that has inspired the development of the Sustainability Accounting Standards Board (SASB) and other organizations. But on the other hand, it’s difficult to fit its content within one of the silos that define our accounting courses.

That’s why the AAA Public Interest Section has dedicated the Teaching segment of our web site to pedagogical materials regarding sustainability and CSR. At the moment, the segment features URL links to content that has been shared by Professors Irene Herremans of the University of Calgary and Michael Kraten of Providence College.

Irene has shared a five module online learning activity entitled Sustainability Reports: Making Sense of Sustainability. It features text, graphics, video, and other content at an introductory level.

And Michael has shared his interdisciplinary graduate-level teaching case Save The Blue Frog. Developed with PwC Partner John Formica, it is an integrated accounting case involving valuation, sustainability, controls and risk, and ethics.

Do you have an effective teaching resource that addresses the topic of sustainability? Do you believe that it can be used by our colleagues in their own accounting courses?

If you do, please consider sharing it with your AAA Public Interest Section colleagues. Simply use our Contact Us blog page to let us know what you have in mind; we’ll be delighted to share it with others!

Note: The blue frog image is available in the public domain.

Critical Auditing Studies and “The Bigger Picture”

For many years, accounting researchers have studied the culture, the technology, and the regulation of audit firms. We’ve observed and explained the complex factors that have shaped the profession.

But while studying these details, is it possible that we have missed the bigger picture? Should we be critically appraising the audit function instead of simply understanding it? In order to assess its future relevance to our society, and to its role within it?

The Elsevier journal Critical Perspectives on Accounting is addressing these questions by publishing a special issue entitled “Critical Auditing Studies: Adopting a Critical Lens toward Contemporary Audit Discourse, Practice and Regulation.” The editors are Anna Samsonova-Taddei of the Alliance Manchester Business School of the University of Manchester and Yves Gendron of the Faculté des sciences de l’administration of Université Laval.

The editors are calling for manuscript submissions that focus a critical lens on our profession, addressing such topics as: (1) the consequences of the rise of audit firms’ commercialism, (2) the ongoing changes in regulatory approaches to auditing, (3) claims about auditors’ knowledge base, (4) auditing and the public interest, (5) the shifting identities of auditors, and (6) control and surveillance within accounting firms.

What type of content is suitable for the special issue? Anna cites a recent report and notes that:

The strong impression is that now is not a time for complacency but nor is it a time for knee-jerk reaction or base political point scoring. Substantive change and developments in the competencies and capabilities of audit and auditors requires more fundamental action than are offered by ‘quick fix’ solutions, audit rebranding exercises, tinkering with professional examination syllabi or the promotion of ‘new’ audit testing/analytical techniques.

In light of such concerns, there is a call for:

 … a fundamental contemplation of the overall competence of the audit function itself and what is required for the longer-term sustainability of audit as a service of high professional standing and broader public worth.

Skills, Competencies, and the Sustainability of the Modern Audit, by Turley, Humphrey, Samsonova-Taddei, Siddiqui, Woods, Basioudis, and Richard (2016)

And according to Yves:

Critical accounting research is a complex endeavor and it may be articulated in a range of relevant ways. That being said, one of the distinguishing features of critical accounting research is a high level of reflexivity in analyzing, from a “phronetic” viewpoint, socially-important phenomena – such as the trajectories (past, present and future) that surround the financial auditing concept … this phronetic exercise implies the following questions: “Where are we going? Is this desirable? What should be done?” – which we may translate as “Where is financial auditing going? Is this desirable? What should be done?”

On the Elusive Nature of Critical (Accounting) Research, Gendron (2018)

These are the critical issues that challenge the future of the auditing profession. We are gratified that our colleagues at Critical Perspectives on Accounting are dedicating a special issue to the topic, and we encourage you to contact them with any questions about potential submissions.

Mark Your Calendars! Our Mid-Year Conference Begins On March 23rd

Have you begun to mark your calendars for the next two months? Then please keep in mind that a pair of noteworthy events will occur in late March. One is the arrival of Spring in the northern hemisphere. And the other is the mid-year conference of the Public Interest Section of the American Accounting Association.

What if you are feeling impatient for Spring? To accelerate its arrival, you can always root for Punxsutawney Phil to fail to see his shadow. If this occurs, Spring will begin on February 2nd, just two days from today.

Regrettably, our favorite groundhog is powerless to advance the date of our mid-year conference. However, there are other ways to begin enjoying this academic experience before you join us in Chicago on March 23rd. You can volunteer, for instance, to serve as a reviewer, a moderator, or a discussant.

And you can register to attend the conference at any time.

You’ll undoubtedly find it worthwhile to join us in the Windy City. For instance, in addition to our manuscript presentation sessions, our conference will feature an Editor’s Panel. Richard Kravitz of The CPA Journal, Pamela Roush of Accounting and the Public Interest, and Marcia Annisette of Critical Perspectives on Accounting will provide valuable commentary about the publishing environment.

In response to attendee feedback at our previous conferences, we’ll dedicate our Friday lunch period to catching up with old and new friends. And the President of the American Accounting Association will deliver an address on Saturday at noon.

We have also invited a spokeswoman from the Roosevelt Institute to discuss their projects. In addition, she will describe how the Institute is working with students on college campuses to “make a difference” in society. Our attendees are sure to discover that the Institute’s agenda matches our own values and beliefs.

So please join us on March 23rd and March 24th. And in the meantime, if you’re able to serve as a volunteer, we’ll be delighted to hear from you!

Our Colleagues Respond …

As you may recall, on December 3rd, we published Michael Kraten’s opinion piece If Corporations Are People, Why Aren’t They Taxed Like People? And then, on December 20th, we published responses by our colleagues Andrew Felo of Nova Southeastern University and Wm. Dennis Huber of Capella University.

But we still are not yet ready to bring our taxation policy conversation to a close! Lawrence Murphy Smith of Texas A&M in Corpus Christi recently responded:

Corporate earnings are taxed like people, as the people who own the corporation (i.e. stockholders) receive dividends or capital gains from selling stock. For that reason, I’ve always thought the corporate income tax should be zero, thereby avoiding double taxation at the corporate and then the individual level. Further, as you may be aware, the U.S. corporate income tax rate is currently second only to Japan. You might find my paper on taxes and economic activity of interest.

He elaborated:

My point is that corporate income shouldn’t be taxed at all. In other words, if the corporate income tax rate is zero, that would not mean corporate income avoids tax. The people who own the corporation would pay taxes on all the corporate earnings, either when they receive dividends or when they sell the stock. Thus, corporations need have no income tax imposed on the corporation itself, as the owners/people/stockholders ultimately pay taxes on whatever the corporation earns.

As shown in my paper, the US corporate income tax rate is currently second highest in the world, not to mention the most complex, creating high compliance costs. Lowering or eliminating the US corporate income tax would be a boon to the economy.

These are interesting questions, aren’t they? They certainly carry broad public interest ramifications.

We thank Murphy for responding to our recent posts with his astute comments. We continue to welcome, and we shall continue to publish, our colleagues’ perspectives regarding the system of taxation in the United States.

If You Sense That You Need A Different Approach, Why Not Explore Alternative Accounting Practices?

One of the strengths of mainstream accounting research is its standardized regularity. We define our exogenous and endogenous variables based on prior research studies. Then we develop our experimental hypotheses. And after drawing a sizable sample from our clearly defined population of transactions, we use large-scale statistical methods to test those hypotheses.

But what if the variables aren’t easily defined? Or the population, for that matter? Or what if a sizable sample cannot be extracted and quantitatively tested at a meaningful level of significance?

In other words, what if you sense that you need a different approach? How should you proceed? Under such circumstances, you may wish to explore alternative accounting research practices.

For instance, let’s say that you’re evaluating the anti-theft preventive controls at the card, dice, and roulette tables of a casino. How can an auditor test those controls while the games are in progress on a floor that never closes?

The best approach for testing whether controls are in place to prevent dealers from stealing chips may be to employ the auditing method of focused observation. And to make the system more “auditable,” the casino may choose to keep all of the stacks of chips in plain sight.

Indeed, the “plain sight” tactic may convey an additional benefit by deputizing gamblers to serve as auditors. In other words, by enhancing the visibility and thus the “auditability” of the preventive controls regarding chip theft, the casino can enable the players to form a transitory social community to observe and police the dealers.

Likewise, according to Ingrid Jeacle’s 2017 Accounting, Auditing & Accountability article entitled Constructing audit society in the virtual world: the case of the online reviewer, the reviewers of online services like Amazon have formed virtual communities that feature audit logics. Ingrid utilizes a new research methodology entitled “netnography” as a means of “… becoming familiar with the operational features of the site and analyzing its textual discourse.”

It’s not a traditional method of accounting research, is it? But its alternative approach is necessary for studying emerging communities in virtual online spaces.

Caroline Lambert, the Chair of the Conference Organizing Committee of the May 2018 Alternative Accounts Conference at HEC Montreal, also utilizes alternative accounting practices when necessary. According to Caroline:

Alternative Accounting is both an approach and a state of mind. It’s a way to look at events and characteristics with different lenses. It requires us to re-think our assumptions about the influences of accounting in our daily lives, encompassing the largest meaning possible.

For instance, together with Claire Dambrin, in an article entitled Beauty or not beauty: Making up the producer of popular culture that was published in Management Accounting Research in 2017, we analyzed the control mechanisms — mostly cultural controls — through which brand managers embody their product. The managers must continuously brand themselves within their own organizations to be considered “performing individuals.”

Alternative accounting is an interesting approach, isn’t it? Clearly, it is needed to study cultural, sociological, and other topics when traditional approaches fail to offer practical research methods. And given the prevalence of such topics in the Public Interest field, it’s the type of research approach that is sure to attract our colleagues.