The World of Accounting: Change is Coming

Large corporations and companies have been and continue to expand globally in order to gain a competitive advantage in their industry.  Leading professional service firms such as Ernst & Young and McKinsey & Company have offices all over the world specializing in specific cultures and markets.  While benefiting companies, there have been numerous issues regarding the proper accounting procedures that the companies should perform.  Specifically there are large differences between the rules of U.S. Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS).  Due to these differences, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have been working to converge the two sets of rules into one global set of accounting standards.  This convergence has been in process since 2003 but has been troubled with reoccurring delays to finalize the project.  Within the next two years the convergence will be complete. 

What does this mean for global corporations?  What are the pros and cons of the convergence? In an article by EisnerAmper the costs and benefits are summarized:

"Several groups oppose the convergence, stating that inconsistent auditing and enforcement of international rules make it difficult to ensure credible financial statements. Significant hurdles still need to be overcome with respect to the convergence to one international set of accounting rules. Those hurdles include: time needed to convert existing records by CFO's and tax directors, anticipated corporate tax impacts, effect on the U.S. Uniform CPA Exam and adequacy of training for U.S. investors as well as U.S. audit firms...On the flip side, the notion of having one single set of standards worldwide is appealing...leading to investment comparisons on a worldwide basis as well as enable cross border transactions to be more transparent and reliable...and cut down the costs to which foreign companies investing in the U.S. markets will have to adhere."
 
In addition, the process of reconciling foreign investment and financial information to conform to U.S. GAAP has continually been a deterrent to foreign companies trying to raise money in the U.S. capital markets.  While this debate exists, the convergence will be completed no matter what within the next two years.  The impact of these changes will extend way beyond simple accounting issues.  As one of the world's top public accounting firms, PwC has researched and analyzed the future effects for companies.  On a section of their website, PwC gives their professional advice and recommendations regarding the upcoming convergence.  A large amount of the new standards will have significant business and operational implications, causing companies to change their current practices.  In return this will cost larger companies more time and money due to their size.  PwC recommends companies to heavily research and understand the changes and their impacts on respective businesses and to develop a plan for implementation of each change. 

The key takeaways for the common public are to understand that change is coming and the market could take a couple unexpected turns as companies adjust to the new accounting guidelines.  There should be no public fear or freak out if the market temporarily reacts negatively to the convergence. Once the necessary adaptations are made, the uniformed set of accounting standards will be a great success for global business.

What Do You Know About Going Green?

Everyone today talks about "going green" or throws around the term "sustainability," but do people really know what these ideas mean?  Does everyone in society truly take actions towards becoming more green?  Or do people just throw these terms around trying to cast a certain self-image?  There is a huge disconnect between what people think they know and what they actually know about the current environmental issues.  A little over a year ago, Richard Matthews wrote an article that described Americans' misconceptions about the green movements.  Matthews explains how,

"more Americans than in previous years 1) think that they're doing more than they really are, 2) think that they're doing all that they can, or 3) think that they've done enough already.  All three of these perceptions are troubling because they increase resistance to taking on the more substantial home improvements that truly reduce energy consumption."

What Matthews points out is scary for any future success in green initiatives and movements.  People must completely understand the cause of all the environmental issues and what exactly they can do to help.  Despite what some may think, simply recycling cans and bottles is not enough.  There are larger actions that must be taken by everyone around the globe in order to truly reduce the consumption rate of natural resources.

In addition to the large group of people lacking knowledge about the environment, there are also those who flat out don't care.  Either not interested or perhaps too well off to worry about these issues, the fact that people honestly don't care about the environment is absurd.  Take global warming for instance.  In a recent post on Call a Spade a Spade, the author discusses the severity of climate change and global warming. The post describes how these issues are not just a problem to be brushed off and hope that others take care of the mess, but rather it is a "global issue and only the global community will be able to reverse and overcome it."  With all of the money being invested into these go green initiatives, they must create future benefits to the environment.  This will not happen unless every person on this Earth realizes the severity of the situation and actively participates to transform society into a more sustainable community.

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Gary Becker: The Ideal Public Intellectual

         The term public intellectual in today’s world has become a loose and sometimes misused term, leaving us to wonder what exactly a public intellectual is.  Is a public intellectual anyone with a Ph.D. from a prestigious university who writes a book? Does winning a Nobel Prize or similar award make someone a public intellectual? Stephen Mack attempted to tackle this issue in one of his essays, touching on the recent trends of public intellectuals in our society.  In his essay, Mack explains that,

“our notions of the public intellectual need to focus less on who or what a public intellectual is—and by extension, the qualifications for getting and keeping the title. Instead, we need to be more concerned with the work public intellectuals must do, irrespective of who happens to be doing it.  Those concerned with public intellectuals as a class will inevitably fret about the health of that class.  Or, they’ll hyperventilate about class purity, or the “appalling decline” in quality of most other public intellectuals.”

Mack points out that public intellectuals should not have to worry about what education or certifications they have to successfully spread an idea or message through society.  More emphasis needs to be placed on what these public intellectuals discuss in order to put less pressure on them to achieve new qualifications, which may in turn prevent further research and knowledge to be spread.   With this said, it is now time to bring up well-known economist Dr. Gary Becker.  Becker has an extremely prestigious academic background, including a Ph.D. in economics from the University of Chicago. Becker was able to use his resources and knowledge to alter the traditional view of economics.  Facing criticism from his peers and colleagues, Becker broke the norm for economists as he was the first to combine social issues with economics to shape various aspects of society, proving that public intellectuals must focus on their audience’s interests and needs to make a significant impression.  

Tracking back through Becker’s childhood and family life, it is no surprise that he embarked on a career in economics.  Born in a small coal-mining town in Pennsylvania, Becker lived with his parents, two sisters and one brother.  Becker’s father had left school after the eighth grade in order to make money and  owned a small business by the time his children were born.  This lack of formal education did not provide the best example for a father of four, leaving Becker in need of learning the value of education later in life—which he did.   The Becker family moved to Brooklyn when Becker was four years old.  His father soon after tragically lost most of his eyesight.  This tragedy brought about a learning opportunity for Becker,  read his father stock quotations and other reports on financial developments daily.  This was Becker’s first exposure to the business world and, just like most children; he found the content rather dry and boring.   In high school Becker faced what he thought to be one of his toughest life decisions at the time: whether to join the math team or the handball team because practices met at the same time.  Though claiming a great affinity for handball, Becker chose math, and for that, we thank him.  In addition to reading business material to his father, the Becker household was constantly buzzing about politics and justice.  According to his autobiography, it was this family atmosphere that gave Becker an urge to do something useful for society and not just to focus on math.  

After his childhood and high school years in Brooklyn, Gary Becker attended Princeton University for his undergraduate work.  Interestingly enough Becker enrolled in an economics course due to a complete accident during his first year of college.  He was instantly drawn to the subject and decided to graduate in only three years in order to enter the real world.  Becker succeeded in this ambitious goal by teaching himself a handful of courses and maxing out his course load every semester and summer.  After graduating Princeton in 1951 with a B.A., Becker moved on to the University of Chicago for graduate work in economics.  Why did Becker want to extend his education further into economics, particularly at Chicago?  He viewed economics as a powerful tool to analyze the real world and the University of Chicago was home to some of the most prestigious economists at that time period, such as his professor, Milton Friedman, who reinvigorated Becker’s excitement for the subject.  

After completing his graduate program and earning his Ph.D., Becker began researching and applying economics to social issues.  In 1957 he wrote a book based on his Ph.D. dissertation, which was the first organized work that used economic theories to analyze the effects of prejudice on the earnings, employment and occupations of minorities.  For an expert in the field of economics to begin analyzing information like this was unheard of and Becker received a lot of criticism.  Economists didn’t view racial discrimination as economics and sociologists and psychologists felt that Becker wasn’t contributing to their respective fields.  Despite the criticism, Becker continued his research as an assistant professor at the University of Chicago, determined that his work would make a difference in the future.

Looking for a change of pace, Gary Becker took a joint job at Columbia University and the National Bureau of Economic Research in Manhattan.  Continuing his research of social issues, Becker wrote a book on human capital along with articles on allocation of time, crime and punishment and irrational behavior.  Most of the research done for these works was conducted at the National Bureau of Economic Research, proving that more people started to believe Becker’s ideas.  At Columbia Becker started leading a workshop on labor economics and related subjects.  What exactly did Becker mean by “related subjects”?  Anything of interest to the students or Becker and his co-director, Jacob Mincer, was considered a “related subject.”  Students were fascinated with the workshop and it was a huge success for years.  This is a great example of how Becker used the interests and wants of his audience to spark interest and spread information.  Becker adapted his workshop to his audience and students couldn’t stop talking about the workshop, causing it to become extremely popular and crowded.  The popularity of Becker’s strategy ties back to the conclusion that Mack makes in his essay regarding the true measure of public intellectuals, stating:

“if public intellectuals have any role to play in a democracy—and they do—it’s simply to keep the pot boiling. The measure of public intellectual work is not whether the people are listening, but whether they’re hearing things worth talking about.”

Gary Becker does just that by presenting the students in his workshop an opportunity to discuss anything of interest to them and their peers.  Unlike most professors who lecture on what is in the course guide, Becker connected with his students who in return heard “things worth talking about,” as Mack discussed.  
            Not only did Becker give his students freedom over topical coverage in class, he forced them to participate and contribute to class discussions.  Last fall Gary Becker had his eightieth birthday and the University of Chicago Law School held a reception to honor the legendary professor.  A number of key economists spoke about current economic issues and complimented Becker on an incredible career.  As stated in a recap of the celebration, the following anecdote about Professor Emeritus William Landes was shared:

“Landes recounted meeting Becker when he was a student at Columbia University, where Becker was teaching at the time. “Gary was 31 and students were in awe of him,” Landes said. “I wanted to know who Gary was. I never found out until I arrived in class.” Though Landes was auditing Becker’s human capital class, Becker called on him every day. Later, Landes became his teaching assistant. Landes eventually followed Becker to the University of Chicago, where he achieved legendary status among students and the legal academy.”

As Landes described, all of the students at Columbia were obsessed with the young professor to the point where Becker gained celebrity status on campus at the age of thirty-one.  This is quite a feat for someone who was criticized by his peers for his initial research.  Becker further demonstrated that you must engage your audience in order to capture their interest, shown by forcing Landes to participate in class even thought he was auditing the course.
          After his success at Columbia, Becker returned to the University of Chicago in 1970 where he primarily focused on family issues.  These issues included marriage, divorce, altruism toward other members and investments by parents in children; all of which had never been viewed through an economic lens before.  Becker’s new research and work on families was ignored or strongly disliked by most leading economists.  The younger generation offered sympathy as they found it refreshing to learn about new studies and ideas developed from someone well respected.  Becker continued to branch away from the typical economist as he was offered a joint appointment in Sociology Department at the University of Chicago.  He was finally given acknowledgement for the success of his research and studies as he was given free reign to his two areas of expertise: economics and sociology.  Becker made the most of this new joint appointment as he was awarded the Nobel Memorial Prize in Economic Sciences in 1992 for his application of economics to human and social behavior.  Along with this huge honor, Gary Becker was awarded with the Presidential Medal of Freedom in 2007 to acknowledge his contributions to the nation.
          While Becker researched and developed a number of theories and ideas, the true depth of his success and contributions are seen through changes in paramount social issues.  According to his profile in the Concise Encyclopedia of Economics:

“Becker showed that discrimination will be less pervasive in more competitive industries because companies that discriminate will lose market share to companies that do not. He also presented evidence that discrimination is more pervasive in more-regulated, and therefore less-competitive, industries. The idea that discrimination is costly to the discriminator is common sense among economists today, and that is due to Becker.”

In a country such as America with a history of racism and stereotypes, the fact that Becker could reduce discrimination in society is unmatched.  In addition, Gary Becker conducted numerous studies on the costs and benefits of education.  After much research, Becker, in the early 1970’s, was the first person to discuss education as an investment.  Today a college education is absolutely mandatory to have a successful career; this is also due to Becker. Another area that Becker has contributed to with his research and work is crime and punishment.  Becker was able to explain how the decision to commit crime is a function of the costs and benefits of the crime and in order to reduce crime the probability of punishment must increase and/or make the punishment more severe.  With these studies and research, Becker helped spawn a new branch of economics, which gave a fresh vision on how to reduce crime. These long lasting contributions have been commonplace in society for the past few decades and they all stemmed from Becker’s work.
          Over the course of his career, Gary Becker has been anything but a conventional economist.  As portrayed above, Becker received all of his inspiration from his audience as he gave them the freedom to express their interests and what is personally important to them.  Becker was able to translate these interests of his audience into research and public works that have forever changed the view of economics and several key social issues.  While he was questioned a handful of times during his journey, Gary Becker is a model public intellectual as he put more emphasis on the significance of his work rather than personal qualifications.

Failure of Baseball Economics: Who is to Blame?

For those of you who haven't heard, there was a ridiculous trade in Major League Baseball a couple weeks ago.  Why was this such a record deal? Lets consider the numbers.  The Los Angeles Dodgers received 11 All-Star appearances, 3 Gold Glove Awards and wait for it- a whopping $261 million in salaries through 2018.  These numbers are combined achievements of Adrian Gonzalez, Carl Crawford and Josh Beckett: some of the best players in the game.  So in the return the Red Sox must have acquired some pretty outstanding prospects or young talent, right? Wrong. This trade was purely a way for the Boston Red Sox to dump their high paid, under performing athletes in order to rebuild with all of the money saved from the traded contracts.  The Red Sox received a couple mediocre major league players along with $11 million in monetary consideration if clearing $261 million off their books wasn't enough.  So not only did the Red Sox dispose of their biggest contracts, they received a little cash on the side to "sweeten the deal." 

In a Huffington Post article analyzing the trade, Red Sox General Manager Ben Cherington said,

"It gives us an opportunity to build the next great Red Sox team.... We just felt like to get to be a team we believe in and a team the fans deserve, to sustain winning year after year, it was going to take something more than cosmetic changes. It was going to take something bold."

But is this the way to win? By signing huge contracts to high profile players and the organization promises them hundreds of millions of dollars.  If and when the team doesn't win the organization can just dump all their future monetary promises and start over?  This sounds pretty slimy to me.  But, unfortunately, what the Red Sox did is totally leagal, only if approved by the one and only- MLB Commissioner, Bud Selig.

Never having been a huge fan of Bud Selig, this trade, needless to say, infuriated me because the commissioner had to approve the deal since it was completed after the July trade deadline.  In his blog, Rob Rains of The STL Sports Page called out Bud Selig (picture below) for the only thing he really cares about:

"By allowing the Red Sox and Dodgers to complete one of the greatest heists in baseball history, commissioner Bud Selig showed his true colors once again – pure green, as in money.  This is all the man cares about. Competitive balance? No chance. A level playing field? forget it. The integrity of the game? Pardon me while I try to laugh that one off."

I could not agree more with Mr. Rains- all Selig cares about is money.  There will never be a time where a small budget team like the Pittsburgh Pirates has a legitimate shot at winning the World Series with Selig being blinded by dollar signs.  This sounds very similar to some liberal views of American society today- no chance for the little guy to succeed in a world dominated by the small rich percentage.  Well folks, Major League Baseball is no different.  This trade along with numerous acts by Bud Selig prove that changes need to be made in society to "level the playing field," if you will, in order to allow people and organizations with limited income the same opportunities as the wealthy. Otherwise the rich will continue to succeed and grow, while the poor, or the Little Guys, struggle with no blue skies in the future.

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