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Teri Bernstein, MBA, CPA has been teaching full time in the Business Department of Santa Monica College since 1985.  Prior to that, she worked in Internal Audit and Special Financial Projects for the 1984 Los Angeles Olympics, CBS, Inc., and Coopers & Lybrand (which is now part of PricewaterhouseCoopers).  She attended the University of Michigan and Wayne State University.


  • Choosing NOW to avoid boredom as a working adult

    [View:http://community.cengage.com/GECResource/themes/gew/utility/ :550:0] this is an edited version of the commencement speech given by David Foster Wallace at Kenyon College in 2005. Posted on YouTube May 6, 2013. It is graduation season, and many college students--if they are lucky--are about to start jobs that will keep them employed 40 or more hours per week, plus commuting time, 50 weeks per year. If they stay employed, they will work week after week after week and year after year after year after year. How does a person keep a working routine--with all of its hurdles, hassles, annoyances and dailiness--from becoming mind-numbing and boring? David Foster Wallace's commencement speech addresses this issue. He calls upon the graduate to use his or her education to exercise the ability to choose to think differently, and to avoid being lulled into the automatic thinking that leads to separation and frustration. Although David Foster Wallace does not use the term " zero based thinking " in his speech, the attitude-adjusting approach he describes is similar to the process popularized by Brian Tracy. Zero based thinking is derived from the accounting practice of " zero-based budgeting " and it epitomizes pure freedom. It is also the practice that is advocated by Elisha Goldstein in The Now Effect .The adjustment to focus on the realities of the present moment allows a person to let go of the burdens of the past, and let go of judgments about one's current predicaments. The changed perspective allows an individual to imagine his or her current circumstances with detachment and acceptance. It is a free platform for creativity and optimism, as it is unencumbered by preconceived ideas or thoughts of doom and failure. Great management problem-solving and entrepreneurial thinking can come from this place. It can also lead to a happier experience of any life situation, thus making even difficult tasks more manageable, and one's work-life more sustainable. The technique is free and can produce instant results. If one remembers that one has the power to choose one's perspective, it can happen with one's next breath. Breathe in possibility...breathe out worries and burdens. Everything is OK. What is possible now? Sources: " Zero Based Thinking " by Dan Byrne, The Simplify Guy , May 10, 2012. " The Value of Zero Based Thinking ," by Kathi Laughman, The Mackenzie Circle , March 20, 2013. " The Now Effect ," by Elisha Goldstein, Simon & Schuster, reprinted February 12, 2012. Follow up: What is your reaction to the "This is Water" video at the beginning of this post? What are the pros and cons of worrying? What are the pros and cons of complaining?

  • Econ 101 by Stephen Colbert via Comedy Central

    [View:http://community.cengage.com/GECResource/themes/gew/utility/ The Colbert Report Get More: Colbert Report Full Episodes , Indecision Political Humor , Video Archive :550:0] Last week I cited a column written by Paul Krugman about the debunking of the "austerity" approach to economic downturns and debt that led to sequestration. Several political leaders promoted the austerity approach, partially based on a paper by Carmen Reinhart and Kenneth Rogoff of Harvard University. Thomas Herndon , a grad student at the University of Massachusetts, detected s ome math errors in the spreadsheets in the Reinhart/Rogoff paper, and also found that they had ignored data that did not support their hypothesis. Paul Krugman's article was a timely response to the "uproar" that ensued. Stephen Colbert weighed in about the Reinhart/Rogoff paper in the video clip above from The Colbert Report of April 23rd. Colbert also interviewed Thomas Herndon later in the same show. For those of you unfamiliar with Stephen Colbert , his on-screen persona symbolizes one point of view, but his message often connotes the opposite point of view. This works to his comic advantage, but could be a dangerous ploy for a marketer, as it may produce misunderstandings. Colbert's show is not likely to sway anyone's opinion, and the two sides to this issue continue to produce controversy. Nevertheless, the data delivered by Colbert (when it can be separated from the non-factual parody or satire) might hold a viewer's interest longer than the Krugman article on the same topic. Colbert's approach widens the possibilities for communicating information about economic issues. Sources: " Stephen Colbert discusses and mocks the problems resulting in basic mistakes made in a study by Reinhart and Rogoff" episode of The Colbert Report, by Stephen Colbert, et. al., Comedy Central via YouTube , airing April 23, 2013, published April 24, 2013. " Reinhart-Rogoff uproar settles nothing ," by Caroline Baum, Bloomberg View , May 1, 2013. Follow up: Watch the video and read the Krugman article. Which did you enjoy the most and why? From which piece did you learn more, and what did you learn? Watch the remainder of The Colbert Report for April 23, 2013, in which Colbert i nterviews Thomas Herndon . What did you learn? Which segment of the show was more effective at communicating about the economic theories at issue? Discuss the pros and cons of using humor to communicate about difficult (or boring) and controversial subjects.

  • KPMG partner caught in insider trading "sting" by FBI

    Scott London, KPMG partner, at left, allegedly receiving a payoff from Bryan Shaw, in an FBI sting operation (photo, U.S. Attorney's office) Scott London threw away his personal integrity and a 30 year career at a Big Four accounting firm for about $50,000 in cash kickbacks and a Rolex watch. These were the "gifts" given to him by buddy Bryan Shaw, to whom London had given insider trading tips worth over $1.3 million over a three year period. London plans to plead guilty at his hearing on May 17th, 2013. London's position at KPMG gave him access to information that was not yet public. He passed on information to Shaw that enabled Shaw to execute stock transactions in advance of market-changing announcements. These resulted in major gains for Bryan Shaw. The transactions involving two companies in particular--Herbalife and Sketchers--drew the attention of regulators. Shaw was approached by the FBI to help in a sting operation that eventually caught London accepting a cash payoff. What were these guys thinking? One observer, Gene Murphy, a white-collar-crime defense attorney, remarked: " You got two knuckleheads who keep affirming each other's stupid ideas ." Scott London, especially, should have known better. He was the Southern California regional managing partner for Audits at KPMG. The only value that an auditing firm has is its integrity, and its ability to attest and affirm the integrity of its clients' financial reports. If a major auditing partner of one of the four biggest accounting firms in the world is cheating, what is an audit worth? These are questions that KPMG's clients, and those clients' investors, are probably asking themselves now. Source: " In KPMG insider trading case, crime and blunders alleged ," by Walter Hamilton, Andrea Chang, Tiffany Hsu, et. al., Los Angeles Times , April 13, 2013. Follow up: What were the immediate ramifications to KPMG when Scott London was charged by federal prosecutors? What action was taken by the New York Stock Exchange? Can a person cheat in his personal life, but be honest in his business life? Can a person be honest at home, but lying and cheating or stealing at work? What do you think? What are the risks of trying to live two different lives? What service do you think big auditing firms should be providing?

  • Tax surprises may result from changes in Federal marriage law

    image from mofradtaxsolutions.blogspot.com For several decades in the United States, marital status has had an impact on tax liability. Transfer of jointly owned property when one spouse dies does not produce a tax liability for a surviving spouse under U.S. estate tax law. For couples with widely differing incomes, "Married filing Jointly" on the annual tax return usually produces a lower overall tax rate than if both parties filed separately. These are instances where Federal tax laws benefit married people. However, because of the 1996 Defense of Marriage Act, DOMA, now being reviewed by the Supreme Court, same-sex couples who are legally married in states that allow it are NOT allowed to file as "married" with respect to Federal income tax. In many cases, this penalizes same sex married couples. (DOMA only recognized opposite sex marriages for the purpose of Federal filing status, or any benefit status--Social Security, Veteran's, Medicare, etc.) However, there is also the "marriage penalty" in U.S. tax law. The tax rate tables are set up so that married individuals--both working full time at approximately equal or high-bracket salaries--usually pay MORE in taxes as "married" people than they would if they were "Individuals" (unmarried). Married same-sex partners are currently forced to file Federal income tax returns as "individuals." If the Supreme Court were to overturn DOMA, same-sex married couples would also be subject to the "marriage penalty." This would actually make accounting for the businesses who employ them much easier. image from facesinequality.org Source: " High Court's Decision on Federal Marriage Law Has Tax Implications ," audio link and transcript, by Carrie Johnson, NPR, Morning Edition , March 26, 2013. Follow up: Have you taken a course on Personal Income Tax yet in your business education plan? If so, please list things you have learned about the U.S. tax code that seem unfair or baffling. Have you filed your tax return yet for 2012? If so, what was your marginal income tax rate? How much did you pay in federal income taxes? Look at your year-end pay stub--how much was taken out of your check for other taxes? If there is a state income tax where you live, how much did you pay in state taxes? Will the Supreme Court decision have any financial impact on your situation?

  • Uniformity in marriage laws good for business

    banner image from thinkprogress.org Several businesses filed " amicus briefs " with the US Supreme Court recently, in the DOMA case. DOMA, the "Defense Of Marriage Act," is a federal law signed during the Clinton administration. It prevents the federal government from recognizing as marriage anything besides "a legal union involving one man and one woman." It is being challenged, and several businesses have signed a brief requesting that the Supreme Court overturn DOMA. The brief does not address the sociological or religious issues that often surround discussions of this issue--it's all about maintaining profits and keeping down costs of compliance with federal regulations. In states where gay marriage has been legalized, legally married couples who do not fall under the DOMA definition have to be treated differently with respect to federal and state laws regarding health care, retirement and taxes, for example. Businesses cite that this "impairs employer/employee relations and other business interests." Those "other business interests" include the costs of maintaining separate records and deduction systems to comply with state laws that differ from federal laws. The different treatment also exposes businesses to possible allegations of discrimination, as well as "unnecessary cost and administrative complexity." Some of the businesses that signed on to the brief appear in the graphic below. Source: " Federal Gay Marriage Ban Hurts the Bottom Line, Businesses Argue " by Erica Ryan, National Public Radio , February 28, 2013. Follow up: What is your reaction to the neutral, "strictly business" tone of this argument for standardizing marriage laws for adults on a national basis? Can you think of another debatable topic where approaching it from a "business perspective" might make it less divisive? *

  • Is it better to buy or rent?

    RENT vs BUY CALCULATOR. Check out the link above to see if it is better for YOU to rent or buy a home, based on financial information alone. The qualitative issues--such as whether you want to stay in one place, or whether you can "handle" the responsibilities of ownership--are outside the parameters of finance, but may be important to consider. Actually dealing with the quantitative factors in decision-making can be a challenge...especially when the qualitative issues can be overwhelming. Nevertheless, a "rent vs. buy" decision--a classic "differential analysis" problem--is important to every person's financial life...since everyone needs a place to live. Let me share this, from my personal experience. On my father's side of the family, no one had ever owned property. I researched this for four generations: all renters or indentured servants. On my mother's side, there was ownership and loss...never was there enough property to pass to the next generation. My husband's family was a different story: sacrifice to own property led to generational increases in property ownership and financial well-being. So...we bought property, and bought more property to rent out...etc. We were lucky. Our money was in real estate when the market was going south. That said...what advice do we give our children? Rent or buy? All I can say is: use the linked calculator and decide for yourself. Source: " Is it Better to Buy or Rent ?" by David Segal, NYT: The Haggler , January 12, 2013. Follow up: Test out the extremes of the rent-vs-buy calculator. What effect does down payment have on your decision? What effect does interest rate have on your decision? At today's very low (historically) interest rates, what would be the most likely advice to give an investor?

  • National Taxpayer Advocate's Annual Report

    The Taxpayer Advocate's Annual Report is out, and there is something in it for everyone to like...and dislike. What is interesting is that the author, Nina E. Olson, really views the IRS as a business entity, and assesses it in terms of efficiency and opportunities, as a good CEO might. The Advocate's report reads like a report to stockholders--We The People of the USA--but it is officially addressed to Congress. Some of the main points: Tax reform is needed to simplify the Code Compliance with tax provisions is sometime extremely difficult for taxpayers--almost every taxpayer either spends money on a professional or on software just to figure out what they owe. "Tax expenditures" (credits) are not cost effective. A simpler tax structure would produce more revenue. "Zero-based budgeting" techniques should be used to fix the tax code. Decide policy and revenue structure separately, then make them work together. The IRS, while treated like a "cost center" in terms of federal budgeting, is actually a revenue center: every dollar invested in the IRS produces a $214 ROI (return on investment). This should be factored into budgeting decisions. Increased funding would improve customer (taxpayer) service. Tax-related identity theft issues must be addressed. The IRS needs to improve taxpayer service with respect to preparer fraud, adoption credit audits, and foreign bank account reporting. Another interesting finding is that people who do not trust government tend to be more likely to cheat and underpay their taxes. At any rate, it is short and well worth reading. Source: " National Taxpayer Advocate's Annual Report " via Taxmama.com, January 11, 2013. Follow up: Do you have a suggestion for improving the IRS? Contact the Advocacy Panel by phone or via their website.. Read the report. Which of the issues raised do you think are most important? Do any of the suggestions affect you personally?

  • College degrees that yield the 8 worst ROI

    image from article linked below Well, your parents or your high school counselor might sometimes be right: some college majors are more lucrative than others. Recent research posted on Salary.com revealed that these majors produced the worst prospects for high income: Communications Psychology Nutrition Hospitality/Tourism Religious Studies/Theology Education Fine Arts Sociology Of course, individual experiences might be different, and these degrees may provide excellent critical thinking, writing and research skills that can signal success in graduate schools or in pursuing a self-taught specialty. Source: " 8 College Degrees that Yield the Worst Return on investment ," by Dawn Dugan for Salary.com. Follow up: Read through the computational process described in the article. Write out the computation for one of the selected college majors, and compare it with the data quoted in the article. Do they match? Is this a good way to compute ROI? Look at the returns on investment computed for each career. How do these returns compare with the current ROI for money in an Certificate of Deposit? How do these returns compare to stock market investments? Can you find an article on the Best ROI by college degree? Do you have any thoughts about the validity of this approach to analyzing college majors?

  • AIG shareholders sue the US government; the AIG Board declines to join them

    View:http://community.cengage.com/GECResource/themes/gew/utility/ :550:0] video from CBC player Lang & O'Leary Exchange, Big AIG shareholders (American International Group, an insurance multinational) are suing the US government for not making adequate profits, and for mismanaging AIG assets when the US government bailed out AIG in 2008. The AIG Board of Directors voted this week on whether the company should join the $25 billion lawsuit. (The video precedes the vote.) Although the Board may risk an additional lawsuit from the litigious and greedy AIG shareholders as a result of this week's action, the Board voted not to join the lawsuit. The Board was in a "lose-lose" position--if they joined the lawsuit, they may have been viewed as "soulless bloodsuckers" (see the Borowitz link below), but not joining the lawsuit may be viewed as not upholding their fiduciary responsibility to their shareholders to make as much money as possible, no matter what. Hank Greenberg , a major player in the 2008 fiscal debacle, is a lead figure in the shareholders' lawsuit. Sources: " CBC Player: Big 3 stories ", January 8, 2013. [video embedded above] " Satire: 'A letter from AIG' ," by Andy Borowitz, The Borowitz Report via BeforeItsNews.com, January 8, 2013. "Soulless bloodsuckers" is a quote from this piece. " As public fumes, AIG says will not sue U.S. over bailout ," by Ben Berkowitz, Chicago Tribune , January 9, 2013. Follow up: Comment on the tone of the news broadcast. What American newscasts is it similar to, if any? Listen to all three of the stories covered before you comment. Does the tone of the newscast enhance your perception of objectivity and accuracy, or detract from it? What do you think about the AIG shareholders' lawsuit? Do you buy the assertion that joining the lawsuit is "required" as part of the AIG Board's fiduciary responsibility to shareholders? What are the legal responsibilities of the AIG Board of Directors? What are the ethical responsibilities of the Board of Directors? The satiric piece by Andy Borowitz communicates some of the sentiments elucidated in the CBC broadcast. Which do you think was more effective and why? Comment on the irony of the message on the AIG homepage, in light of this lawsuit.

  • Thwarting corporate banking abuses

    image from jschott.com; cartoon by Trussell & Trussell " Dodd-Frank " is a comprehensive regulatory law that was passed in 2010, as a response to the financial meltdown and banking crisis of 2008. Wall Street and big banks don't like the law. They have spent millions of dollars lobbying to fight it, and hiring consultants to manage "compliance" in form but not substance. So Dodd-Frank has not been fully implemented. Only a third of the regulations are actually in place, and some of those have only been implemented with compromises. Check out the link to a comprehensive chart delineating what aspects of the law have been implemented. Note that only 9% of the banking regulations have been put in place. Only half of the derivative regulations have been implemented, even though the valuation of derivatives was widely acknowledged to be the prime cause of the financial meltdown. Another chart on the same link shows how much taxpayer-subsidized meeting time with federal regulators has been used by the various lobbying agencies. The cartoon above compares Dodd-Frank to the Glass-Steagall Act , a simpler piece of legislation which regulated bank abuses pretty effectively for over 60 years. The cartoon makes an reference to the business success advice to "build a better mousetrap" but also touches on the irony that Dodd-Frank was set up to allow a period of "ironing out the details" where the entities who were supposed to be regulated could influence the regulations. Uh-oh. Source: " Deconstructing Dodd-Frank " by Ben Protess, Dealbook, New York Times, December 11, 2012. Follow up: Read about the Glass-Steagall Act, as well as the pieces about the implementation of Dodd-Frank. What are the pros and cons of each piece of legislation? Use the charts about Dodd-Frank implementation to answer the following: What segments of Dodd-Frank have been fully implented? What segments have made the least progress toward implementation? What industry segments have lobbied federal regulatory agencies the most since 2009? What do you think they are trying to do?

  • LAWSUIT: Auditors of Hewlett Packard's "Autonomy"

    Hewlett Packard shareholders have sued the auditors of Autonomy, HP's over-priced acquisition. Meg Whitman, the CEO of HP, said that she relied on the financial statements that were prepared by the United Kingdom branch of the Big Four accounting firm, Deloitte Touche Tohmatsu (Deloitte). In addition, HP also relied on the work of KPMG, another Big Four accounting firm, who supposedly audited the work done by Deloitte. The lawsuit also named Hewlett Packard's Board and various executives for not providing adequate "due diligence" in making the purchase. It will be very interesting to see what comes to light about the accounting firms' work as a result of this lawsuit. Source: " Audit Firms Sued in HP Autonomy acquisition ", Reuters, November 28, 2012. Follow up: What are audit firms supposed to be doing, if they are not certifying that the financial statements are materially correct? Read this article and others, if necessary, to see what the auditing firms' responses are to this lawsuit. What errors did Hewlett Packard make, and why do observers think they made those errors? (read prior post on this topic to get background on this issue)

  • Hewlett Packard messes up again

    image from USA_Today.com Here we go again. Hewlett Packard, once a solid performer as far as stocks and business stability was concerned, but recently in the news for management missteps, is now in the spotlight again. This time, though, it might not be entirely HP management's fault. Last year, HP acquired Autonomy , a British software firm. But it seems that Autonomy overstated its bundled-with-hardware software sales, and improperly inflated revenues by 10-15%. In addition, it violated the "matching principle" and booked sales in time periods before they actually occurred. The total effect of these accounting errors was to show operating profits of 40-45% instead of the more accurate 28-30%. Hewlett Packard based its purchase decision on these misstated profit figures. The stock price of HP fell 12% on the day this was announced. photos by Ryan Anson/Bloomberg News, via Getty Images : " Catherine Lesjak, Hewlett-Packard’s finance chief, said Autonomy’s profitability was less than it seemed. Mike Lynch, its former chief, denied any improprieties . " from article linked below Analysts note that similar misstatements plagued other software companies about a decade ago. The Securities and Exchange Commission had filed charges. Analysts also suspected that Autonomy had been using these discredited reporting strategies prior to the HP announcement. Disclosure resulted from a whiste-blower who came forward in May of this year. Source: " HP Claim Highlights a Gray Area in Software Sales " by Peter Eavis, NYT Dealbook , November 21, 2012. Follow up: What is " deferred revenue ," and how did it complicate the Autonomy accounting misrepresentations? What type of services and software does Autonomy provide? Why might Hewlett Packard have thought this was a good acquisition?

  • Entrepreneur wins by using managerial accounting skills

    image by Peter Wynn Thompson of the New York Times Nick Sarillo is a pizza shop owner, who has built his business by developing and adhering to a "trust-and-track management style." He developed his principles the hard way--first by being overly optimistic and over-expanding...and then by saving his business. To do this he appealed to his customers with transparency. Then, because he was dealing with a young employee population, he adopted a "coaching" attitude, by making goals clear, allowing workers to meet those goals in their own way, and by tracking successes and giving real bottom-line feedback. Sarillo's marketing plan was also unique. He tracked and gave back 5% of profits to the community by allowing groups to use his building to fund-raise. This increased his visibility and made his business an integral part of community activities. Sarillo has written a book about his management style: " A Slice of the Pie: How to Build a Big Little Business ." He has also been on the cover of Inc. magazine . Source: " A Pizzeria Owner Learns the Value of Watching the Books ," by Ian Mount, NYT , Small Business, October 24, 2012. Follow up: Read the article. Describe what problems occurred at Sarillo's Elgin restaurant. How did he solve them? How did Sarillo finance his business? What went right and what went wrong with his financing model? What external factors contributed to Sarillo's business challenges?

  • What is your net worth?

    napkin drawn by Carl Richards, whose article inspired this post; link below If your financial life is in disarray, and you don't know where to begin planning, start by creating a balance sheet. This is the basis of all accounting: Assets = Liabilities + Equity. This can be restated in a format simpler for personal finance as: Assets minus Liabilities = Net Worth In a systematic way, just list your assets--the items that you own or have control of--on one side of the balance. These would include bank accounts, investments, real estate, personal property such as computers and furniture, jewelry, cars and any cash you keep on hand. Then, use statements or the internet to determine the value of each asset. You want to be sure to list your assets at their current value, so use Zillow or another service to determine property value, and "blue book" value for your automobiles. Check eBay to see what other assets might be selling for. On the other side of the equation, list your liabilites--credit card balances, mortgages, car loans, student loans, and anything else you might owe. These are usually easier to value because almost always there is a certain exact amount due. Check your last statement, or go online to check your current balance outstanding. When you are done, subtract your liabilities from your assets, and you will arrive at your net worth. If you want to increase your net worth, you either need to add more assets or decrease liabilities. It is arithmetic, not some kind of hocus-pocus. Over time, you can create reasonable and achievable goals to improve your financial position. Source: " A Simple Place to Start: Your Net Worth " by Carl Richards , New York Times Bucks Blog, October 1, 2012. Follow up: The obvious follow-up is to create your own personal balance sheet: what is your net worth? Get a small but sturdy notebook, and record your net worth information there. Make entries in the notebook whenever you make a major financial change, and calculate your net worth on an annual basis. Start a graph if you wish as well. May your wealth increase, and may you meet all of your financial goals.

  • German bakers get more $ BREAD $

    from the Wall Street Journal article linked below 9/18/2012 Wiener Feinbäckerei Heberer GmbH, a German bakery, was having trouble borrowing money from German banks, in the middle of the current Eurobond crisis. Therefore, it took an entrepreneurial approach to high finance: it posted--on fliers, poster, and even bread bags--an invitation to invest in "jubilee bonds" that promised to pay a 7% return. The were entering the bond market, small-scale. This represents a new trend for Germany's middle-sized businesses. It has arisen because loaning to these businesses can't help banks meet the new capitalization rules. Source: Wall Street Journal , " Searching for Fresh Bread in Germany " by Christopher Lawton, 9/18/2012. Follow up: Analyze the chart above. By what percent have German small-market bonds increased from 2010 to 2011? By what percent have these bonds increased from 2008 to 2011? How can the percentage data, as opposed to the actual numerical data, be used to influence the conclusions drawn by readers? Research and list some of the new ways that American entrepreneurs have been using the internet to raise funds (note...check out one of my previous blogs--also with a dollar $ign in the title)
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