AccountingCASES : New Issues

2009-06-09T23:02:00.002+07:00

Kunde Estate Winery: A case study in cost accounting
Lee, John Y, Jacobs, Brian Gray. CMA. Hamilton: Apr 1993. Vol. 67, Iss. 3; pg. 15, 4 pgs

Abstract (Summary)

Kunde Estate Winery, a small wine producer in California's Sonoma Valley, uses a relatively simple system to relieve its cost accounting problems. The cost accounting system is a hybrid between process costing and job costing. As each lot of wine in a given vintage may be processed differently, each can incur varying costs. Depreciation is allocated based on estimated usages of by process departments, including crush and ferment, tank aging, barrel aging, bottling, and general production. In controlling costs, Kunde considers the fact that production levels are fixed at the time of crush for a full year. A comprehensive budget and cash flow model is used, incorporating direct departmental expenses and other nonfinancial data to forecast a complete production cycle.

Cost accounting poses a challenge for more organizations. For small businesses constrained by size, budget and employee numbers, the challenge is particularly acute. This case study examines how Kunde Estate Winery, a small wine producer in California's Sonoma Valley, used a relatively simple system to relieve its cost accounting headache.

Before examining specific cost accounting issues, a brief primer on production at Kunde Estate Winery might be in order. The company has released only two vintages, Sauvignon Blanc and Chardonnay. both have won medals in competition and have been praised by wine writers. The Chardonnay received an "outstanding" review from the "Wine Spectator," an American industry publication, which stressed the product's value for pricing. Kunde's competitive strengths stem from three main factors, including the quality and value of its wines; its vineyard heritage; and ins "Estate Bottled" designation, granted by the federal government to wines containing at least 95 per cent grapes from vineyards owned or controlled by the winery.

Unlike other beverage manufacturing processes, wine making follows no set formula. vintners must apply their experience to a number of variables. Wine characteristics vary with the particular year's weather conditions, the growing microclimate, the harvest date, and production decisions made throughout the process.

At Kunde Estate Winery, grapes are dumped into a hopper, then fed to a stemmer-crusher machine that removes the stems and crushes the grapes. This process yields a must, or a slurry of skins, seeds and juice.

To make red wines, which derive their color from the grape skins, the must is pumped to stainless-steel tank fermenters. Yeast is added in order to convert the sugar in the must to alcohol. Carbon dioxide produced during this fermentation process causes the skins to rise to the top of the fermenter. Here another by-product of fermentation, heat, would ordinarily cause them to decay. In order to prevent decay, the clear 'juice-wine at the bottom of the tank is frequently pumped to the top of the tank, keeping the skins in suspension. Fermentation generally takes about 10 days. After all the sugar has been converted to alcohol, the must is pumped to a press, where the wine is separated out.

White wines do not require skin contact. The must is pressed immediately after crush or within one day of crush. Fermentation takes place in stainless steel tank or 60-gallon oak barrels.

Most wines at Kunde Estate Winery are aged in oak barrels. After fermentation and press, red wines are pumped into barrels in the caves. After about a month, the wines (including barrel-fermented white wines) are racked. Racking entails pumping the clear wine out of the barrels into a tank, leaving a small amount of lees, or wine containing suspended yeast and grape solids in the barrel. The lees are collected and filtered to remove the solid particles.

After the barrels have been washed, the wine is returned for further aging. White wines are aged until about April for a light vintage like Sauvignon Blanc or until June for Chardonnay. Red wines are aged in barrels for about 18 months.

During crush, grapes from different fields and harvest dates are fermented in individual lots. Various lots are then blended to make finished wines. A wine labelled as a varietal, such as Cabernet Sauvignon, must contain at least 75 per cent of that varietal. Better wines result from adding other varietals into the primary blend. A Cabernet will often include Merlot and/or Cabernet French wines, which add flavor and complexity. The wine maker begins blending about three months after the start of the wine-making process, and continues blending until bottling. Small lots of lees wine and unblended lots are sold on the bulk wine market.

After final blending, wines are fined and/or filtered to remove sediment before bottling. Done merely for esthetic purposes, this process applies mostly to white wines. The amount of final processing is important, as too much filtration can remove some of the wine's desirable characteristics. Wines are then bottled, corked, and labelled in sequence on a bottling line.

All bottled wines require aging, about two months for white wines and up to a year or more for some reds. The short aging period for white wines allows them to recover from bottle shock, a temporary change in flavor that results from the bottling process. Red wines continue to develop in the bottle.

THE COSTING SYSTEM

Cost accounting for wine making differs in several ways from the system used by other manufacturers. The system is a hybrid between process costing and job costing. As each lot of wine in a given vintage may be processed differently, each process can incur varying costs.

Process department costs are clearly identified. The key to costing wine inventory is to follow the wine's movements. Equipment and depreciation are identified by department where possible. Otherwise, depreciation is allocated based on estimated usages by process departments, including Crush and Ferment, Tank Aging, Barrel Aging, Bottling and General Production. Each department incurs costs that are periodically allocated. Allocations of process costs need only be applied to individual lots at bottling and at year end. Between applications of process costs to lots, the lot costs will change with blending activity and losses from it.

GRAPE COSTS

The winery purchases its grapes from a vineyard at market value. The must resulting from each delivery receives a lot number. More than one wine lot may be produced from each lot of must, depending on processing. Grape costs are allocated to the resulting wine lots based on gallons of wine produced.

CRUSH AND FERMENTING COSTS

Crush and fermenting costs are allocated annually to all wine lots crushed in the vintage. As each grape varietal produces a different yield, crush costs are allocated based on tons crushed and fermented. Average gallon yield per ton by varietal is calculated and multiplied by the gallons in each lot to arrive at "tons crushed," the basis of cost application. The average yield is used to simplify calculations, as any differences are not material. Blending eliminates differences within a particular varietal.

WINE AGING

Cellar work orders are issued by the wine maker for all operations, including racking, blending and movements between locations. The winery takes a monthly physical inventory of all wines for federal government reporting purposes. Lots of wine are also updated monthly for movements and blending. The lots and related costs are adjusted for blending and shrinkage. Monthly cost adjustments are made as of the latest cost application.

TANK AGING

The winery allocates department costs based on gallons in stainless steel tanks after fermentation. As all tanks are emptied before crush to make room for the coming vintage, tank aging allocations begin after fermentations are completed.

The allocation of tank aging costs to a lot of wine is based on the formula:

* (Lot gallons x months in storage)/(Sum of gallons per month for all months in period) x Costs

Multiplying the number of gallons in the lot by the number of months (gallon-months), then dividing by the total gallon-months in the department for the allocation period, produces the allocation rate. The department costs for the period are charged for the rate applicable to each lot.

Because of evaporation, workers must top up the tank in order to eliminate air, which would promote the growth of bacteria that turn wine into vinegar. After that point, wines aging in tanks will require little labor. Tank aging costs accordingly include period costs of depreciation and utilities. Utilities are stable in processes other than crush.

BARREL AGING

Barrel aging is the most complex costing component. A 60-gallon French oak barrel costs $500 to $600. An oak barrel will impart flavor to wine for about three years after purchase. wines are aged in a mix of old and new barrels.

Barrels are depreciated over three years. The winery maintains barrel depreciation records to allow application of a given year's depreciation to a specific vintage. As wine evaporates through the wood, the barrels must be topped regularly.

Racking wine in barrels is a labor-intensive operation. Each barrel must be emptied, moved and cleaned, and then refilled individually.

The caves at Kunde Estate Winery require only lighting, as the temperature and humidity are very conducive to aging wine. The 90-per-cent humidity reduces wine evaporation loss by about 200 per cent compared to evaporation loss in a refrigerated warehouse, partly compensating for the increased handling costs.

Barrel department costs are allocated using barrel months in a similar fashion to tank aging. Some utilities and cave depreciation are first allocated to the barrel storage for other wineries that lease part of the facility.

BOTTLING

Bottling costs can be easily identified with each lot that is bottled, and are applied directly to such lots. Purchases of standard items like glass, corks and foils are held in inventory and applied based on usage.

BOTTLE AGING

Bottle aging is applied to unreleased wines as a cost of production, and expensed to cost of sales for released wines. Wines held at the winery get allocations of depreciation and utilities. Wines are transferred in large numbers to an outside warehouse for storage and shipment to customers.

LABOR AND GENERAL PRODUCTION

Labor and benefits are charged to the general production department. Each month, the wine maker and the cellarmaster review the work performed and report to accounting the percentage of each employee's time spent in each department. These estimates provide the basis of allocation for labor.

The general production department is the overhead department for wine making operations. The wine maker's salary and benefits, and insurance, laboratory and administrative expenses, are collected here for allocation to the process departments, based on estimates of activity by the wine maker.

PRODUCT COSTING ISSUES

Now that Kunde is entering its second vintage, or wine made from its second crop season, two issues arise. wines in the new vintage are racked more frequently, and undergo more blending operations. and white wines fermented in barrels require more attention than either red or white vintages that are transferred to barrels after fermentation. The winery expects to account for a greater number of transactions for these extra tasks, resulting in higher cost allocation in the costing process. The press and lees wines are not costed using bi-product costing. The bulk wine market fluctuates substantially, and the winery's history of bulk sales is insufficient to establish a reasonable standard.

Standard costing is appropriate for bottling costs. Using standard costs can produce benefits if the bottling operation is relatively stable.

Inventories are classified as bulk or bottled (finished goods). Bottled wines may continue to receive storage costs. As raw materials (grapes) are processed immediately, materials inventories, consisting of bottling materials, are minimal. Industry accounting practice considers wine inventory a current asset, regardless of the stage of production.

COST CONTROL ISSUES

According to one industry expert, wine making is more capital-intensive per dollar of sales than automobile manufacturing. Much of the specialized production equipment and plant are used for about months of the year during crush. Besides the capital requirement for plant and equipment, the extended production cycle of up to three years from crush to release for red wines causes a tremendous cash flow burden.

In controlling costs, Kunde considers the fact that production levels are fixed at the time of crush for a full year. A comprehensive budget and cash flow model is used, incorporating direct departmental expenses and other non-financial data to forecast a complete production cycle. The model includes departmental budgets and projected financial and cash flow statements.

At Kunde, the only function requiring a flexible budget is marketing, which is linked to sales. Most costs are fixed capital costs. Because the production level is fixed, labor is easy to control. Oak cooperage and bottling materials present some problems. Oak cooperage from France is subject to wild fluctuations of the dollar, which can be partially mitigated by purchasing franc-de-nominated futures. Controlling bottling materials costs is difficult, as cork and neck foils are also imported.

Many managerial accounting issues besides the design and implementation of the cost accounting system have been explored in this case study. Small businesses, especially those in process industries, could benefit from Kunde's simple systems in their efforts to come up with a cost accounting regime that meets their needs.

2009-06-09T22:59:00.003+07:00

Beyond ABC: Targeting costing for profit enhancement
Brausch, John M. Management Accounting. Montvale: Nov 1994. Vol. 76, Iss. 5; pg. 45, 5 pgs

Abstract (Summary)

Target costing is a strategic management tool that seeks to reduce a product's cost over its lifetime. Culp Inc. decided that cost management was one of the most strategically imperative areas of the firm. It combines the efforts of marketing, operations, and accounting and presumes a relationship with and working knowledge of each to be successful. The company implemented 3 strategies: 1. recognizing the differences between managerial and financial accounting, 2. producing accurate product costing, and 3. going from the accuracy school to target costing. Target costing is not a costing issue. In fact, the target costing program at Culp has not had an impact on how it costs products, but rather has affected the way in which the costing information already available through cost management efforts is used.

Target costing is a strategic management tool that seeks to reduce a product's cost over its lifetime. Target costing presumes interaction between cost accounting and the rest of the firm; well-executed, long-range profit planning; and a commitment to continuous cost reduction. Its application in Japan has been well documented, but American firms also can use it to understand costs better and to enhance long-term profitability. One American firm recently implemented target costing, and the results have exceeded the firm's expectations.

Culp, Inc., a $260-million textile manufacturer for the home furnishings industry, has just completed the final stages of implementation of its newly designed costing system. We began the project in 1988 when we realized the need for better cost management and have worked tirelessly since then in an ongoing cost management evolution. Our journey has led us to a realization that cost management is different from other accounting efforts, and we have undertaken a target costing program to help us build profits and decrease the cost of our products at the design stage.

We implemented this system by using a team approach to cost management and by bringing together the divergent groups in the company--accounting, finance, engineering, and operations--to make our cost system as up-to-the-minute as possible.

The target cost is the price customers are willing to pay for a product less the profit we must receive for making that same product. The difference between the two becomes our product cost. It is the cost at which we must produce an item in the long run. Typically, American manufacturers have said: Here is my cost. I have to receive a certain profit contribution rate above that, so consequently I must sell my product for this price (cost/ (I-needed profit margin). Target costing reverses several decades of American pricing strategy by taking into account that our customers do not care about our costs-only about their own. Our selling price is their cost, and there the customer's concern ends.

CHANGING THE CORPORATE MINDSET

Our philosophy was simple: that cost management is one of the most strategically imperative areas of the firm. It combines the efforts of marketing, operations, and accounting and presumes a relationship with and working knowledge of each to be successful. This relationship and working knowledge were achieved by integrating cost management with the other activities of the firm and no longer treating cost accountants as after-the-fact scorekeepers.

Our No. 1 maxim of cost management is: Unless cost management is treated as a viable part of the firm's strategic direction, ongoing cost management efforts are doomed to failure. In most cases, including our own, cost management efforts are preset for failure if the cost accountants are treated as bean counters destined to crunch a lot of numbers without any input or explanation as to why the numbers are the way they are.

THREE STRATEGIES

In an article in the August 1993 issue of MANAGEMENT ACCOUNTING(R), "Strategic Management Accounting--How and Why," authors Johnson and Kawada posit that two schools of management accounting thought have emerged: the accuracy school and the strategy school. These schools of thought are said to have one thing in common: disdain for traditional financial accounting and an awareness that management accounting systems must be separate from financial accounting systems.

At Culp we recognized the importance of breaking down the attitudinal barriers of the firm toward cost management. As our cost management system evolved we began, first, to recognize the distinction between managerial and financial accounting. Second, we joined the accuracy school, and, last, we saw the viewpoint of the strategy school and the importance of strategic cost management to our firm's corporate direction.

Strategy No. 1: Recognizing the differences between managerial and financial accounting. Although most readers of MANAGEMENT ACCOUNTING(R) are well versed in the differences between financial and managerial accounting, most business leaders are not. Most of them feel that accounting figures can be massaged to produce any output for any particular application. Because most firms' accounting efforts have been designed to meet the needs of financial accounting, managerial accounting, if it is considered at all, is thought of only as a subset of financial accounting.

Even among accountants, cost accounting has received scant attention. Few CFOs and even fewer CEOs have any type of background in cost management. Typically, CFOs come from public accounting firms. They are well versed in financial accounting but have little knowledge of the intricacies inherent to cost management. Auditing, tax, and financial management have been seen as the glamour fields within accounting. The evolving attitude is toward an obsession to manage by the numbers, whereas cost management relies more on an operation's processes and much less on GAAP.

Financial accounting's edicts result in a lack of interest in both the processes and the people involved and a corporate dictum to make the numbers look good. The people who are managing by the numbers rarely visit the shop floors, have no concept of the manufacturing or service processes, and do not have the patience to allow for the implementation of long-term corrections rather than short-term fixes. Today's profit and loss statement rather than tomorrow's competitive position is what drives management by the numbers.

This attitude affects cost management in two ways. First, cost management, to be successful, requires understanding the business processes. Second, proper cost management cannot be achieved in the short run by a quick fix. What is necessary is a long-term commitment to learning the business and building a managerial accounting system to fit the operational cycles of the firm.

Unfortunately, cost management is competing against other areas for the firm's scarce resources. Its advocates are left at a huge disadvantage because top financial management generally doesn't understand cost management or the processes that cost management seeks to address. A recent study by the Controller's Council of the Institute of Management Accountants indicated that cost accounting ranked dead last in terms of resources consumed by accounting functions. To quote that study: "Many firms of all sizes do no cost accounting or managerial accounting whatsoever. Even in manufacturing, cost and managerial accounting receive meager support"

The second difficulty management accountants must overcome has to do with financial accounting numbers. The case has been well made by numerous academicians and practitioners that the outputs of financial accounting simply are not sufficient for management's needs. The information is both too late and too aggregated to be of much good to anyone other than the IRS and the SEC. Unfortunately, most firms are not willing to invest the time and money necessary to develop separate managerial accounting systems. Instead, they ask the management accountants to provide internal financial information based on externally derived systems.

At Culp, our first goal was to separate the functions of managerial and financial accounting so that each could serve its customers to the best advantage. This separation is important to any management accounting system evolution. We do not ask salespeople to present the same proposals to every customer, yet we ask accountants to use the same information and make it work for management, the investment community, the IRS and SEC, and all of the other groups our information affects. As management accounting practitioners, we must realize that these groups need different information just as the firm's customers need to know about different aspects of what our firm can provide.

Strategy No. 2 Accurate product costing. The accuracy school of cost management obviously is concerned with accurate product costs. We began our cost effort firmly in this camp. In the words of our CEO, our mission from the project's beginning was to "get product costs as close to actual as possible." Although this goal may sound simplistic, achieving it was not easy.

We knew that in most of our divisions our costs were accurate in the aggregate. That is, our budgeted costs and actual costs were closely related. Unfortunately, as in so many companies, our individual product costs were terribly misstated. Our system worked on a modified welfare basis, penalizing profitable products with unwarranted costs and subsidizing losing products by channeling their costs elsewhere. At the same time we reported all product costs to the fourth decimal place, intimating a level of accuracy that the cost department (and almost everyone else) knew was not there. Unfortunately, many of the users of the information in design, marketing, and manufacturing derived a false sense of comfort from it, which inevitably led them to poor decisions about the products. Many of these decisions could have been avoided by involving the management accountants in the decision-making processes and by changing the role of the cost group from team statistician to team player.

To involve management accountants in the process required an admission that our product costs were not accurate and that the decision makers should not rely on them. This admission then forced a decision: either the costs were worth knowing or they were not. If so, we had better improve their accuracy. If not, then why cost products at all? If costing were used only to value inventory, we could devise a much simpler system to do it. GAAP requires nothing as sophisticated as our previous cost system for inventory valuation, and said sophistication was too expensive to maintain if it were of no further value to us internally.

Inevitably, we concluded that these product costs were important and that we had better make them as accurate as possible. This decision in turn led to representatives from all areas of the company working together, first, to understand what makes up a given product's costs and, second, to do whatever was necessary to reflect those costs accurately in our cost management. system. Over time, as the entire company began to regain faith in the system's output, these decision makers concluded that each of their actions played a large part in determining and then lowering product costs. This revelation led us in turn to the third strategy.

Strategy No. 3: Going from the accuracy school to target costing. Costing products accurately is a worthy goal. Accurate product costing, however, in and of itself does little to improve the firm's strategic position and does nothing to reduce costs. We concluded that reporting the same costs accurately was not as important to us as using cost management to make more money for our firm. The strategy school suggests that cost management can be used to meet predefined strategic goals extrinsic to cost management. After gaining a level of comfort with the information provided by cost management, we decided to change the thrust of what we were trying to accomplish. As we learned more about the activities that consumed costs we realized that we could do much to limit them. One of the premises of activity based costing is not just to learn more about costs but to make the decisions that will bear directly on them.

One of the ways we have decreased costs is by implementing target costing at the design stage. As we worked on our cost management systems, we soon realized that well over four-fifths of our costs were built into the product at the design stage. In our previous cost reduction efforts we spent 100% of our time in reducing the 20% of the costs not necessarily designed into the product and left the 80% of costs to do as they pleased.

Understanding the nature of cost buildup was an important lesson for us. We discovered that our manufacturing costs were incurred as a result of the product and process characteristics. The processes in turn were driven by what we were producing at any given time. Through our cost management implementation efforts, we became aware that the overwhelming majority of costs were created and built into our products before we ever began the manufacturing process. Our previous efforts to reduce costs had been little more than after-the-fact tinkering, while our current efforts address reducing costs before they are incurred.

Because we are in the decorative fabric business, design is a major part of the firm's manufacturing process. Our design staff constantly is developing new products with new applications for new markets. The design staff is good, but it never purposely designed for profitability. Because cost management is now considered such an integral part of our corporate efforts it seemed only natural that the cost management and design teams would work closely together to develop a mechanism to design more effectively for profitability. The result is that target costing goals have been developed for each of our product lines and are being built into all our new products as they are introduced.

APPLYING TARGET COSTING

With target costing, the pricing decision becomes the focal point of our efforts, not the product's cost. In our case this information was readily available because our product's perceived value (selling price) is easily determined based on the "look" of the product. In many industries this information may not be so easy to obtain, but it is the genesis of any target costing effort. The focus is much more external in lowering costs to meet customer demands as opposed to an internal focus of meeting internal standards.

Our second focus is on our profit plan. Medium to long-term profit planning must be in place to incorporate target costing. This longer-run (as opposed to very near-term) profitability assessment is crucial because the target cost may not be achievable immediately but rather may be reached over time. Without forward thinking about longer-term profit positioning, management may exert pressure to lower costs unrealistically because of a short-term profit squeeze. Too much of this short-term profit pressure has a couple of results:

* Rejecting perfectly profitable products, or

* Lowering "standard" costs to appear profitable when in reality said costs cannot be achieved even in the long run.

It is crucial therefore to be forward looking in our target costing efforts and to position a product realistically over its life span. This philosophy is similar to previous attitudes about standards being both challenging and attainable. We are attempting constantly to achieve better results but are careful not to set unrealistic goals that might destroy morale.

Target costing is not a costing issue. In fact, our target costing program hasn't had an impact on how we cost products but rather has affected the way in which we use the costing information already available to us through our cost management efforts. The information has altered our fundamental approach to products and their profitability. New product introductions must meet certain profit targets. If targets are not met, then the products are continually redesigned until they meet said goals. This continual redesigning process presumes that the target cost can be reached while attaining the same selling price through the perceived value in the product.

The single largest change in our thinking has been to stop reporting what products should cost and instead to report what products will cost. We have focused our attention on getting costs out of the product during the design stage. This proactive concentration on the products cost allows us to prevent costs rather than reduce them after the fact. This concentrated effort in turn pushes us to constant improvement in our design for manufacturability, the number of components used in the process, and the flow of products through the manufacturing pipeline. Now we are concentrating on reducing costs continuously rather than going on periodic cost reduction binges or reporting the costs we have incurred even more accurately.

Please realize that our goal is not so much cost reduction as it is profit enhancement. The long-running intra-company comment is that we were becoming a world-class company in every area but one--making money. We are using target costing to help us become world class in this area as well.

In setting and meeting our target costing goals we also have focused less on single products and more on product groups. At any given time there will be several products within a group that do not meet our goals for a variety of reasons. Our efforts are expended on assuring that the entire group is above goal and that the group's compensation and standing are based on the entire portfolio's standing. The key to any single product is to achieve the targets over the product's lifetime through improvements in the way we manufacture it.

Figure 1 illustrates one product line's performance measured against goal for the last 13 months. (figure 1 omitted) Our profit goals are measured on a gross profit (before salary, general, and administrative expenses) contribution per machine hour basis as opposed to a straight profit margin basis. We measure profits this way because machine hours are much more restricted than output based on our manufacturing process--our products vary greatly in the manufacturing time needed to complete them. This time constraint makes profit turnover more important than profit margin. Figure 1 measures each month individually and also provides a longer-term rolling average performance measurement to mark our progress better over time.

This product line's performance then is measured by each of our four marketing groups (see Figure 1) to find out whether goals are being met through each specific marketing channel. Products we once considered homogeneous in terms of marketing behave very differently from a profit standpoint, depending on the marketing channel used. Although we do not yet understand all of the differences involved, we are trying to discover how and why the varied channel characteristics affect company profitability.

We believe that target costing can play a major role in many firms. Although it is used primarily in Japan, American companies can adopt the practice and accrue the benefits resulting from this application of strategic cost management. Cost management can play a major part in any firm's strategic efforts. Management accountants must become involved in the strategic decision-making processes of their firms. They have a wealth of information about the firm and its operating conditions. It is up to each of us, as management accountants, to make our knowledge more accessible to the firm's decision makers.

2009-02-15T21:50:00.003+07:00

They call him Mr Fantastic;
International Securities Finance. London: Sep 2004. pg. 1

Abstract (Summary)

In an interview, Fred Francis, vice president of RBC's securities finance and global products division, talks to fellow Canadian Craig MacDonald about his affection for Toronto, his passion for sailing, and how he got his nickname. When asked, what RBC hopes to gain from the recent launch of the electronic proxy voting service with ADP, Francis responds that because of the number of high profile bankruptcies and incorrect accounting cases they have seen recently, the demand for good governance is on the rise. Institutions realise they have to be more active in understanding the events taking place within their individual stock investments. This oversight and governance need has usually been exhibited through an increased interest in voting, and therefore it has been incumbent upon us to make voting more accessible for institutions.

Fred Francis, vice president of RBC's securities finance and global products division, talks to fellow Canadian Craig MacDonald about his affection for Toronto, his passion for sailing, and how he got his nickname.

Fred Francis is a 24-year veteran of RBC Global Services, as well as a tub-thumper for the Canadian market and securities lending as a whole. Here he talks about the bank's recent launch of an electronic proxy voting service with ADP, and his hopes and frustrations within the business.

ISF: The Canadian securities lending industry often gets labelled as small and conservative. Is that fair, do you think? FF: The Canadian securities lending industry is conservative but it is not small. It may not be the same size as the US, but in terms of the size of the Canadian economy, the penetration is huge. Canada is the fifth largest securities lending market in the world. We started our programme back in 1983. The discipline is no longer a hard sell.

ISF:Why conservative? FF: I say conservative in relation to risk. The benefits of lending can be achieved without adopting a cash collateral and a cash reinvestment strategy, for example. From inception, our programme has been established as a bonds borrowed programme. As a physical collateral programme, it eliminated about 85% of the risk inherent in the lending programme.

ISF: Have you seen many new lenders enter the Canadian market recently? FF: When we lobbied the regulators to change the rules to allow mutual funds to lend in Canada, that represented approximately US$500 billion of new assets coming on stream. Our initial thought was that there would be a period where the uptake meant an overbalance of supply, but it lasted all of six months. But there are new lenders entering the market all the time.

ISF: What does RBC hope to gain from the recent launch of the electronic proxy voting service with ADP? FF: Because of the number of high profile bankruptcies and incorrect accounting cases we have seen recently, the demand for good governance is on the rise. Institutions realise they have to be more active in understanding the events taking place within their individual stock investments. This oversight and governance need has usually been exhibited through an increased interest in voting, and therefore it has been incumbent upon us to make voting more accessible for institutions. It ties back to transparency. There was a time when large pension funds would invest in any number of holdings without having much interest in what was going on in any of them, but things have changed.

ISF: What is the most important thing you have learned in your career to date? FF: To have fun. You have to experiment and get enjoyment from your job. Use fun to have an impact. This philosophy should apply to every part of your life.

ISF: What was your childhood dream? FF: To become a fighter pilot. I realised later it was a bit of a self-centred profession.

ISF: Who is your hero, mentor or someone you admire in the business? FF: This person is not in the business but he is someone I truly admire. His name is Ed Mirvish. He came over to Canada from Eastern Europe many years ago, poor and with a dream. He became a very successful retail owner and operator and has devoted much of his time to promoting culture in Canada.

ISF: Apart from Canada, in what other country in the world could you see yourself living? FF: None, I love Canada!

ISF: What is the best restaurant in Toronto? FF: There is a good one that recently opened up called Bymark. Great food, not too pricey and very close to us, which is convenient. But there are so many good restaurants in Toronto.

ISF: Do you have a nickname at work? FF: Mr Fantastic. Every time one of my team asks me how I am I say fantastic. And the word has just attached itself to me.

ISF: What are you most proud of in your career? FF: One thing that I am especially proud of is RBC's footprint in Europe. We have gone from being unknown to being very well-known and respected over the last seven years.

ISF: How do you balance work and family? FF: I find it better not to balance but to combine the two. My marriage would be a great example. I met my wife at the ISLA/RMA conference in Dublin. She was working on the lending side of the Shell pension fund.

ISF: How do you relax away from the office? FF: I enjoy gardening and sailing, and I have a 33-foot boat. It is great sailing around Lake Ontario, exploring the different bays and undiscovered coves. I also do some charity work, and recently helped raise some money for Easter Seals, which supports handicapped children. This sort of work is so important, because it really makes you put things in perspective.

ISF: Can you give us a betting tip? FF: The only betting tip I can give is to watch the real estate market globally. In Toronto it is heaving and of course everyone knows about the situation in London.

ISF: What really makes you angry? FF: Two things make me angry. The first is grandstanding in the industry by agent lenders. And the second is how some broker/dealers try to throw their weight around.

ISF: What is the biggest challenge the securities financing industry faces in the coming years? FF: The biggest challenge we will encounter is rising interest rates. We have seen low levels for the past few years and a sudden rise in interest rates could create some difficulty for some of our colleagues to the south. What I hope will not happen is a recurrence of 1994. That was when several big players had some very large publicised cash reinvestment losses that varied from US$35 million to upwards of $200 million. And when these get publicised it not only damages the participants, it damages the industry. I remember being at home on a Saturday and an announcement came out that I had not read, and the president of RBC called me at home and asked if this could happen to us.

ISF: What is the biggest fallacy you have heard about the securities lending industry? FF: Securities lending is probably one of the most misunderstood financial products on the market. It is constantly vilified. There are many fallacies surrounding it - one is that lending is a high-risk activity. The reality is that it's as low or high risk as you want it to be, depending on the structure of the programme. Here is a great anomaly in the business - there are more consultants than practitioners. There are a lot of people who talk about understanding the dynamics in this market, understanding the product, and who at some point may have been associated with a programme and unfortunately have not been able to leave the industry. So instead they put up a sign, called Consultant ABC.

5 CHARGED WITH CONSPIRACY TO DEFRAUD

2009-02-15T21:47:00.002+07:00

5 Charged with conspiracy to defraud
Info - Prod Research (Middle East). Ramat-Gan: Jan 18, 2006. pg. 1

Abstract (Summary)

According to news.gov.hk: Four men and a woman in connection with a false accounting case involving an ex-listed company have been charged with conspiracy to defraud. They will appear in Eastern Magistrates' Courts this afternoon. Among the five, two men, aged53 and 51, were the company's chairman and deputy chairman.

According to news.gov.hk: Four men and a woman in connection with a false accounting case involving an ex-listed company have been charged with conspiracy to defraud. They will appear in Eastern Magistrates' Courts this afternoon. Among the five, two men, aged53 and 51, were the company's chairman and deputy chairman. In January 2001, through a series of bank transactions, the pair fraudulently generated a $100 million loan from them to the subject company. They thenreceived the repayment of the said loans purportedly financed to the subject company,in$55 million cashand $45 million worth of ordinary sharesissued by the subject company. Among the other arrestees, a 47-year-old man wasa director of the subject company at the time whilea40-year-old man and 44-year-old woman were allegedly involved in the fund circulations. The case was referred to the Commercial Crime Bureau in June 2003 and Police officers arrested the five people in May last year.

2009-02-15T21:41:00.002+07:00

Professors Give Thoughts on Firms Best Recruiting Moves
Anonymous. CPA Practice Management Forum. Riverwoods: Nov 2006. Vol. 2, Iss. 11; pg. 20, 1 pgs

Abstract (Summary)

According to many professors that responded to PAR's 25th Annual Professors Survey, accounting students want interaction with firm partners and staff during recruiting-type events, and the largest accounting firms have obviously listened. One way to maximize that interaction between accounting firm personnel and students is through case competitions, according to survey respondents. Professors cited PricewaterhouseCoopers xTax Challenge, Deloitte's case Study Competition, Deloitte's Tax Case Competition, KPMG's NABA Accounting Case Competition and the KPMG/ALPFA business case competition as being great programs. Outside of case competitions and team building, many professors said the best way to recruit the top students was to offer internships and give financial help to students interested in getting a master's of accountancy degree.

Many professors favor case competitions and team building events.

Amounting students want interaction with firm partners and staff during recruiting-type events, and the largest accounting firms have obviously listened, according to many professors that responded to PAR's 25th Annual Professors Survey.

"Students want to interact with the actual people they would be working with," said University of Louisville Associate Professor of Accountancy, Bill Stout.

Many professors echoed those thoughts, saying the more partner/professional to student interaction the better.

One way maximize that interaction between accounting firm personnel and students is through case competitions, according to survey respondents.

"Case competitions are great because you have professor participation combined with students using classroom learning to solve real-life accounting and tax problems and they interact with firm personnel," said University of Wisconsin Associate Professor of Accounting and Information Systems, Terry Warfield. "It is great for everyone."

Dr. James Benjamin, head of Texas A&M's Department of Accounting, said the focus on substantial events, instead of just social events, is better for everyone.

"Students that participate in case competitions get a lot out of them," he said. "They are a very positive experience for them."

Professors cited PricewaterhouseCoopers xTax Challenge, Deloitte's case Study Competition, Deloitte's Tax Case Competition, KPMG's NABA Accounting Case Competition and the KPMG/ALPFA business case competition as being great programs.

Case competitions weren't the only programs identified by professors as being a great experience for the students.

Deloitte and KPMG were singled out for their leadership conferences and professors also mentioned Ernst & Young's Summer Leadership program.

Several professors said PwC's Pit Crew Challenge was a great team-building event for the students. Crowe/Indianapolis, got several mentions for its use of a scavenger hunt with students.

Professors didn't restrict their comments to the profession's largest firms.

Two professors commended Green & Seifter CPAs/Syracuse, N.Y. (Eight partners, 38 total staff), for its version of Jeopardy. The firm invites accounting students from four local colleges to participate in the event. A firm partner, Terry McCarthy, serves as "Alex Trebeck" while teams try to answer accounting- and taxrelated questions.

Outside of case competitions and team building, many professors said the best way to recruit the top students was to offer internships and give financial help to students interested in getting a master's of accountancy degree.

"Internships aren't innovative just effective," said one survey respondent.

Professors acknowledged the Grant Thornton Footsteps Experience.

EY's Your Master Plan proe gram was tabbed by professors as a great program, offered through the University of Notre Dame and the University of Virginia that gives participants the chance to earn a master's of accountancy degree.

Several professors applauded Dixon Hughes/High Point, N.C., for its use of internships with students that have completed their junior year, along with making a commitment to the student to support them through the masters program.

2009-02-15T21:38:00.004+07:00

Creative accounting cases decline by half
Nuntawun Polkuamdee. Knight Ridder Tribune Business News. Washington: Apr 19, 2007. pg. 1

Abstract (Summary)

Tawatchai Kiatkawanakul, am assistant director for the SEC's accounting supervision department, said accounting abuses covered a broad range of areas, including misreporting to avoid taxes, failure to accurately reflect a company's financial position or obligations and misrepresentation of key information.

Still, the SEC noted that out of the 517 listed companies submitting financial statements for 2006, only five were singled out for special monitoring for possible accounting or governance violations, compared with 10 the year before.

Amendments included directives to recalculate amounts booked for doubtful debt, accrued revenues, revenues booked from property sales and funds invested in subsidiaries. In contrast to 2005, no listed company last year was ordered to revise their accounting for asset depreciation or liabilities.
span class="fullpost":>
To see more of the Bangkok Post, or to subscribe to the newspaper,go to http://www.bangkokpost.com. Copyright (c) 2007, BangkokPost, Thailand Distributed by McClatchy-Tribune Business News. Forreprints, email tmsreprints@permissionsgroup.com, call 800-374-7985or 847-635-6550, send a fax to 847-635-6968, or write to ThePermissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL60025, USA.

Apr. 19--A number of listed companies continue to rely on "creative accounting" to dress up their financial statements, according to the Securities and Exchange Commission.

Tawatchai Kiatkawanakul, am assistant director for the SEC's accounting supervision department, said accounting abuses covered a broad range of areas, including misreporting to avoid taxes, failure to accurately reflect a company's financial position or obligations and misrepresentation of key information.

More serious cases include siphoning of assets and funds from a company by management, the use of funds to prop up the company's share price and other abuses to avoid a company's transfer into the Stock Exchange of Thailand's rehabco sector.

Still, the SEC noted that out of the 517 listed companies submitting financial statements for 2006, only five were singled out for special monitoring for possible accounting or governance violations, compared with 10 the year before.

The SEC has directed two companies to undergo special audits, compared with four the previous year, while seven companies were ordered to amend their 2006 financial statements, down from eight in 2006.

Amendments included directives to recalculate amounts booked for doubtful debt, accrued revenues, revenues booked from property sales and funds invested in subsidiaries. In contrast to 2005, no listed company last year was ordered to revise their accounting for asset depreciation or liabilities.

But the SEC noted that 22 companies were ordered to clarify connected transactions last year, while three companies decided to void questionable transactions altogether.

Mr Tawatchai said in some cases, depreciation charges were booked for unreasonably long times, to help minimise the impact on a company's accounts.

Medical firms, for instance, might book depreciation for medical equipment over a 15 to 20 year period and computer equipment for 15 years, a lengthy period of time considering the rapid changes in technology in both fields.

In other cases, companies will over- or under-value property and assets to manipulate their accounts.

"Most companies are managing their accounts in line with generally accepted accounting standards. Only a few are trying to evade the rules and dress up their books," Mr Tawatchai said.

"Creative accounting defrauds investors, who deserve to see accurate information about their companies. Investors should consider carefully the notes of the auditors, and avoid companies that have disclaimers or notes listing areas that could not be confirmed."

2009-02-15T21:35:00.006+07:00

ESI accounting case ends with plea of guilty
Ted Sickinger. Knight Ridder Tribune Business News. Washington: Aug 8, 2007.

Abstract (Summary)

Aug. 8--With a guilty plea from the former controller of Electro Scientific Industries Inc., federal prosecutors on Tuesday brought to a close their long-running accounting fraud case against former executives of the Portland-based company.

To see more of The Oregonian, or to subscribe the newspaper, go to http://www.oregonian.com. Copyright (c) 2007, The Oregonian, Portland, Ore. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

Aug. 8--With a guilty plea from the former controller of Electro Scientific Industries Inc., federal prosecutors on Tuesday brought to a close their long-running accounting fraud case against former executives of the Portland-based company.

James Lorenz, 44, of Portland pleaded guilty to one count of making false statements to accountants of a publicly traded company -- ESI -- in connection with a scheme to inflate the Portland technology company's profits in 2002 and 2003. He will be sentenced Oct. 15.

The maximum sentence for the crime is 20 years in prison and a $5 million fine, but as part of the plea agreement, the government has agreed not to oppose Lorenz's request for 10 months of home confinement.

Lorenz was indicted in September 2004 along with former ESI Chief Executive James Dooley, who pleaded guilty in June to similar charges and will be sentenced in the fall.

The charges stemmed from a series of transactions Dooley and Lorenz allegedly undertook to bolster the company's results as it was buffeted by the tech downturn in 2002 and 2003. At the time, Lorenz was ESI's controller -- the chief accountant -- and Dooley was the chief financial officer and acting chief operating officer. Dooley also was a candidate for chief executive officer at the time, a position he eventually won, which was vacant because the company's longtime chief executive, Don Van LuVanee, had been forced out after suffering a stroke.

According to federal prosecutors, Dooley presented a plan to ESI directors in 2002 to return the company to profitability the following year. To deliver those results, prosecutors alleged that beginning in August 2002, Dooley and Lorenz conspired to reclassify items on the balance sheet, understate expenses and inflate earnings.

On Tuesday, Lorenz pleaded guilty of lying in December 2002 on a questionnaire that the company's auditor, KPMG, asked him to complete and sign as part of a quarterly review of the company's books. On the questionnaire, Lorenz indicated that there were no significant changes in the company's accounting policies for the quarter in question.

In fact, he knew that the company had recently changed the way it valued inventory on its books, which had increased ESI's net income for the quarter by $650,564, prosecutors said.

Lorenz's lawyer, Ronald Hoevet, of Hoevet Boise & Olson, said the accounting change was one that actually conformed with generally accepted accounting principles.

Assistant U.S. Attorney Allen Garten said the whole idea behind the quarterly questionnaire is to ensure consistency and transparency.

"If you're going to change the way you account for something, you have to disclose it," he said.

2009-02-15T01:02:00.004+07:00

Rethinking Call Accounting

By Harris, Robert Lee
Publication: Business Communications Review
Date: Monday, August 1 2005

Why do most enterprise customers still have and use traditional call accounting systems?

About six years ago, I knew a telecom analyst at a large investment company who printed monthly reports on extension

activity for about 100 departments. One month, the system crashed and she called the department heads to let them know the reports would be delayed until the database could be restored from backup. In all but a few cases, the replies she got from each contact were along the line of, "Don't worry about it." Or "What reports?" She'd been going through the motions for years, not realizing this monthly process was generating unwanted information.

With long distance calling so inexpensive, has call accounting become obsolete? A communications manager with a large IT equipment company recently told me, "It's funny that everyone keeps asking that question: I just did a presentation to senior management because they want to know why we are still supporting call accounting."

2009-02-15T00:59:00.004+07:00

The care and healing of accounting fraud
By Rutberg, Sidney
Publication: The Secured Lender
Date: Wednesday, March 1 2000

It is every lender's and investor's nightmare to pick up the morning newspaper and read about accounting "irregularities" discovered at a company in which they have a substantial unpaid loanbalance or significant stock holdings.
It is probably an even worse nightmare for the officers, directors

and employees of the company which has fallen victim to such irregularities, not to mention the actual perpetrators who are, or may be, exposed.

In an effort to provide some guidance to victims of accounting fraud, specialists in the legal ramifications of accounting deceptions at the law firm of Willkie Farr & Gallagher have written a book about the subject, outlining specifically what management of a public company should do if and when it is hit by this devastating development. In what is essentially a handbook on exactly what should be done by whom and when, the book covers the subject from A (the most likely reason for the fraud) to Z, (the prevention of future fraud), and everything in-between from the initial dealing with the press, the regulatory agencies, the board of directors, the investigation, class-action lawsuits that inevitably follow any disclosure of accounting fraud, and the final wrapup. This is not a collection of glittering generalities, but instead a step-by-step guide for dealing with the aftermath of an accounting scandal.

2009-02-15T00:52:00.004+07:00

The emergence of forensic accounting programs in higher education.

By Seda, Mike,Kramer, Bonita K. Peterson
Publication: Management Accounting Quarterly
Date: Saturday, March 22 2008

AS THE DEMAND GROWS FOR PROFESSIONALS WITH FORENSIC ACCOUNTING SKILLS, SOME UNIVERSITIES ARE NOW OFFERING CERTIFICATE PROGRAMS, MASTER'S DEGREES, AND UNDERGRADUATE MAJORS/MINORS IN FORENSIC ACCOUNTING. A SURVEY EXAMINES THE TYPES AND LOCATIONS OF PROGRAMS OFFERED AS WELL AS OBSTACLES THAT IMPEDE

OTHER UNIVERSITIES FROM OFFERING SIMILAR PROGRAMS.

In 2006, U.S. companies suffered an estimated $652 billion in losses from fraud, according to the Association of Certified Fraud Examiners (ACFE). (1) Because not all cases of fraud are discovered nor are all discovered frauds reported, any fraud statistic is an estimate. Regardless, national and international fraud surveys repeatedly report that the magnitude of the problem is significant. (2)

Because of the large amount of employee and management fraud, embezzlement, and other financial crimes occurring in today's society, accounting and auditing professionals must have appropriate forensic accounting training and skills to help prevent, detect, and investigate those crimes. Widely publicized corporate scandals such as Enron, WorldCom, and Adelphia have made the accounting profession and general public more aware of the prevalence and magnitude of fraud. Consequently, the demand for professionals who can help investigate these white-collar crimes has also increased.

Emerging regulations and professional pronouncements issued by a number of regulatory bodies--such as the U.S. Securities & Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB), American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB), and the Governmental Accounting Standards Board (GASB)--challenging businesses and government agencies to improve their corporate governance have also contributed to the increased demand for forensic accounting professionals. (3)

NEED FOR FORENSIC ACCOUNTING SKILLS

A major problem with the implementation of emerging regulations and pronouncements is that CPAs have neither the training nor the hands-on experience to tackle fraud examination and forensic accounting investigation assignments alone. (4) Leaders in the accounting profession have recognized that accounting students need fraud-specific education in order to be effective in the fight against fraud. Courses in financial accounting and auditing, for example, do not provide the type of training that accounting students--society's future accountants--need in order to understand fraud and its deterrence. Underscoring this point, Barry Melancon, president and CEO of the AICPA, asked accounting educators in 2002 to provide students with "the knowledge and skills to understand the fundamental characteristics of fraud, identify factors that may indicate it exists, and acquire enhanced interviewing techniques." (5)

To help address this deficiency in fraud-related education, researchers have published papers to help other educators develop fraud courses. (6) In 2002, the ACFE established an educational support program at the grassroots level that provided free pedagogical materials to help enable instructors at colleges and universities develop forensic accounting courses and programs. (7) This program was awarded the American Accounting Association's annual Innovation in Accounting Education award that year. Before that program was initiated, only 19 universities offered a separate fraud course. (8) There are now approximately 300 universities listed on the ACFE website as participating in the antifraud education partnership program. In addition to the ACFE materials, more fraud-related pedagogical materials are being developed and published. (9)

Offering a specific course on fraud for accounting students is an important step forward in the effort to educate future accountants so that they might be better equipped to prevent and detect fraud, but many universities have recognized the need to provide students with more fraud-related education beyond a specific course and are now offering programs in forensic accounting. This development is consistent with what was predicted in recent research, which found that academicians and practitioners saw the need for more specialized training in this area. (10) This need may have arisen in part because a multidisciplinary investigative team trained as specialists in fraud examination and forensic accounting is needed to complement the traditional audit process by proactively assisting in identifying problematic areas where fraud could exist or in investigating any allegation of fraud. To fill this void, national CPA firms have created multidisciplinary forensic investigative teams with the help of specialized forensic training consultants. For example, individuals who possess skills in electronic evidence gathering and preservation, interviewing techniques, or investigative report writing may be needed to assist in a fraud investigation. In addition, the AICPA is currently partnering with the ACFE in an effort to create a Forensic Accounting Specialist Designation with a related continuing professional education program. (11)

RESEARCH SURVEY

In light of the developing need to bridge the gap between forensic accounting supply and demand, we conducted a survey of academics to determine the extent to which colleges and universities are offering more depth in their fraud-related education to the benefit of students, organizations, and society.

We surveyed 1,000 randomly selected academicians and asked them to complete an online survey of 22 questions related to forensic accounting education. We received a usable response rate of 15% (150) from the survey participants (see Table 1).

We designed the survey instrument to answer the following questions:

1. How do you integrate forensic accounting education into your curriculum?

2. For universities that offer more extensive forensic accounting education (beyond one specific course): a. What type of program is offered (master's, undergraduate major, minor, certificate)? b. What is the content of the curriculum?

3. If you do not currently offer any forensic accounting coverage, when are you planning to do so?

Of our survey respondents, 34% offer a separate course on forensic accounting or fraud examination, 7% offer a forensic accounting program track, 34% indicated that forensic accounting is integrated throughout traditional accounting and auditing courses, and 25% of the academic respondents do not currently cover any forensic accounting. In short, there seems to be no consensus on how to uniformly integrate forensic accounting into the accounting curriculum, however much positive momentum exists.

FORENSIC ACCOUNTING PROGRAMS

The forensic accounting certificate programs typically require only two to five specialized courses. A few schools, such as Georgia Southern University, Florida Atlantic University, the University of West Florida, Carlow University and Edinboro University in Pennsylvania, Franklin University and Tiffin University in Ohio, Rider University in New Jersey, the University of Wollongong in Australia, and Villa Julie College in Maryland, have created a separate forensic accounting undergraduate or graduate degree (see Tables 2 and 3). These degrees require several fraud-specific courses, the number and content of which depend upon the type of degree offered (e.g., minor vs. major) and the level of degree (undergraduate vs. graduate).

The Criminal Justice program at New York's Utica College offers a multidisciplinary approach with a separate certificate in financial crimes investigation as well as a separate degree in economic crime investigation with a concentration in financial investigation. Utica's program is unique because it approaches the topic of forensic accounting and related topics of crime, fraud management, financial investigation, cyber security, and information assurance services from the perspectives of not only the accounting discipline but also from economics, finance, law, criminal justice, sociology, psychology, management information systems, international relations, communications, and ethics.

Villa Julie College's master's of science degree in forensic studies also offers a multidisciplinary approach with separate tracks in the areas of accounting, computer forensics, legal issues, and investigations. In addition, students have the option to select an interdisciplinary track that requires taking six credits of courses from each track.

These programs have experienced a significant growth in enrollment, anecdotal evidence suggests. One survey participant stated, "The academic profession has made a big mistake by undervaluing the richness and variety of forensic accounting content in the accounting curriculum."

GAP IN SUPPLY AND DEMAND

While it is encouraging to note the emergence and depth of forensic accounting programs in higher education, there still appears to be a gap between the demand for forensic accountants and the supply through university education. Forensic accounting is viewed as one of the hottest career tracks, yet there are only a limited number of accounting programs offering forensic accounting programs. As far back as 1996, The Wall Street Journal called forensic accountants "the accounting profession's new glamour kids" and reported that not only did the FBI double its forensic accountant agent force between 1992 and 1996, but several large public accounting firms doubled or quintupled their forensic ranks during the same period. (12) In a career guide for current and potential accounting students, the AICPA lists "forensic accounting" as one of eight sizzling accounting specialty areas. Further, the antifraud resource center on the AICPA website reports that there is expected to be a shortfall of 50,000-75,000 forensic accounting professionals in the U.S. alone in the next few years. In addition, U.S. News & World Report listed forensic accounting as one of the 20 hot job tracks in 1996 and one of the eight more secure career tracks in America in 2002. (13) That same year, SmartMoney magazine listed forensic accounting as one of the 10 hottest jobs with a salary potential in excess of $100,000. (14)

The results from our respondents suggest that the primary obstacles facing delivery of forensic accounting education are institutional in nature (i.e., faculty, administration, curriculum structure) and not because of a perceived lack of demand by employers and students (see Table 4). The perception by academics that there is not enough room in the accounting curriculum, even with the 150-semester hour requirement to sit for the CPA exam now adopted by nearly every state, has persisted for years. (15) As one respondent stated, "It has a place in accounting. However, with so many required courses (and with ethics and international courses likely to be required soon), I am not sure that most schools have the luxury of offering a separate forensic course, and electives are quickly disappearing (i.e., required courses are taking the place of electives)."

There are, however, some encouraging signs. Of respondents who indicated they currently do not cover any forensic accounting in their accounting curriculum (25%), half plan to offer a specific course by 2011. Offering a course is often the first step to eventually providing more forensic accounting education, such as a certificate, minor, or master's program.

The perception that the greatest obstacle is a lack of room in the accounting curriculum for another course, whether required or elective, can perhaps be overcome by allowing forensic accounting courses to be used as general electives for all students, not only those in accounting. This approach is followed at West Chester University of Pennsylvania. (16) Employees are often the first to notice symptoms of fraud, but they must be educated as to the red flags of various fraud schemes. Very little, if any, accounting is required to be included in a fraud course. As fraud is considered to be a problem for business and society in general, a general elective model is logical. (17)

FUTURE OF FORENSIC ACCOUNTING EDUCATION

At the 2007 Fraud and Forensic Accounting Conference in Savannah, Ga., sponsored by Georgia Southern University, a keynote speaker from the ACFE predicted that the PCAOB will soon require a multidisciplinary forensic accounting team to accompany every audit of a public company. The Big Four public accounting firms, along with Grant Thornton and Binder Dijker Otte (BDO) International, also recommend a forensic audit on a regular basis for all public companies.

If such a requirement is passed, there may be a sense of urgency for administrators and faculty of accounting programs to create multidisciplinary fraud examination and forensic accounting tracks to meet the demand for training future forensic accountants. West Virginia University received a grant from the U.S. Department of Justice to provide educational guidelines for fraud and forensic accounting. With this funding, it formed a technical working group in 2004 comprising representatives from private industry, law enforcement and other members of the legal community, higher education, governmental agencies, and professional service firms to develop recommendations for the content of a forensic accounting curriculum (see Table 5).

Institutions of higher education, the accounting programs, academics, practitioners, students, the economy, and society in general will all benefit from the inclusion of forensic accounting at the undergraduate and graduate levels. As some survey participants stated:

* "... Academics need to get off the fence regarding the integration of fraud education into the curriculum. We need to accept the professional responsibility to defuse the fraud epidemic in society and regain public confidence."

* "I believe that this is a growing field, and, by the reaction I have received from students, I think this will be the perfect type of discipline that will attract students back into accounting degrees."

* "Exposure to forensic accounting will promote ethics, responsible corporate governance, and enhance the professional skepticism of all accountants. It will teach them to think in a certain way that is needed to detect major frauds sooner and more often, reducing the cost of fraud to society and freeing up taxpayer and other resources for more productive uses."

* "You are addressing a very important and neglected area within accounting education and within the profession. The accounting profession has dodged this important responsibility for too long, and we are now paying the price. Thankfully, we are starting to do a better job."