Honestly, it's been too long, and all of my notes and books and resource CDs are packed away right now, so I would have a hard time making a coherent point-by-point argument with you.

The one thing I do remember is a fundamental idea, function over form. The idea being that, even if you can pull something off on a technicality, and even if it is "legal," it still may not be right or permissable. In the environment AA and Enron were operating in, there were, as you mentioned, much fewer regulations and requirements with audits. HOWEVER, an impartial auditor SHOULD HAVE observed that though the SPE's Enron established may have been "legal," they were designed specifically with the intent to provide a deceptive picture of the financial stability of the company to shareholders/investors/the public. Keep in mind what an unqualified opinion states:

Even if the financials are in accordance with GAAP, the auditor should have noted that they do NOT present the financial position fairly in all material respects. Function over form.

Also, Enron would have NOT gotten away with it, because just the fact that they had to hide that many losses and misrepresent that much revenue states that they were in a death spiral. Sometimes, you can hide descrepancies through a restructuring charge, or a change in method, or other sneaky things companies use, but the volume of things Enron was doing, coupled with the dollar amounts present, would have been impossible to hide. They were going broke.

Your Nissan argument is an interesting one, but remember, you left one part out: a massive cash infusion by Renault. This gave them the ability to develop the VQ engine and whatever they call their platform that ALL their models are based on. It was a huge gamble, and I am glad it paid off for them. Your statement about not knowing about R&D costs unless it was mentioned in the footnotes, well, I guarantee if a company is spending reams of money on R&D and developing a new product soon it WILL be in the footnotes, because otherwise they are not representing themselves accurately on their FSs, and it is a pessimistic representation. They will put whatever footnote they can to put a positive spin. Also, obviously no one can make "absolute" decisions based on FSs, otherwise everyone would and there would be no question about who to invest in. However, if you give me two or three years' of statements, along with a 10k, I can give you a fairly accurate assesment of a corporation, and their immediate future. Anyone can. It is all pretty basic, baring unforseen events (hurricanes, 9/11, scientific breakthrough, etc).

I think my thesis on Worldcom was actually for a [billy madison voice]Business Ethics [/billy] class I took, but I put a very technical spin on it. As far as my accounting curiculum, it was: Intro, Financial, Managerial, Intermediate I & II (we used that practical problem with Hydromaint Corp, I forget what the system is called but it was EXTREMELY technical and challenging), Cost, Advanced, and Auditing. There were also core bus. classes, as well as outside courses. I thoroughly enjoyed all the accounting classes I had (I am a big dork).



iTunes? Hell, I dunno, I had a folder full of shit I got off of Kazaa, and went to "add directory" or whatever in iTunes and it added it. This was an older version (2 years ago) maybe it's different now?


Good discussion, email me sometime if you want to chat more (christopher (dot) stack (at) villanova (dot) edu)

 

Nah, I have been adding generic mp3 files into iTunes for years, and it still works in the latest version.

The only time you can't add music files is if they have the Apple DRM protection, and your computer is not authorized (iTunes lets you authorize up to three computers if I remember right). But normally, you wouldn't be getting these files unless you purchased them or share them with someone. My wife and I swap files we buy on iTunes, since our computers are cross authorized for both of our iTunes store accounts. I also authorized my computer at work. But if I sent the files to someone else with an unauthorized computer, they'd be out of luck. In that case, you would have to burn them to CD first and re-import them later on. That's nothing bad about iTunes, it's the reality of legal music downloads. If Apple did not offer this kind of protection, the record companies would never have allowed online music sales. Apple did a lot of work to keep the record companies happy.

Craig

 

Well, it's not me, BUT I also own both.


I bought an iPod because the hard drive in the Zen Touch (20 GB) crapped out. It turned out to be a very common problem. I also bought it two or three days after it was released...so that issue may be long gone by now.



Creative Impressions:
Pros-
-I liked the slider as opposed to Apple's wheel (hold your thumb close to the bottom to speed through 20 GB worth of song titles).
-The software in the Creative is much better, more options that appealed to me.
-Better "on-the-go" playlist creation options IMO.
-Finish holds up 100 times better than iPod's.
-Lets you adjust the auto-off timer.
-SQ exceeds that of iPod.
-Comes with leather case.
-Charger and USB are seperate units entirely (iPod has a system that I personally don't like.
-Battery was awesome.
Cons-
-As a portable hard drive, you needed the Creative Software.
-After 90 days or so, Creative will no longer cover labor charges on warranty claims (though $30 didn't seem bad compared to the parts @ about $170)
-NO aftermarket goodies...everything is made for the iPod.

 

Chris-

I agree that the accountants at AA should have caught the SPE's earlier. The thing is that prior to Sarbanes-Oxley, no one really had any enforcement or policing powers over the accounting work, with the exception of the state boards. Sarbanes Oxley stated that things like the Rule 203 departures should be used more (justified departures from GAAP). They were not really used much before Enron. You are correct about Worldom, though, they just flat out lied. Enron is more of a grey area. I am not claiming to be an expert, as my audit professor has been studying them for 2 years now, and still is learning new things. The fact is that it was a grey area, that was not explicitly illegal. Also, in terms of the audits getting an unqualified opinion, there were many different points of view of "presenting fairly." Some saw it as comforming to GAAP while others said it was ethics, while still others said it was "what is supposed to be meant" be the F.S. AA was obviously in the GAAP / technical group.

As far as Nissan goes, you are correct about the $ inflow from Renault, I just thought of that example off the top of my head. THere are probably thousands over the years that have accomplished something like this.

As far as R&D being in the footnotes, I have looked at a lot of FS, and none of the ones I have seen have detailed expenses. The only footnotes that I have seen have been for things like justified departures, or explaining things that need to be explained. You are correct that the FS would let you know the SHORT TERM comapny status.....aka-if the comapny folded today, they would be in th red. So they are accurate to some degree, but are not good to be used for future investing.

I too am an accounting dork.....got a 3.0 now in my core upper level classes. I am surprised you did not have to take Taxation. On top of the classes you mentioned, I need Taxation, Accounting Information Systems, Business Law I, and UCC Business Law (Business Law II). Kind of a bitch, but I got the hard ones outta the way (Tax and FAR II). Pensions are a bitch!

Maybe I will try it again with her iPod and iTunes. Maybe I was just making it overly complicated. .

John

 

Yeah, I took a tax class too, forgot, also a couple bus. law classes, finance, marketing, 2 calculus, mgmt x2, etc. That was all in those "general bus. classes" I mentioned


I think you are overly generous to AA...they weren't in the "technical interpretation" group, they were in the "Our consulting branch makes $$$$$$$ from Enron and we don't want that to discontinue" group. Note that part of SOX was the separation of auditing and consulting, many firms spun their consulting off.


As far as predictions with FS, two words: trend analysis. Also ratios. How are their basic ratios, and what are the trends? Is revenue staying constant vs. expenses? Has a certain cost shot up versus others? Are salaries increasing while other aspects staying constant? Has capital investment slowed? Have revenues increased compared to competitors? The other part is to know the market you are working in. For instance, in Creative's case, there is a HUGE almost monopolistic competitor, Apple. This wouldn't show up in any financial statement, but is a big factor in the health/possible future growth of the company, and as an auditor, it would be your responsibility to familiarize yourself with the outside forces acting on a company, and both use those to predict where it's going, and to understand its motives. It is very complex, yes, but a solid set of financials, especially if coupled with those of some chief competitors, can tell you tons.

 

Yeah, I took a tax class too, forgot, also a couple bus. law classes, finance, marketing, 2 calculus, mgmt x2, etc. That was all in those "general bus. classes" I mentioned


I think you are overly generous to AA...they weren't in the "technical interpretation" group, they were in the "Our consulting branch makes $$$$$$$ from Enron and we don't want that to discontinue" group. Note that part of SOX was the separation of auditing and consulting, many firms spun their consulting off.


As far as predictions with FS, two words: trend analysis. Also ratios. How are their basic ratios, and what are the trends? Is revenue staying constant vs. expenses? Has a certain cost shot up versus others? Are salaries increasing while other aspects staying constant? Has capital investment slowed? Have revenues increased compared to competitors? The other part is to know the market you are working in. For instance, in Creative's case, there is a HUGE almost monopolistic competitor, Apple. This wouldn't show up in any financial statement, but is a big factor in the health/possible future growth of the company, and as an auditor, it would be your responsibility to familiarize yourself with the outside forces acting on a company, and both use those to predict where it's going, and to understand its motives. It is very complex, yes, but a solid set of financials, especially if coupled with those of some chief competitors, can tell you tons.

 

I agree that trend analysis does help out a lot, but a typical investor does not have the time, not the $ to conduct such an analysis. I am speaking from a typical investor's stand point, that if you just had the F.S.'s plopped in front of you, you would not know hardly anything about the company. In order for a proper trend analysis, like you said, you need to know how overall expenses are doing (rising? falling? constant? where rising / where falling?). None of these are included in the F.S. in any real detail. Thus why I said you needed internal knowledge of the company (and their competitors). The problem is that if you get this knowledge from the company (not in F.S.'s) you cannot act on it, as it is considered insider trading (acting on non-public knowledge).

I only give AA credit to the point that they did not break the law. At the time, consulting and auditing were completely legal for the same company to do. Now it is not. Te business world is a morally bankrupt area. They will do anything to make an extra $. You can only fault them for breaking the law. They skirted the law for the most part. They really got in trouble with the Waste Management scandal, but that is a whole other issue (evidence of constructive fraud / gross negligence). What they did at Enron was ethically wrong, but (for the most part) legal. This is why Enron case was soooo important. It set the precedent for SPE's and these kind of transactions. They were not written in law, but this time ethics became law through this case.

John

 

thanks for the summary Incubus.

how long did your Zen go before it died? i'm guessing it was less than the year warranty?

i saw some early reports of problems, but i didn't see any later reports. and the 40 GB version uses a different drive and slightly thicker case (to fit the larger drive).


and yeah -- there are a LOT of very cool add ons for the IPod, but they seem so dang expensive for what you get... IPod 'integration' costs.

so far, i'm really liking the Zen Touch. the slide is quite easy to work once i got the hang of the increasing sensitivity zones. having a separate AC supply is turning out to be very useful, and the leather carry case that came with it is good since i can just toss it into my briefcase when i leave work... so far, i've not been getting much time on the battery (maybe about 10 hours), but i've been loading it up and organizing it off of battery power at home (loading + organizing = lots of HD access = lots of power). it seems to hold up quite well for just listening though.

i do think i'm going to get some improved headphones tho. i'm not using them a lot, but the ones that came with the Zen aren't too great. (not surprisingly) i need to look at that set that was recommended above. based on how often i'm using them, i'd probably be willing to spend about $30-$50 for some good phones. i'd prefer to spend $30.


and yeah, i was initially all enthusiastic about storing files, but i've since had a small data scare, and broke down and built an 250 GB external Firewire/USB 2.0 HD, and i'm using that for backups and transport. it's a better choice, it's definitely faster, and it was only about $140 or so. not cheap but not overly expensive either. well worth it to store all my junk as well as all the photos of the kids and other treasures.


you can say that again...

 

I'd say it went about nine months into ownership. I screwed myseld by trying to open the case. I misinterpreted what the service rep. told me via e-mail. I thought he said no more warranty at all. By the time I got clarification from him I had already broken the seal (even though the case was never actually opened).

Then I learned that you can just smack the hell out of the side of the unit and it'll work again. I guess after the third failure there were just no more beans.

I hope you enjoy it PJ.

 

thanks... so do i.
did you store much data on it? i read in a random forum somewhere, that people who did lots of data storage tended to see more HD failures. who knows if it's a fantasy thing or some kind of authentic observation...

i've also seen a couple articles on battery and HD replacement. apparently, replacement HD's are somewhat inexpensive.