Dov Fischer

Chapter 16 – Why Accountants Should Care about High Frequency Trading

In April 2014, Michael Lewis released the high profile book “Flash Boys” on how investment brokerages colluded with stock exchanges and high-frequency traders to the detriment of other investors and the stability of the market. Accounting educators can incorporate the lessons from the high frequency trading scandal to reinforce the importance of organizational trust, simplicity, and personal ethical responsibility in the face of a culture of legalism, complexity, and herd mentality. The lessons can further be applied toward internal controls and building an ethical tone-at-the-top as part of the 2013 Committee of Sponsoring Organizations internal control framework.

Spirituality, Creativity and Vision as Alternatives to Neo-Classical Economics in Accounting and Business Education

The “Chicago School” of economic thought, led by the intellectual descendants of Milton Friedman, has become the dominant paradigm not only of economics but of all social sciences, including business and accounting. According to the Chicago School, the manager’s sole concern should be the maximization of shareholder value. After the financial crisis, business professionals and educators have been looking for an alternative paradigm, and Spirituality presents such an alternative paradigm. A spiritual perspective recognizes the interconnectivity of all members of society and advocates for social solidarity. Just as importantly, a spiritual perspective promotes creativity in finding solutions that support both long term profits and social solidarity. Accountants must rethink their role from that information providers to that of creative counselors.

How Six Large Banks Reacted to a Basel III Proposal to Include Credit Derivatives in the Leverage Ratio

In the wake of the 2008 financial crisis, bank regulators are paying more attention to derivatives. In a move that can be seen as a step away from fair-value accounting, bank regulators (Basel III) have proposed to calculate bank leverage ratios using notional values, rather than fair values, of written credit derivatives. In addition to changing the calculation of regulatory ratios, the proposed changes will also improve bank disclosure of exposure to credit derivatives. This study investigates the effect of the proposed changes on the leverage ratios of the six largest U.S. banks, five of which currently disclose information to calculate the proposed leverage ratios. Wells Fargo and JPMorgan are least affected by the proposed changes. Goldman Sachs and Bank of America suffer a 1 to 1.4 percentage point decline in leverage ratio, while Morgan Stanley suffers a 2.4 percentage-point decline to below the critical 5% threshold. Citigroup does not currently provide the necessary disclosures. We also examine the reaction of the six banks, in the form of comment letters, to the proposed changes. While the letters were apparently coordinated, the Wells Fargo and JP Morgan letters carry the most positive (or least negative) tone, consistent with our expectations.

Transparency and Fiscal Responsibility: Traditional Critics vs. Participatory Budgeting

In the recessionary years following the 2008 financial crisis, prominent voices predicted an imminent crisis in state and municipal finances. The voices – including those of Bill Gates; Josh Ruah; Meredith Whitney; Paul Volcker; and Richard Ravitch – implied that the road to fiscal responsibility lies in reining in the pensions and benefits of public servants. We argue that by painting public employees as the villains, these voices are inserting divisiveness in what should be a universal goal of sound public finances. Instead, we suggest that the road to fiscal responsibility lies with budgetary transparency and widespread public knowledge of state and municipal finances. A key to achieving these objectives is the movement towards participatory budgeting.

How to Incorporate a Securities & Exchange Commission Staff Paper into an International Accounting Course

This proposal shows how a recent SEC Staff Paper which outlines the differences between U.S. and international accounting standards can be used in an International Accounting course. We begin by outlining how the Staff Paper lists the differences between U.S. generally-accepted-accounting-principles (GAAP) versus International Financial Reporting Standards (IFRS). The Staff Paper is a useful teaching resource because it is comprehensive, compact, and timely. It is comprehensive in that it lists over 100 individual GAAP/IFRS differences organized under 29 sections, yet the 50-page document is freely available on line, and it is timely as of November 2011. We also present a pedagogic tool to help students organize the GAAP/IFRS differences across three conservatism dimensions and two qualitative dimensions.