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Developing Financial Literacy. Discussion with DECA September, 2013 Professor Grant W. Russell, FCMA PwC Leadership Fellow Associate Director School of Accounting and Finance University of Waterloo. Introduction.

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Developing Financial Literacy


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    1. Developing Financial Literacy Discussion with DECA September, 2013 Professor Grant W. Russell, FCMA PwC Leadership Fellow Associate Director School of Accounting and Finance University of Waterloo

    2. Introduction Grant W. Russell is PwC Leadership Fellow at the University of Waterloo. A Certified Management Accountant, CMA Canada honoured him by naming him a Fellow of the Society in 1988. He received the Distinguished Teaching Award from the University of Waterloo in 2000. His areas of teaching specialization are Cost Management Systems, and Performance Measurement Systems. He is currently Associate Director of the School of Accounting and Finance, responsible for professional accounting and finance programs at the undergraduate and graduate level. Professor Russell's research interests lie in the accounting implications of advanced manufacturing technology, quality and productivity. He has published articles in number of journals along with a monograph with A. Atkinson on how firms determine the need for change and improvement. In addition to his academic research, Professor Russell has consulted with many Canadian firms including Magna Corp, Summa Corporation, CIL, Nortel, Johnson & Johnson, Scarborough Public Utilities Commission, Bell Canada, Raymond Manufacturing, Saudi Arabian Basic Industries Company and Air Boss of America. He has been an active participant in CMA education programs for many years as a moderator, examiner, author and committee member. Professor Russell has taught at Tsinghua and Fudan Universities in China, as well as the Bled School of Management in Slovenia

    3. School of Accounting and Finance • 4 undergrad and 3 graduate programs • Expertise in accounting, finance, business • Designations exemptions and advanced preparation toward CPA, CMA, CGA, CFA, CBV, CIA, CSC

    4. The only fully integrated Accounting and Finance program in Canada Integrative Environment accounting + finance

    5. A little history….. • Periodic evaluation of educational system • Bedford commission in the 1980’s • Accounting Education Change Commission in the 1990’s • Now the Pathways Commission • Set up by the AAA and AICPA

    6. The Pathways Commissionto study the future of accounting higher education Supply Chain #1 Supply Chain #2 Supply Chain #3 Pathways Commission Pathways Commissioners and Supply Chain Group members represent organizations up and down the human capital supply and demand sides of the accounting supply chain. There are some common elements to each of the supply chains, and there are also elements unique to each supply chain. For example, Supply Chain Group #1 has a more K-14 focus, Supply Chain Group #2 has a college/university focus, and Supply Chain Group #3 focuses on how regulation and standards impact possible pathways from education to practice. Pathways Supply Chain AAA presentation, Oct 10,2010

    7. What’s happening in Canada • CICA moved to a competency assessment model for UFE • now modified again for CPA • CMA Canada moved to a competency based assessment (three major tests) • Entrance Examination (often exempted) • Case Examination • Board Report

    8. Time for a change….. • Current program instituted in 2003 – 1st professional program (BAFM). • Change in student attitudes (the millennials), change in social technology, change in teaching technology, arrival of new crop of young PhD's

    9. Our backward design…. • What is our SAF’s situation? • What do we want competencies do we want our students to have? • What kinds of feedback and assessment do we need? • What learning activities are important? • Is the program integrated? • Can our students see this?

    10. What’s SAF’s situation? • Historically strong program • Currently approximately 1,500 undergraduates in public accounting, management accounting and finance • Approximately 250 M’Acc students • 47 full-time faculty in accounting and finance (and support disciplines)

    11. Our facilities:

    12. Our facilities

    13. Let’s explore Bonds Bond analysis

    14. But that’s just technical We have to get them engaged, so that they can do the other stuff: • Understand business • Problem solve • Communicate • Conduct themselves with ethics • Have a love for management and leadership • Have learned how to learn.

    15. Understand business • A wonderful time of examples: • Blackberry • CN & CP (avec MM&A) • SNC Lavalin • The C-Series • Desire to Learn • Canadian Airlines – (Bareskin? – let the bear take you there….)

    16. Imbuing Ethics • We need to produce Canadian citizens who understand the subtlety of decision making. • Let’s explore where we’ve gone wrong in the past.

    17. Sexual Harassment Conflict of Interest Environmental Issues Financial Management Employment Discrimination Whistle-blowing Governance Issues Executive Salaries Gifts and Entertainment Privacy Downsizing Corporate Philanthropy What are Ethical Issues?

    18. Sexual Harassment Conflict of Interest Environmental Issues Financial Management Employment Discrimination Whistle-blowing Governance Issues Executive Salaries Gifts and Entertainment Privacy Downsizing Corporate Philanthropy What are Ethical Issues?

    19. Corporate Culture and Ethics • Ethics is a personal, not corporate level activity • The concept of managing “corporate” ethics is one of influencing the behaviour of the group • The influence of an individual can be substantial • So? How do we as individuals make ethical decisions?

    20. Costs of Ethical Failures • Damage to reputations - loss of customers • Low employee morale • high turnover • high absenteeism • low productivity • Disruption of communications up and down hierarchy • Personal damage to people

    21. Corporate Support for Poor Ethics • Celebrating the “sharp cookie” who “does what it takes” to get results • Understanding that “everyone does it” • Permitting policy violations if “nobody knows” • Weak control systems allowing employees and others the ability to get away with it

    22. Corporate Support for Good Ethics • Having good vertical communications within the organization • Setting the tone at the top, along with managing the ethical culture of the firm • Promoting ethics awareness education for all • Developing a corporate code of ethics

    23. A “never to forget” picture Andersen staff being sworn in at US Congressional Committee (one of 10) January 24, 2002. ROB January 25, 2002, p. 6.

    24. What other picture does it remind you of? Tobacco Executives swear to tell the truth at Congressional Hearings, 1994, and go on to testify to the non-addictive qualities of tobacco (Courtesy California Department of Health Services)

    25. David DuncanPicture courtesy of news.bbc.co.uk Joseph BerardinoPicture courtesy of Anderson

    26. Sam WaksalPicture courtesy of http://images.usatoday.com/money/_photos/2002-08-07-waksal.jpg Martha Stewart Picture courtesy of bdphillips.com

    27. Enron -1 • Oct 4 2000 - Enron Press Release date - "Fortune magazine has named Enron "America's Most Innovative Company" for five consecutive years, the top company for "Quality of Management" and the second best company for "Employee Talent." In addition, Enron ranks in the top quarter of Fortune's "Best 100 Companies to Work For in America." Enron's Internet address is www.enron.com. The stock is traded under the ticker symbol ENE." --  from an Enron press release, 4 October 2000 • Jan 2001 Enron had a market value of more than $77 billion. Stock price was $82 per share.

    28. Enron -2 • Oct. 29, 2001 Monday – • Stock plans for 15,000 workers were locked down, workers were powerless to bail out of their rapidly depreciating Enron stock for 16 days, starting Oct. 29.  Lay talks to Bush's Commerce Secretary Donald Evans and asks for help regarding an impending credit rating review by Moody's Investors Service. Evans said he did nothing. Moody's downgrades Enron's credit rating. During that time, shares lost more than a third of their value, from $ 15.40 to $ 9. In all, Enron's 401(k) retirement plan lost an estimated $ 1.3 billion during the stock's plunge from more than $ 80 in January 2001 to less than $ 1 when the firm sought bankruptcy protection Dec. 2. On  this day, Moody's cut Enron’s credit rating to just above junk-bond level. 

    29. Worldcom • WorldCom, which owns the nation's No. 2 long-distance carrier MCI, said late Tuesday that more than $3 billion of expenses in 2001 and $797 million in the first quarter of 2002 were wrongly listed on company books as capital expenses, thus not reflected in its earnings results.

    30. Soc Gen - 2 • SocieteGenerale, France's second-largest bank, stunned financial markets when it announced a single trader had cost it 4.9 billion euros ($7.1 billion) in one of the largest ever frauds by a rogue employee. • The trader, Jerome Kerviel, was a relatively junior 31-year-old on the futures desk in Paris, whose role was to make "plain vanilla" hedges on European stock-market indexes. • SocGen said in a statement that the trader used his knowledge of the bank's control procedures "to conceal these positions through a scheme of elaborate fictitious transactions."

    31. Soc Gen #3 • He recently received a jail sentence of 5 years • And was required to pay back the full €4.9 billion http://i.telegraph.co.uk/multimedia/archive/00865/money-graphics-2008_865763a.jpg

    32. Do you recognize this famous man? Picture courtesy of http://www.total-banker.com/

    33. He was aided by this man........ Picture courtesy of http://assets.nydailynews.com/polopoly_fs/1.413642!/img/httpImage/image.jpg_gen/derivatives/landscape_635/alg-accountant-david-friehling-jpg.jpg

    34. ....with a tiny accounting practice Picture courtesy of http://thereformedbroker.files.wordpress.com/2009/03/friehling.jpg?w=300

    35. Lehman Bros Picture courtesy www.telegraph.co.uk

    36. A house with many tenants....... • This is Ugland House, George Town, Cayman Islands. Its sole tenant is Maples and Calder, a law firm and company services provider. Yet, amazingly, this modest little office building on South Church Street is the current address of 18,857 corporations. Picture courtesy of http://piedtype.com/2009/05/05/the-little-building-that-could/

    37. Sino-Forest • Bre-X replay, but now lumber instead of gold • Behavioral trap • Humans tend to rely significantly on context, difficult to transfer the lessons from the Bre-X scam because gold is different from lumber • Fraud is fraud • Sino-Forest reported large lumber holdings which turn out not to be owned by Sino-Forest • Peak market value ~$5 billion

    38. The Replay • Listed in Canada • Developed securities regulation and legal framework, therefore trusted jurisdiction • Assets outside of Canada • Cost of flying to China cuts down on the number of due diligence visits; lack of understanding of the foreign market • Reliance on “independent” oversight • Can you trust the auditor?

    39. Accounting Fraud • Somewhat more sophisticated because it requires presenting a fake story in the public realm • Many potential investigators • Cannot be construed as accidental • The auditors cannot just be incompetent anymore, they must be “in-on-it”

    40. Canadian “fraudstars” This is not a unique US preserve. Don’t forget Bre-X http://media.canada.com/cfe7ac49-e090-4323-a853-83766709cd57/brexfelderh_cw_073107.jpg

    41. Bre-X : Fallout • CEO died before suffering legal repercussions • Felderhof moved to Cayman Islands (no extradition) • Returned to Canada after criminal statute of limitations passed, fought and won against the OSC • Trustee in bankruptcy finally gave up pursuing former Bre-X executives on March 21, 2013 • Saga started in mid 1990s!

    42. Sino-Forest • Bre-X replay, but now lumber instead of gold • Behavioral trap • Humans tend to rely significantly on context, difficult to transfer the lessons from the Bre-X scam because gold is different from lumber • Fraud is fraud • Sino-Forest reported large lumber holdings which turn out not to be owned by Sino-Forest • Peak market value ~$5 billion

    43. The Replay • Listed in Canada • Developed securities regulation and legal framework, therefore trusted jurisdiction • Assets outside of Canada • Cost of flying to China cuts down on the number of due diligence visits; lack of understanding of the foreign market • Reliance on “independent” oversight • Can you trust the auditor?

    44. Accounting Fraud • Somewhat more sophisticated because it requires presenting a fake story in the public realm • Many potential investigators • Cannot be construed as accidental • The auditors cannot just be incompetent anymore, they must be “in-on-it”

    45. Or Livent and Garth Drabinsky and Myron Gottlieb Picture courtesy of thestar.com Or YBM Magnex International, Inc. or Philip Services Corporation

    46. Or YBM Magnex International, Inc. or Philip ServicesCorporation Allen Fracassi, President and Chief Executive Officer and (r) Philip Fracassi, Executive Vice President and Chief Operating Officer, Philip Services Corporation. http://www.hazmatmag.com/issues/image.aspx?src=/daily_images/HM-20080601-022-battlebrewing-15371_MI0001.jpg&size=170

    47. Or Michael (and Marlen and friend) Cowpland Picture courtesy of www.itbusiness.ca Picture courtesy of blogs.ottawacitizen.com

    48. Nortel - 1 • Frank Dunn CMA was recently acquited of criminal charges • Nortel allegedly shifted income from one period to the next by the use of reserves to maximize bonuses Picture courtesy of www.lightreading.com

    49. Nortel 2 • Bonus amount of $30 million dollars • Audit fees of approximately $300 million • At its height, Nortel employed 94,500 worldwide, with 25,900 in Canada alone. Nortel's market value fell from approximately 400 billion dollars in September 2000