Sarbanes Oxley

According to an unsubstantiated rumor, PricewaterhouseCoopers (the largest of the Big 4 accounting firms) has sent one of three letters to the boards of directors of their audit clients with December year-ends. The first says that the company is likely to pass its tests of internal controls; the second that the company could maybe pass if they bust their humps; the third is that they are unlikely to get a clean opinion. The unsubstantiated rumor also has it that as many as one-third of their clients are getting letter number 3 and are truly, deeply unhappy about it. I will be happy to retract this post as the occasion requires, since my source could be blowing more smoke than Pittsburgh in its heyday. We should know shortly.

The New Economy Comes of Age

It’s all about low transaction, marketing and distribution costs. This excellent article explains the common denominators in the successful business models of Amazon, eBay and Netflix. All of these businesses exploit network-enabled low costs to mine huge and previously inaccessible market sectors amalgamating numerous tiny niches. There’s nothing really new here, but the article is worth reading because it explains so clearly what’s going on. It also reminds that current online retailers are essentially 1990s web-economy dreams made flesh. IOW, it wasn’t a bubble; today’s retail and marketing survivors arose from a combination of good ideas that were left over after the shakeout, and new business models built on the hard-won knowledge gained in what many people now deride as speculative failures.

(via Tim Oren)

UPDATE: What also strikes me here is the difference between Amazon et al‘s business models, in which most of the value is contributed by participants on the margins of the network, and the (unsuccessful) business models which software makers and others were promoting until recently, in which value flowed outward from the servers of some “service provider” or other. Of course David Isenberg said this years ago.

An Entrepreneurial Adventure

The Mrs. finally bit the bullet today and let her boss know that she will be opening up her own medical practice. This is a Chicago story because we’re swimming against the tide, moving from NW Indiana to Illinois while the big story is the tide of doctors going the other direction. So is it possible for a doctor to open up a brand new (no existing patients) practice in a state in a malpractice insurance crisis? We’re going to find out and I’ll be chronicling the story here and in my individual blog Flit(TM).

No, Really! This is a Serious Question

So I’m talking to a co-worker named Phil, and he tells me that he’s frothing mad. He’s been writing Cecil at The Straight Dope for months and never saw his question appear in print. The question in question is…..

“If intelligent space aliens were to land on Earth and present themselves, is it likely that we would find them using double entry accounting”

I had pretty much the same reaction that you’re probably having right now. He’s a bit odd, wondering about the way our new galactic overlords keep track of accounts recievable. But he clarified it and I realized that it was a very serious question indeed.

“Is double entry accounting just one of any number of equally good methods for managing scarce resources-or is there something that makes it uniquely fitting for the task?”

“Could it be that it’s prevalence in the business world owes only to the desirability of using a universally understood method? If not, is it superior to all other known methods? Could it even be thought of almost like being a law of nature?”

The main thing that I know about double entry bookkeeping is it’s historical impact. Used with the new Arab numerical system, it allowed businesses to expand during the latter part of the Dark Ages. In fact, some people even say that this accounting method spelled the end to the Medieval Period by promoting trade.

So are there equally effective methods out there? If so, why aren’t they better known? And, of course, is the system so tuned to basic reality that it could be thought of as a reflection of basic accounting truths?

I’ll leave it up to you guys. There’s got to be someone who knows this accounting stuff who’s also writing for this blog.

“Corporate Social Responsibility”

Rob the BusinessPundit has a post on corporate philanthropy that echoes my own sentiments:

I tend to err on the side of business and say that a business is only responsible for major, direct, negative effects of its policies (like pollution). My problem with making companies too concerned with social activities is that the causes they champion aren’t necessarily the causes I, as a shareholder, would prefer they champion. Why should they get to make the decisions about which charities get funding? Shouldn’t they give that money to shareholders and let them decide what to do with it? Ultimately, I wish these people that hate corporate profits so much would form their own non-profit companies. Let them figure out how to produce pharmaceuticals and computers and cars and everything else without using profitability as a guide. If they succeed, then great we will all be better off. But my guess is that they will fail. When companies follow profit, they follow what consumers want. Profit comes from satisfying consumer needs. That is social responsibility. There is a demand for solutions to societal problems. Over time that demand is being met. That is why a poor person today eats better than a king did several generations ago.

It’s worth reading in full.

UPDATE: Lex and I have a long exchange of views in the comments.