In 2017 my Website was migrated to
the clouds and reduced in size.
Hence some links below are broken.
One thing to try if a “www” link is broken is to substitute “faculty” for “www”
For example a broken link
http://faculty.trinity.edu/rjensen/Pictures.htm
can be changed to corrected link
http://faculty.trinity.edu/rjensen/Pictures.htm
However in some cases files had to be removed to reduce the size of my Website
Contact me at rjensen@trinity.edu if
you really need to file that is missing
New
Bookmarks
Year 2016 Quarter 4: October 1 - December 31 Additions to
Bob Jensen's Bookmarks
Bob Jensen at
Trinity University
For
earlier editions of New Bookmarks go to
http://faculty.trinity.edu/rjensen/bookurl.htm
Tidbits Directory ---
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
Click here to search Bob Jensen's web site if you have
key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron"
enter the phrase Jensen AND Enron. Another search engine that covers Trinity and
other universities is at
http://www.searchedu.com/.
Bob Jensen's Threads ---
http://faculty.trinity.edu/rjensen/threads.htm
574 Shields
Against Validity Challenges in Plato's Cave ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm
Choose a
Date Below for Additions to the Bookmarks File
2016
December
November
October
December 2016
Bob Jensen's New Additions to
Bookmarks
December
2016
Bob Jensen
at
Trinity University
For
earlier editions of
Fraud Updates go to
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
For earlier editions of
Tidbits go to
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of
New Bookmarks go to
http://faculty.trinity.edu/rjensen/bookurl.htm
Bookmarks for the World's Library ---
http://faculty.trinity.edu/rjensen/bookbob2.htm
Click here to search Bob Jensen's web site if you
have key words to enter --- Search Box in Upper Right Corner.
For example if you want to know what Jensen documents have the term "Enron"
enter the phrase Jensen AND Enron. Another search engine that covers Trinity and
other universities is at
http://www.searchedu.com/
Bob
Jensen's Blogs ---
http://faculty.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New Bookmarks ---
http://faculty.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's
Pictures and Stories
http://faculty.trinity.edu/rjensen/Pictures.htm
All
my online pictures ---
http://www.cs.trinity.edu/~rjensen/PictureHistory/
David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics
Science"
Bob Jensen
February 19, 2014
SSRN Download:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296
Scholarpedia (a cross between Wikipedia and Google Scholar) ---
http://www.scholarpedia.org
Google Scholar ---
https://scholar.google.com/
Wikipedia ---
https://www.wikipedia.org/
Bob Jensen's search helpers ---
http://faculty.trinity.edu/rjensen/searchh.htm
Bob Jensen's World Library ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm
From the December 2016 Edition of Accounting Horizons
The Abstracts are Free, but the Full Text and PDF Versions are Not Free
Without Subscriptions from the AAA
Especially note the presentation by Tom Linsmeier who was a long-time academic
member of the FASB
Tom is now listed as being on the faculty of the University of Wisconsin at
Madison. Years ago he was on the faculty of Michigan State University
FORUM
ON PRESENTATION AND MEASUREMENT
473 |
|
A Synthesis of Three Commentaries on Measurement and
Performance Reporting
Jeffrey Hales, Lynn Rees and T. Jeffrey Wilks
Abstract |
Full Text |
PDF (121 KB) |
|
485 |
|
Revised Model for Presentation in Statement(s) of
Financial Performance: Potential Implications for Measurement in the
Conceptual Framework
Thomas J. Linsmeier
Abstract |
Full Text |
PDF (399 KB) |
|
499 |
|
The Reporting of Income and Expense and the Choice of
Measurement Bases
Roger
Marshall and Andrew Lennard
Abstract |
Full Text |
PDF (139 KB) |
|
511 |
|
The Definitions of Net Income and Comprehensive
Income and Their Implications for Measurement
Ikuo
Nishikawa, Takao Kamiya and Yasunobu Kawanishi
Abstract |
Full Text |
PDF (82 KB) |
Securing Big Data Provenance for Auditors: The Big Data Provenance Black
Box as Reliable Evidence
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)
http://aaajournals.org/doi/abs/10.2308/jeta-51473
Author
Deniz Appelbaum --- Rutgers, The State University of New Jersey, Newark
Abstract
The purpose of this article is to highlight a main
issue regarding reliable audit evidence derived from Big Data—that of secure
data provenance. Traditionally, audit evidence external to the client has
been regarded as superior to other forms of evidence. However, regarding
external “messy” Big Data sources that may be material to aspects of the
audit, these sources may lack provenance and verifiability. That is, the
origins of the data may be unclear and its log files incomplete. According
to the standards, such evidence should be considered as less reliable for
audit evidence. External auditors, as outsiders of the client, should be
able to reproduce the data lifecycle or transaction path, which may not be
possible in an electronic environment with incomplete provenance.
Furthermore, this mapping or provenance of the data origins and history
should be securely maintained so that it cannot be thwarted. This need for
secure data provenance has been largely ignored by the business community in
its haste to utilize Big Data, but has been acknowledged by extant systems
research as being an area that requires attention. This paper contributes to
the discussion of Big Data provenance through the lens of public company
auditing, where the provenance and reliability of data sources and audit
evidence are of paramount importance. This paper also proposes a system of
secure provenance collection, the Big Data Provenance Black Box, which is
derived from several streams of extant research.
The Development of AudEx: An Audit Data Assessment System
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)
http://aaajournals.org/doi/abs/10.2308/jeta-51445
Authors
Danielle R. Lombardi --- Villanova University
Richard B. Dull --- West Virginia University
Abstract
Tools to assist auditors in making sound, complete,
and consistent judgements have become increasingly important due to
regulation, litigation, and the desire to increase audit effectiveness.
Historically, expert systems have been problem specific and created from
scratch. Such systems were challenging to update and had limited
adaptability when applied to additional problem spaces. If an adaptable
system is possible, then costs and time may be reduced related to
production, testing, and implementation of quality audit tools. Increased
availability of such tools could be a tremendous benefit to auditors. Using
a design science research method, this paper describes the process used to
create a fraud risk assessment audit tool by embedding audit rules into a
generic expert system shell that is widely used in the medical field. The
resulting decision and training aid can assist auditors in making fraud risk
assessments. While prior research has addressed many components of the
issue, the current system was created to address the current risk
environment, and a variety of contexts of interest, as the risk environment
changes. The system was evaluated by practicing auditors while completing a
series of cases. Evaluation results support the benefits of the artifact
when used to assist in fraud risk assessments.
Computer-Assisted Functions for Auditing XBRL-Related Documents
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)
http://aaajournals.org/doi/abs/10.2308/jeta-51436
Authors
J. Efrim Boritz --- University of Waterloo
Won Gyun No --- Rutgers, The State University of New Jersey, Newark
Abstract
The increasing global adoption of XBRL and its potential to replace
traditional formats for business reporting create a need for quality
assurance for XBRL-tagged data. Although prior studies have addressed
assurance issues on XBRL-related documents (i.e., instance documents and
extension taxonomy) and related audit objectives, they primarily focus on
the U.S. and, thus, may not be comprehensive enough for use in other
countries. Furthermore, no prior literature discusses what and how
computer-assisted audit functions can help auditors while they are
performing assurance on XBRL-related documents. The main goal of this paper
is to introduce computer-assisted audit functions that can be used by
auditors to perform audit tasks to attain identified audit objectives. Based
on professional guidelines and prior academic studies, this study introduces
a set of audit objectives and related audit tasks that auditors might
confront if they are asked to provide assurance on XBRL-related documents.
The study then demonstrates a set of related computer-assisted audit
functions for conducting the audit tasks and discuss how the identified
audit objectives could be achieved using these functions.
Bob Jensen's threads on XBRL ---
http://faculty.trinity.edu/rjensen/XBRLandOLAP.htm
Cutting-Edge Technologies in the Classroom
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)
http://aaajournals.org/doi/abs/10.2308/jeta-51464
Author
Hui Du --- University of Houston–Clear Lake
Introduction
In 2015, the editorial team of Journal of Emerging
Technologies in Accounting (JETA) called for papers on cutting-edge
technologies in the classroom. Among all the American Accounting Association
(AAA) journals and various conferences, we are the first to call papers in a
special section to provide an opportunity for accounting academics to
publish “cool” technologies used in the classroom. We now proudly present
five papers in this theme issue.
As the technology and innovation move business
forward, the accounting industry and the business world in general demand
changes in accounting education (PricewaterhouseCoopers [PwC] 2015) with
information technology (IT) skills and knowledge (Association to Advance
Collegiate Schools of Business International [AACSB] 2014) to prepare a new
generation of accounting professionals. G. Coyne, E. Coyne, and Walker
(2016) provide a timely update of accounting curricula for emerging
technologies to meet the challenge. An architecture is constructed with
compliance, business model, and technological feasibility laying the
foundation of accounting curricula. Technologies and controls are no longer
add-on functions to help the creation, use, and maintenance of accounting
information, pictorially as the top piece in the architecture. Instead,
technologies that include the understanding of hardware, software, data
storage, and information services, and controls that cover the crucial
importance of accounting system security availability, integrity, and
confidentiality, become two pillars to uphold the entire domain of
accounting information. When accounting and business data in a rapidly
changing world are captured, processed, stored, made use of, and made secure
by computer technology and control, this novel architecture integrates
emerging technologies in accounting curricula for academics to explore and
consider. The unifying framework in the architecture along with
corresponding teaching topics will help us prepare students with relevant
professional competencies.
Continued in article
Book Review
Audit Analytics and Continuous Audit: Looking towards the Future
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, INC.,
Reviewed by Jagdish S. Gangolly
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)
http://aaajournals.org/doi/abs/10.2308/jeta-10490
The Advent of IFRS in Canada: Incidence on Value Relevance
Journal of International Accounting Research
Article Volume 15, Issue 3 (Fall)
http://aaajournals.org/doi/abs/10.2308/jiar-51404
Authors
Denis Cormier --- University of Quebec at Montreal
Michel L. Magnan --- Concordia University
Abstract
The paper focuses on Canada's enactment of IFRS for
publicly accountable firms. We investigate whether IFRS meet one of their
stated goals, which is to improve financial statements' relevance for stock
markets. Results show that migrating from Canadian GAAP to IFRS enhances the
value relevance of earnings but the effect is concentrated among firms that
are cross-listed in the U.S. (and that do not report according to U.S. GAAP).
The advent of IFRS enhances the value relevance of information contained in
footnotes but attenuates the need for non-GAAP measures' disclosure. Stock
market prices also embed more precise anticipations about future IFRS
earnings. Additional analyses suggest that less earnings management
accompanies IFRS adoption. Our results suggest that, for cross-listed firms,
the adoption of IFRS enhanced the comparability of their financial
statements and, ultimately, their value relevance.
An Understanding of the Differences between Internal and External Auditors
in Obtaining Information about Internal Control Weaknesses ---
Journal of Management Accounting Research
Volume 28, Issue 3 (Fall 2016)
http://aaajournals.org/doi/abs/10.2308/jmar-51471
Author
Ian Burt --- Niagara University
Abstract
The Institute of Internal Auditors (IIA) argues
that internal auditors often have a strong “employee” identity within their
organization. While external auditors are concerned that this employee
identity might negatively impact internal auditors' objectivity, the IIA
argues this identity can actually be beneficial as employees may be more
willing to share sensitive and audit-relevant information with the internal
auditor than they would with the external auditor. Through an experiment
relying on the social identity and organizational silence literatures, I
test the prediction that non-audit employees will identify more highly with
the internal than the external auditor and they will thus, be willing to
share more information about internal control weaknesses with the internal
than the external auditor. The results from a moderated mediation analysis
support this prediction and also show the effect is stronger as the severity
of the internal control weakness increases. Overall, this research informs
external auditors and regulators about conditions under which the internal
auditor may have an advantage over the external auditor in obtaining
information that could help improve audit quality. It also informs managers
about an important role played by their internal auditors that may result in
increased quality of the internal control system while also potentially
lowering audit fees.
McGill University Neurology will no longer patent researchers' findings,
instead everything will be open access ---
https://boingboing.net/2016/12/17/mcgill-neurology-will-no-longe.html
As the Drive to Share Data Intensifies, Can Standards Keep Up? ---
http://www.chronicle.com/article/As-the-Drive-to-Share-Data/238722?cid=at&utm_source=at&utm_medium=en&elqTrackId=de3b7fff280445c193689fc52eec49ce&elq=7cd67ff93f4b4708bec4e4c074f490e9&elqaid=11893&elqat=1&elqCampaignId=4768
Patrick
J. Curran struggles with the problem when studying alcoholism in families.
Quynh C. Nguyen sees it when analyzing housing-voucher programs. And the
Nobel laureate Harold E. Varmus encounters it while developing genomic
databases for cancer patients.
Their trouble isn’t with sharing their data — all three professors are eager
participants in the open-data revolution.
Instead, the problem is confidently sharing and interpreting data — huge
amounts of it — with relevance and accuracy.
As they and other
scientists embrace sharing, they’re finding that computer systems are quite
good at storing and easing access to the enormous quantities of information
they generate. But comparing and synthesizing all that data, in differing
formats and styles and methods, requires human skill and judgment. And even
the best aren’t sure how to do it, raising questions of whether the
nationwide rush toward open data will really mean a momentous revolution in
scientific progress or just a whole new level of
gnarly
reproducibility
issues.
Mr.
Curran is a professor of psychology at the University of North Carolina at
Chapel Hill who studies the effects of alcoholic parents on their children.
He combines findings from multiple studies and sees a challenge lurking in
the varied scientific meanings and assessments that professional colleagues
apply to terms such as "anxiety" and "depression."
"The thing that keeps me up at night," he said, "is, Am I making a
substantive theoretical conclusion that is based on some artifact of how we
scored the scale?"
Continued in article
Jensen Comment
One of the huge problems in finance and accounting is that empirical researchers
often use the same purchased databases like CompuStat, CRSP, and AuditAnalytics.
Efforts to replicate/reproduce research findings are rare, really rare, in
financial accounting, and when they do happen they usually use the same data.
Errors in that data happen a lot, and any research conclusions drawn from faulty
data are likely to be the same conclusions drawn in replication attempts,. This
is why findings that contradict earlier findings are so rare in accounting
research.
Bob Jensen's threads on why replications are rare in financial accounting
research ---
http://faculty.trinity.edu/rjensen/TheoryTar.htm
When is the last time you saw an accountics scientist in financial accounting
collect his or her own data?
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics
Science"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsWorkingPaper450.06.pdf
Obama's Parting Shot at Birds
nearly four times the current limit
"Final wind-turbine rule permits thousands of eagle deaths,"
Matthew Daly, Associated Press, San Francisco Chronicle, December 14, 2016 ---
http://www.sfgate.com/business/article/Final-wind-energy-rule-permits-thousands-of-eagle-10795876.php
The Obama administration on Wednesday finalized a
rule that lets wind-energy companies operate high-speed turbines for up to
30 years — even if means killing or injuring thousands of federally
protected bald and golden eagles.
Under the new rule, wind companies and other power
providers will not face a penalty if they kill or injure up to 4,200 bald
eagles,
nearly four times the current
limit. Deaths of the more rare golden
eagles would be allowed without penalty so long as companies minimize losses
by taking steps such as retrofitting power poles to reduce the risk of
electrocution.
The new rule will conserve eagles while also
spurring development of a pollution-free energy source intended to ease
global warming, a cornerstone of President Barack Obama's energy plan, said
Fish and Wildlife Service Director Dan Ashe.
"No animal says America like the bald eagle," Ashe
said in a statement, calling recovery of the bald eagle "one of our greatest
national conservation achievements."
The new rule attempts to build on that success,
Ashe said, adding that the Fish and Wildlife Service is trying to balance
energy development with eagle conservation. Wind power has increased
significantly since Obama took office, and wind turbines as tall as 30-story
buildings are rising across the country. The wind towers have spinning
rotors as wide as a passenger jet's wingspan, and blades reach speeds of up
to 170 mph at the tips, creating tornado-like vortexes.
The surge in wind power has generally been
well-received in the environmental community, but bird deaths — and eagle
deaths in particular — have been a source of contention.
The birds are not endangered species but are
protected under the Bald and Golden Eagle Protection Act and the Migratory
Bird Treaty Act. The laws prohibit killing, selling or otherwise harming
eagles, their nests or eggs without a permit.
It's unclear what toll wind energy companies
are having on eagle populations, although Ashe said as many 500 golden
eagles a year are killed by collisions with wind towers, power lines,
buildings, cars and trucks. Thousands more are killed by gunshots and
poisonings.
Continued in article
Sure, it’s green energy—but it also results in hundreds of thousands of
bird deaths each year
Audubon Society
http://www.audubon.org/news/will-wind-turbines-ever-be-safe-birds
Wind turbines kill an estimated 140,000 to 328,000
birds each year in North America, making it the most threatening form of
green energy.
And yet, it’s also one of the most rapidly
expanding energy industries: more than 49,000 individual wind turbines now
exist across 39 states. The wind industry has the incentive to stop the
slaughter: Thanks to the Migratory Bird Treaty Act, it’s illegal to kill any
bird protected by the Act—even if the death is "incidental," meaning it
occurs unintentionally on the part of the wind farm.
The Bald and Golden Eagle Protection Act recommends
that to avoid eagle deaths, specifically, companies seriously consider where
they site their wind developments, and that they also limit turbines’ impact
using techniques like radar to detect incoming birds. But as the accident at
the Peńascal wind farm shows, it’s unclear if deterrents like these actually
work. The Ways Wind Farms Try to Scare Birds Away There are many kinds of
retrofits that people are testing to hopefully make wind turbines better for
birds.
Here are some of the options (the Audubon
Society thinks clean energy is more important that the banning of
windmills).
Continued in article
Photographs from Rhode Island: America's first offshore wind farm
just launched with GE turbines twice as tall as the Statue of Liberty ---
http://www.businessinsider.com/ge-wind-farm-block-island-2016-12/#the-block-island-wind-farmwill-generate-30-megawatts-of-energy-which-is-the-amount-required-to-powerevery-home-on-block-islanderic-crucerey-the-farms-project-manager-tells-business-insiderit-will-emit-about-40000-fewer-tons-of-greenhouse-gases-per-year-than-fossil-fuels-would-to-generate-the-same-amount-of-energy-thats-the-equivalent-of-taking-150000-cars-off-the-road-1
Jensen Comment
Here in New England many environmentalists see the Block Island wind farm as
a horrid example of dirty politics ---
http://www.deepwaterresistance.org/risk_analysis.html
Environmentalists complain that Deep Water picked this island so because they
would not be regulated properly ---
http://www.theday.com/article/20150821/NWS01/150829833
Having made his living in the utility industry,
Warfel, a 17-year island resident, said he analyzed the project as well as
Block Island’s power problems, and concluded that they could have been
solved much more cheaply with energy conservation and on-island resources.
He accused the Block Island Power Co. of being a “rogue utility” not
properly regulated by the state that left the island vulnerable to
Deepwater’s pitch. “I see no joy in taking this historic viewshed and
adulterating it for the benefit of D.E. Shaw,” he said
Budget Adjustments and Spending Patterns: A Transaction Cycle View
SSRN, December 24, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889625
Authors
Akhilesh Chandra University of Akron - The George W. Daverio School of
Accountancy
Birendra K. Mishra University of California, Riverside (UCR) - A. Gary
Anderson Graduate School of Management
Nirup M. Menon George Mason University
Abstract
Organizational- and departmental-level budgeting
suffer from various shortcomings, such as asymmetric ratcheting. In this
regard, we theorize, and propose, budgeting at the transaction-cycle level
for effective budget designs. The transaction-cycle level budget requires
management justification for resource assignment to business processes,
often spanning multiple departments. The transaction-cycle typology consists
of five cycles: production, expenditure, financial, revenue, and
human-resources. In order to distinguish among transaction cycles, we use
their relative positions within the value chain and technology content in
their business processes. As a proof-of-concept, we develop theoretical
arguments for asymmetric ratcheting in operating budgets at the
transaction-cycle level in hospitals, and empirically examine this
phenomenon using longitudinal archival data. Our hypotheses examine
budgetary responses to over- and under-spending variances in operating
budgets for fixed and variable costs. Our findings suggest that a
transaction cycle’s position in the value chain and its technology content
play a role in determining asymmetric ratcheting during budgeting. We
discuss our contributions from the perspectives of theory and practice of
accounting, budgeting, and accounting information systems.
The Effect of Regulatory Harmonization on Cross-Border Labor Migration:
Evidence from the Accounting Profession
SSRN. December 23, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889318
Authors
Matthew J. Bloomfield University of Chicago - Booth School of Business
Ulf Brüggemann Humboldt University of Berlin - School of Business and
Economics
Hans Bonde Christensen University of Chicago - Booth School of Business
Christian Leuz University of Chicago - Booth School of Business; National
Bureau of Economic Research (NBER); European Corporate Governance Institute
(ECGI); Center for Financial Studies (CFS); University of Pennsylvania -
Wharton Financial Institutions Center; CESifo Research
Abstract
The paper examines whether international regulatory
harmonization increases cross-border labor migration. To study this
question, we analyze European Union initiatives that harmonized accounting
and auditing standards. Regulatory harmonization should reduce economic
mobility barriers, essentially making it easier for accounting professionals
to move across countries. Our research design compares the cross-border
migration of accounting professionals relative to tightly matched other
professionals before and after regulatory harmonization. We find that
international labor migration in the accounting profession increases
significantly relative to other professions. We provide evidence that this
effect is due to harmonization, rather than increases in the demand for
accounting services during the implementation of the rule changes. The
findings illustrate that diversity in rules constitutes an economic barrier
to cross-border labor mobility and, more specifically, that accounting
harmonization can have a meaningful effect on cross-border migration.
Strategic Reactions in Corporate Tax Avoidance
SSRN, December 23, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889145
Authors
Chris Armstrong University of Pennsylvania - Accounting Department
Stephen Glaeser University of Pennsylvania - Accounting Department
John D. Kepler University of Pennsylvania - Accounting Department
Abstract
We find that the tax avoidance of firms in the same
industry exhibit strategic complementarities: a change in a firm’s tax
avoidance leads to a direct change in its industry-competitors’ tax
avoidance, and vice versa. We document evidence of these strategic
complementarities in several measures of corporate tax avoidance using
multiple sources of exogenous variation in competitors’ tax avoidance. We
also find evidence that firms’ strategic response to their competitors’ tax
avoidance stems from concerns about appearing more tax aggressive than their
industry competitors and drawing unwanted scrutiny as a result.
Soft Information in Loan Agreements
SSRN, December 22, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2888876
Authors
Zahn Bozanic Ohio State University (OSU) - Department of Accounting &
Management Information Systems
Lin Cheng The University of Arizona - Eller College of Management
Tzachi Zach Ohio State University (OSU) - Fisher College of Business
Abstract
In this study, we seek to understand whether soft information conveyed by
contracting language found in private loan agreements is informative
regarding borrower risk. We proxy for credit-risk-relevant soft information
using Loughran and McDonald’s (2011) uncertainty measure. We first examine
initial contract terms and find that, incremental to traditional summary
measures of credit risk, increased contractual uncertainty is associated
with higher initial loan spreads and a greater likelihood of using dynamic
and performance pricing covenants. We then turn to examine realized credit
risk over the life of the loan and find that increased uncertainty is
associated with a higher likelihood of future loan downgrades and loan
amendments. We corroborate our results on the risk relevance of soft
information by showing that the bid-ask spreads of loans trading on the
secondary loan market are increasing in uncertainty. Overall, the evidence
we provide is consistent with embedded linguistic cues in loan agreements
publicly revealing the credit risk assessments of privately informed
lenders.
Ranking Accounting Authors and Departments in Accounting Education:
Different Methodologies – Significantly Different Results
SSRN. Dececember 22, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889108
Authors
Richard A. Bernardi Roger Williams University - Gabelli School of
Business; Roger Williams University
Kimberly M. Zamojcin Roger Williams University - Gabelli School of
Business
Taylor L. Delande Roger Williams University
Abstract
This research tests whether Holderness et al.’s
(2014) accounting-education rankings are sensitive to a change in the set of
journals used. It provides updated rankings for accounting-education authors
from Australia, Canada, New Zealand, the Republic of Ireland, the United
Kingdom, and the United States using a sample that included the publications
in 13 accounting-education journals. Our analysis indicated that Holderness
et al.’s rankings of authors and departments were significantly different
from our rankings. This research provides rankings of the top 50 authors and
departments for three periods: 2010 to 2015, 2004 to 2015 and 1992 to 2015.
We provide data indicating the distribution of authors for these periods to
assist authors not listed in the most-prolific lists in determining their
relative ranking. Finally, we provide data on the distribution of journal
choices for accounting-education publications for the authors from each
country.
Is Bank Supervision Effective? Evidence from the Allowance for Loan and
Lease Losses ---
SSRN, December 22, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2886636
Author
Ling Yang University of Chicago - Booth School of Business
Abstract
I investigate whether bank supervision is effective
in enforcing written rules on the estimations of the allowance for loan and
lease losses (ALLL) consistently between public and private banks, which
have different intensity of incentives to misreport the ALLL. Results
suggest that bank supervision of the ALLL estimations was effective between
2002 and 2012, but has become lax recently. State-chartered public banks
underestimated the ALLL by about 13% annually between 2013 and 2015. Bank
regulators are willing to cater to banks’ private interests when the
economic environment is good and the regulatory emphasis is weak, but not
during the crisis.
Strategic Reporting of Fair Value Estimate Levels
SSRN. December 22, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889160
Authors
Kathleen Weiss Hanley Lehigh University - College of Business & Economics
Alan D. Jagolinzer University of Colorado - Leeds School of Business
Stanislava Nikolova University of Nebraska - Lincoln
Abstract
We investigate whether firms strategically report
Levels that indicate reliance on lower quality inputs to allow flexibility
to bias fair value estimates, or higher quality inputs to convey better
asset liquidity. Specifically, we examine the dispersion of year-end fair
value estimates and Levels for identical fixed-income securities held by
multiple insurers. We find that insurers inflate estimates more when they
report these estimates at Levels indicative of lower quality inputs than the
consensus. Relatedly, insurers deviate from consensus Levels to indicate
reliance on lower quality inputs, when they switch to carrying an asset at
fair value and when they have less regulatory capital. When insurers face a
decrease in liquid assets, they deviate from the consensus to a Level
indicative of higher quality inputs likely to convey better asset liquidity.
Collectively, our findings suggest that insurers exploit the ambiguity in
the fair value estimate Level hierarchy consistent with financial reporting
incentives.
Public Tax-Return Disclosure ---
SSRN, December 20, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2888385
Authors
Jeffrey L. Hoopes University of North Carolina (UNC) at Chapel Hill
Leslie A. Robinson Tuck School of Business at Dartmouth
Joel B. Slemrod University of Michigan, Stephen M. Ross School of
Business; National Bureau of Economic Research (NBER)
Abstract
We investigate the effect of public disclosure of
information from corporate tax returns filed in Australia on consumers,
investors, and the corporations themselves that were subject to disclosure.
Supporters of more disclosure argue that increased transparency will improve
tax compliance, while opponents argue that it will divulge sensitive
information that is, in many cases, misunderstood. Our results show that
large private companies are likely to experience consumer backlash and are
also, perhaps as a consequence, more likely to act to avoid disclosure. We
also fail to detect any material increase in tax payments, one objective of
legislating the disclosure regime. Finally, we find that investors react
negatively to anticipated and actual disclosure of tax information, most
likely due to anticipated policy backlash than the revelation of negative
tax information. These findings are important for both managers and
policymakers as the trend towards increased tax disclosure continues to rise
globally.
The Effects of Tone-At-The-Top Messaging and Specialists on Auditors'
Judgments during Complex Audit Tasks ---
SSRN. April 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2888084
Authors
SSRN, DJonathan S. Pyzoha Miami University - Department of
Accountancy
Mark H. Taylor Case Western Reserve University - Department of
Accountancy
Yi-Jing Wu Texas Tech University - Rawls College of Business
Abstract
PCAOB inspection findings indicate that audit firms
overemphasize firm performance goals as opposed to audit quality in their
tone-at-the-top messaging, which can suppress auditors’ professional
skepticism when performing audit tasks at the engagement level. We
investigate the effect of firm-level tone-at-the-top messaging on auditors’
judgments when auditing a complex audit area susceptible to management bias.
We also examine whether management’s use of a specialist can influence the
effect of tone-at-the-top messaging. Consistent with nonconscious goal
conflicts theory, we find that when management does not engage a specialist
inducing two competing goals equally (performance and audit quality)
decreases auditors’ tendency to assess a complex estimate as reasonable in
the presence of contradictory evidence as compared to when messaging
overemphasizes performance goals. However, when management does engage a
specialist, we find that an audit quality messaging approach reduces
auditors’ tendency to over-rely on management’s specialists. Our results
have important implications for regulators, standard setters, audit firms,
and practitioners.
A Checklist for Reviewing a Paper ---
SSRN, December 21, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2887708
Authors
Jonathan Berk Stanford Graduate School of Business; National Bureau of
Economic Research (NBER)
Campbell R. Harvey Duke University - Fuqua School of Business; National
Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship
Initiative
David A. Hirshleifer University of California, Irvine - Paul Merage
School of Business
Abstract
Despite the crucial importance of high quality
reviewing for the scientific process, new scholars often learn how to do
this based on casual advice and trial-and-error learning. We offer a
checklist that helps referees systematically develop high quality referee
reports and avoid some of the common pitfalls, in the spirit of the
checklists used with success by surgeons and airplane pilots.The specific
format in our checklist is not the only or `best’ one, but we believe it is
useful, especially for junior scholars, to have access to at least one
effective format laid out in a very specific form. This checklist is based
upon ideas in Berk, Harvey and Hirshleifer (2016; 2017 forthcoming).
The Number of Professionally Certified Accounting Experts on Audit Committees
and Confidence in Earnings: A Study of Retail Investors’ Perceptions
SSRN, December 21, 2016
Authors
Alan Levitan University of Louisville - College of Business and Public
Administration
David A. Dubofsky University of Louisville - Department of Finance
Lyle Sussman University of Louisville
Abstract
The purpose of this study is to determine whether
the composition of a company’s audit committee affects decisions by retail
(non-institutional) investors. We examine if these investors’ confidence in
reported earnings is affected by the number of committee experts under the
U. S. Securities and Exchange Commission’s original, more restrictive
definition of an expert (accountants and auditors), the expanded definition,
or those who do not qualify under either definition. A sample of AAII
(American Association of Independent Investors) members responded to an
Internet-based questionnaire and assessed their confidence in the earnings
quality of a hypothetical company, contingent on the financial expertise
represented in the committee. Results suggest that as the number of
Certified Public Accountants (experts under the more restrictive definition)
on an audit committee increases, there is a general tendency for confidence
in earnings to increase also. The statistical significance of this trend
however is illuminated by both demographic and behavioral characteristics of
the investors.
The Effective Income Tax Experience of U.S. and Non-U.S. Multinationals
---
SSRN, December 19, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2887658
Authors
Eric J. Allen University of Southern California - Leventhal School of
Accounting
Susan C. Morse University of Texas at Austin - School of Law
Abstract
In this paper we examine how the incorporation of a parent firm outside the
United States affects the effective income tax rates of global firms with
material business operations in the U.S. We find that for profit firm years,
firms with a non-U.S. parent corporation have lower effective tax rates than
firms with a U.S. parent. However, in loss firm years we find that these
non-U.S. firms report smaller negative tax expense. We find no statistically
significant difference in outcomes if the non-U.S. firm engaged in an
inversion transaction. We provide evidence that earnings stripping
opportunities available to non-U.S. firms and the worldwide tax law
applicable to U.S. firms contribute to the better tax results of non-U.S.
firms in profit years. For loss firm years, we find evidence that the U.S.
worldwide tax law and differences in valuation allowance practice support
better tax outcomes for U.S. firms.
Probability Weighting and Analyst Bias: Theory and Evidence
SSRN, December 16, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2886643
Authors
Kathryn Elizabeth Warner Brightbill University of Iowa - Department of
Accounting
Cristi A. Gleason University of Iowa - Department of Accounting
Mark Penno University of Iowa - Henry B. Tippie College of Business
Abstract
Analyst forecasting bias is frequently attributed
to opportunism. We argue that opportunism is not a necessary condition for
bias and propose a simple model, based on research in behavioral economics
and psychology, of belief-based probability weighting. The model is used to
develop benchmarks which we test empirically. Our model explains the change
in the magnitude of forecast bias over the forecast horizon, the percentage
of optimistic and pessimistic forecast errors at long horizons, and
seemingly counter-intuitive findings around the implementation of Regulation
Fair Disclosure. Our results may inform regulators as they attempt to reduce
or eliminate analyst forecast bias; eliminating incentives to bias may not
lead to statistically unbiased forecast
Earnings Announcements and Option Returns
SSRN, April 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2886040
Authors
Sung Gon Chung Wayne State University
Henock Louis Pennsylvania State University - Smeal College of Business
Abstract
While prior studies find that returns on option
straddles are generally negative, we show that returns on straddles
purchased prior to earnings announcements are actually positive. The
earnings announcement impact is compounded when the pre-portfolio formation
volatility is low (high) and the pre-expiration realized volatility is high
(low). Apparently, the average option trader underestimates future
volatility before forthcoming earnings announcements, particularly after a
period of relatively low volatility, and overestimates future volatility
after recent earnings announcements, particularly after a period of
relatively high volatility. The overestimation of future volatility after
recent earnings announcements also increases with the magnitude of the
earnings surprise.
Accounting Quality and Cost of Debt and Equity Capital in Deregulated
Electric Utilities
SSRN, December 12, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2884906
Author
Emily Ping Yang University of Arizona, Department of Accounting
Abstract
Electric utilities play an important role in the
economy and the general public’s life quality, and have caught lots of
attention in the literature of Economics. However, the accounting research
seems to be lacking in this area. In this paper, I use the national
deregulation in electric utilities as an exogenous shock for the information
uncertainty/asymmetry and analyze how accounting quality can help mitigate
this information asymmetry and affect a firm’s cost of debt and equity
capital, and its external financing choices. I find that accounting quality
is negatively associated with cost of debt and cost of equity capital in the
years after deregulation in electric utilities while such association does
not exist between accounting quality and cost of debt and equity in the
years before deregulation. This result shows that accounting quality serves
as effective instrument to mitigate the negative effects of information
uncertainty.
Andy Fastow is a liar who stole $60 million from his employer: After
six years in prison he's still a liar.
Cheryl Hall: Enron culprit Andy Fastow's ugly tale and sobering warning
---
http://www.dallasnews.com/business/business/2016/04/29/cheryl-hall-enron-culprit-andy-fastow-s-ugly-tale-and-sobering-warning
Jensen Comment
After prison Andy still cannot resist telling lies or cherry picking the facts.
What set Andy Fastow and Michael Kopper apart from most of the other Enron
executives prior to the illegal self declarations of bonuses from a secret bank
account set up just before Enron declared bankruptcy?
Who were the phony versus the real female whistleblowers at Enron?
See Number 10 at
http://faculty.trinity.edu/rjensen/FraudEnronQuiz.htm
What was the first SPE formed by Enron that was approved by the Board of
Directors? What did Andy Fastow promise the Board, a promise that he
violated in the worst of possible terms?
See Number 13 at
http://faculty.trinity.edu/rjensen/FraudEnronQuiz.htm
What is most unusual and actually unethical about the way Enron's SPEs were
managed?
How were these related party dealings disclosed and yet obscured in the infamous
Footnote 16 of Enron's Year 2000 Annual Report?
What did Professors Hartgraves and Benston conclude with respect to accounting
fraud and failings of both Enron and the external auditors (Andersen) after a
detailed analysis of the Powers Report commissioned by the former Chairman of
the Board of Directors at Enron?
See Number 13 at
http://faculty.trinity.edu/rjensen/FraudEnronQuiz.htm
In round numbers, what is the amount Andy Fastow ultimately admitted to
skimming from over 3,000 SPEs he set up in Enron?
What is the best estimate of the actual amount he stole from his company?
Hint: It is tens of millions more than the $30 million fine he eventually
paid
See Number 17 at
http://faculty.trinity.edu/rjensen/FraudEnronQuiz.htm
Was Andy Fastow considered a financial genius by financial experts within
Enron? Elaborate.
See Number 17 at
http://faculty.trinity.edu/rjensen/FraudEnronQuiz.htm
Aside from Andy Fastow's suggested use of SPEs for off-book transactions, who
was the main instigator of accounting irregularities for items on the books of
Enron? What were some of the most typical types of accounting
irregularities? Also mention some of Fastow's accounting irregularities.
See Number 27 at
http://faculty.trinity.edu/rjensen/FraudEnronQuiz.htm
The boss of one of the largest accounting firms in the
world says his biggest concern for Europe isn't Brexit ---
http://www.businessinsider.com/kpmg-global-chairman-john-veihmeyer-brexit-populism-europe-2016-12
KPMG is one of the
world's biggest accounting firms and its clients, which include some of the
world's largest banks and financial institutions, are of course worried
about Brexit — but the global chairman of KPMG says this is not his main
concern.
John Veihmeyer told
Business Insider that the rise of populism in Europe is far greater a threat
to the continent's stability than Britain's exit from the European Union.
"We can all have our
own views and it is going to be a personal view, but when I look at my role
in the global economy and my concerns about it, I am more concerned about
Europe than the UK," Veihmeyer told BI.
"The elections [in
Europe] and the decisions [that are going to be made in 2017], like what
will happen in France, could be very impactful for the rest of Europe —
especially if we begin to see a trend or more similar activity in the
Netherlands and other countries. It could threaten the [European] union. It
would mean a disruptive period for years especially since there will be a
focus more on Brexit.
"I wouldn't
underestimate the concern I have for the health of the global economy and
how this can become the biggest impediment of growth. The world is facing a
lot of major uncertainties."
Republicans have a massive plan to overhaul the tax code — here's how it
would work ---
http://www.businessinsider.com/republicans-plan-to-overhaul-the-tax-code-2016-12
Jensen Comment
The plan retains controversial itemized deductions like mortgage interest and
charity deductions. This surprises me since proposing those will bring millions
in extortion fees from lobbyists to the coffers of legislators. The plan does
propose a larger standard deduction wich probably does not make those lobbyists
happy.
David Giles: More on the History of Distributed Lag Models ---
http://davegiles.blogspot.com/2016/12/more-on-history-of-distributed-lag.html
Jensen Comment
Especially note the parts about non-linear relationships
David Giles: Top Econometrics Posts of 2016 ---
http://davegiles.blogspot.com/2016/12/top-new-posts-of-2016.html
The Emergence of Commercial Drones ---
http://www.visualcapitalist.com/emergence-commercial-drones/
Harvard Business: Why We’re Seeing So Many Corporate Scandals ---
https://hbr.org/2016/12/why-were-seeing-so-many-corporate-scandals?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&spMailingID=16221649&spUserID=MTkyODM0MDg0MAS2&spJobID=922560097&spReportId=OTIyNTYwMDk3S0
Why Low Interest Rates Failed to Boost Business Investments ---
https://www.bloomberg.com/view/articles/2016-12-27/why-low-rates-failed-to-boost-business-investment
Jensen Comment
If you look at the graphic on corporate investment as a share of GDP it's
obvious that low interest rates most likely did not totally fail to boost
business investment. But it gets complicated when the economy is in a recession.
The problem is finding business investments. Certainly some companies like Tesla
took on enormous investments and enormous debt. Virtually all companies have
been investing in alternative sources of energy, particularly solar panels.
The crash in oil prices distorts statistics on business investment since the
oil industry cut back so much on oil exploration, drilling, and development
(such as cutbacks in new refineries around the world).
What's your balance with the IRS? Do you owe anything or have any
unclaimed refunds?
Has a thief already beat you to accessing your account?
New online tool allows taxpayers to check IRS account information ---
http://www.journalofaccountancy.com/news/2016/dec/tax-tool-to-check-irs-accounting-information-201615621.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=07Dec2016
The IRS announced on Thursday that it has launched
an online tool that allows individuals to check their tax account balances
online, including tax due, penalties, and interest, after they complete an
online registration process called Secure Access. To register for Secure
Access the first time, taxpayers must have an email address, a text-enabled
cellphone in the taxpayer’s name, and specific account information for the
taxpayer, such as credit card accounts and loan account numbers. Each time a
taxpayer returns to use the service, he or she will be required to enter a
code received from the IRS by email or text. The IRS, mindful of the many
scams that try to obtain taxpayers’ information, noted that it will not send
emails or texts asking for personal information or login credentials—it will
only send codes for one-time use. Taxpayers who previously registered with
the IRS for Get Transcript Online or through the online Get an Identity
Protection Personal Identification Number (IP PIN) service can use the same
usernames and passwords.
Jensen Comment
In 2014, following a Turbo Tax breach of tax data on millions of people who
filed returns, a thief filed a tax return in my name using my Social Security
number and my IRS PIN number. The IRS paid a refund to the thief based upon this
fake tax return, just like the IRS has paid out billions every year on fake tax
returns since the IRS commenced to allow electronic filings. Before electronic
filings it was possible for thieves to file fake tax returns, although the IRS
started getting ripped off much more after the era of electronic filing
commenced. Since 2014 I will never file electronically again in my lifetime.
I detected the fraud before April 15, 2014 when the IRS refused to accept my
genuine electronic filing. I immediately suspected what happened and mailed by
genuine return to the IRS via snail mail. Since I had all my 1099 forms attached
the IRS recognized that my mailed return was genuine and that the IRS had paid
out an earlier refund to a fake Bob Jensen. The IRS then sent me my genuine (and
much smaller) refund.
My question is whether this new 2016 online tool will reveal phony and well
as genuine activity in my IRS account?
I've not yet tried the tool, but would love to hear from anybody is already
using this tool.
What's worrisome is the thought that a thief beat me to using this tool
for my IRS account.
Deloitte gives up on millions of pounds worth of government business to
atone for leaked memo ---
http://www.businessinsider.com/brexit-deloitte-theresa-may-leaked-memo-firm-forfeit-millions-contracts-2016-12
Francine McKenna: At Deloitte, the problems with audit quality and
professionalism start at the top ---
http://www.marketwatch.com/story/at-deloitte-the-problems-with-audit-quality-and-professionalism-start-at-the-top-2016-12-09
Jensen Comment
Over the years Francine has had it in for Deloitte more than the other largest
firms for some unknown reason in spite of evidence (think KPMG) to the contrary.
KPMG is the Worst of the Big Four Auditors (again and again)
The PCAOB released its inspection report of KPMG for 2015 yesterday and,
sorry to say, it was the worst-performing Big 4 firm of the cycle with a
deficiency rate of 38 percent ---
https://www.complianceweek.com/blogs/accounting-auditing-update/kpmgs-latest-inspection-shows-more-modest-improvement#.WEhliYWcGcx
Jensen Comment
This of course does not mean that in every city or country KPMG is the worst in
a particular audit market. Auditing depends a great deal on local office talent
and standards.
I read where KPMG is going to soon have a KPMG University that is bigger and
better than Deloitte University. That we it will be easier to find out how KPMG
screws up auditing better than Deloitte screws up auditing.
Bob Jensen's thread on the woes of KPMG and Deloitte and the other big firms ---
http://faculty.trinity.edu/rjensen/Fraud001.htm
Senate Uncovers 'Troubling' Aspects Of IRS Travel Policy ---
http://taxprof.typepad.com/taxprof_blog/2016/12/senate-finance-committee-uncovers-troubling-aspects-of-irs-travel-policy.html
Jensen Comment
This reminds me of a former student who became an internal auditor for a large
multinational company. She traveled so much she did not have a home other than
the house where her parents lived. The company even paid her travel expenses not
to come home on week ends (saved on air fares). I don't know how long she
endured this type of life, but my guess is that she eventually wanted a home and
family.
How to Screw Up a Political Poll ---
19 Things We Learned from the 2016 Election ---
http://andrewgelman.com/2016/12/08/19-things-learned-2016-election/
Also read the comments
Sears is on the brink of catastrophe as stores closures loom and top execs
flee the company ---
http://www.businessinsider.com/sears-problems-loom-large-2016-12
Jensen Comment
It might be interesting for accounting students to track such things as going
concern disclosures and sustainability reporting.
Erika and I were in the Concord Mall recently where there's now always
parking next to mall entrances. Sears is still one of the three large anchor
stores along with JC Penney and Bon Ton. The mall's anchor stores are like empty
tombs. About half the mall's other stores are already emptied out, and the
center food court is dark with no food service stores except a hopeful Dunkin
Donut shop that has a few tables in front of the shop. Judging from the lack of
shoppers I don't know how this mall continues to pay for lights and heating.
Anchor store closings have tremendous repercussions in terms of what
economists call externalities. Sears often has anchor stores in large and small
malls across the USA. We might say that when anchor stores go there's a smaller
or non-existent Gap --- a Gap store that is.
Nationwide Black Friday shopping was down over 3.5% while there were millions
of new online shoppers ordering from more than just Amazon. Sears now sends me
announcements of online deals daily, and the deals make me wonder if there's any
profit left in the sales. The problem is that Amazon sells stuff that I use
daily like my rice bran and peanut butter and sweat suits. Sears sold me heavy
appliances that I probably won't replace during the rest of my life.
December 4, 2016 reply from Beryl Simonson
And many of these malls have co-tenancy provisions
in the non-anchor store leases that convert fixed rent to a percentage rent
if the anchors go dark. How do these provisions effect not only going
concern considerations (which may be mitigated by financial support from the
owners), but also impairment considerations. Is this a triggering
event that requires the first step in an impairment test? What
assumptions does management use for this test when an anchor goes dark and
the smaller stores convert to percentage rent?
The US is $19.9 trillion in debt — here are the countries we owe the most ---
http://www.businessinsider.com/us-199-trillion-debt-china-japan-uk-hong-kong-ireland-cayman-islands-treasury-bonds-notes-politics-2016-12
Jensen Comment
I remember the Jane Fonda1981 movie called "Rollover" where the Arabs
refuse to rollover their investment in US debt ---
https://en.wikipedia.org/wiki/Rollover_(film)
China has since overtaken the Arabs in holding Uncle Sam somewhere below the
belt.
Question
What does political science have in common with accountics science in academic
accountancy?
Answer
"At the moment the field applies this uniform
methodological bar by which it (political science)
judges what’s good work," Mr. Mounk said. "It’s led
by methods rather than by important questions."
After Trump’s Election, Political Scientists Feel New Urgency ---
http://www.chronicle.com/article/After-Trump-s-Election/238703?cid=at&utm_source=at&utm_medium=en&elqTrackId=434aeeb349424596b19fa8f7514785dc&elq=ad917ff8476b401494041eae861557cd&elqaid=11866&elqat=1&elqCampaignId=4750
"A Scrapbook on What's Wrong with the Past, Present and Future of
Accountics Science"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsWorkingPaper450.06.pdf
The demarcation between science and pseudoscience is
part of the larger task to determine which beliefs are epistemically warranted
---
https://plato.stanford.edu/entries/pseudo-science/
For examples see
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Pseudo-Science
"Richard Feynman on the Universal Responsibility of Scientists," by
Maria Popover, Brain Pickings, March 6, 2013 ---
http://www.brainpickings.org/index.php/2013/03/06/richard-feynman-responsibility-of-scientists/
. . .
It is our responsibility as scientists, knowing the
great progress and great value of a satisfactory philosophy of ignorance,
the great progress that is the fruit of freedom of thought, to proclaim the
value of this freedom, to teach how doubt is not to be feared but
welcomed and discussed, and to demand this freedom as our duty to
all coming generations
Metaphorical Meaning of the Phrase "Cargo Cult Science" ---
http://en.wikipedia.org/wiki/Cargo_cult#Metaphorical_uses_of_the_term
The term "cargo cult" has been used metaphorically
to describe an attempt to recreate successful outcomes by replicating
circumstances associated with those outcomes, although those circumstances
are either unrelated to the causes of outcomes or insufficient to produce
them by themselves. In the former case, this is an instance of the
post hoc ergo propter hoc
fallacy.
The metaphorical use of "cargo cult" was
popularized by physicist
Richard Feynman
at a 1974
Caltech
commencement speech,
which later became a chapter
in his book
Surely You're Joking, Mr. Feynman!,
where he
coined the phrase "cargo
cult science"
to describe activity that had some
of the trappings of real science (such as publication in
scientific journals)
but lacked a basis in honest experimentation.
Later the term
cargo cult programming
developed to describe
computer software
containing elements that are
included because of successful utilization elsewhere, unnecessary for the
task at hand.
Examples of Junk Science: A Pseudoscience Whistleblower Story ---
http://politicalcalculations.blogspot.com/2016/12/examples-of-junk-science-pseudoscience.html#.WEHTUoWcGcw
"The Sad Story of the Battery Breakthrough that Proved Too Good to Be
True," by Kevin Bullis, MIT's
Technology Review, December 6, 2013 ---
http://www.technologyreview.com/view/522361/the-sad-story-of-the-battery-breakthrough-that-proved-too-good-to-be-true/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20131209
"The Replication Myth: Shedding Light on One of Science�s Dirty Little
Secrets," by Jared Horvath,
Scientific American, December 4, 2013
---
http://blogs.scientificamerican.com/guest-blog/2013/12/04/the-replication-myth-shedding-light-on-one-of-sciences-dirty-little-secrets/
"Is Economics a Science?," by Robert Shiller, QFinance, November
8, 2013 --- Click
Here
http://www.qfinance.com/blogs/robert-j.
shiller/2013/11/08/nobel-is-economics-a-science?utm_source=November+2013+email&utm_medium=Email&utm_content=Blog2&utm_campaign=EmailNov13
NEW HAVEN � I am one of the winners of this year�s
Nobel Memorial Prize in Economic Sciences,
which
makes me acutely aware of criticism of the prize by those who claim that
economics � unlike chemistry, physics, or medicine, for which
Nobel Prizes are also
awarded � is not a science. Are they right?
One problem with economics is that it is
necessarily focused on policy, rather than discovery of fundamentals. Nobody
really cares much about economic data except as a guide to policy: economic
phenomena do not have the same intrinsic fascination for us as the internal
resonances of the atom or the functioning of the vesicles and other
organelles of a living cell. We judge economics by what it can produce. As
such, economics is rather more like engineering than physics, more practical
than spiritual.
There is no Nobel Prize for engineering, though
there should be. True,
the chemistry prize this year
looks a bit like an
engineering prize, because it was given to three researchers � Martin
Karplus, Michael Levitt, and Arieh Warshel � �for the development of
multiscale models of complex chemical systems� that underlie the computer
programs that make nuclear magnetic resonance hardware work. But the Nobel
Foundation is forced to look at much more such practical, applied material
when it considers the economics prize.
The problem is that, once we focus on economic
policy, much that is not science comes into play.
Politics becomes involved,
and political posturing
is amply rewarded by public attention. The Nobel Prize is designed to reward
those who do not play tricks for attention, and who, in their sincere
pursuit of the truth, might otherwise be slighted.
The pursuit of truth
Why is it called a prize in �economic sciences�, rather than just
�economics�? The other prizes are not awarded in the �chemical sciences� or
the �physical sciences�.
Fields of endeavor that use �science� in their
titles tend to be those that get masses of people emotionally involved and
in which crackpots seem to have some purchase on public opinion. These
fields have �science� in their names to distinguish them from their
disreputable cousins.
The term political science first became popular in
the late eighteenth century to distinguish it from all the partisan tracts
whose purpose was to gain votes and influence rather than pursue the truth.
Astronomical science was a common term in the late nineteenth century, to
distinguish it from astrology and the study of ancient myths about the
constellations. Hypnotic science was also used in the nineteenth century to
distinguish the scientific study of hypnotism from witchcraft or religious
transcendentalism.
Crackpot counterparts
There was a need for such terms back then, because their crackpot
counterparts held much greater sway in general discourse. Scientists had to
announce themselves as scientists.
In fact, even the
term chemical science enjoyed some popularity in the nineteenth century � a
time when the field sought to distinguish itself from alchemy and the
promotion of quack nostrums. But the need to use that term to distinguish
true science from the practice of impostors was already fading by the time
the
Nobel Prizes were launched in 1901.
Similarly, the terms astronomical science and
hypnotic science mostly died out as the twentieth century progressed,
perhaps because belief in the occult waned in respectable society. Yes,
horoscopes still persist in popular newspapers, but they are there only for
the severely scientifically challenged, or for entertainment; the idea that
the stars determine our fate has lost all intellectual currency. Hence there
is no longer any need for the term �astronomical science.�
Pseudoscience?
Critics of �economic sciences� sometimes refer to the development of a
�pseudoscience� of economics, arguing that it uses the trappings of science,
like dense mathematics, but only for show. For example, in his 2004 book, Fooled
by Randomness,
Nassim Nicholas Taleb said of
economic sciences:
�You can disguise charlatanism under the weight of
equations, and nobody can catch you since there is no such thing as a
controlled experiment.�
But physics is not without such critics, too. In his 2004 book,
The Trouble with Physics: The Rise of String Theory, The Fall of a Science,
and What Comes Next, Lee Smolin reproached
the physics profession for being seduced by beautiful and elegant theories
(notably string theory) rather than those that can be tested by
experimentation. Similarly, in his 2007 book,
Not Even Wrong: The Failure of String Theory and the Search for Unity in
Physical Law,
Peter Woit accused physicists
of much the same sin as mathematical economists are said to commit.
Exposing the charlatans
My belief is that
economics is somewhat more vulnerable than the
physical sciences to models whose validity will never be clear, because the
necessity for approximation is much stronger than in the physical sciences,
especially given that the
models describe people rather than magnetic resonances
or fundamental particles. People can just change their
minds and behave completely differently. They even have neuroses and
identity problems -
complex phenomena that the field of behavioral economics is finding relevant
to understand economic outcomes.
But all the mathematics in economics is not, as
Taleb suggests, charlatanism.
Economics has an important quantitative side,
which cannot be escaped. The challenge has been to combine its mathematical
insights with the kinds of adjustments that are needed to make its models
fit the economy�s irreducibly human element.
The advance of behavioral economics is not
fundamentally in conflict with mathematical economics, as some seem to
think, though it may well be in conflict with some currently fashionable
mathematical economic models. And, while economics presents its own
methodological problems, the basic challenges facing researchers are not
fundamentally different from those faced by researchers in other fields. As
economics develops, it will broaden its repertory of methods and sources of
evidence, the science will become stronger, and the charlatans will be
exposed.
More examples and debate
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Pseudo-Science
Jensen Comment
The problem with economics is that most economists like Paul Krugman and Art
Laffer also have political agendas.
Is Jagdish correct?
Is there really not one scholarly economist who advocated tax reductions
among the 30+ developed nations of the world that reduced marginal tax
rates for three decades?
http://www.econlib.org/library/Enc/MarginalTaxRates.html
Note the listing of nations and the amount of the top marginal tax rate
reductions
The fact of the matter is that many economists around the world supported those
tax reductions
Jensen Comment
The Laffer Curve is not crap, but there's risk of crappy misuse by progressive
and conservative decision makers who have only studied one side of the economic
debate, analytics, and empirical research regarding the Laffer Curve
Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD
Countries
SSRN, Posted March 20, 2013
Authors
Alex Brill American Enterprise Institute (AEI)
Kevin A. Hassett American Enterprise Institute (AEI
Abstract
Corporate tax rates among industrialized nations
have been declining steadily since the mid 1980s. Theories of globalization,
capital mobility and tax competition have been proposed to explain these
changes. Less attention has been paid to the changes in corporate tax
receipts during this period and their relationship to tax rates. This note
explores these changes and finds, similar to Clausing (2007), strong
statistical evidence of a Laffer curve in the international corporate tax
data. This conclusion remains even when significant potential outlier
countries, such as Ireland, Switzerland and Norway, are excluded from the
sample. We extend her work by exploring the time variation in the revenue
maximizing corporate income tax rate from 1980 to 2005. We find robust
evidence that a Laffer curve has existed in the corporate tax sphere
throughout most of our sample period. It is not merely a recent phenomenon.
We also find that the revenue maximizing corporate tax rate was about 34
percent in the late 1980s, and that this rate has declined steadily to about
26 percent for the most recent period. In addition, we confirm our finding
when using combined central and sub-central (i.e. federal plus average
state) tax rates.
Jensen Comment
The problem with economics is that most economists like Paul Krugman and Art
Laffer also have political agendas.
It's naive to think of the Laffer Curve as being all about reducing taxes.
Economists sometimes find the Laffer Curve useful in estimating how much they
can safely increase taxes.
"Willingness to pay tax: The Laffer curve revisited for 12 OECD countries,"
by W.J.M. Heijman and J.A.C. van Ophem,
Journal of Socio-Economics,
Volume 34, Issue 5, October 2005, Pages 714–723 ---
http://www.sciencedirect.com/science/article/pii/S1053535705000302
According to Laffer, economic activities are a
decreasing function of the taxation rate. As a consequence, total tax
revenue increases with the taxation rate at its lower levels and decreases
against it at its higher levels. The result is the Laffer curve. According
to him, the reason for this decrease lies in decreasing economic activities.
Although this may be true for activities in the official (white) sector, in
the unofficial (black) sector they can increase under the influence of an
increasing taxation rate. Part of the Laffer effect may be nothing more than
an activity switch away from the white towards the (hidden) black sector.
This paper takes both effects into account: decreasing activities in the
white sector combined with increasing activities in the black sector. It
examines the computation of the maximum tax revenue generating taxation rate
for a number of OECD countries. It concludes
that, with the exception of Sweden, the marginal taxation rate in these
countries is below its optimum.
"The Laffer Curve Revisited," Mathias Trabandta, et al,
Journal of
Monetary Economics, Volume 58, Issue 4, May 2011, Pages 305–327
http://www.sciencedirect.com/science/article/pii/S030439321100064X
"Dynamic Laffer Curves," by Alfonso Novalesa and Jesús Ruizb,
Journal of Economic Dynamics and Control, Volume 27, Issue 2, December 2002,
Pages 181–206
Five Things You Need to Know About IRS Form 990 (listing tax-exempt
organizations ---
http://blog.aicpa.org/2016/12/5-things-you-may-not-know-about-irs-form-990.html#sthash.zHXEC6Rc.dpbs
History Corner
DYI ---- Do It Yourself
The University of Iowa Libraries: DIY History (Iowa history) ---
https://diyhistory.lib.uiowa.edu
Jensen Comment
DYI could be a feature added to an accounting history library such as the
great accounting history library at the University of Mississippi.
The Hagley Vault (USA History of Business and Fashion) ---
http://hagleyvault.org
This site needs a better search engine
Not All Measures of GDP Are Created Equal ---
http://davegiles.blogspot.com/2016/12/not-all-measureds-of-gdp-are-created.html
Wal-Mart's Huge Experiment With Higher Wages and Work Schedules ---
http://www.nytimes.com/2016/10/16/upshot/how-did-walmart-get-cleaner-stores-and-higher-sales-it-paid-its-people-more.html?_r=0
Jensen Comment
Wal-Mart has always tended to pay the managers within stores quite well and
tended to promote employees to managers from within.
This is more of an experiment with paying higher wages to non-managers.
Wal-Mart has always had pretty good fringe benefits such as free college
(on-line) and employee training. The most controversial fringe was health care
that in the past had a substantial waiting period between the date of hire and
the date health care benefits became available. This tended to weed out
employees who were not going to stay on the job such as those with addiction
problems and high absenteeism..
Proposed Destination Tax: A plan to tax US imports has better odds
of becoming law than many people think ---
http://www.cnbc.com/2016/12/21/tax-changes-taxing-imports-plan-has-chance-of-passing.html
A controversial proposal to tax all goods and services coming into the
United States has a better chance of becoming law than many on Wall Street
suspect.
The so-called "border-adjusted" tax is part of the House tax overhaul
plan that also would reduce the corporate rate from 35 percent to 20
percent. The idea is to tax goods as they come into the country from
overseas, but to avoid taxing U.S. exports at all. For instance, a car
imported into the U.S. from Mexico would be taxed, but the American-made
steel sent to Mexico would not.
Continued in article
Jensen Comment
It's unrealistic to assume that other nations buying USA exports would not
similarly react with their own border-adjusted taxes.
The net effect will be to severely restrain world trade. This in my opinion
is a lousy idea.
Yeah Right!
PLOS One: Quantity and/or Quality? The Importance of Publishing Many Papers
---
http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0166149
Jensen Comment
As "research and publication" took over as the leading criterion for promotion
and tenure the academic world experienced and exposion of so-called refereed
journals, many of them from profit-seeking publishers. The result was an
explosion in quantity and an a bifurcation of quality from extremes of highest
quality to garbage with sham refereeing. The good news was an increase in
specialty journals. The bad news was a shortage of dedicated referees.
One controversial factor was the impact of technology on publication and
distribution costs, especially in the rise of e-journals that did not even
entail hard copy printing of journals. This made it possible for libraries to be
almost the entire source of revenue for some journals. My point here is that
journals no longer had to rely on reader subscriptions to foot the bill in a
market of supply and demand. Interestingly, the market of supply and demand now
applies to blogs rather than "refereed" publications. For a blog to be
successful it has to satisfy the needs of readers rather than libraries that
fail to allocate resources based upon user demand. For example, one faculty
member may be responsible for a campus library's subscription to an obscure
journal.
What the above PLOS One Website fails to get across is that opposing the
benefits of publishing many papers are the frauds perpetrated by making it so
easy for faculty to get promotions and tenure based on the many P&T committees
and administrators who are willing to count publication records rather than read
the publications.
Commercial Scholarly and Academic Journals and Oligopoly
Textbook Publishers Are Ripping Off Libraries, Scholars, and Students ---
http://faculty.trinity.edu/rjensen/FraudReporting.htm#ScholarlyJournals
Gaming for Tenure as an Accounting Professor ---
http://faculty.trinity.edu/rjensen/TheoryTenure.htm
(with a reply about tenure publication point systems from Linda Kidwell)
The IRS may have a gift for a couple that waits until 2017 to get married
---
http://www.accountingweb.com/tax/individuals/will-year-end-newlyweds-owe-the-marriage-penalty?source=tx121216
EY: Technical Line --- A closer look at the FASB’s hedge accounting
proposal ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_04482-161US_Hedging_20December2016/$FILE/TechnicalLine_04482-161US_Hedging_20December2016.pdf
EY: Financial Reporting Briefs, December 2016 ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingBriefs_04353-161US_15December2016/$FILE/FinancialReportingBriefs_04353-161US_15December2016.pdf
EY: FASB proposes new ‘down round’ guidance (Distinguishing
Liabilities from Equity) ---
http://www.ey.com/Publication/vwLUAssetsAL/FASBProposal_DistinguishingLiabilities_7December2016/$FILE/FASBProposal_DistinguishingLiabilities_7December2016.pdf
EY: Statement of Cash Flows (Accounting Standards Codification 230)
---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_42856_CashFlows_15December2016/$FILE/FinancialReportingDevelopments_42856_CashFlows_15December2016.pdf
Reply from Scott Bonacker on December 18, 2016
There are quite a few documents available ---:
http://www.ey.com/ul/en/accountinglink/accounting-link-home
Bob Jensen's threads on Debt versus Equity (including mezzanine issues)
---
http://faculty.trinity.edu/rjensen/theory02.htm#FAS150
Fatal flaw found in PricewaterhouseCoopers SAP security software Instead
of fixing the issue, PwC lawyered up ---
http://www.theregister.co.uk/2016/12/09/fatal_flaw_in_pricewaterhousecoopers_sap_software/
Bob Jensen's threads on PwC scandals ---
http://faculty.trinity.edu/rjensen/fraud001.htm
EY: Highlights of the 2016 AICPA National
Conference on Current SEC and PCAOB Developments ---
http://www.ey.com/Publication/vwLUAssetsAL/AICPACompendium_04331-161US_12December2016/$FILE/AICPACompendium_04331-161US_12December2016.pdf
ERISA of Lack Thereof: The Supreme Court Case
That Can Bankrupt Schools and Hospitals ---
https://www.theatlantic.com/politics/archive/2016/12/advocate-health-care-erisa/510218/
FinREC issues revenue recognition working drafts for airline, gaming
industries ---
http://www.journalofaccountancy.com/news/2016/dec/revenue-recognition-for-airline-gaming-industries-201615618.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=02Dec2016
Common Income Tax Accounting Pitfalls ---
http://www.thetaxadviser.com/newsletters/2016/dec/common-income-tax-accounting-pitfalls.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=09Dec2016
AICPA's Most Popular Tax Resources (not free) ---
http://www.aicpastore.com/content/media/PRODUCER_CONTENT/generic_template_content/featured_products/taxes.jsp?cm_mmc=CPA-SocialComms-_-CPE-_-SY2016-_-Tax-Season
Economist Magazine: India's Road to Robin Hood Monitory Hell is
Paved With Good Intentions
Jensen Comment
In the USA a huge underground (cash-only) economy allows criminals to launder
money, rich folks to avoid income taxes, and laborers to avoid payroll taxes.
In India the underground economy is even more of a problem.
"Modi's Bungle: Narendra Modi needs to take measures to mitigate the
damage his rupee reform has done," Economist Magazine, December 3,
2016 ---
http://www.economist.com/news/leaders/21711040-narendra-modi-needs-take-measures-mitigate-damage-his-rupee-reform-has-done-indias
. . .
Not the way to do it
The plan has
laudable aims. Its initial popularity was based on the idea that the greedy
rich, with their ill-gotten “black money” stored in stacks of banknotes,
will get their comeuppance. Those who cannot justify the sources of their
wealth will face punitive taxes. It also accords with Mr Modi’s manifesto
pledge to normalise India’s black economy, estimated by the World Bank in
2010 to be worth about one-fifth of official GDP. The idea is that India
will become more efficient, as more people and more money enter the banking
system; counterfeit currency will become worthless; India’s woefully low tax
base will expand; and government coffers will enjoy a windfall of cash
expropriated from the corrupt.
It is a
pity, then, that Mr Modi’s scheme to achieve these aims is so flawed.
Banknotes are not just a way for the rich to store their wealth; they are
also how the unbanked survive. As so often, the burden of this reform has
fallen most heavily on the poor (see
article).
Over four-fifths of India’s workers are in the “informal” sector, paid in
cash. Untold numbers have been laid off because their employers cannot pay
them. Tens of millions have queued for hours at cash machines and bank
branches, to get rid of the useless notes and get hold of some spending
money. A new business has sprung up in laundering cash for a fee for those
without the time or inclination to queue, or with more notes than they can
account for.
Cash is used
for 98% by volume of all consumer transactions in India. With factories
idle, small shops struggling and a shortage of cash to pay farmers for their
produce, the economy is stuttering. There are reports that sales of farm
staples have fallen by half and those of consumer durables by 70%. Guesses
at the effect on national output vary wildly, but the rupee withdrawal could
shave two percentage points off annual GDP growth (running at 7.1% in the
three months to September).
With a bit of
forethought, much of the mayhem could have been avoided. It turns out that
the new notes are smaller and require all the country’s ATMs to be
reconfigured, which takes 45 days. Some 22bn notes are affected, but
printing capacity is said by the previous finance minister to amount to only
3bn a month. So even if fewer notes are needed, because more money will be
in banks, printing them will take some time. The banks were ill-prepared to
handle about 8.5trn rupees in new deposits in the three weeks after
demonetisation. After they used the deposits to buy bonds, lowering interest
rates, the central bank had to order them to park the new money with it, in
zero-interest accounts.
If Mr Modi’s
plea for patience for a 50-day period until the end of the year looks
optimistic, so does the promise of “the India of your dreams”, purged of the
corrupt and their loot. In India’s black economy of undeclared, untaxed
income, all sorts of transactions, from medical bills to house purchases,
are sometimes settled with suitcase-loads of banknotes. Yet even if the
hoarders will be wary of another confiscation in the future, they will be
tempted to make use of the new 2,000-rupee note just as they used the old
1,000-rupee one.
Moreover, Mr
Modi was wrong when he said that the rich now need sleeping pills, while the
poor sleep peacefully. In past seizures of illegal wealth, only between
3.75% and 7.3% was found to be kept in cash. The sleepless are those who
need cash to get by; the truly rich are laughing all the way to their flats
in London. The punitive taxes levied on black money that is deposited will
feel like flea-bites. As for the counterfeiters, most estimates of the value
of fake rupees are in the tens of millions of dollars, out of $250bn in
circulation.
Both for the
sake of Indians and for his premiership, Mr Modi needs to mitigate some of
the harm he has caused. He should find ways of printing the new money more
quickly. More important, he should also lengthen the period over which notes
may be exchanged or deposited and allow the old notes to remain valid as
payments for a range of goods and services (tax payments, say, would seem
logical).
Somewhat too sensational
Much in India needs reform—abolishing restrictive labour rules, for example.
In the past such reform has often been stymied by a system that favours
government by committee. Mr Modi has lurched to the other extreme. The
perceived need for secrecy (to take cash-hoarders by surprise) fed into the
innate sense he has of his own infallibility and his misplaced faith in his
technocratic skills. By designing a scheme that was needlessly callous and
which is becoming increasingly unpopular, he has squandered political
capital. In future he needs to consult more widely, centralise less
decision-making in his own hands and acknowledge that not all criticism is
partisan or special pleading from the corrupt rich. India, fortunately, is
not North Korea, and is aware that leaders are fallible. Its federal,
democratic system will give voters plenty of chances to let it be known how
badly Mr Modi has messed up his rupee rescue.
NCAA Rules Ex-Official at Cal State-Northridge Committed Academic Misconduct
---
http://www.chronicle.com/blogs/ticker/ncaa-rules-ex-official-at-cal-state-northridge-committed-academic-misconduct/116013?elqTrackId=e2197c179cf34a5ba1b324ec101c9261&elq=b789c32b577e4776b3c5e006cd13ce83&elqaid=11758&elqat=1&elqCampaignId=4689
Punishment includes infractions for helping two players
cheat in courses
NCAA Wipes Out 2 Years of Notre Dame Wins in Football ---
http://www.chronicle.com/blogs/ticker/ncaa-wipes-out-2-years-of-notre-dame-wins-in-football/115700?cid=db&elqTrackId=1c792753b35c4f648600748ec7d2b57a&elq=6f8a00b797574148a45d000da6336c5f&elqaid=11597&elqat=1&elqCampaignId=4578
When the Coaches Pass the Courses Instead of Football Players
Georgia Southern U. Staff Members Helped Athletes Cheat, NCAA Rules ---
http://chronicle.com/blogs/ticker/georgia-southern-u-staff-members-helped-athletes-cheat-ncaa-rules/112712?elqTrackId=a1026a29777340c083601d5162be9744&elq=7378f786eb3748d5a44644b992d1716e&elqaid=9769&elqat=1&elqCampaignId=3508
Former U. of Southern Mississippi Coach Directed Cheating Ring,
NCAA Says ---
http://chronicle.com/blogs/ticker/former-u-of-southern-mississippi-coach-directed-cheating-ring-ncaa-says/110171?elqTrackId=9d30a63574cb44dc94a698eac5a736a6&elq=ecde872b4ec84565b7b560ec97cde1ff&elqaid=8605&elqat=1&elqCampaignId=2882
The worst offender in history, basketball powerhouse University of North
Carolina, got off easy after nearly 20 years of fake courses and illegal grade
changes. It's a little like stealing where you get probation for stealing $10
million and a year in jail for stealing $100.
The higher the average annual performance of the college's teams the more
frequent are the repeat academic cheating offenses.
And when a repeat offender like SMU finally gets serious about academic
integrity the average annual performances go down the tubes.
Bob Jensen's threads on athletics scandals in higher education ---
http://faculty.trinity.edu/rjensen/HigherEdControversies2.htm#Athletics
How to Mislead With Statistics
Here's how much surgeons, lawyers, and 18 other top-earning professionals
make per hour ---
http://www.businessinsider.com/hourly-salaries-surgeons-lawyers-doctors-2016-11/#-1
Jensen Comment
This articles is one of the best/worst articles I've seen lately on how to lie
with statistics.
Here are a few things to point out to your students if you want to highlight
how not to report survey results.
First and foremost when you define the total populations (apart from sample
sizes) and don't mislead about the sizes of the populations.
For example, the above article says there are 24,000 employed psychologists and
15,650 physicists. Aren't professors and other teachers in these fields
"employed?" There are more employed specialists in these disciplines employed
only in academia than the numbers shown above. Most likely
the average hourly wage would be greatly pulled down if academics were included
in the population and the sample.
Secondly the article ignores standard deviations and kurtosis of the
distributions from which averages are reported. For example, outliers in
millions of dollars of compensation to attorneys and other professionals tend to
skew averages upward. Even medians can be misleading for highly skewed
distributions with outliers on both sides of the medians.
Think of all those lawyers who will work for food.
How random are the samples from the populations identified in the study. My
guess is not very random.
Watch definitions.
What is a "chief executive?" The manager-owner of our local hardware store is a
"chief executive" as is the CEO of a Fortune 500 Corporation.
What's the definition of a "financial manager versus a "sales manager?" Why are
there twice as many financial managers as sales managers?
What's the definition of "public relations and fundraising managers" and why are
there only 60,380 of them when there are 531,161 financial managers? Many
financial managers and chief executive officers and are also the public
relations and fund raising managers. My guess is that the sampling population
totally ignored public relations and fund raising managers for colleges,
universities, churches, and charities where compensation is often quite low or
contingent upon funds raised.
What's the difference between a pharmacist and the chief executive. Many
pharmacists also own and manage the entire drug store?
What's "compensation?" Most CEO's of Fortune 500 companies get paid on
performance-based contracts depending upon such things as corporate earnings
reports. In other words what a CEO makes one year may be doubled or tripled the
next year and then taken way down the following year.
What's "compensation?" Most CEOs are paid in many ways including stock
options, stock awards programs, living benefits (use of the corporate jets and
ski chalets), wine, women, and song.
There's an enormous difference between what a
physician makes before or after malpractice insurance and other expense
expenses. Those that work for much lower annual salaries often do not have to
pay their own malpractice insurance, nurse expenses, receptionist expenses,
accounting expenses, office rental expenses, etc.
I could go on and on, but I think students will catch my drift.
This article is so misleading it's worse than
garbage.
How to Mislead With Statistics
"This graph shows how much money you
can earn from each college major," by Abby Jackson, Business
Insider, December 24, 2015 ---
http://www.businessinsider.com/earning-potential-by-college-major-2015-12
Jensen Comment
This graph is a great illustration of an interactive graphs, although
you have to play around with it some to get the hang of it. For example,
if you want to see the graphs for just "Accounting" click off the box
for "All," click the box for "Accounting," and then scroll down and
click on "Apply."
By now many of you are weary of my
warnings about such things as definitions, averages without standard
deviations, skewness (kurtosis), etc. For example, means or medians for
"accounting" can be misleading without knowing how accounting is
defined. For example, there's a big difference between what lowly
bookkeepers make versus CPA firm partners and executives in major
corporations. There's a huge difference between what accounting Ph.D.
graduates make in struggling small private colleges versus what they
make at Ivy League universities. Also there's a huge difference in
fringe benefits such as housing subsidies, research stipends, summer
pay, and fringe benefits such as contributions to TIAA/CREF. Also Ph.D.
graduates tend to have opportunities for outside income in book writing
and consulting. At a prestigious university like Harvard, a professor's
Harvard salary is likely to be only a small part of total income.
In general, the biggest problem is in
career tracking combined with income standard deviations. Comparing the
lifetime earnings of a cost accountant in General Electric cannot really
be compared with the lifetime earnings of a partner in a small local
public accounting firm really cannot be compared because some of these
partners may top out at $50,000 or more per year whereas others top out
at $500,000 per year after their retirement buyouts are factored into
compensation.
A top accounting graduate typically goes
to work for 5-10 years with a large public accounting firm or the
government. However, 80% or more of those graduates leave (most never
intended to stay in public accounting or government employment) and go
to work for in private industry such as when an IRS agent goes to work
at a high level in a corporate tax department. At such time they often
make much more than others who stay in public accounting or government.
The problem is that in studies like the one cited above these "former"
accountants
are no longer classified as
accountants such as when a public accountant becomes the CFO or
CEO of a large or small corporation. Hence in studies like the one above
a former accountant is excluded from the 20-year survey of
"accountants."
The same problem arises when examining
accountants who only have "associates" degrees. Typically these
accounting graduates are no longer "accountants" ten or 20 years out.
Some may be CEOs of their own companies and some might earn over
$200,000 per year in stores or plumbing companies that they own. Hence,
I'm extremely suspicious of graphs that compare
the benefits of getting a Ph.D. versus an associates degree in
accounting. The problem is that most associates or
bachelors degree holders either dropped out of the labor market (such as
to have babies) or became entrepreneurs who are no longer classified as
"accountants."
Problems like those mentioned above
become exacerbated when comparing types of degrees such as accounting
versus culinary arts versus creative writing.
Conclusion
The bottom line is that studies like this are so misleading and
dangerous that I wish they did not get published.
Bob Jensen's threads on careers are
at
http://faculty.trinity.edu/rjensen/bookbob1.htm#careers
2016: Explore What Private-College Presidents Make ---
https://mail.google.com/mail/u/0/#inbox/158ce8c1dc528171
Information about presidents' tenures and prior
employment was obtained from college websites, newspaper archives, or
university offices. Photographs were obtained from university websites.
Jensen Comment
The above quotation raises a red flag about the data. The data were not
collected in a statistical survey with consistent definitions and findings. For
example, is it possible that the definition of "compensation" varies with the
highly varied sources of the data? In some cases "compensation" may have
included the value of a free house, a free car, and even a free airplane or use
of an airplane (such as when a Trustee's private jet is used to ferry the
president's family on vacations). In other cases "compensation" may exclude some
of those fringe benefits.
There's a big change happening to Social Security in 2017
— here's what you need to know ---
http://www.businessinsider.com/maximum-social-security-tax-2017-2016-12
If this was such a good deal Chicago and Detroit would've imposed such
a surtax years ago.
Portland city council passes tax on CEOs who earn 100 times more than
staff ---
https://www.theguardian.com/us-news/2016/dec/08/portland-oregon-ceo-pay-tax-passes-income-inequality
. . .
The Portland, Oregon, city council has voted to
pass a first-of-its-kind measure that would levy a tax on public companies
whose CEO-to-workers pay ratio is more than 100-1. Portland to vote on
taxing companies if CEO earns 100 times more than staff Read more
The new tax, which seeks to address income
inequality, was voted in 3-1 by the council on Wednesday. It increases
corporate income tax by 10% if a company’s CEO has a salary ratio of above
100-1, and by 25% if the CEO has a ratio of 250-1 or more.
Officials expect that the measure will raise $2.5m
a year from January 2018, with former environmental lawyer Steve Novick, the
city commissioner who proposed the measure, saying that the revenue is
intended to be used to pay for programs for homeless people.
There are around 540 publicly traded companies that
do enough business in Portland to be subject to the business income tax
under current law, Novick said. It is unclear how many of those have
CEO-to-worker pay ratios that would make them subject to the increased
surcharge.
Novick said he had decided to come up with a
measure to address the problems of income inequality while reading French
economist Thomas Piketty’s book Capital.
Continued in article
Jensen Comment
Keep in mind that this is not a tax on those fat-corporations. It's a regressive
tax on shoppers in the City of Portland. The people paying most of the tax will
be the poor and middle-class residents of Portland. For example, the prices of
things like groceries may end up higher in Portland than its surrounding
suburbs. Affected companies may lay off some Portland workers to protect
profits. For example, inside the city the checkout lines and service counter
lines may be longer than in similar stores in the suburbs.
And to the extent that the affected companies avoid investing in real estate
and new jobs in Portland the city hurts in spite of the revenue raised by this
new corporate income tax.
It's probable that homeless people and panhandlers in Portland's
suburbs and nearby cities like Eugene, Tacoma, and Seattle will be
attracted to the better free food and facilities for them in downtown Portland.
The criterion of taxing only businesses having highly-paid CEOs is just a
smoke and mirrors excuse to tax the poor and middle class workers in Portland,
Oregon.
The roses were previously wilting in the City of Roses after the surtax on
large corporation operations in Portland (irrespective of CEO pay). This new
surtax simply adds to the wilt.
I'm reminded that over half the license plates in our closest Wal-Mart
parking lot are green due to shoppers seeking to avoid Vermont's sales tax,
especially on big ticket items like tires, television sets, and computers. In
return many of the homeless people moved from New Hampshire to Vermont because
of the much better welfare benefits in Vermont. Meanwhile physicians and other
high income people in Vermont moved across the border into New Hampshire to
avoid Vermont's high state income tax. There's a big Morgan Stanley investment
firm building in Lebanon, New Hampshire serving thousands of physicians, some of
whom set up private practices just across the border from Vermont. There's no
Morgan Stanley building on the other side of the Connecticut River.
The CEO of Ford just perfectly summarized the biggest problem for electric
cars ---
http://www.businessinsider.com/ford-ceo-biggest-problem-for-electric-cars-2016-12
Jensen Comment
CEO Mark Fields contends the sales demand just isn't there.
Sure there are rich people in warm climates providing a niche market for
Tesla electric cars as long as taxpayers are stupid enough to continue paying
huge subsidies for purchase prices and provide free roads and bridges for
electric cars. But those rich folks have gasoline cars for longer trips beyond
the limited ranges of electric cars.
Sure there are rich people not worried about what Trump's angry China might
do to the price of lithium. Rich folks have other cars.
I suspect there will be an increased market for hybrids since they have
longer ranges. Those cars make sense.
All eyes are on the forthcoming Chevy Bolt since the Bolt is cheaper than the
Tesla and has a worldwide network of dealers.
Ford's CEO Mark Fields does not seem to be losing sleep over competition from
Tesla or Bolt.
FASB Takes Aim (long term) at How to Keep Accountancy in Pace With
Technological Change ---
https://www.bna.com/accounting-board-weigh-n73014448218/
The Financial Accounting Standards Board will focus
over the next few years on figuring out how financial reporting can keep
pace with advances in technology, FASB Chairman Russell Golden said.
Ph.D. Degrees in the USA for Selected Years 2005-2015 ---
https://www.insidehighered.com/news/2016/12/09/phd-recipients-increase-number-job-prospects-vary-new-us-data-show?utm_source=Inside+Higher+Ed&utm_campaign=20f8fa2dd5-DNU20161209&utm_medium=email&utm_term=0_1fcbc04421-20f8fa2dd5-197565045&goal=0_1fcbc04421-20f8fa2dd5-197565045&mc_cid=20f8fa2dd5&mc_eid=1e78f7c952
Jensen Comment
Some of the points to note.
Less than 3% of the Ph.D. degrees in the USA are in Business Administration (not
shown is that less than 0.3% of the total each year (only slightly over 100) are
in accountancy. Life Sciences take the lion's share of the total due mostly to
necessity to get a Ph.D. for many of the outstanding Life Science careers
outside academe. In comparison, there's virtually no need to get a Ph.D. in
Business Administration for careers outside academe where professional
certifications (like CPA and CFA licenses) are more valuable.
The largest Ph.D. mills (e.g., the Universities of Michigan, Texas. and
Wisconsin) identified in the above 2005-2015 article plus the University of
Illinois were also the largest accounting Ph.D. mills before the 1990s. Then the
number of accounting Ph.D. students in those mills collapsed to the miniscule
numbers shown in the table at
http://www.jrhasselback.com/AtgDoct/XDocChrt.pdf
Reasons are complicated but the main reason is that accounting was no longer the
focus of accounting Ph.D. programs across the USA after the 1980s ---
http://faculty.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
Professional accountants lost interest in applying for Ph.D. programs and many
mathematicians (especially from Asia) started applying for accounting Ph.D.
degrees in the USA.
EY Tax Guide 2017 now available ---
http://www.prnewswire.com/news-releases/ey-tax-guide-2017-now-available-300367719.html
Not free
6 million Americans have stopped paying their car loans, and it's becoming
a 'significant concern' ---
http://www.businessinsider.com/auto-loan-delinquency-numbers-from-ny-fed-2016-11
FASB Considers Slowdown in Standard Setting ---
http://www.journalofaccountancy.com/news/2016/dec/fasb-considers-slowdown-in-standard-setting-201615646.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Dec2016
Jensen Comment
It's hard to slow down when so many innovative accountants are finding ways to
bend the rules. For example, think of all the clever ways accountants devised
for non-GAAP reporting and cheating on revenue recognition.
Examples of revenue recognition cheating ---
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm
Elder abuse – Often the kin did it: Feds to collect data.---
https://www.washingtonpost.com/news/powerpost/wp/2016/12/06/federal-government-moves-to-collect-more-data-on-elder-abuse/?utm_term=.fc5260abe038
What
kind of people cheat and financially abuse incapacitated older folks?
Sons,
daughters, nieces, nephews and lawyers – people who act as guardians for
their relatives and clients.
What
can the federal government do about it?
Currently not much, because elder abuse generally is considered a state and
local problem. But at least the federal government can help with the
important step of defining the problem. The Department of Health and Human
Services (HHS) plans to soon launch a data collection program that will
assist experts combating elderly exploitation.
“Unfortunately, the extent of elder abuse by guardians is relatively unknown
to us due to the limited data that we have available,” Sen. Claire McCaskill
(D-Mo.) said at a
Senate Special Committee on Aging hearing last
week.
The
title of the hearing gets to the point — “Trust Betrayed: Financial Abuse of
Older Americans by Guardians and Others in Power.”
“The
amount of money lost through exploitation of elders is staggering and
growing,” said
Cathy “Cate” Boyko, Minnesota judicial branch conservator account auditing
program manager. She cited a 2015 study indicating
the estimated national annual financial loss at $36.5 billion. “There is no
question these losses are increasing at an alarming rate.”
Early
next year, HHS will begin the
National Adult Maltreatment Reporting System (NAMRS),
which the department describes as “the first comprehensive national
reporting system” for Adult Protective Service (APS) programs. The data
collection will include information from investigations into the
mistreatment of older adults and adults with disabilities. “The absence of
data for research and best practice development has been cited by numerous
entities, including the Government Accountability Office (GAO), as a
significant barrier to improving APS programs,” says the HHS Administration
for Community Living.
Committee Chairwoman Susan Collins (R-Maine) agrees. “There is no doubt
financial abuse against our seniors is a problem—and a very serious one made
even more difficult by a lack of data that makes it difficult to quantify,”
she told The Washington Post. “But I think this is only the tip of the
iceberg.”
Read on for examples of elder abuses
Jensen Comment
Although not intended as such, maybe this new government initiative will
slightly discourage appropriation of grandma's estate so she qualifies for
Medicaid to pay for her years in a nursing home.
Positive Demonstrations are Better Than Negativism
Toward a More Appropriate Objective for the FASB (and IASB)
by Tom Selling
December 4, 2016
http://accountingonion.com/2016/12/toward-a-better-objective-for-accounting-standards-setting.html
Jensen Comment
I don't think Tom wants me to rehash our old debates where we can't agree on
some of these matters ---
http://faculty.trinity.edu/rjensen/Theory02.htm#BasesAccounting
Suffice it to say that the Number 1 topic on which we do not agree is his
claim that
"The only relevant basis of measurement for the assets and liabilities that are
recognized can be current value. Comparative amounts must presented in constant
units of purchasing power."
He has never convinced me of this claim, and I do not think Tom provides
evidence that replacement costs (entry values, current costs) are the "only
relevant" choices among the alternatives. Firstly, replacement costs suffer from
the necessity of arbitrary accruals (like depreciation and depletion) that he
criticizes in historical costs. Secondly, replacement cost accounting can easily
mislead when replacement options are quite unlike operating assets in use.
Thirdly, replacement cost accounting entails recognition of transitory market
changes in inventory replacement costs that will never be realized as long as
the inventory remains on hand.
Entry value accounting has never gained much traction in the academic
community, certainly not like exit value accounting expounded by various leading
professors in the 20th Century. Historical cost accounting is not really "value
accounting," which is a point made over and over again by AC Littleton in his
time. An exception is Bill Paton who broke away from Littleton later in life,
but Paton's advocacy of replacement costing never caught on in the financial
analyst community.
The great FAS 33 experiment in practice certainly never excited financial
analysts. Beginning in 1979, FAS 33 required large corporations to provide
a supplementary schedule of condensed balance sheets and income statements
comparing annual outcomes under three valuation bases --- Unadjusted Historical
Cost, Price Level Adjusted (PLA) Historical Cost, and Current Cost Entry Value
(adjusted for depreciation and amortization). Companies complained heavily that
users did not obtain value that justified the cost of implementing FAS 33.
Analysts complained that the FASB allowed such crude estimates that the FAS 33
schedules were virtually useless, especially the Current Cost estimates. The
FASB rescinded FAS 33 when it issued FAS 89 in 1986. FAS 33 failed largely
because financial analysts had little interest in the supplementary FAS 33
tables.
Tom Selling can't explain why, in the many years of replacement cost (entry
value, current value) measurement advocacy (going back at least as far as John Canning's thesis), replacement cost accounting never really found traction in
academe or the world in investment analysts who never put up pleas to for
companies to incur the huge costs of meaningful current cost financial
statements.
If Tom is going to "sell" his replacement cost (entry-value) basis of
accounting he's not going to do so by continued whipping the FASB in what is now
his accustomed negativism style where the FASB is concerned. Negativism seldom
sells in practice or academe.
If Tom Selling is going to "sell" his replacement cost basis of accounting he's going
to have to convince the user community, especially financial analysts, that the
benefits of replacement cost accounting to them greatly exceeds the considerable
cost of generating "objective" replacement cost measurements of assets,
liabilities, revenues, expenses, and net income.
I appeal to Tom to begin by writing cases, preferably focused on real world
companies, that make a sales pitch to the financial analyst constituency of the
FASB/IASB. Then let the analysts carry the ball demanding change by the FASB/IASB.
I'm skeptical that Tom's excellent blog for accounting thought is a must-read
site for financial analysts. He's going to have to make his case in their
literature.
It will take a whole lot of positive demonstration instead of negativism.
Tom could begin by identifying the best of the best in the literature of
replacement cost accounting. John Canning's thesis is a good place to start.
Jim Martin's MAAW site has a pretty good archive on replacement cost accounting
http://maaw.info/ReplacementCostArticles.htm
Entry-value accounting never got the support of leading academics to the extent
that exit-value accounting got some traction.
Jim Martin's references in the past did not alter academic or practitioner
opinion markedly.
The next step for Tom is to make financial analysts blink and take note. He
should make his case with financial analysts who in turn have influence on the
SEC and FASB and IASB.
From MAAW's
Table of Contents Service Compiled by Jim Martin
Updates from the Journal of Accountancy
Journal of Accountancy 2016 January - December
http://maaw.info/JournalofAccountancy2016.htm
Journal of Accountancy1905-1925 and 2005 - December 2016
http://maaw.info/JournalOfAccountancy.htm
Updates from Accounting Horizons
Accounting Horizons 2016 - March-December
http://maaw.info/AccountingHorizons2016.htm
Accounting Horizons 1987-2016 -
http://maaw.info/AccountingHorizons.htm
Updates from the Harvard Business Review
Harvard Business Review January/February - December 2016
http://maaw.info/ManagementJournals/HarvardBusinessReview2016.htm
Harvard Business Review 1922-1930 and 2002 - December 2016
http://maaw.info/ManagementJournals/HarvardBusinessReview.htm
Updates from MIT Sloan Management Review
Updates from the Journal of International Accounting Research
Journal of International Accounting Research Volumes 15(1) and 15(2) 2016
http://maaw.info/JournalOfInternationalAccountingResearch2016.htm
Journal of International Accounting Research 2002-2016
http://maaw.info/JournalOfInternationalAccountingResearch.htm
Undates on Environmental, Social, and Sustainability Accounting ---
http://maaw.blogspot.com/2016/11/update-on-social-accounting.html
Updates from the
Review of
Accounting Studies
From MAAW's Blog Compiled by Jim Martin
Review of Accounting Studies
- Volumes 21(1) - 21(3) 2016
http://maaw.info/ReviewOfAccountingStudies2016.htm
Review of Accounting Studies
- Volume 1(1) 1996 - Volume 21(3) 2016
http://maaw.info/ReviewOfAccountingStudies.htm
Updates from the Journal of Management Accounting Research
From MAAW's Blog Compiled by Jim Martin
Journal of Management
Accounting Research - Volumes 28(1)-28(3) 2016
http://maaw.info/JMAR2016.htm
Journal of Management
Accounting Research - Volumes 1989-2016
http://maaw.info/JMAR.htm
Updates From the CPA Journal 2016
Update
From MAAW's Blog Compiled by Jim Martin
The
CPA Journal 2016
http://maaw.info/TheCPAJournal2016.htm
The
CPA Journal 2008-2016
http://maaw.info/TheCPAJournal.htm
Updates From the International Journal of Accounting Information Systems 2016
Update
From MAAW's Blog Compiled by Jim Martin
International Journal of Accounting Information Systems 2016 ---
http://maaw.info/InternationalJournalofAccInfoSys2016.htm
International Journal of Accounting Information Systems 2000-2016 ---
http://maaw.info/InternationalJournalofAccInfoSys.htm
Updates on the
Journal of Accounting and Economics
From MAAW's Blog Compiled by Jim Martin
Journal of Accounting and Economics 2016
http://maaw.info/JournalofAccountingandEconomics2016.htm
Journal of Accounting and Economics 1979 - August 2016
http://maaw.info/JournalofAccountingandEconomics.htm
Updates on the
journal Contemporary Accounting Research (a Canadian Academic Accounting
Association journal and is the Canadian equivalent to the AAA's TAR)
From MAAW's Blog Compiled by Jim Martin
Contemporary Accounting Research 2016 ---
http://maaw.info/ContemporaryAccountingResearch2016.htm
Contemporary Accounting Research 1984-1992 and 2010-2016 ---
http://maaw.info/ContemporaryAccountingResearch.htm
Updates on the
journal Decision Sciences
From MAAW's Blog Compiled by Jim Martin
Decision Sciences Volume 47(1) - 47(4) 2016
http://maaw.info/ManagementJournals/DecisionSciences2016.htm
Decision Sciences Volume 1(1) 1970 - Volume 6(4) 1975 and Volumes
41(1) 2010 - 47(4) 2016
http://maaw.info/ManagementJournals/DecisionSciences.htm
Updates on the
journal
Advances in Management Accounting
From MAAW's Blog Compiled by Jim Martin
Advances in Management Accounting Volume (26) 2016
http://maaw.info/AdvancesinManageAcc2016.htm
Advances in Management Accounting Volumes (1) 1992 - (26) 2016
http://maaw.info/AdvancesinManageAcc.htm
Google Lowered 2015 Taxes by $3.6 Billion Using 'Double Irish With A Dutch
Sandwich' Tax Structure ---
http://taxprof.typepad.com/taxprof_blog/2016/12/google-lowered-2015-taxes-by-36-billion-using-double-irish-with-a-dutch-sandwich-tax-structure.html
Jensen Comment
Sounds like Google did everything to win except deflate the footballs.
Comparisons between SEC's SAB 101 and 104 Revenue Recognition Rules with
the New Converged Revenue Recognition Standard Effective for Periods Beginning
after December 15, 2017
SSRN. December 5, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2880628
Author
Muhammad Mehedi Hasan --- Texas Woman's University, School of Management
Abstract
This paper is the discussion and side by side comparisons between existing and proposed revenue recognition standards "Comparisons between SEC’s SAB 101 and 104 Revenue Recognition rules
with the new converged Revenue Recognition standard effective for periods beginning after December 15, 2017."
SEC Rule 10b5-1 Plans and Strategic Trade around Earnings Announcements
SSRN, December 5, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2880878
Authors
Artur Hugon --- Arizona State University
Yen-Jung Lee --- National Taiwan University
Abstract
We examine how corporate insiders profit from
private information about future earnings performance through SEC Rule
10b5-1 trading plans. We first provide evidence consistent with insiders
using 10b5-1 plans to sell stock in advance of disappointing earnings
results. We then examine insiders who not only currently use 10b5-1 plans,
but also actively traded their own company’s stock prior to the availability
of such plans. We find that this group traded aggressively on earnings
information prior to 10b5-1, but then shifted their aggressive trading into
10b5-1 plans after the availability of planned trading. We also document
several questionable patterns associated with their trading behavior.
Namely, their trades tend to be irregularly timed, close to the plan
initiation date, infrequent in nature, and executed during traditional
earnings blackout periods. In terms of firm characteristics, these insiders
are more likely to be employed at firms with weaker firm governance and
lower institutional ownership.
From the
CFO Journal's Morning Ledger on December 7, 2016
Supreme Court backs government up
(on insider trading)
The Supreme Court handed the government a significant
win
Tuesday
in its pursuit of insider trading, ruling prosecutors in such cases don’t
always have to show that something valuable changed hands to prove a crime
was committed. The unanimous opinion restores some of the power the
government lost in a 2014 federal court case. That two-year-old decision had
cast doubt on just what constituted insider trading and forced
law-enforcement officials to drop a number of high-profile cases, including
several against associates of hedge-fund billionaire Steven A. Cohen.
An Investigation of Wholly‐Owned Foreign Subsidiary Control Through
Transaction Cost Economics Theory
SSRN, December 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2879662
Also see
Accounting & Finance, Vol. 56, Issue 4, pp. 1041-1070, 2016
Authors
Francesco Giacobbe --- University of Technology Sydney (UTS) - School of
Accounting; Financial Research Network (FIRN)
Zoltan Matolcsy--- University of Technology, Sydney; Financial
Research Network (FIRN)
James Wakefield --- University of Technology Sydney (UTS)
Abstract
This paper investigates the management control
systems used by multinational corporation headquarters to control
wholly‐owned foreign subsidiaries. Our theory development is based on
transaction cost economics. First, we conduct a series of exploratory
interviews, providing an insight into the context, and second, we provide
empirical evidence based on cross‐sectional survey data. Our results
indicate that activity traits (uncertainty, asset specificity and post hoc
information impactedness) have significant implications on control choices,
in particular the control archetype combinations chosen by headquarters,
although not all results are consistent with theory predictions. Our
findings are supported by extensive alternative testing.
Audit Data Analytics Use: An Exploratory Analysis
SSRN, December 1, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2877358
Authors
Clark Hampton --- University of Waterloo
Theophanis C. Stratopoulos --- University of Waterloo - School of
Accounting and Finance
Abstract
The goal of this study is to understand the current
state of audit data analytics use (i.e., the leveraging of data analytics in
the performance of audits) within the Canadian audit profession. Based on
survey results from 394 Canadian audit practitioners, we explore the
following three questions: What is the locus of motivation behind audit data
analytics (ADA) use? Does the creation of a supporting environment (e.g.,
training opportunities) mater in ADA use? What is the tradeoff between two
potential ADA training strategies (diversity of ADA tools vs. development
ADA expertise)? Research questions are examined using path models estimated
with components based structural equation modeling. Our study provides
guidance to audit practitioners, professional organizations, and educators
concerning current and future ADA initiatives.
From Assurance to Insurance: Making Audit Relevant Again
SSRN, December 1, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2846928
Authors
Christian Mouillon --- Independent
François René Lherm --- ESCP Europe and Deloitte Research Chair;
Excellency Laboratory for Financial Regulation (LabEx RéFi)
Abstract
In a context of overarching concerns about the
value of an audit and the relevance of the accounting profession, regulators
have reported numerous failures in the audit of estimates and interpreted it
as a lack of professional skepticism by auditors. This report addresses this
conundrum with a view to inform regulators’ and standard-setters’ efforts to
reduce the information and expectation gaps.
Based on the results of an investigation into how
experienced auditors actually address the most challenging estimates, it
suggests that a shift from an assurance approach of audit to an insurance
approach would structurally ensure the relevance of an audit in addressing
challenging estimates and enhance communication to investors.
This would provide an unprecedented opportunity to
reduce the expectation and information gaps, and unleash audit’s full
potential in the best interest of its stakeholders and society as a whole.
Jensen Comment
From an insurance perspective a lot depends upon what is being "insured." In
general, however, I'm opposed to having audit firms shift from assurance to
insurance. I think the term "insurance" should be limited to risks for which
actuary science can and will assess risk probabilities and costs. I don't think
actuary science will touch audit "insurance" with a ten-foot pole. Actuary
science is limited to statistical analysis of reasonably stationary systems such
a mortality, hazard losses, and weather systems where the past is more
predictive of the future.
Josh Ronen at NYU is a long-time advocate in replacing assurance with
insurance --- -
http://pages.stern.nyu.edu/~jronen/
CPA audit firms in essence would become insurance firms that reimburse investors
and creditors for a client's violations of GAAP. Such insurance schemes would
probably not totally eliminate client audits but insurance might change many
auditing procedures, e.g., more analytical reviews and less detail testing.
Presumably small auditing firms would not necessarily be driven out of business
if they participated in insurance pools.
Josh never convinced me that this was a good idea for financial auditing.
5 ways to overcome procrastination ---
http://www.cgma.org/Magazine/News/Pages/how-to-overcome-procrastination-201613728.aspx?utm_source=mnl:cpald&utm_medium=email&utm_campaign=15Dec2016bestof
Jensen Comment
I cannot seem to find the time to read this article.
A new Institute of Internal Auditors report reveals that 23 percent of
practitioners worldwide have been asked at least once to change or suppress an
important audit finding ---
http://www.accountingweb.com/aa/auditing/internal-auditors-continue-to-face-ethical-dilemmas?source=ei120716
Internal Auditors Pressured to Violate Ethics and Professionalism
From the
CFO Journal's Morning Ledger
on November 2, 2016
Be your best selves, bookkeepers
Internal auditors say management is often asking
them to leave out the bad news, Tatyana Shumsky reports. Nearly one in
four internal auditors surveyed globally by the Internal Audit
Foundation said they’ve been pressured to suppress or change their
findings. The main motivation is censorship.
One internal auditor hero is Cynthia Cooper who, in
spite of heavy pressures from her bosses, blew the whistle on the enormous
WorldCom fraud
and its horrid audits by Andersen---
http://faculty.trinity.edu/rjensen/FraudEnron.htm#WorldcomFraud
Quicken Loans ---
https://en.wikipedia.org/wiki/Quicken_Loans
United States Files Lawsuit Alleging that Quicken Loans Improperly
Originated and Underwrote Federal Housing Administration-Insured Mortgage Loans
---
https://www.justice.gov/opa/pr/united-states-files-lawsuit-alleging-quicken-loans-improperly-originated-and-underwrote
The United States
has filed a complaint in the U.S. District Court for the District of
Columbia against Quicken Loans Inc. under the False Claims Act for
improperly originating and underwriting mortgages insured by the Federal
Housing Administration (FHA), the Justice Department announced today.
Quicken is a mortgage lender headquartered in Detroit.
“Those who do
business with the United States must act in good faith, including lenders
that participate in the FHA mortgage insurance program,” said Principal
Deputy Assistant Attorney General Benjamin C. Mizer of the Justice
Department’s Civil Division. “To protect the housing market and the FHA
fund, we will continue to hold responsible lenders that knowingly violate
the rules.”
Quicken
participated in the FHA insurance program as a direct endorsement lender
(DEL). As a DEL, Quicken had the authority to originate, underwrite and
certify mortgages for FHA insurance. If a DEL such as Quicken approves a
mortgage loan for FHA insurance and the loan later defaults, the holder of
the loan may submit an insurance claim to the U.S. Department of Housing and
Urban Development (HUD), FHA’s parent agency, for the losses resulting from
the defaulted loan. Under the DEL program, neither the FHA nor HUD reviews
the underwriting of a loan before it is endorsed for FHA insurance. HUD
therefore relies on DELs to follow program rules designed to ensure that
they are properly underwriting and certifying mortgages for FHA insurance.
And, to that end, a DEL must certify that every loan endorsed for FHA
insurance is underwritten according to the applicable FHA standards.
The government’s
complaint alleges that, from September 2007 through December 2011, Quicken
knowingly submitted, or caused the submission of, claims for hundreds of
improperly underwritten FHA-insured loans. The complaint further alleges
that Quicken instituted and encouraged an underwriting process that led to
employees disregarding FHA rules and falsely certifying compliance with
underwriting requirements in order to reap the profits from FHA-insured
mortgages. For example, Quicken allegedly had a “value appeal” process
where, when Quicken received an appraised value for a home that was too low
to approve a loan, Quicken often requested a specific inflated value from
the appraiser with no justification for the increase– even though such a
practice was prohibited by the applicable FHA requirements. Quicken also
allegedly granted “management exceptions” whereby managers would allow
underwriters to break an FHA rule in order to approve a loan.
The government’s
complaint alleges that Quicken’s senior management was aware of these and
other problems. The complaint alleges that Quicken’s Divisional Vice
President for Underwriting, the second most senior executive in Quicken’s
Operations Department, wrote in an email discussing the value appeal process
that “I don’t think the media and any other mortgage company (FNMA, FHA,
FMLC) would like the fact we have a team who is responsible to push back on
appraisers questioning their appraised values.” In another email, the same
Divisional Vice President for Underwriting wrote to a group of Quicken
executives stating that 40 percent of the management exceptions on FHA’s
early payment defaults should not have been granted, adding: “we make some
really dumb decisions when it comes to client service exceptions. Example,
purchase loan we pulled new credit and the client stopped paying on almost
everything and the scores fell by 100 points, we [still] closed it.” In yet
another email discussing an FHA loan, the Operations Director, a senior
level executive, explained that the loan was approved based on “bastard
income,” which he described as “trying to put some kind of income together
that is plausible to the investor even though we know its creation comes
from something evil and horrible.”
The government’s
complaint alleges that as a result of Quicken’s knowingly deficient mortgage
underwriting practices, HUD has already paid millions of dollars of
insurance claims on loans improperly underwritten by Quicken, and that there
are many additional loans improperly underwritten by Quicken that have
become at least 60 days delinquent that could result in further insurance
claims on HUD. For example, the government’s complaint identifies a
borrower whose bank account statement showed overdrafts in multiple months
and during the loan application process requested a refund of the $400
mortgage application fee so that the borrower would be able to feed the
borrower's family. Nevertheless, Quicken allegedly approved the loan. The
borrower made only five payments before becoming delinquent and as a result,
HUD ultimately paid an FHA insurance claim of $93,955.19. In another
example, the complaint identifies a loan where the borrower was cashing out
equity through a cash-out refinance. Allegedly, Quicken originally received
an appraised value of $180,000, but because the borrower wanted to receive
more cash, Quicken requested the appraiser to inflate the value by $5,000.
The appraiser allegedly provided Quicken’s requested value of $185,000 even
though the only difference between the two appraisals was the appraised
value – the comparable sales analysis, and even the date of the appraiser’s
signature, remained the same. Quicken allegedly used the inflated appraisal
value to approve the loan. The borrower was delinquent on his first payment
and as a result, HUD ultimately paid an FHA insurance claim of $204,208.
The complaint
further alleges that Quicken failed to implement an adequate quality control
program to identify deficient loans, and that Quicken failed to report to
HUD the loans it did identify. In particular, according to the government's
complaint, despite its obligation to report to HUD all materially deficient
loans, during the period from September 2007 to December 2011, Quicken
concealed its deficient underwriting practices and failed to report a single
underwriting deficiency to the agency.
“As the complaint
alleges, Quicken violated HUD’s quality standards when obtaining HUD
insurance for mortgage loans,” said U.S. Attorney John Walsh of the District
of Colorado, whose office helped to lead the investigation. “Quicken issued
hundreds of defective mortgage loans, and left HUD – and the taxpayer – to
pay for the loans that defaulted. Quicken’s alleged fraudulent conduct
affected communities nationwide. This case is the latest step in our
commitment to hold accountable mortgage lenders who profit by taking
advantage of HUD insurance and issuing defective loans that do not meet
HUD’s standards.”
“Quicken needs to
be held accountable for violations of HUD requirements in the origination of
FHA loans, as alleged in the complaint,” said HUD General Counsel Helen R.
Kanovsky. “HUD will continue to take action to protect the FHA and American
homebuyers.”
Continued in article
Deloite's Hollywood-Style Intelligence Gathering Service: It's a
Stinky Job But Somebody's Got to Do It
According to a person familiar with the operation,
the two agents also spent a considerable amount of time in the men's and women's
bathrooms — hiding out to avoid detection, and taking notes on conversations
they overheard. "You can't believe what people will say while they're in there,"
said a person who participated in the operation ---
https://www.cnbc.com/2016/12/19/accountants-and-spies-the-secret-history-of-deloittes-espionage-practice.html
. . .
According to a person familiar with the operation,
the two agents also spent a considerable amount of time in the men's and
women's bathrooms — hiding out to avoid detection, and taking notes on
conversations they overheard. "You can't believe what people will say while
they're in there," said a person who participated in the operation.
From
Going Concern on December 20, 2016
Accountants behaving badly
James Carey,
a CPA and forensic
accountant in Boston, was charged with tax fraud after he helped himself to
money that wasn't his. Specifically, he administered bank accounts for
insurance companies and in one case it's alleged that "a customer of one of
the insurance companies sent [Carey] a payment of $594,217 intended for the
insurance company, but found that almost all of that money had been used by
Carey for his own purposes."
Elsewhere in ABB:
Roberta Czap allegedly pulled off
an elaborate scheme for quite awhile at her employer. It involved moving
company funds to her personal accounts and laundering it through local
casinos.
Also! A
PwC tax partner,
William O’Hagan, has
been charged with tax fraud and failure to file in a timely manner for his
2010-2012 tax returns.
Previously, on Going Concern...
Rachel
Andujar wrote about firms that say they're "paperless" but still use
processing sheets. In Open Items, someone wants to know if their
offer will get rescinded
Billions of Pension Funds Diverted: Another Corrupt Public Servant
Another Government Pension Fund Scandal
No, we’re not
writing about the scandal (all too legal) that state and local pension funds
have run up more than $1 trillion in unfunded liabilities. Today’s news
concerns a single government pension official and the way he allegedly
abused taxpayers and the workers who depended on him to guard their
retirement savings.
On Wednesday
U.S. Attorney Preet Bharara announced the indictment of New York State
Common Retirement Fund portfolio manager Navnoor Kang for fraud and
obstruction of justice. The government says Mr. Kang participated in a
“pay-for-play” scheme in which he steered billions of dollars in
pension-fund bond trades to two brokerage firms. In exchange, the government
says the erstwhile public servant took bribes that included cocaine,
prostitutes, event tickets, travel and luxury items, as well as cash to pay
for strippers and other personal expenses.
Mr. Kang’s
lawyer declined comment to the Journal, and he deserves the presumption of
innocence, though one of the brokers involved has pleaded guilty and is
cooperating with prosecutors. “This was an age-old and classic tale of
quid-pro-quo corruption,” said Mr. Bharara. He might have called it a
classic tale of public pension management that keeps repeating.
In October 2010,
former New York State Comptroller Alan Hevesi pleaded guilty to a felony
corruption charge in another pay-to-play scandal—one of several criminal
convictions in the case. In November 2010 financier Steven Rattner agreed to
pay more than $6 million to settle a case with the Securities and Exchange
Commission. In December 2010 he agreed to pay $10 million to make New York
State’s civil case go away. Among other allegations, the SEC had accused Mr.
Rattner of helping arrange for the distribution of a film called “Chooch,”
produced by the brother of the pension fund’s chief investment officer. Mr.
Rattner denied any wrong-doing.
Two years ago
the former chief executive of the California Public Employees’ Retirement
System, Fred Buenrostro, admitted to accepting more than $250,000 in cash
and other bribes from a former board member seeking Calpers investments with
outside money managers. Buenrostro had accepted money to pay for his
wedding—and later took money to pay for his divorce.
The problem here
is the opportunity for corruption that comes from giving politicians and
bureaucrats power over retirement money. That money belongs to workers and
ought to be in individual accounts that the workers can control. It’s a
great way to “drain the swamp.”
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
How to Hide $400 Million ---
http://taxprof.typepad.com/taxprof_blog/2016/12/ny-timeshow-to-hide-400-million.html#more
In any given year, trillions of dollars sit safely in the offshore financial
world, effectively stateless, protected by legions of well-compensated
defenders and a tangle of laws deliberately designed to impede creditors and
tax collectors. Even the United States government finds it challenging: A
special Internal Revenue Service division known as the “wealth squad,” set
up in 2010 to crack down on high-end tax evaders with multinational
holdings, today has enough manpower to assess only about 200 cases a year.
Fisher wondered whether Oesterlund’s transfers were really legal. He called
Gregg D. Polsky, a law professor now at the University of Georgia, who
occasionally worked for Fisher as an expert witness. Polsky knew a lot about
tax law, but as he later explained to me, he did not have a satisfying
answer for Fisher. In theory, Polsky says, federal rules require that
related companies charge themselves the same price they would charge some
other company. But in practice, the prices can be difficult to second-guess.
Who can really say exactly what Apple’s intellectual property is worth? “The
sophisticated people will hire high-priced advisers who will come up with a
study that will give them the value they want,” Polsky says. “The I.R.S. has
to decide if they disagree with that value and if they can both challenge it
and prevail in court.” (In August, European regulators ordered Ireland to
collect $15 billion in unpaid taxes from Apple, charging that the company’s
special tax rate violated European Union rules.) ...
[L]ike many wealthy people who hire expensive help to execute complex tax
transactions, Pursglove had considered herself to be avoiding taxes, not
evading them — precisely the distinction wealthy people hire an accounting
firm like Daszkal Bolton to observe on their behalf, however finely.
Continued in article
More Women Are Their Family’s Sole Breadwinner Than Ever Before ---
http://motto.time.com/4607876/female-breadwinners-rise-report/?xid=newsletter-brief
Bob Jensen's threads on women in the professions ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm#Women
Jensen Comment
In the dark ages when I got my first job in a CPA firm (the Denver Office of
Ernst & Ernst) the CPA profession was virtually a male profession. We had one
woman in the back room doing tax returns who was not allowed to see clients. Now
CPA firms hire more women than men --- in part because more women than men
graduate in accounting. Because of the 150-hour requirement most graduates
aspiring to become CPAs earn masters degrees in accounting. CPA firms are also
making a concerted effort to break the glass ceiling to partnership status. The
largest CPA firms have family leave programs and flexible work scheduling where
client work can often be done at home using modern networking technology.
The sticking point for men and women is that usually less then 20% of the new
hires become partners in larger CPA firms. However, most of those new hires
don't aspire to become partners subject to high tension and pressures to obtain
and maintain clients for their firms. What new hires typically want most from
CPA firms are experience, costly training in specialties, and exposure to
clients who often offer higher paying jobs with less travel and workload
pressures.
Professors of accounting usually like the high turnover in the first ten
years of CPA firm employment. This creates the openings for our latest graduates
to get experience, costly training in specialties, and placement in a corporate
world reluctant to hire new graduates who have no experience and specialty
training. It seems to be win-win as far as turnover is concerned.
Not surprisingly some of our accounting graduates start their own small firms
after being well-trained by the larger CPA firms. Firms specializing in tax
services and investment consulting services are especially popular for younger
professionals seeking to go out on their own. CPAs are often much more trusted
than brokers and other finance consultants who are not CPAs with tax
specialties. Often law firms secretly outsource their tax return preparations to
CPA specialists.
One would think there there would be more wanting to go back for accounting
Ph.D. degrees, but the huge pre-requisites in mathematics and statistics in
virtually all respected accounting doctoral programs are barriers to entry,
especially since life in academe is in most instances less financially
rewarding. Accounting doctoral programs are no longer about accounting.
The good news is, however, that most accounting doctoral programs are free,
including room and board allowances. Even so, there are now less than 150 Ph.D.
graduates in accounting annually across the USA ---
http://www.jrhasselback.com/AtgDoctInfo.html
Accounting doctoral programs were larger when accounting doctoral programs were
about accounting and there was less publish or perish pressure for non-tenured
accounting faculty.
There are no incentives to earn an accounting Ph.D. for graduates who do not
want academic careers. Certificates of specialty are much more important for
non-academic careers such as CPA certificates, CMA certificates. forensic
accounting certificates, CFA certificates, etc. The world of accounting can be a
very, very technical world much like the world of medicine is a very technical
world of sub-specialties.
Harvard: 9 Sustainable Business Stories That Shaped 2016 ---
https://hbr.org/2016/12/9-sustainable-business-stories-that-shaped-2016?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&spMailingID=16172632&spUserID=MTkyODM0MDg0MAS2&spJobID=921921821&spReportId=OTIxOTIxODIxS0
Costs Environmentalists Don't Like to Measure or Disclose
EV = Electric Vehicle
Washington Post: Indigenous people are left poor as tech world takes
lithium from under their feet --- "
https://www.washingtonpost.com/graphics/business/batteries/tossed-aside-in-the-lithium-rush/
And we give taxpayer subsidies so the 1% won't have to pay quite so much for
their luxuray Tesla elecric cars.
. . .
The silvery-white metal is essential for the
lithium-ion batteries that power smartphones, laptops and electric vehicles,
and the popularity of these products has prompted a land rush here. Mining
companies have for years been extracting billions of dollars of lithium from
the Atacama region in Chile, and now firms are flocking to the neighboring
Atacama lands in Argentina to hunt for the mineral known as “white gold.”
But the impoverished Atacamas have seen little of the riches.
. . .
In visits to all six of the indigenous communities, which lie on a
mountain-ringed desert about 25 miles from Argentina’s northwest border with
Chile, The Post found a striking contrast — faraway companies profiting from
mineral riches while the communities that own the land struggle to pay for
sewage systems, drinking water and heat for schools.
“We know the lithium companies are taking millions of dollars from our
lands,” said Luisa Jorge, a leader in Susques, one of the six communities
around the salt flats. “The companies are conscious of this. And we know
they ought to give something back. But they’re not.”
Many in the communities also are worried that the lithium plants, which use
vast amounts of water, will deepen existing shortages in the region, which
receives less than four inches of rain a year. At least one of the six
communities, Pastos Chicos, already has to have potable water trucked in.
Continued in article
Your Tesla might be worse for the environment than a gas car —
http://www.digitaltrends.com/cars/hold-smugness-tesla-might-just-worse-environment-know/#ixzz4T0gPy25z
. . .
Where did that battery come from?
Carl Sagan is famed for saying, “We live in a society exquisitely dependent
on science and technology, in which hardly anyone knows about science and
technology.” He could have been talking directly about lithium-ion
batteries. Chances are you are sitting within three feet of something that
uses lithium-ion technology, heck you are probably reading these words
thanks to lithium-ion batteries. Yet, not that many people really
understand what goes into them.
So how do they work? Like any battery, lithium-ions work by creating a flow
of current (electrons) between a positively charged (missing electrons)
cathode and a negatively charged anode (extra electrons), through a
conductive electrolyte. Lithium makes a great battery because it is both
very conductive, making it a good electrolyte, allows for extremely high
electrical potential. And of course, because this electrochemical reaction
is reversible, the batteries are readily rechargeable.
As great as lithium is for batteries, it has a dark side as well: The stuff
is downright nasty. Lithium is flammable and highly reactive,
as anyone who has seen
photos of burning a Tesla can attest,
but that’s the least of our worries. The
EPA has linked
the use of extremely powerful solvents in the creation of lithium
electrolytes and cathodes to everything from cancer to neurological
problems. Specifically, the cobalt used in the creation of the most energy
dense lithium-ion batteries is poisonous and extremely carcinogenic.
Pulmonary, neurological, and respiratory problems have all been connected to
cobalt exposure.
A good rule of thumb is that any industrial process that makes liberal use
of the word ‘slurry’ is not good for pandas, or for that matter people. And,
boy, does slurry come up a lot in the battery-making process.
Other combinations of lithium are not as bad, but none is exactly good. The
lithium-iron phosphate used in lower energy density batteries is better in
terms of its carcinogenic effect, but might be worse in terms of the impact
on the biosphere.
Is it getting hot in here?
Clearly then, EVs and plug-in hybrids have environmental costs. What effects
however, do lithium-ion batteries have on John Q. Polar Bear? Well,
a recent study from
Norway
looked at the global-warming potential of the complete lifecycle of EVs,
from mining to recycling. Previous studies hadn’t accounted for the
energy-intensive process of building EVs, and missed the point: They’re not
that much better than gasoline cars.
The best outcome for EVs was a 24-percent improvement in global-warming
potential over the average gas powered car, and between 10 percent and 14
percent over diesel. These numbers are nothing to sneeze at, but they change
radically depending on the source of electricity that EVs are powered on.
The above numbers rely on the European power mix, which more heavily favors
nuclear, hydroelectric, and renewable sources of energy than other parts of
the world.
The global warming potential for EVs that rely on natural gas – generally
considered to be the cleanest fossil fuel – show an improvement of only 12
percent over gasoline, and break even with diesel.
Most alarming, EVs that depend on coal for their electricity are actually 17
percent to 27 percent
worse than diesel or gas engines. That is
especially bad for the United States, because we derive close to 45 percent
of our electricity from coal. In states like Texas, Pennsylvania, and Ohio,
that number is much closer to 100 percent. That’s right folks; for residents
of some of the most populous states, buying an EV is not only toxic, it’s
warming the planet more than its gas-powered counterparts.
With cars that supposedly generate “zero tailpipe emissions,” how are these
pollution numbers even possible? The simple answer is that as well as being
messy to produce; battery production requires a tremendous amount of
electricity. The initial production of the vehicle and the batteries
together make up something like 40 percent of the total carbon footprint of
an EV – nearly double that of an equivalent gasoline-powered vehicle.
Continued in article
Jensen Comment
In fairness coal is on it's way out is some nations, but not in India, China,
and various coal-rich nations. Cleaner natural gas, propane, nuclear fuel, and
hydrogen will still be major power sources on the grid for years to come
All these sources of grid power to recharge batteries are relatively costly..
Examples of How Both Files and Backup Files Can Be Lost Forever
1. There are 30,000+ emails lost forever in the Hillary Clinton email
scandal. They were apparently destroyed before the Wikileaks backup system
obtained access.
2. The IRS lost Lois Lerner's backup files after being ordered by Congress to
protect those backup files in a scandal where President Obama is suspected of
illegally using the IRS to help his 2012 re-election campaign.
3. The Australian government lost over 1 million gigabytes of taxpayer files
and the backup files
---
https://www.theguardian.com/australia-news/2016/dec/13/tax-office-criticised-after-computer-crash-leaves-it-unable-to-provide-basic-online-services
Moral of Story
Backup file protection is not always what it's cracked up to be.
In fact the thriving ransomware industry is evidence of the frequent
failure of backup systems.
Goodwill Impairment Skyrocketed in 2015, Study Finds---
http://www.accountingweb.com/aa/standards/goodwill-impairment-skyrocketed-in-2015-study-finds?source=ei122116
Speakers at meeting for graduate deans warn about the pitfalls of big
data-driven research ---
https://www.insidehighered.com/news/2016/12/12/speakers-council-graduate-schools-meeting-warn-about-pitfalls-big-data-driven?utm_source=Inside+Higher+Ed&utm_campaign=7c11028e6b-DNU20161212&utm_medium=email&utm_term=0_1fcbc04421-7c11028e6b-197565045&goal=0_1fcbc04421-7c11028e6b-197565045&mc_cid=7c11028e6b&mc_eid=1e78f7c952
Jensen Comment
For example, statisticians sometimes warn that stratified sampling is better
than costly big data sampling in compliance testing. I had a friend who, before
he died, became quite wealthy consulting on stratified sampling in compliance
testing:
Will Yancey's Legacy ---
http://www.willyancey.com/
The FTC’s complaint said those claims, used in
DeVry’s marketing material and advertisements, were exaggerated and deceptive
(mostly about post-graduate employment opportunities)
DeVry University and its parent company will pay $100 million to settle a
lawsuit with the Federal Trade Commission ---
http://www.chronicle.com/blogs/ticker/devry-settles-federal-lawsuit-for-100-million/116150?cid=db&elqTrackId=cd45f0235991466f88c71cec8d889066&elq=0ae47d9362e84978935c876244c1e3d8&elqaid=11867&elqat=1&elqCampaignId=4751
From the
CFO Journal's Morning Ledger on December 21, 2016
Ikea settles with U.S. families
Ikea,
the Swedish furniture group, has agreed to pay a total $50 million to three
families in the U.S. whose children died when an Ikea dresser fell on them,
Reuters reports.
Jensen Comment
It's heresy to say this but at those prices there are some families in the USA
that would've pushed those dressers on top of babies. And there most certainly
be lawyers advising them to do so.
From the
CFO Journal's Morning Ledger on December 21, 2016
The flaws in U.S. corporate tax are legion: It
encourages debt, outsourcing and tax avoidance while punishing investment,
writes Greg Ip.
Republicans in the House of Representatives may have
found a way to solve all of this. They have an ambitious plan, which besides
revamping individual taxes, would replace the current corporate tax with a
tax on cash flow that exempts exports while taxing imports.
It faces the usual hurdles of any tax overhaul: losers, in this case
importers, who won’t go quietly, and a potential increase in the budget
deficit. It also has one unusual obstacle. Even though it’s economically
similar to, and probably better than, the value-added taxes (VATs) many
other countries use, it may be illegal under World Trade Organization rules.
An international clash over taxes is something the world can ill afford when
protectionist sentiment is already running high.
The current U.S. corporate tax rate, at 35%, is the developed world’s
highest and is charged on profits earned abroad when they are repatriated
(minus foreign tax paid). This incentivizes companies to rearrange their
operations to book profit in low-tax countries like Ireland and avoid
repatriating them. An alternative “territorial” system wouldn’t tax foreign
profits, but that also encourages outsourcing to low-tax countries since
operations there won’t incur U.S. taxes.
Under the House plan, companies could expense all capital investments
immediately instead of over time, but no longer expense net interest,
removing the current bias of debt over equity financing and old over new
investment. A 20% tax rate would be applied to revenue minus costs such as
labor and parts. Exports wouldn’t count toward revenue, while imports
wouldn’t count toward costs. In theory, this “border adjustability” sweeps
away the distortions that encourage companies to slash their tax bills to
almost nothing by shifting profits and operations around the world, while
other businesses pay the full rate.
Continued in article
Jensen Comment
My main beef with current USA corporate tax law is that, with the assistance of
high priced accountants and lawyers, so many corporations either avoid taxes or
defer them ad infinitum. The collectible tax that worries businesses the most is
the VAT tax because it's so hard to play games with using expensive accountants
and lawyers. And yes Jagdish, I know it's regressive.
From the
CFO Journal's Morning Ledger on December 21, 2016
FASB to issue new guidance
Real estate investment trusts, pharmaceutical
companies and electric-power producers face new rules in early 2017 on how
to account for certain sales on non-financial assets, Bloomberg BNA reports.
The U.S. Financial Accounting Standards Board approved plans to issue new
guidance on the topic.
From the
CFO Journal's Morning Ledger on December 21, 2016
Ford to import Indian SUV to U.S
Ford Motor Co. will start exporting small
sport-utility vehicles to the U.S. from India starting late next year. The
auto maker will export the EcoSport—the smallest SUV in Ford’s global
lineup—from its plant near the southern Indian city of Chennai. It will be
the first time Ford sells vehicles in the U.S. from its Indian factories,
which have been making cars for more than 20 years.
From the
CFO Journal's Morning Ledger on December 20, 2016
Whistleblowers welcome
The Securities & Exchange Commission has penalized a
company for impeding outgoing employees from communicating with the agency,
the latest violation of a rule protecting would-be whistleblowers.
NeuStar Inc. violated the rule by routinely entering into severance
agreements that contained a nondisparagement clause forbidding former
employees from engaging with the SEC, the agency said
From the
CFO Journal's Morning Ledger on December 19, 2016
IASB to focus on use of infrequent items
The
International Accounting Standards Board will provide stricter guidance on
the use of so called infrequent items on company income statements, the
organization’s chairman Hans Hoogervorst said. In the next two to three
years the IASB will also specify how it wants companies to state subtotals,
such as operating profit and earnings before interest and taxes, or ebit,
and other special line items, Nina Trentmann reports.
Another White Collar Criminal Off the Hook
From the
CFO Journal's Morning Ledger on December 15, 2016
Off the hook
The U.K.
Serious Fraud Office has dropped its case against former
Tesco PLC
group commercial director Kevin Grace without charging him, Bloomberg
reports. The company in September 2014 admitted that its accounting
practices have led to an overstatement of profits by as much as Ł326 million
($407 million).
White Collar Crime Pays Big Even If You Know You Will Get Caught
---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#CrimePays
Kevin Grace will live the rest of his life in luxury
Quickly close your old Yahoo account
From the
CFO Journal's Morning Ledger on December 15, 2016
Yahoo discloses second, larger data theft
Yahoo Inc. said a third party stole data
connected to more than one billion user accounts in August 2013, a
previously unreported theft that is separate from and twice as large as the
one it disclosed earlier this year.
From the
CFO Journal's Morning Ledger on December 14, 2016
Starbucks lashes out against EU regulators
Starbucks Corp. has attacked European Union
competition watchdogs over a €30 million ($32 million) tax-repayment order,
Bloomberg reports. Starbucks criticized the order, citing “manifest errors,”
according to a summary of the appeal published this week.
Other than underfunding, nothing hurt pension funds more than low interest
rates since the 2007 financial crisis
From the
CFO Journal's Morning Ledger on December 14, 2016
As the Dow flirts with 20,000, U.S. public and
corporate pensions still face funding challenges, write Vipal Monga and
Heather Gillers. Corporate pensions were left with a $414 billion funding
deficit in November, $10 billion larger than it was at the end of last year,
according to Mercer Investment Consulting. Pensions still haven’t recovered
from the chronic deficits created by the financial crisis and
perpetuated by low interest rates.
Companies must reallocate cash typically used for other purposes to close
pension funding gaps.
General Motors Co.,
International Paper Co.
and
CSX Corp. all have borrowed money this year to pump funds into
their pension plans. S&P 1500 businesses have contributed $550 billion into
their pension plans between 2008 and Nov. 30 of this year, according to
Mercer. Even with those contributions, their funded status was 81.3% as of
Nov. 30.
Although pension-funding levels fluctuate during the year, most companies
lock in their pension obligations at the end of the year for accounting
purposes. November’s run-up, if it continues into December, could help
lessen the burden of what had been shaping up to be a drag on 2016 financial
results.
Jensen Comment
In addition to providing less financial risk to pension investing, relative to
equities, high bond interest provided liquidity needed for pension payouts.
Cashing in on equity investments for liquidity entails higher transactions
costs.
Low interest rates
also hurt senior citizens forced to consume more savings themselves when they
became unable to live on the interest income of those savings. In the 1990s my
parents loved those long-term CDs paying around 6%. Since 2007 those long-term
CDs pay almost nothing in interest.
New Hampshire, Amazon, and LL Bean Breathe Easier
USA Supreme Court Refuses to Settle Disputes Over Sales Taxes and Customer
Information That Crosses State Lines
From the
CFO Journal's Morning Ledger on December 13, 2016
We are not touching this
The U.S.
Supreme Court
on
Monday turned aside a chance to revisit the
rules governing sales taxes on purchases across state lines, an issue at the
center of efforts by states to collect tax on online sales. The court
declined, without comment, to take up appeals on a Colorado law that
requires retailers without a physical location in the state to report their
customers’ names and total purchases to the government.
U.S. public companies have told shareholders precious little about what to
expect from new revenue recognition accounting rules
From the
CFO Journal's Morning Ledger on December 13, 2016
It is almost showtime for new revenue-recognition
rules, but the largest U.S. public companies have told shareholders precious
little about what to expect,
Tatyana Shumsky writes
in today’s Business section. Just 15 companies in the
S&P 100 have so far disclosed how they plan to make the transition to the
new accounting standard, according to a Wall Street Journal review of most
recent quarterly filings.
Finance executives say they are working on plans to tell investors more
about how the rules will affect their business, but admit they are in
uncharted waters. “You literally have to take a clean sheet of paper and
start from scratch,” said Lara Long, vice president for corporate accounting
and reporting at agricultural-equipment maker
AGCO Corp.
From the
CFO Journal's Morning Ledger on December 12, 2016
IMF chief to stand trial
Christine Lagarde, managing director of the
International Monetary Fund, will go on trial following a €405 million
($428.8 million) payout by the French state to a businessman during her time
as finance minister, the Financial Times reports. Ms. Lagarde is accused of
negligence in public office in relation to the misuse of public funds.
Trump's Impossible Sugar Plum Dreams
From the
CFO Journal's Morning Ledger on December 12, 2016
Despite his pledges to renegotiate trade deals in
order to better protect American workers, President-elect Donald Trump will
have a tough time reversing the decline of U.S. manufacturing,
Josh Zumbrun writes.
After hitting a record of nearly 20 million in 1979, the number of American
factory workers has plunged during each of the last five recessions and each
time has never recovered. Today, 12.3 million people are employed in U.S.
factories, a loss of nearly eight million jobs.
Forecasters in The Wall Street Journal’s monthly survey of economists doubt
the numbers of bygone years can be restored. They estimate the U.S. will add
about 7,000 manufacturing jobs by the end of 2017, about 40,000 by the end
of 2018 and about 50,000 by the end of 2019, according to the average
forecast—moving upward in coming years, but at a pace far too slow to
replace what has been lost. “Manufacturing employment is now back to 1941
levels and falling,” said James Smith, chief economist of Parsec Financial.
“This is a global trend and not at all specific to the U.S. It is caused by
labor productivity growth.”
Bumble Bee Gets Stung (for price fixing)
From the
CFO Journal's Morning Ledger on December 8, 2016
Bumble Bee admits price fixing
A
Bumble Bee Foods LLC executive has agreed to
plead guilty to fixing prices on canned tuna, the first criminal charges in
an ongoing Justice Department probe in the packaged seafood industry.
Prosecutors
on
Wednesday said Walter Scott Cameron would plead
guilty to one felony charge for fixing prices on packaged seafood from 2011
to 2013.
In my viewpoint the SEC should resist the temptation to continue approving
departures from GAAP on a case-by-case basis
From the
CFO Journal's Morning Ledger on December 8, 2016
SEC to allow adjusted revenue metrics under
‘unusual circumstances’
The Securities and Exchange Commission will
allow some companies to report adjusted revenues under special
circumstances, but these must clear it with the regulator first, said Mark
Kronforst, chief accountant for the division of corporation finance. The SEC
in May issued new guidelines on the use of financial figures that don’t
conform with U.S. generally accepted accounting principles, a push to rein
in the practice, Tatyana Shumsky reports.
SEC Allows Some Adjusted Revenue Metrics Under “Unusual Circumstances” ---
http://blogs.wsj.com/cfo/2016/12/07/sec-allows-some-adjusted-revenue-metrics-under-unusual-circumstances/?mod=djemCFO_h
The Securities and
Exchange Commission will allow some companies to report adjusted revenues
under special circumstances, but these must clear it with the regulator
first, said Mark Kronforst, chief accountant for the division of corporation
finance.
“If you do have unusual
circumstances, please do come and talk to us,” Mr. Kronfrost said, speaking
on a panel at the American Institute of CPAs conference in Washington D.C.
“We don’t want to suggest that there’s no circumstance under which revenue
can be adjusted.”
The SEC in May issued
new guidelines on the use of financial figures that don’t conform with U.S.
Generally Accepted Accounting Principles, a push to rein in the practice.
The guidelines targeted the prominence of non-GAAP figures in earnings
releases and specifically prohibited certain adjustments to revenue.
The SEC’s focus on
revenue adjustments prompted
several companies in the video game industry,
for example, to drop
their non-GAAP revenue figures from financial filings.
Moreover, the regulator
has criticized companies, including Tesla Motors Inc.,
for continuing the
practice despite the new guidelines.
By contrast, Microsoft
Corp. has continued to report adjusted revenue due to unusual business
circumstances, Mr. Kronforst said.
Microsoft is
transitioning its Windows business from a license sale model to a software
as a service model at the same time as U.S. rules governing revenue
accounting are on the cusp of change, said Frank Brod, Microsoft’s chief
accounting officer, speaking on the same panel.
Under current revenue
accounting rules, Microsoft recognizes its license sales revenues upfront,
but must recognize its growing pool of subscription revenue over time, Mr.
Brod said. But the timing of subscription revenue recognition will change
under the new accounting rules, so the company has provided non-GAAP revenue
metrics as way of helping investors bridge the two standards, Mr. Brod said.
Microsoft sought input
from its audit committee members, and held discussions with the SEC’s
corporation finance division as well as with the office of the chief
accountant to ensure it could keep reporting that non-GAAP measure while
also complying with the new non-GAAP guidelines, Mr. Brod said.
“As Frank has
demonstrated, there situations where we think it’s just fine [to adjust
revenue],” Mr. Konforst said.
Continued in article
Jensen Comment
In my viewpoint the SEC should resist the temptation to continue
approving departures from GAAP on a case-by-case basis.
Firstly, the SEC may find itself overwhelmed. For example, think of how
the IRS would be swamped if it approved tax deductions for taxpayers with
assurances they would not be audited for those deductions.
Secondly, this is corporate lobbying taken to extremes. It encourages
payola.
We already have evidence (remember how Bernie Madoff
could've been stopped early on) by SEC officials who were vulnerable to
unethical behavior.
An exception is when, for a new standard, the standard setter has a
special task force for implementation guidance. This happened big time when
the FASB formed a Derivatives Implementation Group (DIG) when SFAS 133 was
put into place. You can read many of the DIG pronouncements at
http://faculty.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
FASB issues technical corrections ---
http://www.journalofaccountancy.com/news/2016/dec/fasb-issues-technical-changes-201615710.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=15Dec2016
From the
CFO Journal's Morning Ledger on December 8, 2016
SEC to allow adjusted revenue metrics under
‘unusual circumstances’
The Securities and Exchange Commission will allow some
companies to report adjusted revenues under special circumstances, but these
must clear it with the regulator first, said Mark Kronforst, chief
accountant for the division of corporation finance. The SEC in May issued
new guidelines on the use of financial figures that don’t conform with U.S.
generally accepted accounting principles, a push to rein in the practice,
Tatyana Shumsky reports.
From the
CFO Journal's Morning Ledger on December 7, 2016
Supreme Court backs government up
(on insider trading)
The Supreme Court handed the government a significant
win
Tuesday
in its pursuit of insider trading, ruling prosecutors in such cases don’t
always have to show that something valuable changed hands to prove a crime
was committed. The unanimous opinion restores some of the power the
government lost in a 2014 federal court case. That two-year-old decision had
cast doubt on just what constituted insider trading and forced
law-enforcement officials to drop a number of high-profile cases, including
several against associates of hedge-fund billionaire Steven A. Cohen.
From the
CFO Journal's Morning Ledger on December 7, 2016
Non-GAAP violations under scrutiny
The Securities and Exchange Commission’s enforcement
division is looking closely at violations of rules governing custom
accounting metrics, said Michael Maloney, chief accountant of the division.
The SEC this year stepped up its campaign to rein in the use of accounting
metrics that don’t conform to the U.S. generally accepted accounting
principles, known as non-GAAP figures, Tatyana Shumsky reports.
Protecting Business Value from the Hidden Costs of Intellectual Property
Theft ---
http://deloitte.wsj.com/cfo/2016/12/07/protecting-business-value-from-the-hidden-costs-of-intellectual-property-theft/?mod=WSJBlog
Jensen Comment
As we watch the many rounds thus far in the Apple Verus Samsung intellectual
property war we
realize even more how it's impossible to measure and disclose the hidden costs
of intellectual property rights. Add this to the vague listing of the many
intangibles that accountants don't know how to measure or even disclose since
even known disputes (let alone unknown future disputes) and you begin to
question the sum total of assets and liabilities that are reported on a balance
sheet, especially for technology firms.
From the
CFO Journal's Morning Ledger on December 6, 2016
SEC accounting chief wants increased
disclosures
U.S. companies should increase disclosures about their
progress toward implementing new revenue accounting rules to help investors
assess the impact, said Wesley Bricker, chief accountant at the SEC. The new
rules, which govern when companies can record revenue for the goods and
services they sell, become effective for public companies after Dec.
15, 2017, a year later than the original
implementation date. Separately, the SEC
won’t switch
to International Financial Reporting Standards in the near term, but will
continue reviewing a proposal to allow IFRS information to supplement U.S.
financial filings, said Mr. Bricker. The SEC has been mulling for years
whether to switch U.S. companies over to using IFRS instead of generally
accepted accounting principles.
"Accounting for Contingent Liabilities: What You Disclose Can Be Used
Against You," by Linda Allen, SSRN, June 20, 2014 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457177
Abstract
Accounting standards require disclosure of estimable losses from contingent
liabilities such as litigation expenses. However, revelation of the firm’s
private estimates of the probability of loss and possible legal damages can
be detrimental to the firm by encouraging litigation and increasing the
costs of settlement. In this paper, I propose a model (the US-patented TMTM)
that uses publicly-available data to provide accurate and unbiased estimates
of litigation damages without requiring firms to publicly disclose their
private assessments or litigation reserves. This provides valuable
information to the users of financial statements without undermining the
firm’s right to preserve sensitive internal information.
Bob Jensen's threads on accounting for intangibles and contingencies ---
http://faculty.trinity.edu/rjensen/theory01.htm#TheoryDisputes
Sustainability of Sustainability Accounting
Sustainability Accounting ---
https://en.wikipedia.org/wiki/Sustainability_accounting
From the
CFO Journal's Morning Ledger on December 1, 2016
That isn’t what investors want
A majority of U.S. listed companies are disclosing sustainability risks to
investors, but not in any meaningful detail, according to a study by the
Sustainability Accounting Standards Board. The SASB analyzed annual reports
of more than 700 top companies across 79 industries. It found that 81%
addressed social and environmental risks. However, 52% of the companies used
vague, boilerplate language to flag the risks without articulating
management response strategies, Tatyana Shumsky writes.
From the
CFO Journal's
Morning Ledger on July 21, 2015
Jensen Comment
Accountants do not know, and probably will never know, hot ot put verifiable
numbers in sustainability forecasts. For one thing they are non-stationary. For
example, today on December 1, 2016 it was announced that the State of California
will seriously commence to regulate cow farts. Dairy farmers contend that these
new regulation expenses seriously alter the sustainability of dairy farms and
businesses. Previous statements on sustainability now have to be re-written.
Bob Jensen's threads on sustainability accounting ---
http://faculty.trinity.edu/rjensen/theory02.htm#TripleBottom
On December 5, 2016 China is Probably More Unhappy With President Obama (for
blocking a China acquisition) Than President Elect Trump (for a 10 minute
courtesy call with Taiwan)
Veto.
President Barack Obama
on
Friday took the rare step of forbidding a
foreign company from buying a firm with U.S. assets, telling a Chinese
investment fund that it cannot complete a deal for German technology company
Aixtron SE. Mr. Obama’s move, only his second outright ban on a
foreign acquisition, shows the increasing suspicion the U.S. harbors toward
Chinese acquisitions of certain U.S. firms. In a statement released
on
Friday, the Treasury Department said Mr. Obama
had issued an order barring
Fujian Grand Chip Investment Fund LP,
part-owned by the Chinese government, from buying Aixtron. The Chinese
Foreign Ministry expressed
displeasure,
Reuters reports.
From the
CFO Journal's Morning Ledger on December 2, 2016
Carnival fined
Carnival Corp.’s Princess Cruise Lines will
need to pay $40 million penalty after pleading guilty to several charges for
disposing oil in the ocean, the Guardian reports. U.S. attorney Wifredo
Ferrer told a news conference the penalty was the largest ever of its kind.
A plea agreement filed in federal court also requires the company to submit
78 cruise ships across its eight brands to a five-year environmental
compliance program overseen by a judge.
From the
CFO Journal's Morning Ledger on December 2, 2016
Obamacare’s bright spots and drawbacks
Here’s the good news: Thanks to the Affordable Care
Act, or Obamacare, more Americans have access to health care than ever
before, Leemore Dafny and Dr. Thomas Lee write for Harvard Business Review.
The bad news? The care itself hasn’t improved much. Despite the hard work of
dedicated providers, our health-care system remains chaotic, unreliable,
inefficient and crushingly expensive.
The State of AIS as an Academic Major
Hi Bill,
One problem with AIS is that it does not seem to have a well-defined home.
For example, the Bureau of Labor Statistics does not list it under "Computer and
Information Systems" or 'Accountants and Auditors."
Note that AIS is not listed under "Related Areas" in each of the following
BLS categories.
AIS has never been well defined in terms of number of courses, course
content, credentials of specialization, and career paths.
Michigan State is somewhat unique, due heavily to your outstanding
leadership, in the AIS concentrations and the number of AIS course offerings.
You may be trying to do what most other accounting education programs in the USA
are not trying to do.
My bottom line worry if I were going to major in AIS is that my entire career
path is very uncertain relative to related majors. When students put AIS on
their resumes, nobody is quite certain what that means.
From the Bureau of Labor Statistics
Computer and information systems managers
MIS ---
https://www.bls.gov/ooh/management/computer-and-information-systems-managers.htm
Summary
learn about new technology and look for ways to upgrade their
organization’s computer systems.
Related areas (note that AIS is not listed) ---
https://www.bls.gov/ooh/management/computer-and-information-systems-managers.htm#tab-8
From the Bureau of Labor Statistics
Accountants and Auditors (four-year degrees)
Summary
Accountants and auditors ensure that
financial records are accurate and
taxes are paid properly and on time.
Related areas (note that AIS is not listed) ---
https://www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm#tab-8
Jensen Comment
The salary differential of $131,600 versus $67,190 lead us to question why
accounting and auditing are so popular among USA colleges relative to computer
and information systems?
My off-the-wall answer is that first there are the numbers of jobs shown
above for accountants and auditors who are not even CPAs having masters degrees
(remember the 150-hour requirement).
Secondly, I think accounting/auditing affords more opportunities to branch
outward and upward. Not are there only good "related" opportunities, but there
are opportunities for setting up a private practice in such specialties as tax
and investment advising.
Foreign students may have fewer opportunities for both outward and upward
mobility. For example, an Asian Senior Tax Accountant in a large CPA firm may
have a harder time setting up a local-practice in Small Town, USA.
PS
I have an anecdotal suspicion of why IT and even computer science is not taking
over the with hoards of student majors in USA colleges. One of our close friends
(Dorothy) up here who, with two somewhat useless degrees in etymology, formed
her own landscaping, painting, and decorating business that thrived (for over 30
years and counting) for miles around in these mountains. Customers will wait
months and months to get her to finally get to them (many of whom want her
wonderful New Hampshire rock walls or her wall-papered rooms) ---
http://faculty.trinity.edu/rjensen/tidbits/RockFences/RockFenceBeneathFoxRidge/FoxRidgeRockFence.htm
Her valedictorian son Alex majored for four years in IT and easily found a
job in as a tech support specialist for a popular kind of business software.
After the first month on the job he was bored out of his mind and abhorred the
thought of spending years and years answering tech support questions on
line and on the phone. He stuck it out for two years and decided he could not
spend the rest of his life answering tech support questions. So he went to work
for two years at minimum wage in organic farming --- summers here in our Ski
Hearth Organic Farm in Franconia and winters on an organic farm in Hawaii
,
After those two years in organic farming at minimum wage he decided his life
was going nowhere. So he is now back at answering tech support questions ---
this time in North Carolina.
He now hates his job and wishes he'd become a CPA.
When I asked him why he did not major in AIS?
He answered: "What's AIS?"
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 2, 2016
Dodd-Frank Rules: Up for a Rethink
by: Richard
Teitelbaum and Kimberly S. Johnson
Nov 29, 2016
Click here to view the full article on WSJ.com
TOPICS: Disclosure,
Regulation
SUMMARY: CFOs
sort the costly provisions from the beneficial ones following talk of
dismantling the Dodd-Frank law under a Trump administration. The law appears
unlikely to be overturned in its entirety. Negotiating between Democrats and
Republicans will be required because "Senate rules, in effect, would require
60 votes to bring any legislation overhauling Dodd-Frank and Republicans
currently stand to control 52 seats in the coming Senate."
CLASSROOM
APPLICATION: The
article may be used in a financial reporting course--more likely at the
intermediate level and above.
QUESTIONS:
1. (Introductory) What are the main provisions of the Dodd-Frank Act
discussed in this article?
2. (Introductory) Which of the Dodd-Frank law's requirements do
corporate CFOs see as "common sense and easy to implement"?
3. (Advanced) What is the say-on-pay regulation?
4. (Introductory) Why is it likely that companies will continue the
say-on-pay governance practice and its related disclosure?
5. (Advanced) What are conflict minerals? What is difficult about the
requirements of Dodd-Frank in relation to conflict minerals?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
The Morning Ledger: Dodd-Frank Rules May Linger,
Even if Dismantled
by Maxwell Murphy
Nov 29, 2016
Online Exclusive
"Dodd-Frank Rules: Up for a Rethink," by Richard Teitelbaum and Kimberly
S. Johnson,
The Wall Street Journal, November
29, 2016
---
http://www.wsj.com/articles/dodd-frank-rules-on-business-up-for-a-rethink-1480334402?mod=djem_jiewr_AC_domainid
President-elect Donald Trump campaigned partly on a
vow to dismantle the 2010 Dodd-Frank law, which supercharged bank oversight
with myriad regulations. Corporate finance chiefs outside the sector,
however, are focusing on the fate of the law’s nonbank provisions, which
range from directives on executive pay to rules on hedging disclosure.
Implementing some of those Dodd-Frank rules is costly, time-consuming and
fails to help investors, say financial executives and experts.
Other rules are seen as reasonable by some
executives—even exuding common sense—and may be continued by companies,
regardless of the law’s future. “There are a lot of things you would do
because they’re the right things to do,” said Teri List-Stoll, who was
recently named CFO of Gap Inc., at the Financial Executives International
conference earlier this month. Ms. List-Stoll, who served CFO stints at
Dick’s Sporting Goods Inc. and Kraft Foods, said companies that had invested
in complying with the regulations, and whose shareholders are happy with the
results, will likely keep some of those measures even if Dodd-Frank were
repealed in its entirety. One of the more popular rules to take effect is
the so-called say-on-pay regulation the U.S. Securities and Exchange
Commission adopted in 2011. It requires companies to hold a shareholder vote
on executive compensation at least every three years.
It likely would be maintained by many businesses.
“Say-on-pay votes may be continued by companies because investors like it,”
said Meredith Cross, a partner at Wilmer Cutler Pickering Hale & Dorr LLP
and a former director of the SEC’s corporation finance division. She helped
write portions of Dodd-Frank. “The vote itself doesn’t cost anything,” Ms.
Cross said, though she added: “The impact of having to change your
compensation structure may be costly.” Some Dodd-Frank rules are common
sense and easy to implement, experts say. Last year, for example, the SEC
approved the issuance of a proposed rule that would require companies to
disclose in their proxies whether employees or directors are allowed to
hedge the company’s stock. “I assume you had to figure it out to begin
with,” said Adam Pritchard, a professor of securities law at the University
of Michigan. “It’s just a matter of cutting and pasting.”
On the other hand, beginning in 2018, a pay-ratio
disclosure rule will require a company to compare its chief executive’s pay
to the median annual compensation of all its other employees. The utility of
the pay-ratio rule, however, is seen as questionable. “The CEO-to-median pay
ratio may generate unneeded confusion among shareholders across many
industries,” Richard Peretz, CFO of United Parcel Service Inc., said in an
email. “There are several acceptable means for calculating the median
employee pay, thereby rendering the resulting ratio even less valuable as a
comparator across companies.”
Others agree. “How you measure it leads to very
different conclusions,” said Alon Kalay, an assistant professor of
accounting at Columbia Business School. “Do you include foreign workers and
part-time workers?” Mr. Kalay cautioned against comparing the pay-ratio
figure at two companies even in the same industry, citing Microsoft Corp.
and Apple Inc., the latter of which operates a network of stores. “Apple has
a lot more retail workers than engineers,” he said. Meanwhile, United
Parcel’s Mr. Peretz said a rollback of regulations might simplify business
for the logistics company. “If Dodd-Frank is repealed, or replaced, UPS may
be able to reduce some additional data collection, analysis and auditing,”
he said. Still, Dodd-Frank appears unlikely to be overturned in its
entirety. For now, Senate rules, in effect, would require 60 votes to bring
any legislation overhauling Dodd-Frank to a vote, and Republicans currently
stand to control 52 seats in the coming Senate. So there could be some
horse-trading with Democrats over any changes to the law. Some elements of
Dodd-Frank have proven to be unwieldy. Some manufacturers, for example,
would like to scratch the law’s Section 1502 provision on conflict minerals
because of the cost and the difficulty in complying.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 2, 2016
Cloudy With a Chance of Swimsuit Sales
by: Ray A.
Smith
Nov 28, 2016
Click here to view the full article on WSJ.com
TOPICS: Forecasting,
Managerial Accounting
SUMMARY: Fashion
Institute of Technology (FIT) in New York City, "...one of the largest and
best-known fashion schools...this semester launched a new, 15-week course
called 'Predictive Analytics for planning and Forecasting: Case Studies with
Weatherization." The course is designed to develop students' skills in
understanding analytical procedures, such as regression analysis, to use
them in better predicting product needs and thus improving sales.
CLASSROOM
APPLICATION: Questions
ask the students understand the meaning of predictive analytics, tying to
their statistical studies, and considering topics covered in managerial
accounting that relate to the article.
QUESTIONS:
1. (Advanced) Based on the description and context in the article,
how would you define predictive analytics?
2. (Introductory) Why are the topics of predictive analytics and
other business subjects of increasing importance to fashion students at the
Fashion Institute of Technology and other schools?
3. (Advanced) Why does the author of the article say weather is a
"topical business issue"? Have you studied weather as a "topic" in a
business course?
4. (Introductory) What is linear regression? How is this statistical
tool used in making forecasts or predictions?
5. (Advanced) Consider managerial accounting topics such as fixed
versus variable costs, the theory of constraints, activity-based costing, or
another of your choosing. Describe how accounting information in one of
these areas can be used in a predictive modeling process to help solve
issues such as the weather-related sales issues described in the article.
Reviewed By: Judy Beckman, University of Rhode Island
"Cloudy With a Chance of Swimsuit Sales," by Ray A. Smith,
The Wall Street Journal, November
28, 2016
---
http://www.wsj.com/articles/the-next-fashion-trend-weather-forecasting-1480248007?mod=djem_jiewr_AC_domainid
As temperature fluctuations catch designers and
retailers off-guard, a major fashion school wants students to learn more
about predicting what’s ahead
At a recent class at the Fashion Institute of
Technology in New York City, students were asked—and promised a Dunkin’
Donuts gift card for the right answer to—the question: When should a Los
Angeles store stock swimsuits? Sarah Corcoran, a senior, explained she would
use a “maximum temperature metric” to figure out the problem. “Yes,” cheered
her professor, Calvin Williamson. And she earned the gift card. FIT, one of
the largest and best-known fashion schools, with alumni including Calvin
Klein, Norma Kamali and Brian Atwood, this semester launched a new, 15-week
course called “Predictive Analytics for Planning and Forecasting: Case
Studies with Weatherization.” The course, geared toward students interested
in retail and merchandising careers, is part of a broad overhaul of FIT’s
curriculum to include more topical business issues, and weather is a prime
one.
Weather fluctuations have increasingly been putting
fashion designers and clothing retailers on the defensive. Merchandise is
often ordered months in advance based on what the weather typically is at
that time of year. But when temperatures are different from what was
predicted—milder-than-usual winters, cold springs or otherwise inconsistent
weather—clothes that are all wrong for the climate stay on racks and get
discounted, hurting sales.
Last winter was the warmest on record for the
contiguous U.S., says Jake Crouch, a climate scientist at the National
Oceanic and Atmospheric Administration’s National Centers for Environmental
Information. The average temperature was 36.8 degrees Fahrenheit, 4.6
degrees above average, with some parts of the country even higher above
average. That led to less demand for heavy winter coats.
J.C. Penney Co. Chief Executive Marvin Ellison
recently told analysts warm weather hurt apparel sales for the quarter that
ended Oct. 29. He cited the “warmest September ever on record” as a factor.
Some mass retailers hire or consult climatologists to help them make such
predictions.
Designer Michael Kors makes a point of including a
range of fabric weights for his resort collections, instead of limiting them
to the lightweight clothing and beachwear those collections have
historically featured. Mr. Kors has cited the reality of unexpectedly chilly
days or nights and unpredictable weather.
Continued in article
Jensen Comment
Remember that Burkinis help prevent deadly melanoma cancer --- seriously!
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 2, 2016
Trump's Treasury Pick Hedges on Taxes
by: Richard
Rubin
Dec 01, 2016
Click here to view the full article on WSJ.com
TOPICS: Individual
Income Taxation
SUMMARY: President-elect
Donald Trump turned to former Goldman Sachs banker and movie financier
Steven Mnuchin to be the next Treasury secretary. Mr. Mnuchin told CNBC
on Wednesday that high income households
won't receive an overall tax cut because any proposed "reductions...in
upper-income tax [rates] will be offset by less deductions" so that the
middle class will receive the biggest tax cut. That promise "is at odds with
tax proposals from Donald Trump and House Republicans."
CLASSROOM
APPLICATION: The
article may be used in a tax class. It builds on coverage from the next
article covered in this review which provides a clear graphic of the current
tax rates and maximum deductions under current law, the Trump proposal and
the House GOP proposal. Questions ask students to differentiate between the
effects of tax rate reductions, marginal and effective tax rates, and tax
deductions.
QUESTIONS:
1. (Advanced) What are top marginal tax rates for individuals? Does
that rate reflect actual tax amounts when multiplied by taxable income?
Explain, including a definition of effective tax rate.
2. (Advanced) Define the term tax deduction. According to the
article, how does President-elect Donald Trump propose to limit the amount
of deductions that U.S. individual taxpayers may take?
3. (Introductory) According to Mr. Trump's selection for Treasury
Secretary (yet to be confirmed for the position) Steven Mnuchin, how do the
effects of tax rate reductions and deduction limits offset for high income
earners? What is the comparison for middle class taxpayers?
4. (Introductory) What evaluations of these proposed tax plans are
given in the article? Who conducts these evaluations?
5. (Advanced) Define the term "distribution of the tax burden."
6. (Advanced) Why does reduction in overall taxation benefit high
income earners due to the tax burden distribution you defined above?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Deduction Limits Pose Test for Tax-Cut Proposals
by Richard Rubin
Dec 01, 2016
Page: A4
"Trump's Treasury Pick Hedges on Taxes." by Richard Rubin,
The Wall Street Journal,
December 1 , 2016
---
http://www.wsj.com/articles/donald-trumps-treasury-choice-says-reforming-tax-code-is-priority-1480518752?tesla=y
High-income households won’t receive an “absolute
tax cut” under a Trump tax plan, the president-elect’s new pick for Treasury
secretary said on Wednesday, a promise that is at odds with tax proposals
from Donald Trump and House Republicans.
Steven Mnuchin said that “Any reductions we have in
upper-income taxes will be offset by less deductions, so that there will be
no absolute tax cut for the upper class.” The big tax cut, he told CNBC,
will go the middle class.
The comments echo occasional remarks from Mr.
Trump, but not the tax plan he campaigned on, and point to the political and
arithmetic challenges that lawmakers will face as they try to turn those
promises into legislation.
Aside from moving ahead on a large tax rewrite next
year, Mr. Mnuchin also said he would roll back parts of the landmark 2010
Dodd-Frank financial overhaul enacted by the Obama administration and
congressional Democrats in the wake of the financial crisis. Mr. Mnuchin
called that “the No. 1 one priority on the regulatory side.”
Mr. Trump’s tax plan would lower top rates
dramatically, providing such large benefits to high-income households that
analysts say they can’t be covered with limits on tax breaks, such as the
$100,000-a-person limit on itemized deductions already in Mr. Trump’s plan.
The largest deductions typically are for mortgage interest, state and local
taxes and charitable contributions.
“I don’t think there is a way to make it work with
the current marginal rates that they’re working with,” said Kyle Pomerleau, director
of federal projects at the conservative-leaning Tax Foundation.
Under Mr. Trump’s plan, the corporate tax rate
would drop from 35% to 15%. The estate tax and alternative minimum tax would
be repealed. Capital-gains rates would drop. The top rate on business income
reported on individual tax returns would fall from 39.6% to 15%, and the top
rate on ordinary income would fall from 39.6% to 33%.
The Tax Foundation says Mr. Trump’s plan would
boost after-tax incomes for the top 1% of households by at least 10%, even
before accounting for any potential economic growth. The Tax Policy Center,
a think tank run by a former Clinton administration official, estimates that
the top 1% of households would pay an average of $214,690 less in taxes in
2017 under Mr. Trump’s plan than they would otherwise. Stephen Moore, who
helped develop Mr. Trump’s tax plan, said it was designed so that the
deduction cap offsets the revenue loss from lowering the top tax rate on
ordinary income from 39.6% to 33%. The cap wasn’t written to offset the tax
cuts on business income, estates and capital gains, which independent
analyses all say flow disproportionately to top earners.
It wasn’t immediately clear on Wednesday whether
Mr. Trump and his team were actually changing their tax plan. The transition
team didn’t respond to a request for comment. “Trump’s plan was
independently scored as giving more tax cuts to the top 1% than the bottom
99% combined,” said Gene Sperling, a former economic-policy aide to
President Barack Obama. “So, we’ll watch what they do.” In response to a
question about studies showing Mr. Trump’s plan would raise taxes on
millions of single parents, Mr. Mnuchin said the plan would be “very clear”
in ensuring a middle-class tax cut when it emerges from Congress.
Mr. Mnuchin’s comments on the distribution of the
tax burden also show a potential difference with Republicans in the House,
who are developing their own tax plan to lower rates and limit tax breaks.
House Speaker Paul Ryan (R., Wis.) and Ways and
Means Chairman Kevin Brady (R., Texas) have brushed aside questions about a
study showing that their plan would deliver most of its benefits to the top
1%. Instead, they say they are focusing on encouraging economic growth.
That is a change from Republicans’ positioning just
a few years ago. In 2012, presidential candidate Mitt Romney said he would
make sure taxes wouldn’t go up for high-income households, though he had
trouble making the math work. In 2014, then-Rep. Dave Camp (R., Mich.)
produced a plan that didn’t change the distribution of the tax burden.
A challenge for Republicans is navigating the
tension between economic theories that emphasize lower tax rates and the
fact that the income-tax burden is concentrated at the top of the income
distribution. Cutting marginal tax rates necessarily helps the top 1%, but
Mr. Trump’s campaign plan gives them a bigger share of the tax cuts than
their share of income or tax payments.
The top 1% of households receives 17.2% of all U.S.
pretax income and pays 28.7% of all federal taxes, according to Tax Policy
Center estimates for 2017. That group would be the beneficiary of about half
of Mr. Trump’s tax cuts. Mr. Mnuchin’s comments on Dodd-Frank are consistent
with those made by Mr. Trump and other advisers. But they are significant
since
Mr. Mnuchin himself has said little publicly about
policy matters, and his Wednesday remarks offer a fresh window into his
thinking and priorities.
Mr. Mnuchin, a former Goldman Sachs Group Inc.
executive, said the Volcker rule provision in Dodd-Frank—named after former
Federal Reserve Chairman Paul Volcker—is too complicated and signaled the
Trump administration may try to roll it back. The rule is aimed at trying to
stop banks from betting with deposit-insured funds. Goldman and other Wall
Street firms have complained that the rule is too complex.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
Decembe 2, 2016
Years of Turmoil Forged Tax Plan
by: Richard
Rubin
Nov 21, 2016
Click here to view the full article on WSJ.com
TOPICS: Tax
Reform
SUMMARY: Republicans
have spent years working on U.S. tax overhaul legislation that may now pay
off following Donald Trump's election as president of the U.S. and election
results maintaining the Republican majorities in both houses of Congress.
CLASSROOM
APPLICATION: The
article may be used in a tax policy class. It emphasizes the years of work
on failed proposals that may now lead Congress to implement a tax overhaul.
QUESTIONS:
1. (Introductory) What are the Republican goals with respect to the
U.S. tax code?
2. (Introductory) Refer to the graphic "GOP Tax Proposals Gain
Momentum." How do the two proposals by the House GOP (Republicans, or "Grand
Old Party") and President-elect Trump (during his campaign) reflect the
Republican goals described in answer one above?
3. (Introductory) Who is former Representative Dave Camp? How did his
work on overhauling the tax code fare through 2014?
4. (Advanced) What have Republicans learned from the failures of the
legislation championed by former Representative Dave Camp?
5. (Advanced) Based on the context of the discussion in the article,
what is 'dynamic scoring" in estimating the impact of tax law changes on the
U.S. federal budget?
6. (Advanced) Refer to the related article. Summarize some of the
concerns in corporate reactions to the House GOP tax plan described in the
earlier article.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
House GOP Business-Tax Plan Upends U.S. Policy,
Bares Corporate Fault Lines
by
Nov 24, 2016
Online Exclusive
"Years of Turmoil Forged Tax Plan," by Richard Rubin,
The Wall Street Journal, November
21, 2016
---
http://www.wsj.com/articles/after-years-of-turmoil-republican-tax-overhaul-picks-up-speed-1479662762?tesla=y
GOP brings hard-fought experience to effort to pass
rate-lowering, base-broadening revamp
Republicans’ race to rewrite the U.S. tax code on
the heels of this month’s election relies on years of work that is
suddenly—and quite unexpectedly—poised to pay off.
A 2017 tax overhaul would be a case study in
the benefits of dead ends and behind-the-scenes preparation. Failure would
show again how hard it is to reshape the U.S. tax system, even with rare
political momentum and one-party control of government.
Republicans have long sought a rate-lowering,
base-broadening revamp of the tax code, fusing differing business interests
within the GOP coalition. Corporations would get a rate cut and lighter
taxes on foreign income. So would small businesses, who report profits on
their owners’ individual tax returns. Individuals would get those lower
rates and simpler annual tax filing.
Graphic not copied here
Whether the overhaul would give the economy a big
lift is open to question. The conservative-leaning Tax Foundation says it
would boost investment, after-tax income for all groups and create 1.7
million jobs in the long run. That's an optimistic view. Economic models
that are more sensitive to budget deficits suggest more modest results.
The challenge is trade-offs, deciding which breaks
get curtailed to prevent budget deficits from exploding.
The landmark 1986 tax overhaul took years of
planning to get past those problems. Republicans are now partway through
that work. “We’ve grappled with this stuff,” says conservative tax activist
Ryan Ellis. “It’s ripe.” Ex-Rep. Dave Camp, a Michigan Republican who took
over the House Ways and Means Committee in 2011, put out a series of
detailed drafts on foreign income, derivatives and partnerships over several
years.
When he unveiled a complete bill in 2014, political
momentum had flagged, and some ideas—a bank tax and longer depreciation
schedules—flopped inside the GOP.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 2, 2016
Deduction Limits Pose Test for Tax-Cut Proposals
by: Richard
Rubin
Dec 01, 2016
Click here to view the full article on WSJ.com
TOPICS: Deductions,
Individual Taxation
SUMMARY: Changes
to existing tax breaks may not offset revenue loss from lower rates
according to analysis the Brookings Instituttion and by WSJ reporter Richard
Rubin. The article focuses on itemized deductions, standard deductions, and
limits to deductions.
CLASSROOM
APPLICATION: The
article may be used in an individual tax class to discuss policy changes
proposed by the incoming administration.
QUESTIONS:
1. (Advanced) What types of items may be included as itemized
deductions in an individual tax return?
2. (Introductory) According to the congressional Joint Committee on
Taxation, what are the three largest itemized deductions?
3. (Advanced) What is the standard deduction? Does it limit the
amount of itemized deductions that individuals may take? Explain.
4. (Introductory) How does President-elect Trump propose to limit
deductions in his tax plan?
5. (Introductory) According to President-elect Donald Trump, what is
the overall effect on the federal budget of his proposed tax changes?
According to reporting in the article from Brookings Institution analysis,
what is the likely overall effect of these proposed changes?
Reviewed By: Judy Beckman, University of Rhode Island
"Deduction Limits Pose Test for Tax-Cut Proposals," by Richard Rubin,
The Wall Street Journal,
December 1, 2016
---
http://www.wsj.com/articles/deduction-limits-pose-test-for-donald-trumps-tax-cut-plan-1480555670?mod=djem_jiewr_AC_domainid
Changes to existing tax breaks may not
offset revenue loss from lower rates
Itemized deductions are on
the chopping block as President-elect Donald Trump looks for ways to offset
the revenue loss from his proposed tax-rate cuts.
Experts say the
challenge—besides the political popularity of tax breaks for mortgage
interest and charitable contributions—is that there isn’t enough money there
to accomplish his goal.
“There’s just no way that
restricting the deductions that Trump has talked about comes anywhere close
to eliminating the tax cut for the wealthy in his plan,” said Bill Gale, a
senior fellow at the Brookings Institution. “It’s just arithmetic.”
Steve Mnuchin, Mr. Trump’s
pick for Treasury secretary, said Wednesday that high-income households
would get no absolute tax cut, a statement that is either imprecise or at
odds with every analysis of Mr. Trump’s plan.
Stephen Moore, who helped
develop Mr. Trump’s tax plan, said the proposal was designed so the
deduction cap offsets the revenue loss from lowering the top tax rate on
ordinary income from 39.6% to 33%.
The idea is that
high-income households would get no net tax advantage from that swap. But
that approach means the deduction limits don’t offset the tax cuts on
business income, estates and capital gains, which all flow
disproportionately to top earners.
Tax cuts on capital gains,
dividends, businesses and estates are especially skewed to the high end of
the income and wealth distribution, said Chuck Marr, director of federal tax
policy at the Center on Budget and Policy Priorities, a group that advocates
for low-income families.
“You have all these other
tax cuts that are disproportionately targeted to the wealthiest people in
the country,” he said. “That’s the core element of the plan.”
Taxpayers under current law
can itemize their deductions if they exceed the standard deduction, which
this year is $6,300 for individuals and $12,600 for married couples. Most
taxpayers don’t exceed that threshold, and fewer than 30% are projected to
itemize in 2017.
The largest deductions are
those for mortgage interest, charitable contributions and state and local
taxes. Those three breaks alone total $200 billion in forgone revenue in
2017, according to the congressional Joint Committee on Taxation.
Mr. Trump would squeeze
deductions from both ends. He would more than double the standard deduction
and limit itemized deductions to $100,000 for individuals and $200,000 for
married couples.
That deduction cap would
raise about $559 billion over a decade, according to the Tax Policy Center,
a project of Brookings and the Urban Institute. Even with that cap, Mr.
Trump’s plan would reduce government revenues by about $6.2 trillion over a
decade.
One thing that will become
more apparent as Mr. Trump’s plan moves through Congress is that the impact
of deduction limits doesn’t fall evenly. The state and local tax deduction
tends to benefit residents of high-tax states such as California and New
York.
The mortgage interest
deduction helps the upper middle class, especially in areas with high
housing costs. More than 60% of the tax break goes to households between the
80th and 99th percentiles of income, according to the Tax Policy Center.
And the charitable
deduction helps the highest earners. According to Internal Revenue
Service data, the top 0.001%—that is about 1,400 households—reported 9.5% of
charitable contributions.
The focus on deductions
ignores other tax benefits that high-income households get. They receive the
bulk of capital gains and dividends, which are taxed at preferential rates.
They also control the
timing of those gains, deferring taxes for years and not paying anything as
the value of their stocks and other assets appreciate.
Mr. Trump’s plan is the
latest attempt to curb deductions as part of a tax code overhaul. The House
Republican plan would eliminate the state and local tax deduction while
preserving write-offs for mortgage interest and charity.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 9, 2016
Cash
for Closing-Day Surprises
by:
Robyn A. Friedman
Dec 02, 2016
Click here to view the full article on WSJ.com
TOPICS: Asset
Acquisition
SUMMARY: This
article is written for the benefit of individual home buyers but may be used
to introduce the accounting concept of capitalizing all costs necessary to
acquire property, plant, and equipment by businesses.
CLASSROOM
APPLICATION: The
article may be used in an introductory or intermediate financial reporting
class or in a personal finance class.
QUESTIONS:
1. (Advanced) Define the term closing of a real estate purchase,
either when a business buys a building or an individual or couple buys a
home.
2. (Introductory) What are closing costs? What types of items are
included in this category?
3. (Advanced) How must businesses account for closing costs when
buying real estate? Be specific, listing each of the items you identified in
answer to question 2.
4. (Introductory) Consider homebuying by individuals or couples.
Besides a downpayment to purchase the home, what are all of the items listed
in this article for which homebuyers must save?
5. (Advanced) What is an "estoppel" letter? How can this letter help
avoid concern about being surprised by hidden fees that come to light at
closing or errors in assigning fees to buyer and seller?
Reviewed By: Judy Beckman, University of Rhode Island
"Cash for Closing-Day Surprises," by Robyn A. Friedman,
The Wall Street Journal,
December 2, 2016
---
http://www.wsj.com/articles/buying-a-home-prepare-for-surprise-closing-costs-1480521375?mod=djem_jiewr_AC_domainid
Home buyers typically know how much money they’ll
need for the closing. But mortgage experts say that might not be enough.
Note to house hunters on a
budget: A home’s sale price isn’t really the sale price—there are lots of
closing costs and expenses
that jack up the final number.
According to
online real-estate listings site Zillow, buyers typically pay between 2% and
5% of the purchase price in closing costs. So if a home costs $300,000, that
buyer can expect to pay between $6,000 and $15,000. Since the financial
crisis, there’s more transparency on the part of lenders when disclosing the
costs associated with a mortgage, so buyers know in advance how much they’ll
need for the closing. But experts say that might not be enough.
Lender fees are only one part of
the total cost of homeownership. Buyers must also pay appraisers, home
inspectors and settlement agents, as well as the
cost of title insurance,
homeowners insurance and property taxes. And the fees don’t stop at the
closing. Utilities, regular home maintenance and unexpected repairs add up
as well—and can derail even the most experienced buyer.
“Many of the
hidden fees associated with financing have been eliminated,” says Jay
Parker, chief executive officer of Douglas Elliman’s Florida brokerage. “But
that does not eliminate some of the potential expenses associated with the
homebuying process.”
In a survey of
1,300 U.S. homeowners conducted for TD Bank in March, 62% spent close to
$2,000 in unexpected costs during the mortgage process. For millennials,
those born between 1982 and 2004, the number is higher; 44% incurred up to
$5,000 in unexpected costs.
“Millennials, in particular, go
online and do their research first, but may not understand about closing
costs and escrow accounts,” says Ray Rodriguez, regional mortgage sales
manager for the metro New York market for TD Bank. Lenders create escrow
accounts to pay insurance and tax bills on a mortgaged property when they
come due.
Mr. Rodriguez
recently closed a $700,000 mortgage in Connecticut where the borrower had to
post $10,600 just to set up escrow accounts. Utility bills can come as a
surprise as well. Some utilities and other service providers may require a
deposit when an account is opened.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 9, 2016
Inventory Check: We Went to the Stores
by: Miriam
Gottfried
Dec 03, 2016
Click here to view the full article on WSJ.com
TOPICS: Inventory
SUMMARY: This
article follows on one covered in this review from November 14, 2016 and
listed as the related article. As reported in the related article, retailers
have claimed they will maintain lower inventories in order to increase gross
profit margins by implementing fewer markdowns, potentially at the loss of
some sales for high-demand products. The WSJ is tracking their results
through lists of products at 4 retailers ranging across price points:
Macy's, JC Penney, Ralph Lauren, and Gap. Observations are being made at
mid-town Manhattan stores so prices may not be representative of those found
elsewhere but the article includes the argument that the pricing trends
should be representative.
CLASSROOM
APPLICATION: The
article may be used in discussing managerial issues of discounting and gross
profits or to introduce markdowns when covering inventory accounting.
Questions also ask a statistical concept about generalizability of the
results of the price tracking.
QUESTIONS:
1. (Introductory) What is gross profit or gross margin?
2. (Advanced) Why would companies want to maintain low levels of
inventory going into the Christmas shopping season? Hint: you may refer to
the related article to help with this question.
3. (Introductory) What is a markdown? What is the purpose of the WSJ
tracking markdowns? Over what time period will they track?
4. (Advanced) Where is the WSJ monitoring these inventory pricing
trends? Do you think prices at those locations will represent price trends
across the U.S.?
5. (Introductory) Explain the reasoning given by the WSJ that
tracking these prices should provide useful information to any reader, not
just those located where the WSJ is conducting its tracking.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Lighter Inventory Helps Lift Retailers' Fortunes
for Now
by Miriam Gottfried
Nov 14, 2016
Page: B12
"Inventory Check: We Went to the Stores," by Miriam Gottfried,
The Wall Street Journal,
December 3, 2016
---
http://www.wsj.com/articles/inventory-check-we-went-to-the-stores-1480701344?mod=djemheard_t?mod=djem_jiewr_AC_domainid
Retailers claim that low inventory will mean less
discounting for the holidays
Holiday 2016 is
supposed to be the year of clean inventory, but you wouldn’t know that from
the looks of many stores.
U.S. retailers, including
Macy’s,
Nordstrom,
Gap,
J.C. Penney
and
Kohl’s,
have
touted lower inventory
heading into the most important shopping period of the year. That has driven
up stock prices for many of them as investors hope for fewer markdowns and
better margins in the fourth quarter. Meanwhile, vendors such as Michael
Kors,
Coach
and Ralph Lauren have tried to stem discounting by
cutting back sales
to department stores and streamlining the number of styles they sell to
them.
To gauge how
this war on promotions is going, Heard on the Street visited the physical
stores of four retailers—Macy’s, J.C. Penney, Gap and Ralph Lauren—and
selected a basket of items to monitor. We plan to check back every week
through early January to see how the prices of those items change. Our first
visit occurred on Tuesday, Nov. 29, after the buzz surrounding
Black Friday had died down.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 9, 2016
Tax
Returns Show Rise for the Rich
by: Richard
Rubin
Dec 02, 2016
Click here to view the full article on WSJ.com
TOPICS: Individual
Income Taxation
SUMMARY: Based
on information from the Internal Revenue Service that removes taxpayer
identification, this article presents the share of the overall tax burden
and average effective tax rate of the top 400 U.S. taxpayers.
CLASSROOM
APPLICATION: The
article may be used in a personal income tax class to discuss tax equity,
effective tax rates, and the impact of capital gains tax rates.
QUESTIONS:
1. (Introductory) What is adjusted gross income? What level of
adjusted gross income is the minimum reported by the top 400 taxpayers in
the U.S. in 2014?
2. (Advanced) What has been the trend of the share of total income
and total income taxes paid by this group of taxpayers?
3. (Introductory) What type of income typically is reported by this
top group of taxpayers?
4. (Advanced) What is the average effective tax rate for this group
of taxpayers? How do you think that is influenced by the type of income
reported by this group?
5. (Introductory) What does the author Richard Rubin mean when he
writes that increases in incomes might be "skewed" by tax increases that
took effect in 2013? Does this mean that tax increases themselves are
included in income? Explain.
Reviewed By: Judy Beckman, University of Rhode Island
"Tax Returns Show Rise for the Rich," by Richard Rubin,
The Wall Street Journal,
December 2, 2016
---
http://www.wsj.com/articles/earnings-at-peak-of-u-s-income-distribution-jumped-20-in-2014-1480608351?tesla=y?mod=djem_jiewr_AC_domainid
Total income reported on the top 400 individual tax
returns rose 20% in 2014
The total income
reported on the top 400 individual tax returns rose 20% in 2014, according
to Internal Revenue Service data released Thursday.
The figures
reveal the concentration of earnings at the pinnacle of the income
distribution, in a club that required $126.8 million of adjusted gross
income to enter. That group, out of nearly 150 million tax returns in 2014,
received 1.3% of income and 10% of capital gains that get preferential
rates. The same 400 households also claimed 6.9% of all deductions for
charitable contributions.
The top 400
households paid 2.13% of all individual income taxes, their highest share in
the data series that goes back to 1992. Their average tax rate was 23.13%,
the highest since 1997, when Congress cut capital-gains taxes.
The increases in
incomes for the top 400 in 2014 may be somewhat skewed by the tax increases
that took effect in 2013. Those changes encouraged taxpayers to realize
capital gains in 2012 instead of 2013, causing a spike in reported income in
2012 and a dip in 2013.
The top 400 are
measured by income, not wealth, and the individuals change from year to
year.
Many wealthy
people can avoid annual income taxes by not selling assets and wouldn’t be
part of the list, which doesn’t include taxpayers’ names.
The IRS also
said on Thursday that it would no longer release data on the top 400, which
it compiled going back to 1992.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December,9, 2016
Rising Rates Trigger Losses on Banks' Bond Portfolios
by: John
Carney
Dec 08, 2016
Click here to view the full article on WSJ.com
TOPICS: Available-for-Sale,
Banking, Investments
SUMMARY: "Rising
interest rates have sent bank stocks soaring. But there is a dark
side...banks in the fourth quarter are likely to report losses on their
large bond portfolios." The article discusses information take from
reporting on available-for-sale investments, including other comprehensive
income.
CLASSROOM
APPLICATION: The
article may be used when covering accounting for investments.
QUESTIONS:
1. (Advanced) What is the difference between realized and unrealized
gains and losses on security holdings?
2. (Advanced) What are the three categories of investments identified
in authoritative accounting literature? Cite the authoritative guidance you
are referencing.
3. (Advanced) What is the difference in accounting treatment of
unrealized gains and losses across these three categories of investments?
Cite the authoritative guidance you are referencing.
4. (Advanced) Why do unrealized losses affect a bank's book value but
"don't immediately diminish a banks profits"? In your answer, define the
"special bucket...called 'accumulated other comprehensive income.'"
5. (Advanced) What are required disclosures for unrealized gains and
losses? Cite the authoritative guidance you are referencing.
6. (Introductory) How does the analysis in this article use the
information required in financial statements and related disclosures? List
all items you find that are taken from financial statement amounts and
disclosures for investments.
Reviewed By: Judy Beckman, University of Rhode Island
"Rising Rates Trigger Losses on Banks' Bond Portfolios," by John Carney
Dec 08, 2016,
The Wall Street Journal,
December 3, 2016
---
http://www.wsj.com/articles/rising-interest-rates-trigger-losses-on-banks-massive-bond-holdings-1481132298?tesla=y
These losses are unrealized, however,
and over time they will be offset by higher net interest income
Rising interest rates have
sent bank stocks soaring. But there is a dark side to this kind of market
move—banks in the fourth quarter are likely to report losses on their
massive bond portfolios.
U.S. banks suffered a $6.5
billion unrealized loss on the value of securities they hold as investments
as of Nov. 23, according to the most recent data from the Federal
Reserve. This was the first time since 2014 that the Fed data for the
banking system as a whole showed a loss on these securities. As recently as
early July, banks had total unrealized gains on these portfolios of $33.8
billion.
They key is that these
losses, or gains, are unrealized and don’t hit earnings. While they do
affect a bank’s book value, or net worth, the losses over time will be
offset by increasing net interest income. That is a trade-off banks and
their investors will take in stride, and even welcome.
Speaking at a financial industry conference
Tuesday,
Wells Fargo
& Co. chief Timothy Sloan said that while there was likely to be short-term
unrealized losses in the bank’s securities portfolio, higher interest rates
were an overall “positive” for the bank.
When rates rise, the value
of debt securities tends to fall because the relatively low rates on
existing bonds will look unattractive compared with the higher rates of new
bonds. The decline in bond prices brings the yields of similar bonds in line
with each other.
Banks classify a big
portion of their bond holdings as investment holdings, or “available for
sale,” distinguishing them from those held for trading purposes. These
investment holdings were $2.66 trillion for U.S. banks at the end of the
third quarter, or about 16% of total assets, according to data from the
Federal Deposit Insurance Corp. As well, there is a smaller group of bonds
banks classify as being held to maturity.
When investment securities
lose value, the losses are described as “unrealized” and don’t immediately
diminish a bank’s profits. Instead, the losses go into a special bucket in
shareholders’ equity called “accumulated other comprehensive income.”
This cuts into banks’ book
value as well some measures of regulatory capital. That can be a problem for
banks with thin capital cushions. But with many banks comfortably above
required minimum capital levels, this isn’t likely to be a cause for concern
today.
“I don’t hear many
investors concerned about [investment-security] losses and the impact on
capital because the stocks seem to be trading much more on price to earnings
than price to book value and capital ratios are so strong,” said Sanford C.
Bernstein analyst John McDonald.
The losses will only cut
into a bank’s profits if they are realized through a sale, meaning a bank
sells bonds for a price lower than what it paid. Or a hit to profit could
result if a bank determines a bond has become permanently impaired—typically
because it is unlikely to pay the promised cash flow.
During the financial
crisis, some investors believed banks were hiding losses on permanently
impaired securities in their investment portfolios. That is unlikely to be
the case now. Mostly, bonds are losing value simply because of interest rate
moves.
Any knock to bank balance
sheets will also be cushioned by the fact that many large banks have
substantially increased the portion of their securities portfolios they
classify as “held to maturity.” Those bonds don’t get marked to market
prices unless there is a permanent impairment.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 9,,2016
China's Banks are Hiding More Thank $2 Trillion in Loans
by: Lingling
Wei
Dec 07, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Loan
Loss Allowance
SUMMARY: The
Chinese Bank of Nanjing reports "$39 billion in investment receivables in
the third quarter, nearly as big as its loan portfolio...." The article
indicates that the bank includes in this category some banking loans in
order avoid estimating losses from expected uncollectible amounts under
regulatory requirements. This practice is widespread among Chinese banks
although the average amount in investment receivables is approximately 20%
of these banks' total loan portfolios.
CLASSROOM
APPLICATION: The
article may be used in covering banking, contingent losses, or receivables
and investments. It is appropriate for an intermediate level or above.
Questions ask students to understand the need for reporting contingent
losses when they can be estimated and the impact of the practices described
in the article.
QUESTIONS:
1. (Advanced) What are contingent losses in general? In relation to
loans receivable held by banks?
2. (Introductory) According to the article, how are many Chinese
banks avoid reporting contingent loan losses?
3. (Introductory) Refer to the related video. How do Chinese banks
classify loans as investments rather than loans receivable?
4. (Introductory) Refer to the graphic entitled "Booming Business."
If loan balances are nearly 250 billion yuan and greater than the investment
receivables balance of just over 200 billion yuan, how does the graphic
support the statement that "Bank of Nanjing's investment receivables have
grown much faster than its loans"?
5. (Advanced) According to your understanding of accounting
requirements, should banks report contingent losses related to
collectibility issues associated with any asset--either an investment or a
loan? What differences between investment and loan accounting might result
in the situation described in this article?
6. (Introductory) Why do Bank of Nanjing officials say they are not
worried about non-collectibility of the loans and investments they hold? How
does this affect bank managers' behavior in lending decisions?
Reviewed By: Judy Beckman, University of Rhode Island
"China's Banks are Hiding More Thank $2 Trillion in Loans," by Lingling
Wei,
The Wall Street Journal,
December 7, 2016
---
http://www.wsj.com/articles/chinas-banks-are-hiding-more-than-2-trillion-in-loans-1481130392?mod=djem_jiewr_AC_domainid
Accounting sleight of hand means banks
don’t have to set aside capital for potential losses, sowing fears of a
crisis; new apartments with no residents
In 2014, the Chinese city of Haimen on the
mouth of the Yangtze River set out to build a large apartment complex and
turned to
Bank of Nanjing
Co. for about $29 million in financing.
The bank was happy to
oblige but it didn’t call the money a loan, according to people familiar
with the matter. It was added to Bank of Nanjing’s balance sheet as an
“investment receivable,” a loosely regulated category of assets that allows
bank officials to set aside little or nothing for potential losses.
Bank officials aren’t shy
about the accounting sleight of hand, which is rampant across China. The
bank had about $39 billion in investment receivables in the third quarter,
nearly as big as its loan portfolio, and profits have climbed by more than
20% a year.
As of June, 32 publicly
traded Chinese banks had a total of $2 trillion in investment receivables as
of June, up from $334 billion at the end of 2011, according to a tally by
The Wall Street Journal of the latest available information from data
provider Wind Information Co.
The investments are
equivalent to 20% of the same banks’ total loans in dollar terms, up from 6%
at the end of 2011. The 32 banks have about 70% of all the banking assets in
China.
The surge shows how Chinese
banks are trying to keep the credit spigot open to support the country’s
slowing economy. Structuring financing deals as investments instead of loans
frees up bank capital and makes it easier to extend loan deadlines or new
credit to borrowers. The strategy has been especially popular at small and
midsize banks, said executives and analysts.
The epidemic of investment
receivables has created a parallel buildup of debt in addition to China’s
rising official debt levels, now 2˝ times gross domestic product. “The rapid
growth in banks’ off-balance-sheet and investment activities, in essence,
means hidden credit risks and could threaten financial safety,” said Shang
Fulin, China’s top banking regulator, in an unusually blunt speech in
September.
Economists at Swiss bank
UBS AG estimate as much as $2.4 trillion (16.5 trillion yuan) was “missing”
from the broadest measurement of credit disclosed by China’s central bank
last year, up from $712 billion (4.9 trillion yuan) in 2014. The discrepancy
is largely because Chinese commercial banks use so-called shadow lenders to
mask loans as investments, the economists said.
In November, China’s top banking regulatory
agency proposed rules that
could force financial
institutions
like Bank of Nanjing to apply more-stringent accounting standards to
investments that are essentially loans.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 16, 2016
It
is Crunch Time for New Accounting Rules
by: Tatyana
Shumsky
Dec 13, 2016
Click here to view the full article on WSJ.com
TOPICS: Revenue
Recognition
SUMMARY: The
article discusses the status of implementing the new revenue recognition
requirements-or lack thereof given that only 15 of the S&P 100 have made
disclosures about the expected impact of the new accounting requirements. It
also includes quotes from U.S. Securities and Exchange Commission leaders in
accounting, Chief Accountant Wes Bricker and Cicely LaMothe, Associate
Director in the Division of Corporation Finance, emphasizing that companies
must be ready for this implementation and required disclosure or expect to
face SEC comment letters.
CLASSROOM
APPLICATION: The
article may be used in an intermediate or advanced financial reporting class
addressing revenue recognition.
QUESTIONS:
1. (Introductory) When must the new revenue recognition accounting
standard be implemented?
2. (Advanced) How extensive are the changes required by the new
accounting standard?
3. (Introductory) How prepared are companies to implement these new
requirements?
4. (Advanced) What must publicly-traded companies disclose now in
their filings with the U.S. Securities and Exchange Commission? How many, or
few, have begun to make this disclosure?
Reviewed By: Judy Beckman, University of Rhode Island
"It is Crunch Time for New Accounting Rules," by Tatyana Shumsky,
The Wall Street Journal, December
13, 2016
---
http://www.wsj.com/articles/as-new-accounting-rules-loom-time-to-tell-investors-more-1481568088?mod=djem_jiewr_AC_domainid
Just 15 companies in the S&P 100 have
signaled how they plan to transition to new revenue-recognition rules
It is almost showtime for
new revenue-recognition
rules,
but the largest U.S. public companies have
told shareholders precious little about what to expect.
Just
15
companies in the S&P 100
have so far disclosed how they plan to make the transition to the new
accounting standard, according to a Wall Street Journal review of most
recent quarterly filings.
Finance executives say they are working on
plans to tell investors more about how the rules will affect their business,
but admit they are in uncharted waters. “You literally have to take a clean
sheet of paper and start from scratch,” said Lara Long, vice president for
corporate accounting and reporting at agricultural-equipment maker
AGCO
Corp.
Public companies are
required to file quarterly and annual reports using the new guidelines for
fiscal years that begin after Dec. 15, 2017. The new rules replace
industry-specific practices with a unified five-step model to make revenue
booking for similar transactions more comparable. It also is an effort to
more accurately depict the timing, uncertainty and volatility of doing
business.
Using a new standard for
revenue recognition will reshape the income statements for some companies.
For others, the change will be minimal, accounting experts say. As part of
the transition, businesses also must provide comparative figures.
Either way, finance chiefs must begin
explaining to investors
how, if at all, the new accounting methods and the transition will impact
their financial reports.
“I would encourage everyone, as you’re
going through the technical issues and evaluating them, at the same time to
think about the disclosure implications that it’s going to have,” said Josh
Paul, director of accounting at
Alphabet
Inc., the parent company of Google.
The Securities and Exchange
Commission wants coming year-end or quarterly reports to contain detailed
information about the impact of the new revenue-recognition rules, said
Wesley Bricker, chief accountant for the SEC.
“Revenue is one of the most
significant measures used by investors in assessing a company’s performance
and its prospects,” Mr. Bricker said at an accounting conference in
Washington, D.C., last week.
The SEC expressed concern
that preparing for this transition has overshadowed work on company
disclosures. It is turning up the pressure now in part because companies
have had ample time to prepare.
And there are no plans to delay
implementation. Even though the SEC’s priorities likely will be reshaped
under President-elect Donald Trump, the rules are set by a separate body,
the Financial Accounting Standards Board. The group already
pushed the start date
out by a year
in response to widespread lobbying from
companies. Another extension to the implementation deadline isn’t in the
cards, said Susan Cosper, FASB’s technical director.
The SEC’s division of
corporation finance will issue comment letters on these disclosures—or lack
thereof—if found to be “materially deficient,” said Cicely LaMothe,
associate director of the division.
Still, Alphabet and AGCO
are among the many companies that have yet to provide investors with this
information.
At AGCO, Ms. Long says she
has been working on implementing the new accounting rules since the fall of
2014, a few months after they were passed, and began working on new
disclosures at the end of last year.
Ms. Long’s initial
assessment of how the rules would affect AGCO included reviewing the
contracts under which it sells tractors and combines to dealers. Ms. Long
had to establish a special process for the legal team to flag any deviation
from standard contracts to the finance team because it could impact the
accounting.
The review and its
conclusions will form the basis of AGCO’s new disclosures, which must first
pass an audit. Part of the challenge is that Ms. Long had to start from
scratch and describe what it is the company is promising its customers. “You
have to go through all your conclusions and say whether it impacted you or
whether it didn’t, and if it didn’t you have to say why,” she explained.
In its November earnings,
Alphabet said it would decide how to transition to the new accounting rules
this quarter, a signal the company likely will soon expand its discussion of
the rules and their impact.
Still, the sense of urgency isn’t lost on
Mr. Paul.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 16, 2016
LendingClub Prodded on Disclosure
by: Michael
Rapoport
Dec 08, 2016
Click here to view the full article on WSJ.com
TOPICS: Non-GAAP
Reporting
SUMMARY: In
May 2016, the U.S Securities and Exchange Commission (SEC) issued Compliance
& Disclosure Interpretations (C&DIs) on the use of non-GAAP measures. They
are available on the web at
https://www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm
The agency also indicated at that time that companies should work to improve
their non-GAAP disclosures in 2016 quarterly reporting. This article reports
on one company who has received comment letters from the SEC in June and
October of this year. The comment letters are available on the SEC's web
site by searching the EDGAR database for UPLOAD documents. For the company's
responses, search for CORRESP. The SEC comment letter sent to this company
in June 2016 can be found at
https://www.sec.gov/Archives/edgar/data/1409970/000000000016081062/filename1.pdf
CLASSROOM
APPLICATION: The
article is useful to help students learn about nonGAAP reporting and the
SEC's comment letter process in a financial reporting class at the
intermediate level or above. The comment letter to LendingClub discusses,
among other measures, the non-GAAP measure contribution margin, so faculty
teaching that measure in a managerial accounting course also may find the
article useful.
QUESTIONS:
1. (Advanced) What are non-GAAP measures?
2. (Introductory) Who is Mark Kronforst? What is his general reaction
to the SEC's review of non-GAAP reporting in recent filings?
3. (Advanced) Access the SEC comment letter to LendingClub about the
company's non-GAAP measures, available at
https://www.sec.gov/Archives/edgar/data/1409970/000000000016081062/filename1.pdf
Proceed to items 7, 8, and 9. What non-GAAP measures does LendingClub
report?
4. (Advanced) According to the article and the actual SEC comment
letter, what other reporting questions has the SEC raised with LendingClub?
5. (Advanced) What was LendingClub's reaction to the SEC's questions?
Reviewed By: Judy Beckman, University of Rhode Island
"LendingClub Prodded on Disclosure," by Michael Rapoport,
The Wall Street Journal, December
8, 2016
---
http://www.wsj.com/articles/sec-urges-lendingclub-to-disclose-more-about-its-loans-funding-1481111163?mod=djem_jiewr_AC_domainid
Commission’s comment letters question firm’s use of
‘non-GAAP’ financial metrics
The
Securities and Exchange Commission has urged
LendingClub
Corp. to disclose more about its lending operations and has questioned the
company’s use of tailored “non-GAAP” financial measures, according to newly
released correspondence between the regulator and the online lender.
In comment
letters in June and October, the SEC asked the company to provide more
detail about its loan portfolio and sources of funds. The commission also
suggested that some of LendingClub’s non-GAAP metrics could run afoul of a
provision requiring that such measures not mislead investors.
LendingClub
told the SEC that it would provide some more information about its lending
and funding, according to the letters. But the company pushed back against
the commission’s requests in some respects, and insisted its metrics were
“not misleading.”
LendingClub is the latest high-profile company to face
SEC criticism over its use of non-GAAP metrics—unofficial
measures of earnings that don’t comply with generally accepted accounting
principles, or GAAP. They strip out one-time or noncash items to provide
what companies consider to be a truer measure of performance, but critics
fear the metrics can be used to make companies look healthier than they
really are.
The SEC
has been trying to rein in use of non-GAAP metrics across many industries,
and many companies have revised their disclosures in response to new
guidance on the issue that the SEC
issued in May.
Dozens of companies like LendingClub have received comment letters in which
the SEC raises questions about whether they’re using the measures properly.
“It’s not
every day we look at an issue like this and issue that many comment
letters,” Mark Kronforst, chief accountant of the SEC’s corporation finance
division, told reporters Wednesday at an accounting conference in
Washington. Speaking about non-GAAP issues in general, he added: “We thought
there were problems.”
In a Nov. 4,
letter to LendingClub, the SEC said that it had finished its review, and it
hasn’t taken any further action against the company. A LendingClub
spokeswoman declined to comment on the SEC letters.
On
LendingClub’s funding and lending, the SEC asked the company to provide a
fuller analysis of its loan portfolio, broken down by loan type and
including information such as charge-off rates and loan-delinquency rates.
The commission also asked for more information on how much of LendingClub’s
loans were funded by its largest investors. LendingClub has begun providing
some more information in both those areas in its SEC filings.
The SEC also
asked LendingClub to disclose its loan funders’ reinvestment rates, because
the company had touted high reinvestment rates as an indication of the
investors’ confidence. But the company told the SEC it would remove that
reference altogether, after some of the funders curbed their activity.
The
commission said LendingClub was featuring its non-GAAP measures too
prominently, and that it should explain more about why the company considers
them useful—both matters that LendingClub said it would address. The SEC
also questioned LendingClub’s use of “contribution” and “contribution
margin,” which gauge the profitability of the company’s loans but strip out
some of its regular operating costs—a situation the SEC has said could be
misleading.
But
LendingClub said the measures aren’t meant to measure the company’s overall
profitability in the first place, and hence it isn’t misleading to investors
if they omit regular operating costs. LendingClub said it would make that
clear in its disclosures.
LendingClub
also pushed back against the SEC’s request for more information about the
investments that some of the company’s officers and directors had made in
its loans. The company said it wasn’t required to provide such information
under SEC regulations.
The
commission’s questions were part of its regular examination of LendingClub’s
SEC filings and are separate from its scrutiny of the company over issues
that arose when
LendingClub ousted Chief Executive Renaud Laplanche
in May, after the company found he presided over errors related to loan
sales and hadn’t disclosed a personal stake in an outside investment fund.
The company has said in filings that it is cooperating with that SEC inquiry
and with the Justice Department and the Federal Trade Commission, which also
contacted LendingClub after it revealed those events.Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 16, 2016
Japanese Brewer Taps into Europe
by: Megumi
Fujikawa and Atsuko Fukase
Dec 14, 2016
Click here to view the full article on WSJ.com
TOPICS: Antitrust,
Asset Acquisition
SUMMARY: NOTE:
THIS SUMMARY ANSWERS SOME INTRODUCTORY QUESTIONS AND PROFESSORS USING THIS
REVIEW MAY WANT TO DELETE PRIOR TO DISTRIBUTING TO STUDENTS. Following the
regulatory requirements for AB InBev's merger with SABMiller (previously
covered in this review on October 13, 2016), ABInBev is selling off brewery
assets. Asian brewer Asahi, facing declining sales in Japan identified with
demographics in the article, is looking to expand its global market reach.
The Asian company won a bidding war involving a private equity firm and
other investment firms, leading to a high price tag for the purchase. Asahi
and AB InBev's shares reacted accordingly.
CLASSROOM
APPLICATION: The
article may be used in an intermediate or advanced financial reporting class
to cover business combinations or lump sum purchases of assets.
QUESTIONS:
1. (Introductory) Why is AB InBev selling off brewing assets in
Eastern European nations?
2. (Introductory) Why is Asian brewer Asahi buying these beer
operations? List all of the regulatory and strategic reasons you find
referenced in the article.
3. (Introductory) What other beers also will be acquired by Asahi?
4. (Advanced) What are investors' concerns with the price paid by
Asahi for these brewing assets? How does the market reaction to this
announcement evidence that concern?
5. (Advanced) How could Asahi explain the price paid in a way that
would lead to investors viewing the transaction more favorably?
6. (Advanced) Note the correction at the bottom of the article:
previous versions of the article indicated that Asahi had agreed to buy beer
brands from AB InBev. Asahi actually agreed to buy brewing assets from AB
IBev. What is the difference between these two statements? How do they both
differ from saying Asahi acquired an entire business? Specifically describe
the different accounting implications for each type of transaction.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
SABMiller, AB InBev Shareholders Approve $100
Billion-Plus Merger
by Tripp Mickle
Sep 28, 2016
"Japanese Brewer Taps into Europe," by Megumi Fujikawa and Atsuko Fukase,
The Wall Street Journal, December
14, 2016
---
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 16, 2016
Dow
20000 Won't Wipe Away Pension Problems
by: Vipal
Monga and Heather Gillers
Dec 14, 2016
Click here to view the full article on WSJ.com
TOPICS: Pension
Accounting, Pension Smoothing
SUMMARY: Even
after the stock market has soared, increasing plan assets, and interest
rates have increased, reducing calculated plan liabilities, "corporate
pensions were left with a $414 billion funding deficit, $10 billion larger
than it was at the end of last year, according to Mercer [a consulting firm
focusing on pension plans]." The article specifically delves into the
smoothing processes in accounting for pensions leading to a delay in
reflecting the favorable impact of these market forces.
CLASSROOM
APPLICATION: The
article may be used in an advanced financial reporting class covering
pension accounting.
QUESTIONS:
1. (Introductory) What is the funded status of a defined benefit
pension plan?
2. (Advanced) What factors determine the funded status of pension
plans? Name all that you can identify and briefly describe the influence of
each.
3. (Advanced) "Almost all public retirement systems engage in an
accounting practice known as 'smoothing' returns." Explain how smoothing
occurs in pension accounting.
4. (Advanced) Why does the smoothing you discussed above mean that
today's positive market factors have not been fully reflected in improving
pension plans' overall funded status?
5. (Advanced) Refer to the related article. How does the need to
reduce expected returns on plan assets impact accounting for pension plans
and the funded status of these plans?
6. (Advanced) Refer again to the related article. Why does the change
in expected return on plan assets by Calpers result in "real life
consequences" for cities and towns in California?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Calpers: A 7.5% Annual Return is No Longer
Realistic
by Heather Gillers
Dec 14, 2016
Online Exclusive
"Dow 20000 Won't Wipe Away Pension Problems," by Vipal Monga and Heather
Gillers,
The Wall Street Journal, December
14, 2016
---
http://www.wsj.com/articles/dow-20-000-wont-wipe-away-pension-problems-1481711401?mod=djem_jiewr_AC_domainid
Higher share prices and bond yields aren’t yet
enough to close yawning funding gaps
The 2016
surge in stocks and bond yields is a rare positive for U.S. company and
public pensions. But it doesn’t solve their problems.
In
November large corporate retirement plans gained back $116 billion needed to
pay out future benefits largely because of dramatic market movements
following
Donald Trump’s Nov. 8 election win,
according to consulting firm Mercer Investment Consulting LLC.
The
S&P 500 soared
and long-term interest rates rose, boosting asset values and lowering
liabilities for pensions at 1,500 of the largest U.S. companies. The
present-day value of future obligations owed by companies falls when
interest rates rise.
Even with
November’s gains, corporate pensions were left with a $414 billion funding
deficit, $10 billion larger than it was at the end of last year, according
to Mercer. Funding deficits occur when the value of assets in pension plans
don’t equal the projected future payments to retirees.
“It’s been
good, but not great,” said Michael Moran, pension strategist at Goldman
Sachs Asset Management. “Things are better than where we were a month ago,
but it’s still too early to declare victory.”
That tempered reaction indicates
the
magnitude of the funding gap
faced by managers of retirement assets across the U.S. Pensions still
haven’t recovered from the chronic deficits created by the financial crisis
and
perpetuated by low interest rates.
The largest
corporate-pension funds lost more than $300 billion during the 2008
downturn, according to consulting firm Milliman Inc., and that loss wiped
out the previous five years of gains.
Pension deficits are a big deal
for companies, because firms must close funding gaps with cash they could
use for other purposes. Companies such as
General Motors
Co.,
International Paper
Co., and
CSX
Corp. have all borrowed money this year to pump funds into their pension
plans.
Companies in the
S&P 1500 have contributed $550 billion into their pension plans between 2008
and Nov. 30 of this year, according to Mercer. Even with those
contributions, their funded status was 81.3% as of Nov. 30.
Although
pension-funding levels fluctuate during the year, most companies lock in
their pension obligations at the end of the year for accounting purposes.
November’s run-up, if it continues into December, could help lessen the
burden of what had earlier been shaping up to be a big drag on 2016
financial results.
Funding holes are
a trickier problem for funds that manage the pension assets of public
workers
because market rallies don’t automatically help close the gap.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 16, 2016
Rally Spurs Investors to Donate Stock
by:
Chana R. Schoenberger
Dec 12, 2016
Click here to view the full article on WSJ.com
TOPICS: Charitable
Contributions, Tax Planning
SUMMARY: The
article describes donations of appreciated stock in the current favorable
stock market conditions along with discussion of tax planning for charitable
donations. The tax planning underway reflects the possibility of tax rate
decreases and itemized deduction limitations under campaign proposals by
President-elect Donald Trump. The online article includes links to many
related articles, not listed in this review, on donation behavioral
research, financial gifts, and other tax-related wealth management topics.
CLASSROOM
APPLICATION: The
article may be used in an individual income tax class covering itemized
deductions and charitable donations.
QUESTIONS:
1. (Introductory) What does the election of Donald Trump imply about
expected tax rates, both individual and corporate?
2. (Advanced) How do charitable donations affect individual
taxpayers? What is the current limit on this deductibility?
3. (Introductory) Why does the expected tax rate in the future affect
donations to charitable organizations now?
4. (Advanced) How might other changes proposed by President-elect
Trump influence the tax benefit of charitable donations in future years?
5. (Introductory) Why is it "almost always better to donate
[appreciated] stock rather than selling the stock and giving cash"?
Reviewed By: Judy Beckman, University of Rhode Island
"Rally Spurs Investors to Donate Stock," by Chana R. Schoenberger,
The Wall Street Journal, December
12, 2016
---
http://www.wsj.com/articles/why-more-investors-are-donating-stock-to-charity-1481511901?mod=djem_jiewr_AC_domainid
The strategy assumes that President Trump is going
to cut tax rates
As the stock market
reaches new heights after the presidential election, more investors are
looking at their portfolios to see which securities have gone up the
most—and then donating them to charity.
“We’ve seen an
uptick in charitable giving using appreciated stock,” says Paul Stark, a
wealth and estate-planning strategist at
SunTrust Banks
Inc.
That uptick is being
fueled by assumptions about what a Trump administration will do.
“With Trump being elected,
there’s more certainty that tax rates will be lower” in the years ahead, Mr.
Stark says. That means investors who donate appreciated stock before the end
of December will be able to deduct their gift’s value from a 2016 tax bill
that could be higher than their 2017 tax bill.
What’s more, the Trump
campaign discussed changing the limits on itemized deductions, which could
make charitable giving less valuable as a tax advantage in future years,
says Adrienne Penta, a senior vice president at Brown Brothers Harriman in Boston.
Currently, taxpayers typically can roll forward unused charitable deductions
for five years. It’s unclear if that will change, she says.
For those looking for a
tax break from a donation, “it’s almost always better to donate the stock
rather than selling the stock and giving cash, in a taxable account,” says Russell Rivera, president of Voice Wealth Management in New York.
That’s because investors
who sell appreciated stock held in a taxable account owe taxes on those
gains. They would get a tax deduction for donating those proceeds, but it
might not offset the tax bill from the share sale. If those investors
instead donated appreciated stock, they would pay no taxes on the gains and
get a tax deduction for the full market value of the shares.
If stock has lost value,
it’s a different story. In that case, investors may want to sell the shares
at a loss and donate the cash proceeds, since they could write off that loss
against other capital gains.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 16, 2016
",
The Wall Street Journal, December , 2016
---
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 16, 2016
",
The Wall Street Journal, December , 2016
---
Continued in article
Humor for December 2016
Hear “Twas The Night Before Christmas” Read by Stephen Fry & John Cleese ---
http://www.openculture.com/2016/12/hear-twas-the-night-before-christmas-read-by-stephen-fry-and-john-cleese.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Bill Murray & Gilda Radner Deliver the Laughs in Two 1970s Skits for National
Lampoon ---
http://www.openculture.com/2016/12/bill-murray-gilda-radner-deliver-the-laughs-in-two-1970s-skits-for-national-lampoon.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
SNL's Effort to Help the GOP Win Bigger in
2018 and 2020 ---
http://www.vox.com/2016/12/18/13997238/snl-russia-baldwin-trump-putin-tillerson-goodman-cold-open
Pissing off a shirtless Putin even more is not a good way to stop the hacking
SNL = Sore
Nighttime Losers
on NBC
Country Singer Ray Stevens Reveals How Election Fraud Typically Takes Place
---
http://www.angrypatriotmovement.com/ray-stevens-voter-fraud-song/
An Arranged Marriage is a Family Affair ---
https://www.theatlantic.com/video/index/511472/arranged-marriage-family-affair/
Acclaimed Japanese Jazz Pianist Yōsuke Yamashita Plays a Burning Piano on the
Beach ---
http://www.openculture.com/2016/12/acclaimed-japanese-jazz-pianist-yosuke-yamashita-plays-a-burning-piano-on-the-beach.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%2
Jensen Comment
The last time I saw a piano on fire was at the end of the "Great Balls of Fire"
clip from the life of Jerry Lee Lewis movie
Try to not move your hands and legs while this clip plays.
More About Social Correctness Than Political Correctness
Lake Superior State University's 41st Annual List
of Banished Words ---
http://www.lssu.edu/banished/
Jensen Comment
Much depends upon context. Motivational speakers make millions of dollars
beating socially incorrect words to death. Rappers make millions beating
politically incorrect words to death.
The Real Obituary of Chris Connors, Age 67
Irishman Dies from Stubbornness, Whiskey
http://www.barstoolsports.com/boston/this-is-without-a-doubt-the-best-obituary-ive-ever-read-its-not-even-close-outstanding-outstanding-obituary/?utm_campaign=SocialflowTw&utm_source=BarstoolTw&utm_medium=Socialflow
Forwarded by Paula
The Miracle of Sister Tarasita ---
http://www.richmond.com/life/in-my-shoes/article_ca3e3d37-e195-5cc0-99bf-5a848619e2d7.html
An Oklahoma mother and
daughter are behind bars after it was revealed they had an incestuous marriage.
Patricia Ann Spann, 43, and Misty Velvet Dawn Spann, 25, were married in March
2016 in Comanche County. It has since been revealed that Patricia Spann, also
known as Patricia Clayton, was previously married to one of her sons, Jody
Calvin Spann, in 2008
http://www.dailymail.co.uk/news/article-3778944/Oklahoma-woman-daughter-arrested-incestuous-marriage.html
I'm My Own Grandpa ---
https://www.youtube.com/watch?v=eYlJH81dSiw
Humor December 2016 ---
http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1216.htm
Humor November 2016 ---
http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1116.htm
Humor October 2016 ---
http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1016.htm
Humor September 2016 ---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0916.htm
Humor
August 2016
---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor083116.htm
Humor
July 2016
---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0716.htm
Humor
June 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor063016.htm
Humor
May 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor053116.htm
Humor
April 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor043016.htm
Humor
March 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor033116.htm
Humor February 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor022916.htm
Humor January 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor013116.htm
Humor December 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor123115.htm.htm
Humor November 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor113015.htm
Humor October 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor103115
Humor September 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor093015
Humor August 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor081115
Humor July 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor073115
Humor June 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor May 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor April 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor March 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor033115
Humor February 1-28, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor022815
Humor January 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor013115
Tidbits Archives ---
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
And that's
the way it was on December 31, 2016 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
http://faculty.trinity.edu/rjensen/ListservRoles.htm
Bob
Jensen's Threads ---
http://faculty.trinity.edu/rjensen/threads.htm
Bob
Jensen's Blogs ---
http://faculty.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New
Bookmarks ---
http://faculty.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past
presentations and lectures ---
http://faculty.trinity.edu/rjensen/resume.htm#Presentations
Free
Online Textbooks, Videos, and Tutorials ---
http://faculty.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm#Tutorials
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http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses ---
http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob
Jensen's Resume ---
http://faculty.trinity.edu/rjensen/Resume.htm
Bob
Jensen's Homepage ---
http://faculty.trinity.edu/rjensen/
Accounting
Historians Journal ---
http://www.libraries.olemiss.edu/uml/aicpa-library and
http://clio.lib.olemiss.edu/cdm/landingpage/collection/aah
Accounting Historians Journal
Archives---
http://www.olemiss.edu/depts/general_library/dac/files/ahj.html
Accounting History Photographs ---
http://www.olemiss.edu/depts/general_library/dac/files/photos.html
November 2016
Bob Jensen's New Additions to
Bookmarks
November
2016
Bob Jensen
at
Trinity University
For
earlier editions of Fraud Updates go to
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
For earlier editions of Tidbits go to
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to
http://faculty.trinity.edu/rjensen/bookurl.htm
Bookmarks for the World's Library ---
http://faculty.trinity.edu/rjensen/bookbob2.htm
Click here to search Bob Jensen's web site if you
have key words to enter --- Search Box in Upper Right Corner.
For example if you want to know what Jensen documents have the term "Enron"
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Bob
Jensen's Blogs ---
http://faculty.trinity.edu/rjensen/JensenBlogs.htm
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New Bookmarks ---
http://faculty.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's
Pictures and Stories
http://faculty.trinity.edu/rjensen/Pictures.htm
All
my online pictures ---
http://www.cs.trinity.edu/~rjensen/PictureHistory/
David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics
Science"
Bob Jensen
February 19, 2014
SSRN Download:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296
Scholarpedia (a cross between Wikipedia and Google Scholar) ---
http://www.scholarpedia.org
Google Scholar ---
https://scholar.google.com/
Wikipedia ---
https://www.wikipedia.org/
Bob Jensen's search helpers ---
http://faculty.trinity.edu/rjensen/searchh.htm
Bob Jensen's World Library ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm
Accounting Hall of Famer and JAR Editor Ray Ball
10 years on, are international standards helping financial reporting? ---
https://intheblack.com/articles/2016/10/04/10-years-on-are-international-standards-helping-financial-reporting
Bob Jensen's threads on rules-based bright lines versus principles-based
standards ---
http://faculty.trinity.edu/rjensen/theory01.htm#BrightLines
Bob Jensen's threads on accounting standards controversies ---
http://faculty.trinity.edu/rjensen/theory01.htm#MethodsForSetting
Another Accounting Hall of Famer
Aiming for Global Accounting Standards: The International Accounting Standards
Board, 2001-2011
ISBN-13: 978-0199646319
ISBN-10: 0199646317
Stepen A. Zeff
https://www.amazon.com/Aiming-Global-Accounting-Standards-International/dp/0199646317/ref=sr_1_3?s=books&ie=UTF8&qid=1478090695&sr=1-3&keywords=Stephen+A.+Zeff
Jensen Comment
Not many folks are aware that Ray Ball is also a tremendous expert on wine. I
think I've already told a Ray Ball anecdote on the AECM about wine and a
restaurant in Italy that mistakenly brought an extremely rare vintage to his
table. Unlike the waiter Ray recognized immediately that it was a very rare
bottle of wine based on an exceptional wine year in history.
IFRS 9 and IFRS 7 Disclosure Requirements – An Analysis of the IASB
Taxonomy
SSRN, November 16, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2870875
Authors
Dirk Beerbaum Aalto University --- Department of Accounting and Finance
Maciej Piechocki --- Independent
Abstract
Main topic: This study concentrates on those
disclosure requirements, which are defined by he new IFRS 9 and IFRS 7
related IASB Taxonomy. IASB has introduced a new standard (IFRS 9) on
impairment, which requires a three-step approach, which in general replaces
the current incurred impairment model with a new expected loss model. This
new standard als requires additional complex disclosures. The study provides
early insights into implementation of IFRS 9 disclosure requirements on
impairment, as IFRS 9 will become applicable 2018.
There is a large debate ongoing about the the
interpretation of the implementation of the IFRS 9 and IFRS 7 disclosure
requirements. However, the IFRS Taxonomy is not very much part of this
debate, although several advantages relate to the IASB taxonomy:
principle-based accounting standard does very often not define specifically
disclosure rules for each and every topic, therefore to derive reporting
elements would be very difficult to accomplish. A robust taxonomy
development and governance process leading to the IFRS taxonomy simplifies
the task of interpretations and the actual expression of reporting elements.
Results: The IFRS 9 and IFRS 7 corresponding IFRS
Taxonomy is not easy to read, as it involves particularly a large
multidimensional table for the impairment rollforward, which without the use
of an XBRL taxonomy software is very difficult to understand. The provided
illustrative IASB Taxonomy as a PDF can not sufficiently replace the
transparency of an XBRL taxonomy software as it can not display
multidimensional tables. This also due to the fact that the roll-forward is
a matrix of columns and rows, which go over more than ten pages. Due to
these very detailed and sophisticated requirements, however annual reports
as they still have to printed out have “natural” limits with regard to size
and maximum number of columns for multinational tables, the question will
arise how larger banks cn cope up with these requirements
Pride against Prejudice?: The Stakes of Concealment and Disclosure of a
Stigmatized Identity for Gay and Lesbian Auditors
SSRN, November 13, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2868688
Authors
Sébastien Stenger HEC Paris --- Management & Human Resources
Thomas J. Roulet --- King's College London
Abstract
How do individuals choose to conceal a stigmatized
attribute and what are the consequences of such choice? We answer this
question by looking at how gay and lesbian employees make sense of their
homosexuality in the highly normative context of audit firms. As a first
step, we unveil the subtle pressures exerted on those who possess
concealable stigmatized identities. Homosexual auditors engage in partial or
full concealment of their sexuality. They live in the fear of being
misjudged and casted out of a context in which male values are tantamount.
However, the efforts required to conceal create a situation of unrest, which
eventually interferes with their social integration at work. We draw on rich
ethnographic material in French audit firms, benefitting from the exogenous
shock of a gay marriage bill. The study’s findings shed new light on audit
as a gendered profession and the cost of concealing stigmatized invisible
identities
A New Approach for Measuring Shareholder Value Creation
SSRN, July 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2868421
Also see
Journal of Modern Accounting and Auditing, July 2016, Vol. 12, No. 7,
388-396 doi: 10.17265/1548-6583/2016.07.004
Authors
Eleftherios Aggelopoulos --- University of Patras, Department of Business
Administration
Dimitris Grypeos --- Dolphin Capital Partners
Abstract
This paper introduces a new approach for measuring
shareholder value creation (called adjusted economic profit (EP)) which
combines the advantages of both EP and APV (adjusted present value) methods.
In particular, the shareholder value creation over a period is derived as
the sum of two components: the EP relating purely to the operations of the
company and the EP generated each period due to the tax benefit that arises
from debt financing. We consider our results to be important for analysts
and decision makers involved in appraising business performance or making
investment decisions and HR professionals as well.
Is There a Conflict between Principles-Based Accounting and Structured
Electronic Reporting? – A Literature Review
SSRN, November 13, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2868800
Authors
Dirk Beerbaum --- Aalto University - Department of Accounting and Finance
Maciej Piechocki--- Independent
Abstract
National standard-setters continue to express
concerns over a principles-based developed IFRS taxonomy. Recent comments to
the IASB consultation on the "IFRS Taxonomy Due Process" contain more
arguments why principles-based accounting and the IFRS taxonomy are
perceived as a conceptual conflict.
A comment from the Accounting Standards Committee
of Germany: "Whilst we acknowledge that standard-setting and taxonomy
development can and should inform each other, we are concerned that
mandatorily bearing taxonomy constraints and limitations in mind when
developing standards bears the risk of the standards themselves becoming
more rules- and less principles-based. We certainly agree that the
pronouncements must be articulated clearly enough to enable appropriate
representation through the taxonomy; however, a taxonomy’s requirements
should not be the key driver for developing standards and interpretations."
Similar arguments are expressed by the Accounting
Standards Council Singapore: "We are particularly concerned that the
prescriptive nature of IFRS Taxonomy would not align well with the
principles-based IFRS."
The Swedish Financial Reporting Board wrote, "We
fear that bringing XBRL into standard setting will be detrimental to the
principles-based approach, particularly as regards the presentation of
disclosures."
The Korean Accounting Standards Board also comment,
"It should be more conspicuously clarified that the IFRS Taxonomy is not
guidance for IFRS in order not to deteriorate the principles-based
standard-setting approach."
Another commentator from a Big-4 audit firm: "There
is a risk that the design and content of a taxonomy that is intended to be
used to capture information in general purpose financial reports will, or be
perceived to, influence how those reports are prepared. Filing requirements
that used prescribed data structures could undermine principles-based
reporting requirements. We understand and share those concerns. However,
this is the very reason that the IASB should be involved with the
development and maintenance of the IFRS Taxonomy. If the IASB is not, others
will develop taxonomies and we are more concerned about the risk that those
taxonomies pose to the application of IFRS."
"EFRAG has expressed on several occasions the view
that the development of the IFRS taxonomy should not drive the IASB
standard-setting process, because it risked moving away from a
principles-based approach, in particular in the area of disclosures."
Considering the Italian Standard Setter, "However,
we reiterate our comments made with references to the Request for Views
Trustees' Review of structure and Effectiveness: Issues for the Review that
the Taxonomy should not be integrated in the IASB standard-setting process
because we see the risk that this may take the IASB away from a
principles-based approach when it develops accounting standards, in
particular in the area of disclosures. IFRS taxonomy-related issues should
be kept separate from the standard setting process as we fear that
considerations that regard the Taxonomy may have a negative impact on the
principles-based approach."
Bob Jensen's threads on principles-based standards versus bright-line
standards ---
http://faculty.trinity.edu/rjensen/theory01.htm#BrightLines
Mixing Fair-Value and Historical-Cost Accounting: Predictable
Other-Comprehensive-Income and Mispricing of Bank Stocks
SSRN, October 1, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2867043
Authors
Peter D. Easton --- University of Notre Dame - Department of Accountancy
Xiao-Jun Zhang --- University of California, Berkeley; China Academy of
Financial Research (CAFR)
Abstract
Other comprehensive income (OCI) items are often
considered to be transitory (Chambers et al. 2007; IASB 2013; CFA2014). In
this paper we show that a significant portion of OCI, namely unrealized
gains and losses (UGL) from available-for-sale securities (AFS), is
non-transitory: a negative correlation between accumulated UGL in the
current period and next period UGL is predicted and we show that this
correlation is economically and statistically significant. This correlation
is due to a mix of accounting methods of measurement of income from
fixed-income securities: UGL are recognized based on fair values, whereas
interest income is measured based on historical cost. We document that: (1)
this negative correlation explains a previously unexplained negative
correlation in other comprehensive income (OCI); and, (2) investors seem to
price total UGL disregarding (or not realizing) the fact that reported UGL
includes a predictable, accounting-driven component.
Accruals Management to Avoid Losses
SSRN, October/November 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2867182
Also see
Journal of Business Finance & Accounting, Vol. 43, Issue 9-10, pp.
1095-1120, 2016
Author
Weihong Xu --- State University of New York (SUNY) - Accounting & Law
Abstract
This study examines whether firms engage in
accruals management to beat the zero earnings benchmark from the perspective
of earnings per share (EPS). Based on net income scaled by lagged market
value of equity (E/MV) to define just‐miss and just‐beat test bins, previous
studies provide no or inconclusive evidence of accruals management to beat
the zero earnings benchmark. I conjecture that because managers focus on
shares scaled earnings performance rather than market value scaled earnings
performance, forming test bins based on EPS instead of E/MV is a better
approach to detect accruals management. As expected, I find evidence of
accruals management to beat the zero EPS benchmark. I also find that firms
are more likely to manipulate accruals when managers have stronger
incentives to beat the zero EPS benchmark. In addition, accruals of firms
just beating the zero EPS benchmark are more likely to reverse the next
year, resulting in relatively lower future earnings for firms just beating
the benchmark compared with firms just missing the benchmark.
Information‐Hedging Disclosures and Insider Trading
SSRN, November 10, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2867188
Also see
Journal of Business Finance & Accounting, Vol. 43, Issue 9-10, pp.
1280-1296, 2016 Stephen L. Lenkey Pennsylvania State University
Author
Stephen L. Lenkey --- Pennsylvania State University
Abstract
I model the effect of disclosure on the tradeoff
between information risk, liquidity risk, and price risk for a
well‐informed, risk‐averse insider. Revealing some information before
trading decreases the variability of the insider's information advantage and
thus reduces his information risk. Disclosure also lowers adverse selection
costs for market makers, which reduces the insider's liquidity risk by
increasing his trading flexibility. However, disclosure increases price risk
for the insider because the price fully reflects the revealed information.
The reduction in information and liquidity risks outweigh the rise in price
risk when the insider is less risk averse because a less risk‐averse
insider's information‐based motive for trading is stronger than his hedging
motive. The opposite relation holds when the insider is more risk averse.
Therefore, a less (more) risk‐averse insider experiences an increase
(decrease) in welfare when he discloses some information before trading.
Cost of capital and policy implications are identified.
National Taxpayer Advocate Nina Olson minced few words in a recent assessment
of the future of the IRS and its current interactions with taxpayers: The
agency’s growing disconnect from the people it serves will lead to its failure
---
http://www.accountingweb.com/tax/irs/nina-olson-irs-out-of-touch-with-the-people-it-serves?source=tx112116
Despite the IRS’s focus on its “future state”
initiative, which is laden with goals of easier transactions through
digitalization of services, the agency must focus more on physically
engaging with taxpayers, Olson said during the American Institute of CPAs’
National Tax Conference in Washington, DC, on Nov. 15. Her year of
nationwide travel, interacting with taxpayers and listening to focus groups,
provided an overarching mantra: Improving the IRS’s current state preempts
its future state. “Go online to the IRS website, and they have these
vignettes of how they envision different taxpayers interacting [with the
agency] in the future, and it’s all through computers and digital
notifications,” she said. “People think it’s arrogant, that it shows
taxpayers losing and the taxpayer being wrong.”
Continued in article
Saudi Arabian companies face fresh challenge from new (IFRS) accounting
standards ---
http://www.thenational.ae/business/economy/saudi-arabian-companies-face-fresh-challenge-from-new-accounting-standards
Saudi Arabian companies face fresh challenge from new accounting standards
Who Pays for White-Collar Crime? (an accountics science study based on
questionable use of p-values)
SSRN, June 29, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2801622
Authors
Paul M. Healy --- Harvard Business School; National Bureau of Economic
Research (NBER)
George Serafeim --- Harvard University - Harvard Business School
Abstract
Using a proprietary dataset of 667 companies around
the world that experienced white-collar crime we investigate what drives
punishment of perpetrators of crime. We find a significantly lower
propensity to punish crime in our sample, where most crimes are not reported
to the regulator, relative to samples in studies investigating punishment of
perpetrators in cases investigated by U.S. regulatory authorities.
Punishment severity is significantly lower for senior executives, for
perpetrators of crimes that do not directly steal from the company and at
smaller companies. While economic reasons could explain these associations
we show that gender and frequency of crimes moderate the relation between
punishment severity and seniority. Male senior executives and senior
executives in organizations with widespread crime are treated more leniently
compared to senior female perpetrators or compared to senior perpetrators in
organizations with isolated cases of crime. These results suggest that
agency problems could partly explain punishment severity.
Jensen Comment
This is a perfect example (perhaps a poster child) of an accountics research
paper that relies almost entirely on p-values computed from relatively large
samples. In real science such p-values have fallen from favor because they tend
to be so misleading ---
http://faculty.trinity.edu/rjensen/Theory01.htm#WhatWentWrong
P-Value ---
https://en.wikipedia.org/wiki/P-value
ASA = American Statistical Association
The ASA's statement on p-values: context, process, and purpose ---
http://amstat.tandfonline.com/doi/abs/10.1080/00031305.2016.1154108
The ground is shaking beneath the accountics science
foundations upon which all accounting doctoral programs and the prestigious
accounting research journals are built. My guess is, however, that the
accountics scientists are sleeping through the tremors or feigning sleep
because, if they admit to waking up, their nightmares will become real!
"A Scrapbook on What's Wrong with the Past, Present and Future of
Accountics Science"
by Bob Jensen
http://faculty.trinity.edu/rjensen/AccounticsWorkingPaper450.pdf
Misleading Statistical Significance Reporting
Statisticians Found One Thing They Can Agree
On: It’s Time To Stop Misusing P-Values ---
http://fivethirtyeight.com/features/statisticians-found-one-thing-they-can-agree-on-its-time-to-stop-misusing-p-values/
How many statisticians does it take to ensure at
least a 50 percent chance of a disagreement about
p-values? According to a tongue-in-cheek assessment
by statistician
George Cobb of Mount Holyoke College,
the answer is two … or one. So it’s no surprise that
when the American Statistical Association gathered
26 experts to develop a consensus statement on
statistical significance and p-values, the
discussion quickly became heated.
It
may sound crazy to get indignant over a scientific
term that few lay people have even heard of, but the
consequences matter. The misuse of the p-value can
drive bad science (there was no disagreement over
that), and the consensus project was spurred by a
growing worry that in some scientific fields,
p-values have become a litmus test for deciding
which studies are worthy of publication. As a
result, research that produces p-values that surpass
an arbitrary threshold are more likely to be
published, while studies with greater or equal
scientific importance may remain in the file drawer,
unseen by the scientific community.
The results can be devastating, said
Donald Berry,
a biostatistician at the University of Texas MD
Anderson Cancer Center.
“Patients with serious diseases have been harmed,”
he
wrote in a commentary published today.
“Researchers have chased wild geese, finding too
often that statistically significant conclusions
could not be reproduced.” Faulty statistical
conclusions, he added, have real economic
consequences.
“The p-value was never intended to be a substitute
for scientific reasoning,” the ASA’s executive
director, Ron Wasserstein, said in a press release.
On that point, the consensus committee members
agreed, but statisticians have deep philosophical
differences
about the proper way to approach inference and
statistics, and “this was taken as a battleground
for those different views,” said
Steven Goodman, co-director
of the
Meta-Research Innovation Center at Stanford.
Much of the dispute centered around technical
arguments
over frequentist versus Bayesian methods
and possible alternatives or supplements to
p-values. “There were
huge differences, including profoundly different
views about the core problems and practices in need
of reform,” Goodman said. “People were apoplectic
over it.”
The group debated and discussed the issues for more
than a year before finally producing a statement
they could all sign. They released
that consensus statement on Monday,
along with
20
additional commentaries
from members of the committee. The ASA statement is
intended to address the misuse of p-values and
promote a better understanding of them among
researchers and science writers, and it marks the
first time the association has taken an official
position on a matter of statistical practice. The
statement outlines some fundamental principles
regarding p-values.
Among the committee’s tasks: Selecting a definition
of the p-value that nonstatisticians could
understand. They eventually settled on this:
“Informally, a p-value is the probability under a
specified statistical model that a statistical
summary of the data (for example, the sample mean
difference between two compared groups) would be
equal to or more extreme than its observed value.”
That definition is about as clear as mud (I stand by
my conclusion that
even scientists can’t easily explain p-values),
but the rest of the statement and the ideas it
presents are far more accessible.
One of the most important messages is that the
p-value cannot tell you if your hypothesis is
correct. Instead, it’s the probability of your data
given your hypothesis. That sounds tantalizingly
similar to “the probability of your hypothesis given
your data,” but they’re not the same thing, said
Stephen Senn,
a
biostatistician at the Luxembourg Institute of
Health. To understand why, consider this example.
“Is the pope Catholic? The answer is yes,” said Senn.
“Is a Catholic the pope? The answer is probably not.
If you change the order, the statement doesn’t
survive.”
A
common misconception among nonstatisticians is that
p-values can tell you the probability that a result
occurred by chance. This interpretation is dead
wrong, but you see it
again and
again and
again and
again.
The p-value only tells you something about the
probability of seeing your results given a
particular hypothetical explanation — it cannot tell
you the probability that the results are true or
whether they’re due to random chance. The ASA
statement’s Principle No. 2: “P-values do not
measure the probability that the studied hypothesis
is true, or the probability that the data were
produced by random chance alone.”
Nor can a p-value tell you the size of an effect,
the strength of the evidence or the importance of a
result. Yet despite all these limitations, p-values
are often used as a way to separate true findings
from spurious ones, and that creates perverse
incentives. When the goal shifts from seeking the
truth to obtaining a p-value that clears an
arbitrary threshold (0.05 or less is considered
“statistically significant” in many fields),
researchers tend to fish around in their data and
keep trying different analyses until they find
something with the right p-value, as you can see for
yourself in
a p-hacking tool we built last year.
Continued in article
Significance Testing: We Can Do Better
Abacas, June 13, 2016
http://onlinelibrary.wiley.com/doi/10.1111/abac.12078/full
This is not a free article
Author
Thomas R. Dyckman Professor Emeritus Cornell University
Abstract
This paper advocates abandoning null hypothesis
statistical tests (NHST) in favor of reporting confidence intervals. The
case against NHST, which has been made repeatedly in multiple
disciplines and is growing in awareness and acceptance, is introduced
and discussed. Accounting as an empirical research discipline appears to
be the last of research communities to face up to the inherent problems
of significance test use and abuse. The paper encourages adoption of a
meta-analysis approach which allows for the inclusion of replication
studies in the assessment of evidence. This approach requires abandoning
the typical NHST process and its reliance on p-values. However, given
that NHST has deep roots and wide “social acceptance” in the empirical
testing community, modifications to NHST are suggested so as to partly
counter the weakness of this statistical testing method.
Extended Quotation
. . .
2. Why The Frequentist Approach (NHSTs) Should be Abandoned in Favor of
a Bayesian Approach
Frequentist Approach:
The frequentist NHST relies on rejecting a null hypothesis of no effect
or relationship based on the probability, or “p-level”, of observing a
specific sample result X equal to or more extreme than the actual
observation X₀, conditional on the null hypothesis H₀ being true. In
symbols, this calculation yields a p-level = Pr(X≥X₀|H₀), where ≥
signifies “as or more discrepant with H₀ than X₀”. The origin of the
approach is generally credited to Karl Pearson (1900), who introduced it
in his χ˛-test (Pearson actually called it the P, χ˛-test). However, it
was Sir Ronald Fisher who is credited with naming and popularizing
statistical significance testing and p-values as promulgated in the many
editions of his classic books Statistical Methods for Research Workers
and The Design of Experiments. See Spielman (1974), Seidenfeld (1979),
Johnstone et al. (1986), Barnett (1999), Berger (2003) and Howson and
Urbach (2006) on the ideas and development of modern hypothesis tests (NHST).
The Bayesian Approach:
Probabilities, under the Bayesian approach, rely on informed beliefs
rather than physical quantities. They represent informed reasoned
guesses. In the Bayesian approach, the objective is the posterior (post
sample) belief concerning where a parameter, β in our case, is possibly
located. Bayes’ theorem allows us to use the sample data to update our
prior beliefs about the value of the parameter of interest. The revised
(posterior) distribution represents the new belief based on the prior
and the statistical method (the model) applied, and calculated using
Bayes theorem. Prior beliefs play an important role in the Bayesian
process. In fact, no data can be interpreted without prior beliefs
(“data cannot speak for themselves”).
Bayesians emphasize the unavoidably subjective
nature of the research process. The decision to select a models and
specific prior or family of priors is necessarily subjective, and the
sample data are seldom obtained objectively (Basturk et al., 2014).
Indeed, data quality has become a major problem with the advent of “big
data” and with the recognition that the rewards for publication tend to
induce gamesmanship and even fraud in the data selected for the study.
When the investigator experiences difficulty
and uncertainty in specifying a specific prior distribution, the use of
diffuse or “uninformative” prior is typically adopted. The idea is to
impose no strong prior belief on the analysis and hence allow the data
to have a bigger part in the final conclusions. Ultimately, enough data
will “swamp” any prior distribution, but in reality, where systems are
not stationary and no models is known to be “true”, there is always
subjectivity and room for revision in Bayesian posterior beliefs.
The Bayesian viewpoint is that this is a fact
of research life and needs to be faced and treated formally in the
analysis. Objectivity is not possible, so there is no gain from
pretending that it is. Formal Bayesian methods for coping with
subjectivity are easy to understand. For example, one approach is to ask
how robust the posterior distribution of belief about β is to different
possible prior distributions. If we can say that we come to essentially
the same qualitative belief over all feasible models and prior
distributions, or across the different priors that different people
hold, then that is perhaps the most objective that a statistical
conclusion can claim.
Continued in article
Academic psychology and medical testing are both dogged by
unreliability. The reason is clear: we got probability wrong ---
https://aeon.co/essays/it-s-time-for-science-to-abandon-the-term-statistically-significant?utm_source=Aeon+Newsletter&utm_campaign=b8fc3425d2-Weekly_Newsletter_14_October_201610_14_2016&utm_medium=email&utm_term=0_411a82e59d-b8fc3425d2-68951505
. . .
For one, it’s of little use to say that your
observations would be rare if there were no real difference between the
pills (which is what the p-value tells you), unless you can say whether
or not the observations would also be rare when there is a true
difference between the pills. Which brings us back to induction.
The problem of
induction was solved, in principle, by the Reverend Thomas Bayes in the
middle of the 18th century. He showed how
to convert the probability of the observations given a hypothesis (the
deductive problem) to what we actually want, the probability that the
hypothesis is true given some observations (the inductive problem). But
how to use his famous theorem in practice has been the subject of heated
debate ever since.
Take the proposition that the Earth goes round
the Sun. It either does or it doesn’t, so it’s hard to see how we could
pick a probability for this statement. Furthermore, the Bayesian
conversion involves assigning a value to the probability that your
hypothesis is right before any observations have been made (the ‘prior
probability’). Bayes’s theorem allows that prior probability to be
converted to what we want, the probability that the hypothesis is true
given some relevant observations, which is known as the ‘posterior
probability’.
These intangible probabilities persuaded Fisher
that Bayes’s approach wasn’t feasible. Instead, he proposed the wholly
deductive process of null hypothesis significance testing. The
realisation that this method, as it is commonly used, gives alarmingly
large numbers of false positive results has spurred several recent
attempts to bridge the gap.
There is
one
uncontroversial application of Bayes’s theorem: diagnostic screening,
the tests that doctors give healthy people to detect warning signs of
disease. They’re a good way to understand the perils of the deductive
approach.
In theory, picking up on the early signs of
illness is obviously good.
But in practice
there are usually so many false positive diagnoses that it just doesn’t
work very well. Take dementia. Roughly 1
per cent of the population suffer from mild cognitive impairment, which
might, but doesn’t always, lead to dementia. Suppose that the test is
quite a good one, in the sense that 95 per cent of the time it gives the
right (negative) answer for people who are free of the condition. That
means that 5 per cent of the people who don’t have cognitive impairment
will test, falsely, as positive. That doesn’t sound bad. It’s directly
analogous to tests of significance which will give 5 per cent of false
positives when there is no real effect, if we use a p-value of less than
5 per cent to mean ‘statistically significant’.
But in fact the screening test is not good –
it’s actually appallingly bad, because 86 per cent, not 5 per cent, of
all positive tests are false positives. So only 14 per cent of positive
tests are correct. This happens because most people don’t have the
condition, and so the false positives from these people (5 per cent of
99 per cent of the people), outweigh the number of true positives that
arise from the much smaller number of people who have the condition (80
per cent of 1 per cent of the people, if we assume 80 per cent of people
with the disease are detected successfully). There’s a YouTube video of
my attempt to explain this principle, or you can read my recent paper on
the subject.
Notice, though, that it’s possible to calculate
the disastrous false-positive rate for screening tests only because we
have estimates for the prevalence of the condition in the whole
population being tested. This is the prior probability that we need to
use Bayes’s theorem. If we return to the problem of tests of
significance, it’s not so easy. The analogue of the prevalence of
disease in the population becomes, in the case of significance tests,
the probability that there is a real difference between the pills before
the experiment is done – the prior probability that there’s a real
effect. And it’s usually impossible to make a good guess at the value of
this figure.
An example should make the idea more concrete.
Imagine testing 1,000 different drugs, one at a time, to sort out which
works and which doesn’t. You’d be lucky if 10 per cent of them were
effective, so let’s proceed by assuming a prevalence or prior
probability of 10 per cent. Say we observe a ‘just significant’ result,
for example, a P = 0.047 in a single test, and declare that this is
evidence that we have made a discovery. That claim will be wrong, not in
5 per cent of cases, as is commonly believed, but in 76 per cent of
cases. That is disastrously high. Just as in screening tests, the reason
for this large number of mistakes is that the number of false positives
in the tests where there is no real effect outweighs the number of true
positives that arise from the cases in which there is a real effect.
In general, though, we don’t know the real
prevalence of true effects. So, although we can calculate the p-value,
we can’t calculate the number of false positives. But what we can do is
give a minimum value for the false positive rate. To do this, we need
only assume that it’s not legitimate to say, before the observations are
made, that the odds that an effect is real are any higher than 50:50. To
do so would be to assume you’re more likely than not to be right before
the experiment even begins.
If we repeat the drug calculations using a
prevalence of 50 per cent rather than 10 per cent, we get a false
positive rate of 26 per cent, still much bigger than 5 per cent. Any
lower prevalence will result in an even higher false positive rate.
The upshot is that, if a scientist observes a
‘just significant’ result in a single test, say P = 0.047, and declares
that she’s made a discovery, that claim will be wrong at least 26 per
cent of the time, and probably more. No wonder then that there are
problems with reproducibility in areas of science that rely on tests of
significance.
Continued in article
Jensen Comment
Especially note the many replies to this article
. . .
David Colquhoun
https://aeon.co/conversations/what-should-be-done-to-improve-statistical-literacy#
I think that it’s quite hard to find a really good practical guide to
Bayesian analysis. By really good, I mean on that is critical about
priors and explains exactly what assumptions are being made. I fear that
one reason for this is that Bayesians often seem to have an evangelical
tendency that leads to them brushing the assumptions under the carpet. I
agree that Alexander Etz is a good place to start. but I do wonder how
much it will help when your faced with a particular set of observations
to analyze.
Henning Strandin ---
https://aeon.co/users/henning-strandin
Thank you for a good and useful article on the pitfalls of ignoring the
baseline. I have a couple of comments.
Bayes didn’t resolve the problem of induction, even in principle. The
problem of induction is the problem of knowing that the observations you
have made are relevant to some set of (perhaps as-yet) unobserved
events. In his Essay on Probabilities, Laplace illustrated the problem
in the same paragraph in which he suggests . . .
Karl Young
Nice article; as a Bayesian who was forced to quote p values in a couple
of medical physics papers for which the journal would have nothing else,
I appreciate the points made here. But even as a Bayesian one has to
acknowledge that there are a number of open problems besides just how to
estimate priors. E.g. what one really wants to know is given some
observations, how one’s hypothesis fares against as complete a list of
alternative hypothesis as can be mustered. Even assuming that one could
come up with such a list, calculating the probability that one’s
hypothesis best fits the observations in that case requires calculation
of a quantity called the evidence that is generally extremely difficult
(the reason that the diagnostic examples mentioned in the piece lead to
reasonable calculations is that calculating the evidence for the set of
proposed hypotheses, that either someone in the population has a disease
or doesn’t, is straightforward). So while I think Bayes is the
philosophically most coherent approach to analyzing data (doesn’t solve
the problem of induction but tries to at least manage it) there are
still a number of issues preventing it
Comments Continued at
https://aeon.co/conversations/what-should-be-done-to-improve-statistical-literacy
"Drawing Inferences From Very Large Data-Sets," by David Giles,
Econometrics Beat: Dave Giles� Blog, University of Victoria, April
26, 2013 ---
http://davegiles.blogspot.ca/2011/04/drawing-inferences-from-very-large-data.html
. . .
Granger (1998;
2003) has
reminded us that if the sample size is sufficiently large, then
it's virtually impossible not to reject almost any hypothesis.
So, if the sample is very large and the p-values associated
with the estimated coefficients in a regression model are of the order
of, say, 0.10 or even 0.05, then this really
bad
news. Much, much, smaller p-values are needed before we get all
excited about 'statistically significant' results when the sample size
is in the thousands, or even bigger. So, the
p-values reported
above are mostly pretty marginal, as far as significance is
concerned. When you work out the p-values for the other 6
models I mentioned, they range from to 0.005 to 0.460. I've been
generous in the models I selected.
Here's another set of results taken from a second, really nice, paper
by
Ciecieriski
et al. (2011) in the same
issue of Health Economics:
Continued in article
"Not Even Scientists Can Easily
Explain P-values," by Christie Aschwanden,
Nate Silver's 5:38 Blog,
November 30, 2015 ---
http://fivethirtyeight.com/features/not-even-scientists-can-easily-explain-p-values/
P-values
have taken quite a beating lately. These widely used and commonly
misapplied statistics have been blamed for giving a
veneer of legitimacy to dodgy study results,
encouraging
bad research practices
and promoting
false-positive study results.
But after
writing about p-values again and again, and recently issuing a
correction on a
nearly year-old story
over some erroneous
information regarding a study’s p-value (which I’d taken from the
scientists themselves and
their report),
I’ve come to think that the most fundamental problem with p-values is
that no one can really say what they are.
Last week, I
attended the inaugural
METRICS conference at Stanford,
which brought
together some of the world’s leading experts on meta-science, or the
study of studies. I figured that if anyone could explain p-values in
plain English, these folks could. I was wrong.
Continued in article
More on
statistical mistakes
Bob Jensen's threads on Common Accountics Science and Econometric Science
Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm
David Hendry on "Economic Forecasting" ---
http://davegiles.blogspot.com/2016/11/david-hendry-on-economic-forecasting.html
Jensen Comment
For those interested in doing research on the technical aspects of economic
forecasting, the above module provides a list of researchers to look up and
follow.
One question to ask is were economic forecasting stands among the near
hopelessness of earthquake forecasting versus the much more hopeful discipline
of sales forecasting.
Earthquake Prediction ---
https://en.wikipedia.org/wiki/Earthquake_prediction
Attendees at the 2017 Annual Meetings Won't Have to Pay a 16.5% Room Tax
for the San Diego Chargers' Benefit
Chargers’ stadium vote fails miserably, clouding
future in San Diego A ballot measure in San Diego that would have raised hotel
taxes to pay for a new Chargers stadium came up far short of the required
two-thirds vote Tuesday, leaving the team with an uncertain future in the city.
Measure C, as the initiative was known, would have allowed city officials to
raise hotel-room taxes from 12.5 percent to 16.5 percent and use that revenue to
pay for a new downtown stadium and convention-center annex next to Petco Park,
where the Padres play baseball. But the measure received support from...
https://www.washingtonpost.com/news/early-lead/wp/2016/11/09/chargers-stadium-vote-fails-miserably-clouding-future-in-san-diego/
Jensen Lament
Stupid voters in some city will probably soak visitors to build a gold-plated
palace for this relocated NFL team.
The head of the SEC will step down at the end of the Obama administration
---
http://www.businessinsider.com/mary-jo-white-stepping-down-as-sec-chair-after-obama-administration-2016-11
But not necessarily because Senator Elizabeth Warren screamed for the ouster of
Mary Jo White
2 new members appointed to FASB as Golden remains chairman ----
http://www.journalofaccountancy.com/news/2016/nov/new-members-appointed-to-fasb-201615548.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=16Nov2016#sthash.EjmgXtJA.dpuf
The IRS Scandal, Day 1287
IRS Commissioner Koskinen Urges Trump Transition Team To Name New IRS
Commissioner Soon
http://taxprof.typepad.com/taxprof_blog/2016/11/the-irs-scandal-day-1287koskinen-urges-trump-team-to-name-new-irs-commissioner-soon.html
Federal Judge Block’s Obama’s Overtime-Pay Rule ---
http://www.chronicle.com/blogs/ticker/federal-judge-blocks-obamas-overtime-pay-rule/115716?elqTrackId=f20593cb49eb4ba8841f6094ad0f2bbe&elq=6f8a00b797574148a45d000da6336c5f&elqaid=11597&elqat=1&elqCampaignId=4578
A federal judge in
Texas on Tuesday blocked the Obama administration’s effort to extend
overtime pay to millions more workers, after 21 states and dozens of
business groups asserted that the rule was unlawful and would cause them
irreparable harm.
Judge Amos L.
Mazzant III of the U.S. District Court in Sherman, Tex., concluded
that the U.S. Department of Labor had exceeded its authority and ignored the
intent of Congress in issuing the rule, which had been scheduled to take
effect on December 1. The regulation sought to raise the salary cutoff below
which workers would be eligible for overtime pay, to about $47,000 from
about $23,000.
Generally,
employees whose primary role can be defined as teaching are exempt from
earning overtime pay. But many categories of campus employees — such as
early career financial-aid officers and athletics staffers — would have
benefited from the rule.
This collection of
Chronicle
articles
has more details on how colleges were anticipating the changes.
Since the
rule was issued, many colleges have been scrambling to identify which
employees would be newly eligible for overtime pay, and to plan
institutional budgets around those changes. It’s not yet clear how colleges
that had already changed their practices in anticipation of the rule will
respond to the judge’s ruling, or whether they will roll back the
adjustments they have made. In any case, the rule itself was already among
many Obama-administration policies that had been
cast into doubt
by this month’s election
of Donald J. Trump as president.
Judge Mazzant
issued a nationwide injunction against rolling out the rule, saying that
such an action best served the public interest. The court’s “ability to
render a meaningful decision” on the merits of the case was in jeopardy
because of the rule’s imminent effective date, he wrote.
Continued in article
U. of Missouri Investigates Claim of Academic Fraud Involving Athletes ---
http://www.chronicle.com/blogs/ticker/u-of-missouri-investigates-claim-of-academic-fraud-involving-athletes/115734?elqTrackId=d7b8226928a84b1a8e726fc9ac435145&elq=01de0ca054f6449382e7fd6547a73383&elqaid=11607&elqat=1&elqCampaignId=4585
Punishment includes infractions for helping two players
cheat in courses
NCAA Wipes Out 2 Years of Notre Dame Wins in Football ---
http://www.chronicle.com/blogs/ticker/ncaa-wipes-out-2-years-of-notre-dame-wins-in-football/115700?cid=db&elqTrackId=1c792753b35c4f648600748ec7d2b57a&elq=6f8a00b797574148a45d000da6336c5f&elqaid=11597&elqat=1&elqCampaignId=4578
Nearly all infractions pale relative to nearly 20 years of fake courses and
illegal grade changes at the University of North Carolina, for which the
NCAA turned wimpy in terms of punishments. In my opinion UNC should be booted
out of Division 1 athletics.
Bob Jensen's threads on athletics scandals in higher education ---
http://faculty.trinity.edu/rjensen/HigherEdControversies2.htm#Athletics
Tax Rate of S&P 100 Companies ---
http://taxprof.typepad.com/taxprof_blog/2016/11/tax-rate-of-sp-100-companies.html
There are some surprises here
Heteroscedasticity ---
https://en.wikipedia.org/wiki/Heteroscedasticity
Dealing with Heteroskedasticity, Autocorrelation and Endogeneity in German
Audit Fee Panel Data - Comparing Approaches
SSRN, November 25, 2014
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2756338
Authors
Balthasar Hoehn --- University of Wuerzburg
Florian Schuberth --- University of Wuerzburg - Business Administration &
Economics
Manuel Steiner --- University of Wuerzburg - Business Administration &
Economics
Abstract
In this paper we provide an extensive comparison
between commonly used linear econometric methods in the audit fee literature
and explicitly address their underlying assumptions. As opposed to common
practice in similar papers we explicitly consider violations of the strict
exogeneity assumption in terms of unobserved firm-specific effects and argue
that endogeneity is likely to be present in audit fee data sets. This leads
to significantly different results for magnitude and significance level of
most explanatory variables. Additionally, we encourage researchers to use
the in the audit fee literature not so widely-spread Hausman-Taylor
estimator to benefit from its efficiency.
Economic Uncertainty and Earnings Management
SSRN, August 23, 2016
https://papers.ssrn.com/sol3/JELJOUR_Results.cfm?form_name=journalBrowse&journal_id=262644
Authors
Luke C.D. Stein --- Arizona State University (ASU) - Finance Department
Charles C. Y. Wang --- Harvard Business School
Abstract
In the presence of managerial short-termism and
asymmetric information about skill and effort provision, firms may
opportunistically shift earnings from uncertain to more certain times. We
document that firms report more negative discretionary accruals when
financial markets are less certain about their future prospects. Stock-price
responses to earnings surprises are moderated when firm-level uncertainty is
high, consistent with performance being attributed more to luck rather than
skill and effort, which can create incentives to shift earnings toward
lower-uncertainty periods. We show that the resulting opportunistic earnings
management is concentrated in CEOs, firms, and periods where such incentives
are likely to be strongest: (1) where CEO wealth is sensitive to change in
the share price, (2) where announced earnings are particularly likely to be
an important source of information about managerial ability and effort, and
(3) before implementation of Sarbanes-Oxley made opportunistic earnings
management more challenging. Our evidence highlights a novel channel through
which uncertainty affects managerial decision making in the presence of
agency conflicts.
Bob Jensen's threads on earnings management ---
http://faculty.trinity.edu/rjensen/theory02.htm#Manipulation
November Econometrics Readings Suggested by David Giles
---
http://davegiles.blogspot.com/2016/11/november-reading.html
The T.W. Anderson references are partly in honor of this great statistician
who died on September 17, 2017
http://davegiles.blogspot.com/2016/11/t-w-anderson-1918-2016.html
Acharya, A., M. Blackwell, & M. Sen, 2015. Explaining causal findings
without bias: Detecting and assessing direct effects. RWP15-194, Harvard
Kennedy School.
Anderson, T.W., 2005. Origins of the limited information maximum
likelihood and two-stage least squares estimators. Journal of
Econometrics, 127, 1-16.
Anderson, T.W. & H. Rubin, 1949. Estimation of the parameters of a
single equation in a complete system of stochastic equations. Annals of
Mathematical Statistics, 20, 46-63.
Cox, D.R., 1972. Regression models and life-tables (with discussion). Journal
of the Royal Statistical Society B, 34, 187–220.
Malsiner-Walli, G. & H. Wagner, 2011. Comparing spike and slab priors
for Bayesian variable selection. Austrian Journal of Statistics, 40,
241-264.
Psaradakis, Z. & M. Vavra, 2016. Portmanteau tests for linearity of
stationary time series. Working Paper 1/2016, National Bank of Slovakia.
Finance Tips from
The Math Dude Blog ---
http://www.quickanddirtytips.com/
These my be especially interesting when
teaching financial literacy modules
is a credit card
APR and how is it
calculated?" A. APR
is short for Annual Percentage Rate,
... which is the interest you’re
charged over a 12-month period. For
instance, a card with 24%
APR costs 2% ... a
single account can have several
different
APRs. The card
company may charge one rate for
purchases, one ...
By Laura Adams, MBA,
Money Girl
- December 18, 2013
a higher rate of interest.
Understand APY vs.
APR Speaking of
interest, there are two main ways
that ... interest is expressed for
CDs: APY and
APR. APY stands for
annual percentage yield and it’s the
rate you’d ... APY is the rate
you’ll get if you never withdraw
interest from a CD.
APR, on the other
hand, stands ...
By Laura Adams, MBA,
Money Girl
- February 10, 2011
Jensen
Comment
CD's have very lousy investment
returns since the Federal Reserve
drove interest rates to almost zero.
In general these days you have to
take on more risk to get better
returns.
transfer card with 0%
APR for 12 months,
no annual fee, no balance transfer
fees, plus cash back rewards. ...
APR after the 0%
APR 12-month
promotion period expires. If she
continues to make $500 monthly ...
By Laura Adams, MBA,
Money Girl
- January 08, 2012
a lower interest rate, you can save
a lot of money. The Discover® More
Card gives you 0%
APR for 15 months
... Lending Club or Prosper —where
you can borrow for as little as
6.59% and earn an average of 10.59%
APR ...
By Laura Adams, MBA,
Money Girl
- June 02, 2012
typically charged a daily rate
that's equal to the card's annual
percentage rate (APR)
divided by ... 365. For instance,
the
APR for new
purchases could be 11.99%, cash
advances 23.99%, and balance ...
By Laura Adams, MBA,
Money Girl
- December 01, 2011
Jensen
Comment
Make every effort to pay more each
month than what the credit card
billing says is the "minimum"
amount.
Better yet always take the monthly
amount due down to zero to avoid
interest charges altogether.
6.
card debt of $6,000. The
APR (annual
percentage rate) on my card is high
at 17% and I'd love to ...
By Laura Adams, MBA,
Money Girl
- December 21, 2010
8.
Otherwise, after the promotion ends,
the annual interest rate or
APR usually
skyrockets on your outstanding ...
By Laura Adams, MBA,
Money Girl
- September 26, 2013
transfer at 0%
APR for a limited
time. Should I transfer the balance
of my higher-interest card and save
... a balance transfer card, look
for the following features: an
introductory interest rate of 0%
APR for ...
By Laura Adams, MBA,
Money Girl
- December 18, 2012
The Khan Academy also has some
great personal finance tutorials ---
https://www.khanacademy.org/economics-finance-domain/core-finance/investment-vehicles-tutorial
Bob Jensen's threads on personal
finance ---
http://faculty.trinity.edu/rjensen/bookbob1.htm#InvestmentHelpers
Fraud during the holiday shopping
season is costing retailers $2 billion
---
http://www.businessinsider.com/holiday-shopping-fraud-cost-2-billion-dollars-2016-11
. . .
Thieves use a variety of scams to
commit return fraud, but nine in 10 retailers told the NRF for its report
last year that they have experienced people returning stolen merchandise. In
addition, a little over 70% of stores told the trade organization that they
deal with "wardrobing," the practice of someone using/wearing an item then
returning it.
Other examples
of return fraud and the percentage of retailers that say they have
experienced them include:
The return of
merchandise purchased with counterfeit money (75.8%).
Return fraud
made by "known organized retail crime groups" (71%).
"Employee
return fraud or collusion with external forces" (77.4%).
"Retailers
have the difficult task of providing superior customer service by always
giving the benefit of the doubt to their shoppers when it comes to returns,
while simultaneously working to make sure they protect their business
assets," said Moraca.
What can
stores do?
Retailers must
make their return policy clear to consumers, including info on whether they
track returns or require an ID. Of course, that info is on receipts, signs
posted near registers, and in online disclaimer copy that few people read.
Return
tracking has been a controversial practice and ultimately it's effective,
but only to a point. Despite new efforts at enforcement by retailers,
holiday season return fraud has been cut from an estimated $3.4 billion in
2013 and $3.8 billion in 2014 to $2.2 billion in 2015. This year, the NRF
expects a number similar to last year if not slightly higher.
Retailers do not yet have the silver bullet that can end return fraud, which
ultimately costs all honest shoppers a little bit more every time they buy
something
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
University Of Rochester B-School
Professor Pays $100 Million FBAR Penalty
Over Swiss Accounts ---
https://www.justice.gov/opa/pr/emeritus-professor-pleads-guilty-conspiring-defraud-united-states-and-submitting-false
A Rochester,
New York emeritus professor of business
administration pleaded guilty today to
conspiring with others to defraud the
United States and to submitting a false
expatriation statement to the Internal
Revenue Service (IRS), announced
Principal Deputy Assistant Attorney
General Caroline D. Ciraolo, head of the
Justice Department’s Tax Division, and
U.S. Attorney Dana J. Boente of the
Eastern District of Virginia, after the
plea was accepted by U.S. District Judge
T.S. Ellis III.
According to
documents filed with the court and
statements made during the plea hearing,
Dan Horsky, 71, is a citizen of the
United States, the United Kingdom and
Israel and was employed for more than 30
years as a professor of business
administration at a university located
in New York. Beginning in
approximately 1995, Horsky began
investing in numerous start-up
businesses through financial accounts at
various offshore banks, including one
bank in Zurich, Switzerland.
Horsky created “Horsky Holdings,” a
nominee entity, to hold some of the
investments and he used the Horsky
Holdings account, and later, other
accounts at the Zurich-based bank, to
conceal his financial transactions and
financial accounts from the IRS and the
U.S. Treasury Department.
Horsky made
investments in Company A through the
Horsky Holdings account using his own
money, money provided by his father and
sister, and margin loans from the
Zurich-based bank. Eventually,
Horsky amassed a four percent interest
in Company A’s stock. In 2008,
Company A was purchased by Company B for
$1.8 billion in an all cash transaction.
Horsky received approximately $80
million in net proceeds from the sale of
Company A’s stock, but disclosed to the
IRS only approximately $7 million of his
gain from that sale and paid taxes on
just that fraction of his share of the
proceeds. In 2008, and in
subsequent years, Horsky invested in
Company B’s stock using funds from his
accounts at the Zurich-based bank and by
2013, his investments in Company B,
combined with other unreported offshore
assets, reached approximately $200
million.
“Despite his
extraordinary wealth, Mr. Horsky
concealed funds offshore, failed to
report substantial income, conspired to
submit false expatriation documents to
cover up his fraudulent scheme, and
evaded paying his fair share of tax,”
said Principal Deputy Assistant Attorney
General Ciraolo. “The Department
and its partners within the IRS are
receiving a tremendous amount of
information from a wide variety of
sources, and we are using that
information to pursue and prosecute
individuals like Mr. Horsky, who violate
our nation’s tax laws. Today’s
guilty plea proves, once again, that
taxpayers will pay a heavy price when
they choose to secrete funds in foreign
bank accounts and evade tax and
reporting obligations.”
“You can’t hide
from the IRS,” said U.S. Attorney Boente.
“Horsky went to great lengths to hide
assets in secret accounts overseas in
order to avoid paying his share of taxes
to the IRS. Today’s plea shows
that we will continue to prosecute those
who engage in this criminal activity. I
want to thank IRS-Criminal Investigation
and our prosecutors for their work on
this important case.”
Horsky directed
the activities in his Horsky Holdings
and other accounts maintained at the
Zurich-based bank, despite the fact that
it was readily apparent, in
communications with employees of the
bank, that Horsky was a resident of the
United States. Bank
representatives routinely sent emails to
Horsky recognizing that he was residing
in the United States. Beginning in
at least 2011, Horsky caused another
individual to have signature authority
over his Zurich-based bank accounts, and
this individual assumed the
responsibility of providing instructions
as to the management of the accounts at
Horsky’s direction. This
arrangement was intended to conceal
Horsky’s interest in and control over
these accounts from the IRS.
In 2013, the
individual who had nominal control over
Horsky’s accounts at the Zurich-based
bank conspired with Horsky to relinquish
the individual’s U.S. citizenship, in
part to ensure that Horsky’s control of
the offshore accounts would not be
reported to the IRS. In 2014, this
individual filed with the IRS a false
Form 8854 (Initial Annual Expatriation
Statement) that failed to disclose his
net worth on the date of expatriation,
failed to disclose his ownership of
foreign assets, and falsely certified
under penalties of perjury that he was
in compliance with his tax obligations
for the five preceding tax years.
Horsky also
willfully filed false 2008 through 2014
individual income tax returns which
failed to disclose his income from, and
beneficial interest in and control over,
his Zurich-based bank accounts.
Horsky agreed that for purposes of
sentencing, his criminal conduct
resulted in a tax loss of at least $10
million. In addition, Horsky
failed to file Reports of Foreign Bank
and Financial Accounts (FBARs) up and
through 2011, and also filed false FBARs
for 2012 and 2013.
“Federal income
tax compliance should be equally shared
among all Americans,” said Special
Agent-in-Charge Thomas Jankowski of IRS
Criminal Investigation (CI), Washington
D.C. Field Office. “Conspiring to
defraud the government with an elaborate
scheme to underreport taxable income is
unlawful. Mr. Horsky’s plea today
serves as an important reminder that
IRS-CI is committed to bringing to
justice those who shirk their federal
income tax responsibilities.”
Sentencing is
scheduled for Feb. 10, 2017.
Horsky faces a statutory maximum
sentence of five years in prison, as
well as a period of supervised release
and monetary penalties. As part of
his plea agreement, Horsky paid a
penalty of $100 million dollars to the
U.S. Treasury for failing to file and
filing false FBARs, which is separate
from any restitution that the court may
order.
Principal
Deputy Assistant Attorney General
Ciraolo and U.S. Attorney Boente
commended special agents of IRS-CI, who
conducted the investigation, and Senior
Litigation Counsel Mark F. Daly and
Trial Attorney Robert J. Boudreau of the
Tax Division and Assistant U.S. Attorney
Mark Lytle of the Eastern District of
Virginia, who are prosecuting this case.
Additional
information about the Tax Division and
its enforcement efforts may be found on
the division’s website.
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
A comprehensive Accounting of U.S Spending ---
https://www.bloomberg.com/news/articles/2016-11-07/steve-ballmer-s-plan-to-make-america-great-involves-excel-spreadsheets?cmpid=BBD110716_BIZ
Former Microsoft CEO Steve Ballmer ---
https://en.wikipedia.org/wiki/Steve_Ballmer
Steve Ballmer’s new project involves lots and lots of Excel
spreadsheets.
When not
on the sidelines
of Los Angeles Clippers games, the former Microsoft CEO—along with a team of
about 25 data geeks— has been
poring over decades of
government documents to create a comprehensive accounting of U.S.
spending. Ballmer describes it as a “10-K for the government.
The scary part is the $100+ trillion as
yet unbooked obligation for entitlements such as the unsustainable Medicare and
Medicaid ---
http://faculty.trinity.edu/rjensen/entitlements.htm
The Business Women of the Early 20th Century ---
http://daily.jstor.org/the-businesswomen-of-the-early-20th-century/
Bob Jensen's threads on women in the professions ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm#Women
For accounting teachers who still like use of worksheets ---
https://www.cybertext.com/demos/
Jensen Comment
One of my early accounting teachers named W.S. Shroyer was more commonly known
as Work Sheet Shroyer.
Transparency Perhaps Should Have its Limits
Imagine lying in the bathtub and looking up at the sky or out at the buildings
across the way ---
https://www.bloomberg.com/news/articles/2016-11-16/bathrooms-with-a-view-the-latest-luxury-real-estate-must-have?cmpid=BBD111616_BIZ&utm_medium=email&utm_source=newsletter&utm_campaign=
Jensen Comment
Perhaps this type of bathroom is only for the superrich who are so ignorant
they've not learned about telescopes and drones with video cameras. Or
these bathtubs with a view might be for the aged superrich. I'm reminded of when
an oldster wore a transparent see-through suit and nobody wanted to.
In any case for accountants clamoring for more "transparency" this article
reminds us that transparency has its sensible limits.
"Perspectives on Past and Future AIS Research as the
Journal of
Information Systems Turns Thirty, by Kevin C. Moffitt,
Vernon J. Richardson, Neal M. Snow, Martin M. Weisner, and David A. Wood,
Journal of Information Systems, Fall 2016, Vol. 30, No. 3, pp. 157-171 ---
http://aaajournals.org/doi/full/10.2308/isys-51495
This is not a free download but can have controlled free distribution to
students in a qualified accounting course
This paper complements a panel session pertaining
to past and future AIS research that was held during the 2015 American
Accounting Association Annual Meeting. There are two main parts to this
commentary. First, using text mining techniques on AIS article abstracts for
the period 1986–2014, we identify the top research themes across three
leading AIS journals (Journal of Information Systems, International Journal
of Accounting Information Systems, and Journal of Emerging Technologies in
Accounting). We chart the usage of these themes over time and discuss their
shifting popularity. Second, we speculate on the future of AIS research and
identify a series of broad research streams that may garner greater
importance over the next 30 years. A host of broad research questions
accompany the discussion of emerging and anticipated research streams in
order to motivate and guide future research.
Why Assessment Is a Waste of Time ---
https://www.insidehighered.com/views/2016/11/21/how-assessment-falls-significantly-short-valid-research-essay?mc_cid=e5cce96a00&mc_eid=1e78f7c952
Jensen Comment
When assessing something like a major change in pedagogy the problem may require
mostly subjective opinions of teachers experienced in the former as well as the
new pedagogy. For example, in a major experiment (called BAM) at the
University of Virginia experienced professors teaching intermediate accounting
(across two semesters) via a lecture pedagogy experimented with a radical change
in pedagogy that entailed virtually all self-learning on the part of students.
The main assessment was subjective opinion of the professors regarding changed
pedagogy plus the subjective opinions of the professors involved. It took years
to assess the improvement of students in terms of CPA exam passage rates after
they graduated --- where the improvement on memory of what was learned seemed to
be dramatic.
Eventually there was little doubt about the superiority of self-learning
pedagogy ---
http://faculty.trinity.edu/rjensen/265wp.htm
However the assessment process was limited mainly to the impact on student
learning. It failed to measure the impact on teachers including increased
burnout and the lowering of teaching evaluations for teachers who no longer
spoon fed the learning material. Students don't much like the blood, sweat, and
tears of self-learning even though they remember what they learned much better
later in life.
Competency-Based Learning (where teachers
don't selectively assign grades) ---
https://en.wikipedia.org/wiki/Competency-based_learning
Western Governors University (with an entire
history of competency-based learning) ----
http://www.wgu.edu/
Especially note the Business
Administration (including Accounting) degree programs
From a Chronicle of Higher
Education Newsletter on November 3, 2016
Over the past 20 years, Western Governors University has grown into a
formidable competency-based online education provider. It’s on just its
second president, Scott D. Pulsipher, a
former Silicon Valley executive, who stopped by our offices yesterday.
WGU has graduated more
than 70,000 students, from all 50 states. But a key part of the
institution’s growth strategy is local, using its affiliations with
participating states (not that all the partnerships
start
smoothly, mind
you). There are six of them, and more growth is on the way; Mr. Pulsipher
says WGU is in serious discussions to expand into as many as five more
states — he declines to name them — at a pace of one or two per year.
The university's main focus remains students, he says. One example is an
effort to minimize student loans. Through better advising, students are
borrowing, on average, about 20 percent less than they did three years ago,
amounting to savings of about $3,200. “Humans make better decisions,” Mr.
Pulsipher says, “when they have more information.” —Dan
Berrett
2016 Bibliography on Competency-Based
Education and Assessment ---
https://www.insidehighered.com/quicktakes/2016/01/26/rise-competency-based-education?utm_source=Inside+Higher+Ed&utm_campaign=0f02e8085b-DNU20160126&utm_medium=email&utm_term=0_1fcbc04421-0f02e8085b-197565045
Bob Jensen's threads on competency-based
learning ---
http://faculty.trinity.edu/rjensen/Assess.htm#ConceptKnowledge
Careers and Pay for PhDs
Outside the Education Career Tracks ---
http://humanitiesindicators.org/content/indicatorDoc.aspx?i=69
Note that the study includes PhD holders other than humanities PhDs
Jensen Comment
Firstly note that the number of business PhDs employed outside of education is
almost negligible such that salary comparisons are probably misleading in that
grouping. In some disciplines such as engineering and biological sciences what
is learned in PhD programs adds vital skills for professional jobs outside of
education. In my field, accountancy, job applicants for employment outside of
education benefit much more from attainment of professional skills that are
virtually not taught in accounting PhD programs ---
http://faculty.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
One question I would raise is the dividing line between
full-time and part-time work.
Were all subjects included in the study required to work at least 40-hour weeks
roughly 50 weeks per year. Personally I doubt it. For example, I know a local
housewife and mother with a PhD who works from her home at very high pay in our
mountain village for high-flying Booz Allen Hamilton as a report editor. Her
hours vary from 10-60 hours per week depending upon the work sent to her. This
type of work variability is more common than you might think, especially in
certain disciplines such as language translation and tax return preparation
where the work loads vary quite a lot.
Gender pay gap may also be driven by many things other than
gender prejudice.
For example, the desire to work out of the home may be more common for mothers
than fathers. Work-at-home jobs tend to pay less because of savings in commuting
costs, elimination of commuting time/stress, and the disproportionate supply of
applicants seeking work-at-home jobs.
My point is that the above study probably is comparing
apples with walnuts in many instances.
From a November 11, 2016 EY Newsletter
SEC staff updates Financial Reporting Manual
The
SEC staff in the Division of Corporation Finance updated its
Financial Reporting
Manual
to add its views on certain SEC reporting issues related to the adoption of
new accounting standards as follows:
Registrants
filing pro forma financial information in the year they adopt the new
revenue recognition standard are not required to reflect the effect of the
new standard in the pro forma income statement for the previous year.
The date of
initial application for purposes of the new leases standard would not change
if a registrant is required to provide financial statements for earlier
periods when issuing retrospectively revised financial statements for a
registration statement filed in the year of adoption.
Registrants do not need to disclose a consolidated 10-year loss reserve
development table as specified in Industry Guide 6 once they begin
disclosing the claims development tables required by the ASU 2015-09,
Disclosures about Short-Duration Contracts, after adoption.
Why We Shouldn’t Teach Girls to Code ---
https://howwegettonext.com/why-we-shouldnt-teach-girls-to-code-becec0ef4a98#.mcu6uz2bd
Jensen Comment
This article is mostly bull crap.
Firstly the article associates coding with routine work leading to nowhere.
In computer science and information coding alternatives are languages for
innovation and creativity.
The professional world that I see is trying desperately to make it easier for
women and minorities to advance to the top of their professions. Reasons for
failing to do so are much more complicated that the broad brush blaming for
failures on prejudices. This article is hugely superficial with little evidence
to bolster opinion and little acknowledgement for progress women, including
mothers, that is being made in the USA. If you want more evidence of prejudicial
barriers to women look to business firms in Scandinavia where breaking the glass
ceiling is much more of a rare event than in the public and private sectors of
the USA. It's no longer so rare in the USA for women and minorities willing to
genuinely compete for executive positions. Of course there are still barriers to
be broken in many circumstances, but credit should be give for progress that is
being made in the USA. It's absurd to blame some of the failure on learning to
code.
The article puts down civil service when in fact civil service in many
instances in the public sector is a faster route to high pay and executive
statis in the private sector. There's a coziness
of the private and public sector such as when government bureaucrats are given
fabulous incentives to bail out of government jobs into high paying jobs in the
industries they preciously regulated. FDA civil servants hope to become
executives in the pharmaceutical industry. SEC, FBI, and Department of Justice
employees hope to get plush jobs and offices in big accounting and law firms. It
did take long before industries eventually owned the government agencies that
regulated and investigated those industries.
The SEC Path to Defending Companies You
Previously Investigated
From the CFO Journal's Morning Ledger
on September 6, 2016
Government parachute
The former head of the
Securities and Exchange Commission’s whistleblower program is joining a
law firm that represents those same tipsters—an unusual turn of the
revolving door that highlights the potential profitability of legal work
that didn’t even exist a few years ago. Government officials typically
go into private practice to
defend the companies
they previously might have investigated. Sean
McKessy, who left his post as the first chief of the SEC’s Office of the
Whistleblower in July, is taking the riskier path of the plaintiffs’ bar
by joining Washington-based Phillips & Cohen LLP.
Jensen Comment
The Regulator to Regulated path of advancement is not confined to the SEC. Is there a
government agency where the top regulators don't become employees of the
companies they regulated?
Exhibits A, B, and C are attorney generals, military officers, and health
regulators in the FDA, NIH, etc. And many of those higher-level private
sector opportunities are being given to women and minorities in the civil
service.
SEC Enforcement Actions Reach Record Highs in 2016
---
http://www.accountingweb.com/aa/law-and-enforcement/sec-enforcement-actions-reach-record-highs-in-2016?source=ei110216
Jensen Comment
Senator Elizabeth rants that the SEC Director should be fired because more
violators should have been put in prison (at a time when President Clinton is
letting non-violent criminals out of the back door of Federal prisons in record
numbers).
Elizabeth Warren: Obama Needs
to Fire the Head of the SEC
http://www.businessinsider.com/r-us-senator-warren-urges-obama-to-replace-head-of-sec-2016-10
New tax calculator shows how taxes would change under Clinton & Trump tax
plans ---
http://www.taxpolicycenter.org/taxvox/new-tax-calculator-shows-how-taxes-would-change-under-clinton-trump-tax-plans
Jensen Comment
Playing around with this calculator is pretty much a waste of time since both
candidates' tax plans would be twisted and mangled by Congress to a point of
being unrecognizable when and if either one becomes law.
November 2, 2016 reply from Hossein Nouri
Bob:
I am not sure if this calculator is correct. I did
a simple tax return for a single person receiving $100,000 salary, and
$200,000 business income with nothing else and it calculates a tax of
$102,555 under current tax law. I used the my tax software with same
information and it calculates $86,300. I thought the difference could be
because for business income it calculate Social Security and Medicare for
the whole amount of $200,000. But even after I included the $200,000 under
other income (which is of course not correct because part of that is subject
to SS and MC). I get $96,420 under current tax law, which is still about
$10K more than my software. Therefore, I am not sure if the calculation of
taxes under Clinton and Trump are correct. For the first Scenario, it gives
the same tax under Clinton ($102,555) and $69,921 under Trump. When I
include $200,000 business income under other, there is not much difference
among them (current, Clinton, and trump all about $95K).
Hossein Nouri
November 2, 2016 reply from Bob Jensen
Bravo Hossein,
This just goes to show that sometimes I'm way to trusting of articles in
respected journals (er . . . well I only sort of trust Vox that I consider a
very left-leaning Website). However, the mistakes in the software that you
detected may well have been innocent mistakes rather than intentional bias.
What surprises me is that the author would not have run the facts for the
current law through respected software as you have done for us.
May I suggest that you contact the author. Please tell us how he replies
to your findings.
Thanks,
Bob
From the Washington Post:
AT&T and DurectTV partner to Screw the Public
Full title: AT&T and DirecTV
colluded in an illegal plot that kept Dodgers games off the air, DOJ lawsuit
alleges AT&T and DirecTV acted as ringleaders in an illegal plot against the
Dodgers Channel that kept Los Angeles sports fans from watching their favorite
team on television, according to a major lawsuit filed Wednesday by the Justice
Department. The anti-collusion suit alleges that DirecTV -- and its corporate
parent, AT&T -- shared private negotiating information in 2014 with other TV
providers, including Cox Communications and Charter Communications, in order to
gain a collective advantage over Time Warner Cable, which was...
https://www.washingtonpost.com/news/the-switch/wp/2016/11/02/doj-accuses-att-and-directv-of-an-illegal-plot-that-kept-the-dodgers-channel-off-the-air/
No Evidence of Aloe Vera Found in the Aloe Vera at Wal-Mart, CVS ---
http://www.bloomberg.com/news/articles/2016-11-22/no-evidence-of-aloe-vera-found-in-the-aloe-vera-at-wal-mart-cvs?cmpid=BBD112216_BIZ
Also see
http://www.snopes.com/2016/11/22/no-evidence-of-aloe-vera/
Jensen Comment
Another illustration of how hard it is for auditors to test check inventories.
On my first inventory audit assignment I had to count inventories of good
pistons and inventories of defective pistons. I had no way of knowing a good
piston from a defective piston.
Yardley accountant gets 3 to 6 years for stealing $378K from elderly women
---
http://www.buckscountycouriertimes.com/news/crime/yardley-accountant-gets-to-years-for-stealing-k-from-elderly/article_3d88472e-2b6e-54b1-97cf-6639306fc72c.html
. . .
Prosecutors say Swain between December 2008 and
September 2015 used her role as the women's accountant and power of attorney
to make a number of unauthorized payments to herself from their accounts
while in control of their finances.
Much of the money was used to pay health care costs
and many of her ex-husband's bills, among other purchases and payments,
according to court papers.
"I'm incredibly sorry, and I'm shamed on both a
professional and personal level," Swain said.
Swain said her victims, all longtime clients of her
accounting services, were people she "genuinely liked" and thought of as
friends as well as customers.
She offered a gambling addiction as an explanation
for her actions, but said that was not an excuse.
"I blame no one and nothing else for what I have
done," she said.
Continued in article
Although the number of Thanksgiving online shoppers increased by 10
million over last year, customer spending in total this year was down nearly
3.5% ---
http://time.com/4583028/thanksgiving-shopping-discounts-spending-black-friday/?xid=newsletter-brief
Jensen Comment
Some travelers are saving up for those cheap winter vacations in Cuba.
Facebook is Doing a $6 Billion Stock Buyback ---
http://www.businessinsider.com/facebook-is-doing-a-6-billion-stock-buyback-2016-11
Jensen Comment
It might be a good excercise for students to investigate why some companies are
buying back enormous amounts of stock.
The Global Burden of Journal Peer Review in the Biomedical Literature:
Strong Imbalance in the Collective Enterprise ---
http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0166387
The growth in scientific production may threaten
the capacity for the scientific community to handle the ever-increasing
demand for peer review of scientific publications. There is little evidence
regarding the sustainability of the peer-review system and how the
scientific community copes with the burden it poses. We used mathematical
modeling to estimate the overall quantitative annual demand for peer review
and the supply in biomedical research. The modeling was informed by
empirical data from various sources in the biomedical domain, including all
articles indexed at MEDLINE. We found that for 2015, across a range of
scenarios, the supply exceeded by 15% to 249% the demand for reviewers and
reviews. However, 20% of the researchers performed 69% to 94% of the
reviews. Among researchers actually contributing to peer review, 70%
dedicated 1% or less of their research work-time to peer review while 5%
dedicated 13% or more of it. An estimated 63.4 million hours were devoted to
peer review in 2015, among which 18.9 million hours were provided by the top
5% contributing reviewers. Our results support that the system is
sustainable in terms of volume but emphasizes a considerable imbalance in
the distribution of the peer-review effort across the scientific community.
Finally, various individual interactions between authors, editors and
reviewers may reduce to some extent the number of reviewers who are
available to editors at any point.
Jensen Comment
Peer review is one of those things that's not perfect, but it's hard to find
something better at the same price. Open source publishing exposing a
non-refereed article to a "world of potential reviewers" is an alternative, but
what if experts mostly ignore open source articles and/or are swamped by the
flood of non-refereed publications? This may be a special problem in some fields
like academic accounting where not much of anybody, especially practicing
accountants, have much interest in reading academic accounting research.
And what if authors simply choose to ignore unsolicited reviews? This is not
so much of a problem when journals subject submissions to peer reviews, because
if the authors ignore those peer reviews the journals are not likely to publish
the submissions.
Tom Selling: Why the FASB Won’t Define “Financial Accounting”
---
http://accountingonion.com/2016/11/why-the-fasb-wont-define-financial-accounting.html
Jensen Comment
Nor will the FASB define a lot of other things that the IASB will now try to
define over a five-year study period.
Perhaps the IASB will confine definitions to things that are already assigned
numbers in financial statements like earnings and measures derived from
earnings.
I might note that I do not buy into Lev and Gu dreaming that we should assign
numbers to intangibles before we can do more than mislead with intangibles
measures drawn from the clouds.
June 20, 2016 Comment from former FASB Chairman Dennis
Beresford
Bob,
Baruch has been preaching that intangibles should
be recorded as assets for R&D, etc. for 20 years or more. So the "end" he
suggests should have occurred before now. Many agree with him in theory but
the numerous implementation issues tend to create too much of a hurdle. The
FASB plans to soon issue a request for comment on what should be the next
major project to be undertaken and I believe this will be one possibility.
It will be interesting to see how much support it gets.
BTW, I wonder if the new book also calls for Human
Resource Assets to be recorded - another idea whose time probably hasn't
(and shouldn't) come.
Denny
Six Tips for Valuation Experts in High Stakes Divorces ----
http://blog.aicpa.org/2016/11/six-tips-for-valuation-experts-in-high-stakes-divorces.html#sthash.mOKh89qC.dpuf
Jensen Comment
I'm reminded of a true case in Oklahoma where a couple agreed to all aspects of
a property settlement except for two choice annual season tickets on the 50-yard
line at the University of Oklahoma.
The decision of the judge in the case --- award one ticket to the husband and
one to his departing wife. Sometimes decisions in a court of law are lose-lose.
Deloitte Via the WSJ
How Internal Audit Can Strengthen Its Role: Global Study ---
http://deloitte.wsj.com/cfo/2016/11/29/how-internal-audit-can-strengthen-its-role-global-study/
From an EY Newsletter on November 18, 2016
To the Point: FASB
addresses the presentation of restricted cash in the statement of cash flows
The FASB issued final guidance, based on an Emerging Issues Task Force
consensus, that requires entities to show the changes in the total of cash,
cash equivalents, restricted cash and restricted cash equivalents in the
statement of cash flows. As a result, entities will no longer have to
classify transfers between cash and restricted cash.
Comment letter on the
FASB’s hedge accounting proposal
In our comment letter, we applaud the FASB for addressing many of the
concerns raised by preparers, users and other stakeholders about the
complexity of today’s hedge accounting model and the restrictions it
imposes. Overall, we agree that the proposed amendments would better portray
the economics of an entity’s risk management activities in its financial
statements and simplify the application of hedge accounting in certain
situations. However, we believe the FASB should reconsider certain aspects
of the proposal and provide additional guidance or clarification in some
places.
Comment letter on the
FASB proposal on premium amortization on purchased callable debt securities
In our comment letter, we supported the FASB’s proposal to shorten the
amortization period for callable debt securities purchased at a premium.
However, we recommended that the FASB clarify whether the proposed guidance
would apply to callable instruments that do not have definitive call dates.
Updated publications on
SEC financial reporting now available
We have updated our SEC Financial Reporting Series to reflect final SEC
rules and interpretive guidance issued through 31 October 2016. The series
includes the following publications:
·
2016 SEC annual reports
– Form 10-K
·
2017 SEC quarterly
reports – Form 10-Q
Hard copies will be available soon and can be ordered on
EY AccountingLink.
Transition Resource
Group for Revenue Recognition (TRG) items of general agreement
We have updated our summary of issues on which members of the TRG generally
agreed to include the November 2016 FASB TRG meeting. While the TRG members’
views are non-authoritative, entities should consider them as they implement
the new standards. For more information about these issues and issues the
TRG discussed but did not reach general agreement on, see our To the Point
publications on TRG meetings on
EY AccountingLink.
EY Q4 2016 financial
reporting update
webcast on
15
December
The
EY Q4 2016 financial
reporting update webcast is scheduled for
15 December 2016
from
1 p.m. to 2:30 p.m.
Eastern time. EY panelists will discuss recent standard-setting activities
at the FASB, SEC developments and other financial reporting matters.
This I've got to see
The standard setters' (IASB and FASB) balance sheet priority over the income
statement totally destroyed the concepts of "income" and "earnings."
I'm anxiously awaiting to see the IASB's operational definition of "earnings"
underlying the forthcoming definition of EBIT, etc.
One of my main concerns in this definition is the jumbling of legally earned
revenues with unrealized value changes.
From the CFO Journal's Morning Ledger
on November 3, 2016
IASB evaluating EBIT
The International Accounting Standards Board said
Wednesday it would look at providing new
definitions of common financial terms such as earnings before interest and
taxes, or ebit. The new definitions will be introduced over the next five
years, in order to provide sufficient time for suggestions and comment from
market participants, Nina Trentmann reports.
IASB Plans Overhaul of Financial Definitions
http://blogs.wsj.com/cfo/2016/11/02/iasb-plans-overhaul-of-financial-definitions/?mod=djemCFO_h
The International Accounting Standards Board, or
IASB, which sets reporting standards in more than 120 countries, said
Wednesday it would look at providing new definitions of common financial
terms such as earnings before interest and taxes, or ebit.
The new definitions will be introduced over the
next five years, in order to provide sufficient time for suggestions and
comment from market participants.
The changes will not result in new standards but
will require the board to overhaul existing ones.
At the moment, terms like operating profit are not
defined by the IASB. The aim is to help market participants judge the
suitability of a particular investment.
“We want to give investors the right handles to
look at a balance sheet,” said IASB chairman Hans Hoogervorst.
Up until now, International Financial Reporting
Standards, known as IFRS, leave companies too much flexibility in defining
such terms, which often makes it difficult to compare financials, Mr.
Hoogervorst said.
“Even within sectors, there is a lack of
comparability,” Mr. Hoogervorst said. This affects both investors and
companies, he added.
It is too early to tell what the changes will mean
for companies reporting under IFRS, according to Mr. Hoogervorst. “They
should be less revolutionary than the introduction of new standards but
every change results in work”, he said.
Some firms might find that they have less latitude
when reporting financial results, he said. That could mean more work.
Firms that decide against adopting the new IASB
definition for ebit, for example, could be required to reconcile their own
ebit calculation into one based on the IASB’s definition.
The IASB in 2017 also plans to finalize a single
accounting model that would be applied to all forms of insurance contracts.
Besides that, the board will work on updating the
system through which filers add disclosures to the electronic versions of
their financial statements. The system is updated on a regular basis and the
IASB produces an annual compilation of all changes each year.
Bob Jensen's threads on
conceptual framework controversies ---
http://faculty.trinity.edu/rjensen/Theory01.htm#ConceptualFrameworks
This is Big News: Ireland must pay back $14.12
billion in of its EU tax windfall
From the CFO Journal's Morning Ledger
on November 9, 2016
Ireland appeals against EU Apple ruling
Ireland will today launch a formal appeal against the
controversial EU ruling according to which Apple Inc. received an
unfair tax deal worth €13 billion ($14.42 billion), and must pay it back
with interest, the Irish Independent reports. Finance Minister Noonan has
said he would file the appeal against the European Commission's decision to
force Ireland to claw back the claimed tax subsidies.
Treasury Secretary Hank Paulson's Bank of America
Extortion Scheme (Hustle) Finally Laid to Rest
From the CFO Journal's Morning Ledger
on November 23, 2016
Do the Hustle? Nope
The government’s Hustle case against
Bank of
America Corp. is finally dead. The case, in which the government accused
the bank’s Countrywide Financial Corp. unit of churning out shoddy
mortgage securities in the run-up to the financial crisis, already was
thrown out by a U.S. appeals court in May. The U.S. attorney’s office in
Manhattan, which had first brought the case in 2012, then asked the appeals
court to reconsider its decision, a request that was denied.
Jensen Comment
A better word for "Hustle" is Treasury Department
"Extortion." When the economy collapsed in 2007 due to poisoned mortgages
BofA had no poisoned mortgages. Then Treasury Secretary Hank Paulson came
calling like an extortionist according to former BofS CEO Ken Lewis. Paulson
gave BofA no choice but to buy Countrywide Financial with its millions of
poisoned mortgages. The secret intent was to give Countrywide deeper pockets
so that the Federal Government could turn around a sue BofA billions for all
the financial crimes of Countrywide Financial.
There was never any doubt about the high crimes of
Countrywide Financial on the main streets of cities and towns across the
USA. Countrywide issued millions of mortgages to borrowers having no hope of
meeting their mortgage obligations.
It makes me feel good that Paulson finally got his just
dessert. I only wish he would be sued. As the former CEO of Goldman Sachs he
bailed out Goldman with milk and honey and pissed on BofA. Now he's retired
on his millions from Goldman and seemingly can't be touched for his
extortion crimes.
Paulson Also Forced Merrill Lynch onto Bank of America
Merrill Lynch had a friend in Hank Paulson, but he was no friend to Bank
of America shareholders
The ex-US Treasury Secretary has admitted telling the
Bank of America boss he might lose his job if he walked away from a merger from
Merrill Lynch. The former US Treasury Secretary says the merger was necessary
Hank Paulson warned the bank's chief executive Kenneth Lewis that the Federal
Reserve could oust him and the board if the rescue did not proceed. But Mr.
Paulson insisted that remarks he made were "appropriate." Bank of America bought
Merrill during the height of the financial crisis and suffered severe losses.
"Paulson admits bank merger threat," BBC News, July 15,
2009 ---
http://news.bbc.co.uk/2/hi/business/8152858.stm
Tesla's Really Unprofessional Non-GAAP Metrics
From the CFO Journal's Morning Ledger
on November 29, 2016
Not every motor runs
Tesla Motors Inc. has come under fire from the
SEC for using prohibited accounting metrics and sharing that information
with investors, according to regulatory correspondence. The SEC said Tesla
in its August earnings release used “individually tailored” measurements
when the electric-vehicle maker added back certain costs to revenue
calculated under generally accepted accounting principles. While the SEC
allows the use of some non-GAAP metrics, certain figures that adjust revenue
are prohibited. The exchange between the SEC and Tesla includes four letters
uploaded by the regulator from mid-September to mid-October, Tatyana Shumsky
reports.
November 23. 2016 Message from Tom Selling
The CtW Investment
Group has filed an SEC complaint against T-Mobile US for not disclosing
questionable changes to its accounting that boosted net income by $122
million over four quarters and for likely violations of the SEC’s rules
regulating non-GAAP reporting. You can see the complaint here:
http://ctwinvestmentgroup.com/wp-content/uploads/2016/11/CtW-IG-to-SEC-re-TMUS-11-23-16.pdf
The complaint also asks the SEC to look into T-Mobile’s parent company
Deutsche Telekom for failing to correct the material lack of disclosure to
accounting estimates. The Investment Group
raised these issues with DT earlier in
the year
Boeing's Illegal Tax Incentive from the State of
Washington
From the CFO Journal's Morning Ledger
on November 28, 2016
Boeing faces WTO sanctions.
The World Trade Organization as early as
Monday
is expected to rule that Boeing Co. has been granted illegal state
subsidies, according to people familiar with the finding. The judgment
involves tax incentives Boeing will receive from Washington state to build
its new 777X widebody plane, the latest round in a long-running dispute
between the U.S. and the European Union over support for Boeing and
Airbus Group SE. Boeing said the value of the 777X tax incentive is $50
million a year.
The Lagging Home Building Market
From the CFO Journal's Morning Ledger
on November 28, 2016
Home is where the wallet is
The Wall Street Journal reports. U.S. home prices
have climbed back above the record reached more than a decade ago, bringing
to a close the worst period for the housing market since the Great
Depression and stoking optimism for a more sustainable expansion. The
average home price for September was 0.1% above the July 2006 peak,
according to the S&P CoreLogic Case-Shiller U.S. National Home Price index
released
Tuesday. Adjusted for inflation, the index
still is about 16% below the 2006 high.
It's the Worst for Wurst (and imported cars and other goods from around
the world)
From the CFO Journal's Morning Ledger
on November 28, 2016
For years,
Germans have worn their title with pride. From 2003 to 2008, the world’s
fourth-largest economy was dubbed “Exportweltmeister,” German for world
export champion, a description of the country’s massive current-account
surplus. For 2016, Germany is forecast to regain the title from China, to
which it lost it in 2015.
The outlook, however, is less promising,
Natascha Divac and Sarah Sloat report.
Donald Trump’s victory in the U.S. presidential
election, after a campaign attacking free trade, has German companies
scrambling to tally the impact. Germany shipped $125 billion in goods to the
U.S. last year, 2.5 times what it imported from the U.S. The U.S. is
Germany’s largest trading partner, accounting for almost 10% of all German
exports. “If Trump can enact the trade limits he has announced, the damage
would be substantial,” said Clemens Fuest, president of Germany’s Ifo
Institute for Economic Research. He estimates 1.5 million German jobs depend
on exports to the U.S.
Jensen Comment
We expect prices will be higher for some German food items we buy through
Amazon. But it's not clear how much our next Subaru will increase in price
since it's assembled in Indiana. Many of the components, however, come from
Japan.
I expect those Midwestern farmers who voted for Trump will be a little
unhappy over the decline in farm exports, especially those Asian exports.
I'm vote no on protectionism and tariffs.
Valuation Experts Will Be Held to a New Standard ---
http://www.wsj.com/articles/valuation-experts-will-be-held-to-a-new-standard-1479740400#renderComments?mod=djemCFO_h
From the CFO Journal's Morning Ledger
on November 22, 2016
While accounting professionals show their stuff by
qualifying as certified public accountants, valuation experts lack a similar
widely recognized credential,
Vipal Monga reports.
As a result, they often apply different standards in
appraising the assets on corporate balance sheets, and they don’t always
spell out the assumptions they use in making their judgments. Now, finance
groups are trying to address that issue. They want to bring more consistency
to the profession and reduce the number of questions auditors raise about
the valuations.
Accounting and
appraisal groups are developing a new certification program that would
require 30 hours of work, depending on experience, and could cost more than
$1,000, according to the AICPA. The accounting trade group is collaborating
with the American Society of Appraisers and the Royal Institution of
Chartered Surveyors to work out specifics of the program, which could be
announced by the end of the year. The program would set standards for how
valuation experts should document their analyses and push a company’s
management to defend its own judgments. Better documentation would make
auditors more comfortable with estimates. But it also comes as a new
president promises big changes to accounting and disclosure laws.
From the CFO Journal's Morning Ledger
on November 16, 2016
Fake vs. original
Amazon.com Inc. this week filed lawsuits
targeting sellers allegedly listing counterfeit goods on its website,
publicly cracking down on an issue that has caused increasing friction. The
two lawsuits, Amazon’s first legal challenge against its third-party sellers
for bogus products, pertain to fake versions of the Forearm Forklift, a
strap system that allows users to lift heavy items, and TRX Suspension
Trainer workout bands and products.
From the CFO Journal's Morning Ledger
on November 16, 2016
SEC criticizes GE over ‘non-GAAP’
The Securities and Exchange Commission has criticized
General Electric Co.’s use of tailored, “non-GAAP” financial measures
in recent months but has completed a review of the company’s filings without
taking any further action. In correspondence between the SEC and GE from
June through September, the agency contended that the company’s non-GAAP
disclosures could be unclear or confusing to investors and that its metrics
may have excluded some costs they shouldn’t have.
From the CFO Journal's Morning Ledger
on November 14, 2016
Pensions can’t handle low interest rates
Central
bankers lowered interest rates to near zero or below to try to revive their
gasping economies. In the process, though, they have put in jeopardy the
pensions of more than 100 million government workers and retirees around the
globe.
From the CFO Journal's Morning Ledger
on November 3, 2016
New York Times sees earnings drop
New York Times Co.
said its third-quarter earnings fell sharply as print advertising dropped
19%, the latest publisher to signal that spending on newspaper ads is drying
up even further. Digital advertising sales, meanwhile, grew 21%, mostly on
growth in its mobile platform.
Don't worry about sustainability of the NYT (which was at one time in doubt).
A Mexican billionaire will sustain the NYT.
One of the richest men in the world, a Mexican
billionaire, is seeking financial control of The
New York Times.
As reported by the NYT in 2015 (note the stock buyback program of the NYT that
aids in the process)
http://www.nytimes.com/2015/01/15/business/carlos-slim-more-than-doubles-his-stake-in-times-company.html?_r=1
From the CFO Journal's Morning Ledger
on November 3, 2016
Remember when banks controlled the U.S. mortgage
market? It seems like yesterday. But banks no longer reign, and accounted
for less than half of the mortgage dollars extended to borrowers during the
third quarter,
AnnaMaria Adriotis writes.
Instead, non-bank lenders are more willing to make
riskier loans that banks now shun. Time will tell the wisdom of the new
paradigm.
Independent mortgage lenders have come close to half of the market before.
But they haven’t topped it in recent history, even in the run-up to the
housing bust, making this a notable moment for the most important
consumer-credit market. The shift reflects banks’ aversion to risk, and they
remain fearful of legal and regulatory threats that have cost them tens of
billions of dollars in mortgage-related fines and settlements in recent
years. Many of the loans these lenders are originating are effectively
guaranteed by the U.S. government.
Internal Auditors Pressured to Violate Ethics and Professionalism
From the CFO Journal's Morning Ledger
on November 2, 2016
Be your best selves, bookkeepers
Internal auditors say management is often asking them
to leave out the bad news, Tatyana Shumsky reports. Nearly one in four
internal auditors surveyed globally by the Internal Audit Foundation said
they’ve been pressured to suppress or change their findings. The main
motivation is censorship.
Bob Jensen's threads on auditor professionalism and independence ---
http://faculty.trinity.edu/rjensen/Fraud001c.htm
From the CFO Journal's Morning Ledger
on November 2, 2016
The SEC? Hasn’t been here
The Securities and Exchange Commission has failed to
examine thousands of money managers it oversees, despite adding scores of
examiners and doubling spending over the last 13 years. More than one-third
of the approximately 12,200 mutual-fund companies, wealth managers and other
investment advisers that come under the agency’s sole purview have never had
an on-site check for signs of fraud or misconduct.
Jensen Comment
As Andersen relied more and more on analytical review in place of costly detail
checking in audits their clients reported decreasing onsite presence of the
Andersen's auditors. This is a pet peeve of the PCAOB when finding audit
deficiencies.
Harvard Business Review: Are CEOs
Overhyped and Overpaid? ---
https://hbr.org/2016/11/are-ceos-overhyped-and-overpaid?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&spMailingID=15790876&spUserID=MTkyODM0MDg0MAS2&spJobID=900369182&spReportId=OTAwMzY5MTgyS0
Jensen Comment
I think the answer is yes on both counts. Of course CEOs often matter to the
success of the firm, but more often than not their compensation is outrageous.
Even when linked to performance like stock prices their role is only part of the
reason for stock price changes.
Bob Jensen's threads on the outrageous compensation of corporate executives
are at
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation
I'm especially upset about golden parachutes that outrageously reward failure.
Contrary to what is implied by Harry Markopolos and
Francine McKenna, we will never know what would've happened if the Madoff Ponzi
fund was submitted to an audit by a Big Four firm
Francine: Auditor PwC said to be under investigation (by SEC) for
failure to detect fraud in biotech fund embezzlement case ---
http://www.marketwatch.com/story/auditor-pwc-said-to-be-under-investigation-in-biotech-fund-embezzlement-case-2016-07-18?mod=mw_share_twitter
Jensen Comment
It's somewhat common for auditors to fail to detect fraud. Often the defense is
that the client misled the auditor and well as the public.
This investigation made me recall the somewhat infamous
Koss Case.
Grant Thornton Coughs Up $8.5 Million for Not Detecting
Fraud
"Koss settles claims against former auditor Grant Thornton," by Gary
Spivak, Milwaukee Sentinel Journal, July 5, 2013 ---
http://www.jsonline.com/business/koss-settles-claims-against-former-auditor-grant-thornton-b9948373z1-214372071.html
Koss Corp. collected $8.5 million from
Grant Thornton, the accounting firm that audited Koss' books during a
portion of the time that Sujata "Sue" Sachdeva was stealing millions from
the company.
The payment made Wednesday settles a
lawsuit filed in Cook County, Ill., in which Koss charged Grant Thornton
with negligence for not discovering Sachdeva's thievery. Sachdeva's scheme
ran for about 12 years and cost Koss, a maker of headphones, about $34
million. Her embezzlement, which financed an extravagant lifestyle that
included trips and shopping sprees, intensified in the final years of the
scheme.
Sachdeva, who had been the company's
vice president of finance, is serving an 11-year federal prison sentence and
is expected to be released in August 2020, according to the Federal Bureau
of Prisons.
"I don't think it is possible to look
at the size of the settlement and conclude that Grant Thornton didn't see
some risk if this case came to trial," said Jeremy Levinson, a Milwaukee
attorney not involved in the case. "Every story that gets written on this
case, including this one, is bad for Grant Thornton."
Grant Thornton charged Koss nearly
$700,000 for work it performed from 2004 until it was fired shortly after
Sachdeva was arrested in December 2009, according to records filed with the
U.S. Securities and Exchange Commission. Baker Tilly, the auditing firm that
replaced Grant Thornton, collected $570,679 for its first year of work — a
time when the FBI, auditors and company officials scoured Koss' books to
determine the level of damages she caused.
Tracy Coenen, a Milwaukee forensic
accountant who criticized Koss management on her Fraud Files blog, said the
company should shoulder the blame for not detecting Sachdeva's crimes
earlier.
"Upper management was at least
negligent in not properly overseeing what she was doing and for not having
proper internal controls," Coenen said. Koss "management bears the bulk of
the responsibility, if not all of it."
Continued in article
Grant Thornton said in a
statement that it had met "all of our professional obligations and that our work
complied with professional standards."
See below
"Koss embezzlement ran in spurts, lawsuit says $478,735
spent over three days in summer 2006" by Cary Spivak,
Milwaukee Journal
Sentinel, July 10, 2010 ---
http://www.jsonline.com/business/98152439.html
Big Accounting Firms Can't Detect Fraid: The whistleblower who
exposed Bernie Madoff thinks the insurance industry is riddled with fraud ---
http://www.businessinsider.com/bernie-madoff-whistleblower-harry-markopolos-insurance-industry-fraud-2016-11
The Big Four accounting firms are
so bad at catching fraud that they couldn’t even catch a cold, with
incentives in the industry totally screwed up. That’s the view of the of the
whistleblower who uncovered the $65 billion Madoff Ponzi scheme and he
thinks fraud is endemic in the insurance industry as well.
Harry Markopolos is the former
derivatives professional turned independent financial forensic investigator
who spent nine years trying to convince the SEC that Madoff needed to be
examined, but it was only the onset of the financial crisis and the massive
redemptions he faced that forced Madoff to turn himself in.
Since then he has been a vocal
critic of the SEC, writing the 2010 book ‘No One Would Listen: A True
Financial Thriller’. In a special interview with
Real Vision TV, Markopolos now has the
institutionalized shortcomings of the audit world in his sights and
identified the insurance industry as the next big sector for major financial
fraud to come to light.
In fact, he intends to blow the lid
on some major insurance frauds in 2017, which he hopes will lead to stronger
regulation in the sector.
Madoff Showed How Easy it
is to Fool the Big Four Auditors
The fact that Madoff feeder funds
were getting clean audit opinions from the Big Four accountants, when Bernie
was stealing every dime from day one, shows how easy it was for Madoff to
fool the accountants, Markopolos said, adding that in the history of
accounting it’s impossible to name even one multibillion fraud that the Big
Four uncovered.
“Now, if I asked you, to name all
the big, multibillion-dollar accounting frauds that the Big Four aided and
abetted, we could be here all afternoon,” he said.
“The incentives are totally screwed up in the
accounting industry. There is no way the company should be paying the audit
fees. It should be the shareholders. It should be a fee. Every time you buy
a share, a certain number of basis points should be allocated to audit fees.
Because the audit fees are currently way too low. Management brags about how
low they've gotten the audit fees
Click here to see a clip of the Harry Markopolos interview on Real Vision.
Jensen Comment
In fairness it should be pointed out that the Bernie Madoff fraudulent hedge
fund was not audited by a qualified audit firm. Had the auditor been one of the
large CPA firms that auditing firm may have had the deep pockets needed to pay
off the investors that lost to Madoff's criminal Ponzi scheme.
We'll never know if a large CPA audit firm would've let this Ponzi scheme
harm so many investors in such a big way and, if so, whether it would have had
to pay off those investors.
What the above article points out is that some of the big investors (a few
feeder funds) had Big Four auditors or advisors (e.g., PwC and Deloitte), some
of whom had to pay off a small subset of investors in the Madoff Ponzi scheme.
This is not the same thing as having the Ponzi scheme itself being audited by a
Big Four firm. That would have been an entirely different ball of wax.
In terms of gross negligence the most guilty third party in the Madoff's
Ponzi scheme was the SEC that possibly was criminally negligent is stopping the
fraud.
"S.E.C. Hid Its Lawyer’s Madoff Ties," by Louise Story and Gretchen
Morgenson, The New York Times, September 20, 2011 ---
http://www.nytimes.com/2011/09/21/business/sec-refers-ex-counsels-actions-on-madoff-to-justice-dept.html?_r=1&ref=business
After Bernard L. Madoff’s giant Ponzi scheme
was revealed, the Securities and Exchange Commission went to great lengths
to make sure that none of its employees working on the case posed a conflict
of interest, barring anyone who had accepted gifts or attended a Madoff
wedding.
But as a
new report made clear on Tuesday, one top
official received a pass: David M. Becker, the S.E.C.’s general counsel, who
went on to recommend how the scheme’s victims would be compensated, despite
his family’s $2 million inheritance from a Madoff account.
Mr. Becker’s actions were referred by H.
David Kotz, the inspector general of the S.E.C., to the Justice Department,
on the advice of the Office of Government Ethics, which oversees the ethics
of the executive branch of government.
The report by Mr. Kotz provides fresh details
about the weakness of the agency’s ethics office and reveals that none of
its commissioners, except for Mary L. Schapiro, its chairwoman, had been
advised of Mr. Becker’s conflict.
It says Ms. Schapiro agreed with a decision
to keep Mr. Becker from testifying before Congress, where he would have
disclosed his financial interest in the Madoff account.
Mr. Kotz’s inquiry also produced evidence
that at least one S.E.C. employee had been barred from working on Madoff-related
matters because of a conflict, suggesting there was a double standard at the
agency.
The findings are another black eye for an
agency that has tried to be more aggressive in recent years after failing to
uncover the Madoff fraud. More recently, the S.E.C. has been criticized for
routine destruction of some enforcement documents that might have been
useful in later investigations.
The agency has also been criticized for its
slow pace in writing new financial regulations mandated by the Dodd-Frank
law and for the dearth of cases brought against individuals at major
financial companies that were involved in the mortgage crisis.
Federal conflict of interest law requires
government employees to be disqualified from participating in a matter “if
it would have a direct and predictable effect on the employee’s own
financial interests.”
Nevertheless, Mr. Becker “participated
personally and substantially in particular matters in which he had a
personal financial interest,” Mr. Kotz wrote in his report.
Though the referral was made to the Justice
Department’s criminal division, it could be handled as a civil matter. A
Justice Department spokeswoman declined to comment, other than confirming
the referral.
Mr. Becker’s tie to the Madoff situation came
from a Madoff account held by his mother, who died in 2004. Her three sons
inherited the account and closed it shortly thereafter, with a $1.5 million
profit, based on Mr. Madoff’s fraud.
Mr. Madoff carried out an enormous Ponzi
scheme for more than a decade, costing investors more than $20 billion in
actual losses. He is now serving a 150-year sentence in a prison in North
Carolina.
Mr. Becker’s lawyer, William R. Baker III,
said in a statement that the report confirmed that Mr. Becker had notified
seven senior S.E.C. officials about his late mother’s Madoff account,
including Ms. Schapiro and the agency’s designated ethics officer.
“The inspector general concluded that ‘none
of these individuals recognized a conflict or took any action to suggest
that Becker consider recusing himself from the Madoff liquidation,’ “ wrote
Mr. Baker, a lawyer at Latham & Watkins who worked at the S.E.C. for 15
years, working alongside Mr. Becker at times. He said the report contained
“a number of critical factual and legal errors,” but declined to enumerate
them. Mr. Becker left the S.E.C. last February.
Continued in article
"The SEC's Ethics: Washington's double standard on conflicts of interest,"
The Wall Street Journal, September 23, 2011 ---
http://online.wsj.com/article/SB10001424053111903703604576584620319633188.html#mod=djemEditorialPage_t
Who says partisanship rules Washington? House
Republicans showed remarkable forbearance yesterday toward SEC Chairman Mary
Schapiro over an ethics flap involving the Bernie Madoff case and
conflict-of-interest laws.
"What is clear about this situation is that
you did make a mistake. You admitted such and you said had you known then
what you now know, you would have acted differently," Rep. Patrick McHenry
(R., N.C.) told Ms. Schapiro at a public hearing. We doubt Ms. Schapiro and
her SEC cops would have been so forgiving toward someone in private life who
made the same "mistake."
We're referring to this week's remarkable
report from SEC Inspector General David Kotz disclosing how the SEC's former
top lawyer, David Becker, directly handled matters relating to the Madoff
fraud case despite his mother's $2 million investment with the firm, to
which he and his brothers were heirs.
Mr. Becker's involvement potentially
influenced whether investors who got money out of the Madoff operation
before it was exposed could be shielded from so-called "clawback" lawsuits
brought by those liquidating the Madoff estate. Mr. Kotz says Mr. Becker
"participated personally and substantially in particular matters in which he
had a personal financial interest" through his inheritance of his mother's
estate.
The conflict here would seem to be obvious,
and Mr. Becker did at least disclose it—to Ms. Schapiro shortly after
arriving at the SEC in February 2009. "I did precisely what I was supposed
to do," he told Congress yesterday. "I identified a matter that required
legal advice from the SEC's Ethics Office. I sought that advice, received it
and followed it."
But that still leaves the role played by Ms.
Schapiro, who never told her fellow commissioners about the conflict, going
so far as to let them vote on how to divide up the Madoff assets, a change
from which Mr. Becker stood to benefit. Only in February, after Mr. Becker
was named in a clawback lawsuit by Madoff trustee Irving Picard, did the
commissioners learn of the conflicts by reading the press.
Ms. Schapiro declined our request for an
explanation this week, but she has said she would have had Mr. Becker
recused if she had "understood that he had any financial interest in how
this was resolved." But then why did she think he had informed her of his
family's Madoff connection? She also said she would have wanted to disclose
the Madoff connection if Mr. Becker had testified on the issue "so that we
were completely forthcoming with Congress."
Hmmm. The same IG report also highlights that
the SEC decided not to have Mr. Becker testify to Congress on Madoff issues
lest his conflict become public. Mr. Becker told the IG under oath that
after he mentioned the need to disclose the inheritance up front if he did
go before Congress, the SEC's Office of Intergovernmental and Legislative
Affairs Director Eric Spitler wrote that "now that I think about it, I think
it would be better if someone else testified. My concern is not that there's
anything wrong with it," but "when you're in a political environment . . .
it would be a distraction."
Mr. Spitler has said that Ms. Schapiro agreed
that Mr. Becker shouldn't appear before Congress, though she says she does
not recall how the matter was settled.
The only word for all of this is astonishing.
We don't think all conflicts-of-interest are disqualifying, and they can be
managed to avoid trouble. But this one isn't a close call. Imagine how the
SEC's enforcement cops would handle a private company that let a general
counsel play such a role. For such a conflict to be passed off as
inconsequential, and then covered up, by the agency that is supposed to
investigate bad financial actors is more than a mistake. It's faulty
judgment that suggests an ethical blind spot.
Continued in article
Contrary to what is implied by Harry Markopolos and
Francine McKenna, we will never know what would've happened if the Madoff Ponzi
fund was submitted to an audit by a Big Four firm
Bob Jensen's Fraud Updates are at
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on lawsuits against large auditing
firms are at
http://faculty.trinity.edu/rjensen/Fraud001.htm
Déjŕ Vu All Over Again
Yogi Berra
Questions
What do audit clients Facebook and Enron have in common?
Were Andersen and Ernst and Young auditors going to raise
a fuss over their firms' own consulting advice?
IRS Demands $5 Billion From Facebook For Tax Strategy Devised By EY,
Approved By Facebook's Auditor (EY) ---
http://taxprof.typepad.com/taxprof_blog/2016/10/irs-demands-5-billion-from-facebook-for-tax-plan-devised-by-ey-approved-by-facebooks-auditor-ey.html
Over the past four years, Facebook paid EY almost
$23 million for auditing, plus $21 million
for tax planning and other non-audit work.
It’s not an uncommon arrangement: More than 100 U.S. companies have hired
their auditors to also advise them on tax planning, including the tax
implications of mergers, moving intellectual property to offshore
subsidiaries, or corporate inversions (deals that move a company’s
headquarters overseas). According to a Bloomberg analysis of data from U.S.
Securities and Exchange Commission filings compiled by Audit Analytics,
these services for audit clients generated more than $613 million in
billings for the Big Four accounting firms from 2012 through 2015. About 10
percent of the fees that accounting firms make from audit clients are for
non-audit work.
Here's the
Déjŕ Vu part
It seems like after the Andersen implosion firms and SOX were supposed to divest
themselves on earning so much consulting revenues on the side from audit
clients. Yeah right!
Enron's auditor firm, Arthur Andersen, was accused
of applying reckless standards in its audits because of a conflict of
interest over the significant consulting fees generated by Enron. During
2000, Arthur Andersen earned
$25 million in
audit fees and $27 million in consulting fees
(this amount accounted for roughly 27% of the audit
fees of public clients for Arthur Andersen's Houston office). The auditor's
methods were questioned as either being completed solely to receive its
annual fees or for its lack of expertise in properly reviewing Enron's
revenue recognition, special entities, derivatives, and other accounting
practices.[
Bob Jensen's threads on audit firm professionalism are at
http://faculty.trinity.edu/rjensen/fraud001c.htm
From MAAW's Blog Compiled by Jim Martin
Updates from the Journal of International Accounting Research
Journal of International Accounting Research Volumes 15(1) and 15(2) 2016
http://maaw.info/JournalOfInternationalAccountingResearch2016.htm
Journal of International Accounting Research 2002-2016
http://maaw.info/JournalOfInternationalAccountingResearch.htm
Undates on Environmental, Social, and Sustainability Accounting ---
http://maaw.blogspot.com/2016/11/update-on-social-accounting.html
Updates from the
Review of
Accounting Studies
From MAAW's Blog Compiled by Jim Martin
Review of Accounting Studies
- Volumes 21(1) - 21(3) 2016
http://maaw.info/ReviewOfAccountingStudies2016.htm
Review of Accounting Studies
- Volume 1(1) 1996 - Volume 21(3) 2016
http://maaw.info/ReviewOfAccountingStudies.htm
Updates from the Journal of Management Accounting Research
From MAAW's Blog Compiled by Jim Martin
Journal of Management
Accounting Research - Volumes 28(1)-28(3) 2016
http://maaw.info/JMAR2016.htm
Journal of Management
Accounting Research - Volumes 1989-2016
http://maaw.info/JMAR.htm
Updates From the CPA Journal 2016
Update
From MAAW's Blog Compiled by Jim Martin
The
CPA Journal 2016
http://maaw.info/TheCPAJournal2016.htm
The
CPA Journal 2008-2016
http://maaw.info/TheCPAJournal.htm
Updates From the International Journal of Accounting Information Systems 2016
Update
From MAAW's Blog Compiled by Jim Martin
International Journal of Accounting Information Systems 2016 ---
http://maaw.info/InternationalJournalofAccInfoSys2016.htm
International Journal of Accounting Information Systems 2000-2016 ---
http://maaw.info/InternationalJournalofAccInfoSys.htm
Updates on the
Journal of Accounting and Economics
From MAAW's Blog Compiled by Jim Martin
Journal of Accounting and Economics 2016
http://maaw.info/JournalofAccountingandEconomics2016.htm
Journal of Accounting and Economics 1979 - August 2016
http://maaw.info/JournalofAccountingandEconomics.htm
Updates on the
journal Contemporary Accounting Research (a Canadian Academic Accounting
Association journal and is the Canadian equivalent to the AAA's TAR)
From MAAW's Blog Compiled by Jim Martin
Contemporary Accounting Research 2016 ---
http://maaw.info/ContemporaryAccountingResearch2016.htm
Contemporary Accounting Research 1984-1992 and 2010-2016 ---
http://maaw.info/ContemporaryAccountingResearch.htm
Updates on the
journal Decision Sciences
From MAAW's Blog Compiled by Jim Martin
Decision Sciences Volume 47(1) - 47(4) 2016
http://maaw.info/ManagementJournals/DecisionSciences2016.htm
Decision Sciences Volume 1(1) 1970 - Volume 6(4) 1975 and Volumes
41(1) 2010 - 47(4) 2016
http://maaw.info/ManagementJournals/DecisionSciences.htm
Updates on the
journal Advances in Management Accounting
From MAAW's Blog Compiled by Jim Martin
Advances in Management Accounting Volume (26) 2016
http://maaw.info/AdvancesinManageAcc2016.htm
Advances in Management Accounting Volumes (1) 1992 - (26) 2016
http://maaw.info/AdvancesinManageAcc.htm
The IRS Scandal, Day 1275:
The Impact Of The IRS Scandal On The Investigation Of The Clinton Foundation
---
http://taxprof.typepad.com/taxprof_blog/2016/11/the-irs-scandal-day-1275-the-clinton-foundation.html
. . .
This IRS review has not generated similar waves as Department of Justice
probes into the foundation, and has largely been forgotten in the campaign's
melee. It's just not as sexy as private email servers, FBI infighting and
charges of political pressure applied to law enforcement.
But even though this examination is less scrutinized and is harder to
conceptualize, it's impact may be important. The report won't likely be done
in time to influence the presidential campaign — even though the review
started more than four months ago — but it could certainly influence the
first term of a Hillary Clinton presidency.
As with anything tax related, the status of the foundation may be determined
using rules few understand. And that makes understanding the work at 1100
Commerce St. in Dallas that much more important.
In Washington, D.C., many things start with words printed on congressional
letterhead.
Earlier this year, 64 GOP members of Congress asked the IRS to investigate
why the foundation can keep its nonprofit status. The letter includes “media
reports” claiming pay-to-play relationships between former President Bill
Clinton, who received large speaking fees, and decisions made by Hillary
Clinton to approve choices that benefited foundation donors. The sources of
these reports range from The New York Times to hit-piece
investigative books.
In July, the IRS sent letters back to the Congress informing members the
review had begun. The letter also noted that the Tax Exempt and Government
Entities Division (TE/GE) office in Dallas would be conducting the review.
IRS spokespeople in Dallas and Washington won’t say why the review is being
conducted in Dallas. Spokespeople claim even this information would violate
rules — Code 6103, staff make sure to cite — that stop them from discussing
ongoing examinations. IRS officials declined to provide details about the
Dallas office, including its size, or comment on the TE/GE work in general.
...
The TE/GE focuses on nonprofit groups, which is specialty work that requires
experience. “They are pretty much career people,” says Ben Stoltz, an
attorney with Perliski Law Group, a Dallas boutique firm with half of its
business representing nonprofit groups. “It’s a different side of the IRS
than people are used to seeing. ... They're generally very cooperative, but
they're also the watchdogs."
The mix of awareness and enforcement dovetails with cases that get
publicity. "They have a limited budget, which is a problem, so they have to
pick their targets wisely," Stoltz says. "Because this is a high profile
case, they can make an example and show that no one is above the law.” ...
Instead of money changing hands, the IRS is looking to see if the Clintons
traded money for preferential treatment. The IRS rules lay out what
qualifies as inurement:
Any transaction between an organization and a private individual in which
the individual appears to receive a disproportionate share of the benefits
of the exchange relative to the charity served presents an inurement issue.
Such transactions may include assignments of income, compensation
arrangements, sales or exchanges of property, commissions, rental
arrangements, gifts with retained interests, and contracts to provide goods
or services to the organization.
Given this language, citing “gifts” and “quid pro quo benefits” in emails is
a pretty bad move for anyone involved in a nonprofit group. Another bad
move: When senior Clinton advisers like Doug Bland call the intersection of
the foundation fundraising and the former president’s personal activities
“Bill Clinton Inc.” ...
This all leaves the IRS investigation in Dallas as a sideshow to the main
Clinton Foundation events playing out in the offices of other federal
agencies. However, if other investigations expose pay-to-play schemes, the
IRS could take that into consideration, strip the foundation of its
nonprofit status and seek payment of back taxes.
Continued in article
Teaching Case from Issues in Accounting Education, Volume 31, Issue 4
(November 2016)
http://aaajournals.org/doi/full/10.2308/iace-51189
In general, American Accounting Association journal articles are not free, but
they can be distributed for free in accounting education courses via controlled
distributions
There's a separate link to Teaching Notes for this case
Arizona Microbrewery, Inc.: An Instructional Case on Management Decision
Making
Authors
Janet A. Samuels --- Arizona State University
Kimberly M. Sawers --- Seattle Pacific University
Abstract
This case provides students with an opportunity to
utilize cost volume profit (CVP) analysis tools in a contextually rich
environment of a microbrewery. The case explores basic CVP concepts as well
as decision making for constrained resources, make versus buy, and new
product development. Further, the case requires quantitative analysis,
understanding, and exploration of contextual issues as well as assessment of
qualitative factors. While directed at graduate students (M.B.A. and E.M.B.A.)
in a managerial accounting course, this case may also be suitable for
undergraduate students with some minor modifications.
Bob Jensen's threads on CVP analysis are at
http://faculty.trinity.edu/rjensen/theory02.htm#ManagementAccounting
Teaching Cases from Issues in Accounting Education, Volume 31, Issue 4
(November 2016)
http://aaajournals.org/doi/full/10.2308/iace-51250
In general, American Accounting Association journal articles are not free, but
they can be distributed for free in accounting education courses via controlled
distributions
There's a separate link to Teaching Notes for these cases
Social Technology: A Compendium of Seven Short Cases
Authors
Brett Considine --- London School of Economics and Political Science
John Peter Krahel --- Loyola University Maryland
Margarita M. Lenk --- Colorado State University
Diane J. Janvrin --- Iowa State University
Abstract
Seven short cases highlight the need for
organizational control of the use of social technology. Executives now
consider the management of social technology strategies and risks to be
their fourth highest priority, investing significant resources to develop
effective social technology use policies (Carrick et al. 2013; Deloitte
2012; Feltham and Nichol 2012). Moreover, organizations vary their social
technology investment choices depending on their objectives and their target
audiences (AICPA 2013; Gallaugher and Ransbotham 2010; Kaplan and Haenlein
2010). A wide variety of case learning objectives involve applying internal
control models, and developing and justifying opinions about how social
technology uses and abuses affect operational, financial reporting and
regulatory compliance objectives, risks, controls, and
performance-monitoring activities. Instructors may utilize one or more of
these cases at a time, either individually or in student groups, and in
undergraduate or graduate financial accounting, accounting information
systems, governance, or auditing courses.
Bob Jensen's threads on listservs, blogs, and social networking ---
http://faculty.trinity.edu/rjensen/Listservroles.htm
Teaching Case from Issues in Accounting Education, Volume 31, Issue 4
(November 2016)
http://aaajournals.org/doi/full/10.2308/iace-51221
In general, American Accounting Association journal articles are not free, but
they can be distributed for free in accounting education courses via controlled
distributions
There's a separate link to Teaching Notes for this case
On-Line Gaming, Financial Reporting, and Audit: Chester Games Corp.
Authors
Joan Davison Conrod --- Dalhousie University
Judy Cumby --- Memorial University of Newfoundland
Abstract
This case examines selected financial reporting and
audit issues in the context of the on-line gaming industry. Key issues are
revenue recognition and asset impairment under IFRS. Revenue trends are
critical for the company as it considers a public offering. The estimates
inherent in recognizing revenue for virtual goods, both consumable goods and
durable goods, make revenue recognition and audit of revenue especially
judgmental. IAS 18 or IFRS 15 may be used as a framework to discuss revenue
recognition. Judgment is also required to support impairment testing of an
intangible asset and goodwill.
Teaching Case (on valuation) from Issues in Accounting Education,
Volume 31, Issue 4 (November 2016)
http://aaajournals.org/doi/full/10.2308/iace-51286
In general, American Accounting Association journal articles are not free, but
they can be distributed for free in accounting education courses via controlled
distributions
There's a separate link to Teaching Notes for this case
Le Beau Footwear: A Business Valuation Case for a Privately Held Firm
Authors
Abol Jalilvand --- Loyola University, Chicago
John W. Kostolansky ---
Abstract
The case for Le Beau Footwear, which is based on
actual events, examines the financial and legal decisions concerning a
privately held Canadian retailer whose leased premises and entire inventory
were destroyed by a suspicious fire in 1990. The focus of the case is on
determining the monetary value of the lost profits that resulted from the
insurer's delays in paying the indemnified amount. Within this context, this
case provides a rich and comprehensive example of the application of the
accounting return on investment (ROI) and the market-based opportunity cost
of capital (OCC) techniques for valuation of a privately held firm. Further,
the case demonstrates a sharp example of applying the results from previous
studies of initial public offering (IPO) and small firm effect to make
valuation adjustments that reflect the retailer's private ownership status
and its small size. This case is intended for use in advanced accounting and
finance courses in M.B.A., M.S. in Accountancy, and M.S. in Finance
programs.
Bob Jensen's Favorite Teaching Cases on Valuation (especially the Questrom
Case showing the limitation of academic valuation models taught by accounting
faculty)
http://faculty.trinity.edu/rjensen/roi.htm
Jensen Comment
I want to especially thank
David Stout, Editor of the May 2001 edition
of Issues in Accounting Education. There has been
something special in all the editions edited by David, but the May
edition is very special to me. All the articles in that edition are
helpful, but I want to call attention to three articles that I will use
intently in my graduate Accounting Theory course.
-
"Questrom vs. Federated
Department Stores, Inc.: A Question of Equity Value," by University
of Alabama faculty members Gary Taylor, William Sampson, and
Benton Gup, pp. 223-256.
This is perhaps the best short case that I've ever read. It will
undoubtedly help my students better understand weighted average cost
of capital, free cash flow valuation, and the residual income
model. The three student handouts are outstanding. Bravo to
Taylor, Sampson, and Gup.
-
"Using the Residual-Income
Stock Price Valuation Model to Teach and Learn Ratio Analysis," by
Robert Halsey, pp. 257-276.
What a follow-up case to the Questrom case mentioned above! I have
long used the DuPont Formula in courses and nearly always use the
excellent paper entitled "Disaggregating the ROE:
A New Approach," by T.I. Selling and C.P.
Stickney, Accounting Horizons, December 1990,
pp. 9-17. Halsey's paper guides students through the swamp of stock
price valuation using the residual income model (which by the way is
one of the few academic accounting models that has had a major
impact on accounting practice, especially consulting practice in
equity valuation by CPA firms).
-
"Developing Risk Skills:
An Investigation of Business Risks and Controls at Prudential
Insurance Company of America," by
Paul Walker, Bill Shenkir, and
Stephen Hunn, pp. 291
I will use this case to vividly illustrate the "tone-at-the-top"
importance of business ethics and risk analysis. This is case is
easy to read and highly informative.
Teaching Case from Issues in Accounting Education, Volume 31, Issue 4
(November 2016)
http://aaajournals.org/doi/full/10.2308/iace-51430
In general, American Accounting Association journal articles are not free, but
they can be distributed for free in accounting education courses via controlled
distributions
There's a separate link to Teaching Notes for this case
Alibaba Group Initial Public Offering: A Case Study of Financial Reporting
Issues
Authors
Qing L. Burke --- Miami University
Tim V. Eaton --- Miami University
Abstract
In September 2014, the Chinese e-commerce giant
Alibaba Group Holding Limited issued shares on the New York Stock Exchange,
making it the world's largest initial public offering. This case examines
different aspects of the Alibaba Group's initial public offering, including
Alibaba Group's business model, financial reporting and corporate
governance, as well as the macroeconomic, political, and legal environment
in which the company operates. In addition, this case will familiarize
students with the risks and opportunities for Chinese companies and
investors when a Chinese company lists in the U.S. This case is suitable for
financial accounting and international accounting courses at the
intermediate and advanced levels for undergraduates as well as graduate
students. The case is scalable, and instructors can choose from multiple
sections of the case and different case questions to tailor the case
difficulty to their students' learning needs.
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 28, 2016
The
Making of the AT&T Deal
by: Keach
Hagey, Dan Cimilluca and Ahalinin Ramachandran
Oct 24, 2016
Click here to view the full article on WSJ.com
TOPICS: Business
Combination
SUMMARY: This
article describes the process of the proposed acquisition of Time Warner by
AT&T in a storylike, timeline fashion. It can be useful to introduce
business combinations to help students understand activities involved in the
strategic decision, negotiating a price, and considering regulatory hurdles.
CLASSROOM
APPLICATION: The
article may be used in a class covering business combinations. Students are
asked to define horizontal versus vertical mergers.
QUESTIONS:
1. (Introductory) How did negotiations for the AT&T acquisition of
Time Warner begin? Which of the CEOs reportedly proposed the transaction?
Does that information surprise you?
2. (Advanced) How has AT&T previously tried to move away from the
U.S. wireless market? Why would a phone company want to do that? Hint: you
may refer to the related articles.
3. (Advanced) Define the terms horizontal and vertical merger. Cite
which merger transactions AT&T has attempted which fit each of these
categories.
4. (Introductory) How did AT&T and Time Warner utilize banking
consultations throughout this process of negotiation?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Phone Giants' Paths Diverge
by Ryan Knutson
Oct 24, 2016
Page: B6
"The Making of the AT&T Deal," by Keach Hagey, Dan Cimilluca and
Ahalinin Ramachandran, The Wall Street Journal, October
24, 2016 ---
http://www.wsj.com/articles/the-making-of-the-at-t-time-warner-deal-1477266119?tesla=y
Company CEOs worked quickly behind the
scenes to forge the biggest deal of the year—AT&T’s acquisition of Time
Warner for $107.50 a share
Two months ago, AT&T Inc. Chief
Executive Randall Stephenson stopped by Time Warner Inc. Chief Executive
Jeff Bewkes’s offices in New York for a lunch of salmon, while musing about
the increasing convergence of the media and telecommunications industries.
During their lunch, Mr. Stephenson surprised Mr. Bewkes by suggesting that
AT&T buy Time Warner, according to people familiar with the matter. Mr.
Bewkes said it wasn’t for sale, but at the right price he would consider an
offer, the people said, signaling that a deal was possible.
Mr. Stephenson walked away with his
mind swirling with the possibilities that Time Warner’s premium content—top
brands such as HBO, CNN and Warner Bros.—could bring to the streaming video
service he was trying to build.
“If you were ever going
to do something like this, this is the content you’d like to use as an
anchor tenant,” he said in an interview Sunday.
From that point
forward, things proceeded at breakneck speed, culminating Saturday night in
the biggest deal of the year
as AT&T announced it was buying Time Warner for $107.50 a share—a 36%
premium to where its stock was trading before the news of a deal started to
trickle out late last week.
The $85.4 billion
cash-and-stock deal will forge a conglomerate that both produces content and
distributes it, uniting AT&T’s millions of pay-TV and wireless customers
with Time Warner’s extensive cache of media content, including the prized
HBO premium network, cable networks TBS and TNT, and the Warner Bros. film
and TV studio.
The mammoth combination
would mark the crowning achievements of both company’s CEOs, technocrats
less known for deal making earlier in their tenures. They said they expect
the deal to close by the end of 2017, though it is likely to face a
stringent regulatory review.
For Mr. Stephenson, the transaction could solidify his moving away from the
U.S. wireless market—where further consolidation was blocked in 2011 when
regulators halted his attempted $39 billion purchase of
T-Mobile US
Inc. After buying DirecTV last year, this latest deal transforms the former
regional telephone company into a major media conglomerate. He’s betting
that wading further into television and video will generate new sources of
growth, and that buying Time Warner will provide a hedge against increasing
programming costContinued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 28, 2016
AT&T
Acquisition Will Add to Heavy Debt Load
by: Ryan
Knutson
Oct 24, 2016
Click here to view the full article on WSJ.com
TOPICS: Debt
SUMMARY: AT&T
already is one of the most heavily indebted with approximately $125 billion
in debt. Their proposed acquisition of Time Warner could lead that balance
to $170 billion.
CLASSROOM
APPLICATION: The
article may be useful in a class covering business combinations or in one
covering debt issuance.
QUESTIONS:
1. (Advanced) How much debt does AT&T currently have on its balance
sheet?
2. (Introductory) Based on the information in the article, how much
debt will AT&T add to its balance sheet?
3. (Advanced) What is net debt?
4. (Introductory) What financial ratio is cited in the article which
indicates how well AT&T is able to handle the burden of its net debt
position?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
The Making of the AT&T Deal
by Keach Hagey, Dan Cimilluca and Ahalinin Ramachandran
Oct 24, 2016
Page: B1
"AT&T Acquisition Will Add to Heavy Debt Load," Ryan Knutson, The Wall Street Journal, October
24, 2016 ---
http://www.wsj.com/articles/time-warner-deal-adds-to-at-ts-heavy-debt-load-1477271620?tesla=y
Buying
Time Warner
Inc. will make
AT&T
Inc. among the most heavily indebted companies on earth.
In a deal
announced Saturday, AT&T agreed to pay $85.4 billion to buy the owner of
CNN, HBO and TNT networks. Including debt, the value grows to $108.7
billion. And to finance the half-cash, half-stock deal, AT&T is taking on
$40 billion of bridge loans.
AT&T, the
largest nonfinancial corporate issuer of dollar-denominated debt, already
has about $119 billion in net debt—roughly double what it was five years
ago. “This would put them, I think, within striking distance of the
financials with respect to unsecured bond issuance,” says Mark Stodden, a
credit analyst at Moody’s.
Mr. Stodden
estimates the carrier’s total debt load will grow to as much as $170 billion
if the deal is approved. AT&T hasn’t said precisely how much debt it plans
to issue to fund the transaction, but estimates that by the end of the first
year after the deal’s close, net debt will be around 2.5 times its adjusted
earnings, up from 2.24 times at the end of the third quarter.
Most
recently, AT&T added to its debt when it bought the satellite-television
operator DirecTV last year. It also paid $18 billion for wireless airwaves
licenses during a 2015 government auction and spent roughly $10 billion
buying its own shares in 2014. More spending is on the horizon tooas the
carrier is currently participating in a government auction of wireless
airwaves.
AT&T said in
its statement Saturday that it expected it would preserve its
investment-grade rating. “AT&T has a very sound balance sheet and our cash
generation is strong,” a company spokesman said Sunday. “We’re confident in
our ability to execute.”
Moody’s
Investors Service downgraded AT&T in January 2013 and again in February
2015. Its current rating at Moody’s is Baa 1, the third-lowest investment
grade notch. “You could potentially see further pressure on the rating
because of this mega deal,” Mr. Stodden said. The ratings agency has yet to
make a formal determination.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 28, 2016
Internal Audit Chiefs Gain in Stature, Pay
by: Joann S.
Lublin
Oct 25, 2016
Click here to view the full article on WSJ.com
TOPICS: Board
of Directors, Internal Auditing, Internal Controls
SUMMARY: The
article discussed the increasing stature of chief audit executives leading
internal audit departments. These roles have expanded especially since
implementation of Sarbanes-Oxley and also because of needed experience
related to cyber-security and direct support for the audit committee of the
Board of Directors. Salaries of approximately $1,000,000 in large companies
reflect the skills needed, including Board Room presence and communication
skills, as well as respect for the independent role of a stature
CLASSROOM
APPLICATION: The
article may be used in an auditing or other class overing internal controls,
internal audit, and or Boards of Directors
QUESTIONS:
1. (Introductory) What is the role of a "chief audit executive"? This
job may have another title. What is it?
2. (Introductory) What corporate matters of concern do chief audit
executives address? How is that information critical to support the work of
a Board of Director's Audit Committee?
3. (Advanced) What role did Sarbanes-Oxley play in expanding the
critical nature of this position? What other skills are more recently coming
into play in this role?
4. (Advanced) What examples are cited in the article of audit
executives refusing to take on certain positions? How did those executives
consider pay and reporting hierarchy in making this decision?
Reviewed By: Judy Beckman, University of Rhode Island
"Internal Audit Chiefs Gain in Stature, Pay," Joann S. Lublin, The Wall Street Journal, October
26, 2016
http://www.wsj.com/articles/internal-audit-chiefs-gain-in-clout-compensation-1477339076?tesla=y
Holders of the post take on higher profile as they
increasingly report to the board or key panel
Top watchdogs
inside many companies bark louder these days.
They are
known as chief audit executives, or CAEs, and they assess the effectiveness
of corporate controls, risk management and governance processes. As boards
worry more about cyberattacks, regulatory compliance and personal liability,
these executives are gaining clout and commanding higher pay.
CAEs are
becoming more visible in part because directors are playing a bigger roles
in selecting, evaluating and rewarding internal audit chiefs. In North
America, about 83% of those executives report to their employer’s full board
or audit committee, according to a 2016 report by the Institute of Internal
Auditors, a professional association. That’s up from 76% in 2013.
Another sign
of their rising influence: this year, for the first time, the proportion of
audit leaders who report to their chief executive matched those overseen by
the chief financial officer, the report found.
Solid support
from audit committees and top company leaders often give CAEs more freedom
to raise red flags, experts said. It can also bring them sizable paychecks.
“Boards will
pay a lot more for CAEs with superior risk-management and business acumen in
their company’s industry,’’ said Richard Chambers,
IIA president.
Recruiters
agree. “Chief audit executives hired by large companies now command total
pay packages approaching $1 million—about 30% more than a decade ago,’’ said Scott Simmons, a managing director at Crist|Kolder Associates, which recruited nearly
15 current CAEs.
Sarbanes-Oxley, the sweeping corporate-reform law enacted in 2002, raised
boards’ expectations for heads of internal audit, according to Charles Noski,
chairman of the audit committee at
Microsoft
Corp.,
Priceline Group
Inc. and
Avon Products
Inc. “Internal audit really is the eyes and ears of the audit committee,’’
he said, adding that CAEs today “are stronger executives’’
Mr. Noski
makes sure that’s true of candidates who interview for the job. He said he
seeks “a strong backbone,” plus effective boardroom presence and
communications skills. During an audit-chief hunt for one company he serves,
Mr. Noski favored an external candidate who told the director that he
refused to be bullied despite colleagues’ resistance. The prospect, an
experienced internal auditor, got hired this fall.
Demand
for veteran CAEs is so brisk that some spurn opportunities where they might
lack power to operate independently. George Dooley
typifies this breed. He ran internal audit for
Visa Inc.
until 2015, following two such stints elsewhere.
Now exploring
fresh CAE opportunities, Mr. Dooley said he rejected feelers from two big
businesses. A key reason: Their audit committee charters don’t give the
panel hiring and firing authority over the highest audit officer. As a CAE,
“you have to maintain your integrity and independence,’’ he said.
Patricia Black took an equally tough stance after leaving Fannie Mae this past
June. She was a senior vice president of the mortgage giant when she
commanded internal audit between 2009 and 2013.
A large U.S.
retailer recently approached her about becoming its chief audit executive.
The position, while reporting to the CFO, only carried the title of vice
president. And the retailer paid its CAE less than similarly sized
companies.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 28, 2016
The
Big Number: 8%
by: Tatyana
Shumsky
Oct 25, 2016
Click here to view the full article on WSJ.com
TOPICS: Financial
Accounting, Revenue Recognition
SUMMARY: Public
companies which haven't yet begun to implement the new revenue recognition
requirements total 8% of those survey by PwC recently. Companies whose
revenue recognition timing won't change under the new standard still find
the new disclosure requirements onerous.
CLASSROOM
APPLICATION: The
article may be used in any course covering the new revenue recognition
requirements
QUESTIONS:
1. (Advanced) When did the Financial Accounting Standards Board (FASB)
issue new revenue recognition requirements? What are the basis provisions of
those new requirements?
2. (Introductory) How much time do companies have left before the
implementation date for the new accounting standard?
3. (Introductory) What steps are required to implement a new
accounting standard? According to companies surveyed by Pwc, how difficult
are each of these steps for the revenue recognition standard?
4. (Advanced) Access information about the new revenue recognition
requirements through your course materials or by accessing Accounting
Standards Updates (ASU) 2014-09. What are the disclosure requirements for
this new standard? What about them do you think is so challenging as
companies describe in their response to PwC's survey?
Reviewed By: Judy Beckman, University of Rhode Island
"The Big Number: 8%," by Tatyana Shumsky, The Wall Street Journal, October
25, 2016 ---
http://www.wsj.com/articles/the-big-number-1477329579?mod=djem_jiewr_AC_domainid
8% Share of
public companies that haven’t started implementing new revenue-accounting
rules
Some finance
chiefs are proving that work expands to fill the time allotted.
Despite a
year-long extension for implementing new revenue accounting rules, 8% of
public companies surveyed by PricewaterhouseCoopers LLP and the Financial
Executives Research Foundation said they haven’t yet started the work. The
new standard, which governs how companies account for revenue, comes into
effect for public companies’ financial reporting periods after Dec. 15,
2017.
CFOs who
squandered the additional time will soon discover that implementing the new
rules is a lot more challenging than expected, said Dusty Stallings, partner at PwC. “Every company is saying that everything is
difficult,” she said.
Companies
already applying the new rules were surveyed on seven key facets of
implementation, such as contract reviews and project management. At least
two-thirds of respondents said each of those areas was “very difficult” or
“somewhat difficult.”
Even
companies whose revenue timing will be little changed by the new accounting
standard are struggling with the additional disclosure requirements, Ms.
Stallings said.
This poses a
potential problem to firms that haven’t yet begun the work. New rules are
typically implemented in three stages: assessing what accounting changes are
necessary, determining which conversion process will be used and
implementing those changes. Assessment is the shortest.
“It’s really
critical that companies spend the time now to get done with their assessment
phase,” said Ms. Stallings.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 28, 2016
When
Your Employer Messes Up Your 401(k)
by: Andrea
Coombes
Oct 24, 2016
Click here to view the full article on WSJ.com
TOPICS: Pensions
SUMMARY: Pension
accounting topics typically cover defined benefit pension plans. This
article discusses defined-contribution plans with a graphic of total plan
assets. The focus of the article is essentially to recommend that employees
audit their employer's accounting for their defined-contribution plans.
CLASSROOM
APPLICATION: The
article may be used in any level of financial accounting class covering
pensions.
QUESTIONS:
1. (Advanced) What is a defined-contribution pension benefit plan? In
your answer, contrast with a defined-benefit plan.
2. (Advanced) Define the terms 401(k) plan and 403(b) plan. In your
answer, identify the source of these descriptions for the plans.
3. (Introductory) Refer to the related graphic entitled "Saving Up"
Approximately how much is held in U.S. 401(k) plans in 2015?
4. (Introductory) What problems with employers' accounting for and
managing of 401(k) plans does the article describe?
5. (Advanced) How do the steps recommended in the article for
monitoring essentially amount to auditing one's 401(k) plan? In your answer,
define the term "to audit."
Reviewed By: Judy Beckman, University of Rhode Island
"When Your Employer Messes Up Your 401(k)," by Andrea Coombes, The Wall Street Journal, October
24, 2016 ---
http://www.wsj.com/articles/what-happens-when-theres-a-mistake-in-your-401-k-1477275002?mod=djem_jiewr_AC_domainid
Employers and retirement-plan sponsors
aren’t perfect. And sometimes workers pay the price.
Are you keeping a close
eye on your 401(k) and other retirement plans? You should, because employers
and plan managers make mistakes—and that can lead to big headaches and
out-of-pocket costs for you.
Just ask Benjamin Levy, a retired information-technology professional whose former employer
erroneously deposited in his 401(k) a portion of a bonus that he received
after he retired. The company overlooked its own plan’s rules prohibiting
retirees from making contributions. Meanwhile, Mr. Levy already had rolled
that contribution into an IRA, along with most of his 401(k) balance.
Now Mr. Levy may be on
the hook for taxes and penalties for the portion of his IRA rollover that
should have been paid as income to him.
Mistakes by
retirement-plan sponsors are a frustration for many retirees.
“We’ve seen a broad range
of mistakes involving both defined-contribution and defined-benefit plans,”
says Emily Spreiser, legal program director at the Pension Rights Center, a
nonprofit advocacy group in Washington, D.C. Such mistakes include: failing
to put contributions into 401(k) accounts in a timely manner; contributing
too much or too little; failing to abide by the participant investment
elections; failing to enroll new workers when they become eligible; failing
to automatically increase workers’ contribution rates when the plan rules
call for it.
The list goes on.
Threatening letters
Among the most difficult
cases are those where the employer overpaid benefits for many years and then
attempts to recoup the money. Such recoupment efforts occur mostly with
traditional pension plans, in part because there’s a monthly check the
company can reduce. Also, employers are responsible for making sure the
entire group of current and future beneficiaries isn’t harmed by any lost
benefits.
In one case, a retired
janitor was collecting about $15,000 a year in benefits until the
pension-plan sponsor realized it had his date of birth wrong, says Bill
Bortz, a retired lawyer who worked on pension plans at the U.S. Treasury
Department and now works with the Pension Rights Center on a pro-bono basis.
Continued in article
Francine: Remarks at New York University Forum on Non-GAAP Metrics
---
http://retheauditors.com/2016/11/09/remarks-at-new-york-university-forum-on-non-gaap-metrics/
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 21, 2016 ---
Buyout-Loan Strategy Questioned
by: Liz
Hoffman and Matt Wirz
Oct 17, 2016
Click here to view the full article on WSJ.com
TOPICS: Non-GAAP
Reporting
SUMMARY: Bank
regulatory requirements "discourage banks from lending more than six times a
company's earning before interest, taxes, depreciation and amortization, or
EBITDA." However, companies looking for financing adjust the amounts used to
determine that ratio in "potentially aggressive or unsupported" ways similar
to concerns about non-GAAP reporting of earnings in earnings releases by
publicly-traded firms. "The warnings come amid annual reviews in which
regulators expressed concerns that banks and their clients are being liberal
with adjustments to earnings to justify more borrowing...."
CLASSROOM
APPLICATION: The
article may be used in a class on financial reporting to cover non-GAAP
reporting or debt issuance.
QUESTIONS:
1. (Introductory) What are "leveraged loans"? Why are they of
particular interest now?
2. (Introductory) Why do federal banking regulators examine buyout
transactions such as the purchase of Ultimate Fighting Championship (UFC) by
William Morris Endeavor? Include in your answer a description of bank loan
portion of the transaction.
3. (Advanced) What benefit is obtained by limiting loan amounts to 6
times EBITDA?
4. (Advanced) What are the reporting requirements when publicly
traded companies disclose non-GAAP information in earnings releases? How are
regulators requiring similar information for mergers and acquisitions that
are financed with bank lending?
Reviewed By: Judy Beckman, University of Rhode Island
"Buyout-Loan Strategy Questioned," by Liz Hoffman and Matt Wirz, The Wall Street Journal, October
17, 2016 ---
http://www.wsj.com/articles/the-ultimate-earnings-fighting-championship-1476615601?tesla=y?mod=djem_jiewr_AC_domainid
Sale of UFC and other buyout deals are raising
concerns among regulators that banks and clients are being too liberal with
adjustments to earnings to justify more borrowing for transactions
When the
Ultimate Fighting Championship put itself up for sale this year, the
mixed-martial-arts organization showed one measure of earnings of about $170
million, according to people familiar with the deal.
But with a
few tweaks, the figure presented to debt investors helping finance the sale
climbed to $300 million, the people said.
The higher
number allowed the buyer, talent agency William Morris Endeavor, to borrow
$1.8 billion for the deal without exceeding a regulatory “leverage”
guideline. That discourages banks from lending more than six times a
company’s earnings before interest, taxes, depreciation and amortization, or
Ebitda.
Banking
regulators have shown increasing concern about such moves in the $900
billion-a-year leveraged-loan market, in which banks lend to risky
companies, often during a takeover, and then sell the debt in pieces to
investors. In 2013, the Federal Reserve and Office of the Comptroller of the
Currency started guiding banks to stay away from heavily leveraged deals.
In
recent weeks, Fed examiners have notified William Morris Endeavor’s lenders,
Goldman Sachs Group Inc. and
AG, that the way the UFC loans
stayed under the Ebitda guideline could be problematic, according to people
familiar with the matter.
Regulators in
recent months have also flagged at least two other buyouts—those of software
companies Cventand SolarWinds Inc.—for potentially aggressive or unsupported
adjustments to Ebitda, some of the people said.
The warnings
come amid annual reviews in which regulators expressed concerns that banks
and their clients are being liberal with adjustments to earnings to justify
more borrowing, the people said.
Goldman Sachs
and Deutsche Bank declined to comment.
Concerns
about companies massaging their financial figures in the debt markets echo
worries in stock markets. The Securities and Exchange Commission has
criticized companies’ increasing use of measures that don’t comply with
standard accounting rules.
The
adjustments often exclude charges for things like stock-based compensation
or restructuring expenses. In and of themselves, the adjustments aren’t
improper. Companies have said that the tweaks provide a truer picture of
their business. The fear is that they also provide an overly rosy view of
profits.
Continued in article
From the CFO Journal's Morning Ledger
on November 16, 2016
SEC criticizes GE over ‘non-GAAP’
The Securities and Exchange Commission has criticized
General Electric Co.’s use of tailored, “non-GAAP” financial measures
in recent months but has completed a review of the company’s filings without
taking any further action. In correspondence between the SEC and GE from
June through September, the agency contended that the company’s non-GAAP
disclosures could be unclear or confusing to investors and that its metrics
may have excluded some costs they shouldn’t have
2002 Message from Ron Huefner
[rhuefner@ACSU.BUFFALO.EDU]
For those needing a
break from Enron, the SEC today issued its first enforcement action in the
area of pro-forma earnings. AAER 1499, regarding Trump Hotels and Casino
Resorts, Inc., may be found at
http://www.sec.gov/news/headlines/trumphotels.htm
Ron Huefner
"SEC Brings First Pro Forma
Financial Reporting Case Trump Hotels Charged With Issuing Misleading Earnings
Release," FOR IMMEDIATE RELEASE 2002-6 ---
http://www.sec.gov/news/headlines/trumphotels.htm
Washington, D.C.,
January 16, 2002
— In its first pro forma financial reporting case, the Securities and
Exchange Commission instituted cease-and-desist proceedings against Trump
Hotels & Casino Resorts Inc. for making misleading statements in the
company's third-quarter 1999 earnings release. The Commission found that the
release cited pro forma figures to tout the Company's purportedly positive
results of operations but failed to disclose that those results were primarily
attributable to an unusual one-time gain rather than to operations.
"This is the
first Commission enforcement action addressing the abuse of pro forma earnings
figures," said Stephen M. Cutler, Director of the Commission's Division
of Enforcement. "In this case, the method of presenting the pro forma
numbers and the positive spin the Company put on them were materially
misleading. The case starkly illustrates how pro forma numbers can be used
deceptively and the mischief that they can cause."
Trump Hotels
consented to the issuance of the Commission's order without admitting or
denying the Commission's findings. The Commission also found that Trump
Hotels, through the conduct of its chief executive officer, its chief
financial officer and its treasurer, violated the antifraud provisions of the
Securities Exchange Act by knowingly or recklessly issuing a materially
misleading press release.
"This case
demonstrates the risks involved in mishandling pro forma reporting," said
Wayne M. Carlin, Regional Director of the Commission's Northeast Regional
Office. "Enforcement action can result if a company fails to disclose
information necessary to assure that investors will not be misled by the pro
forma numbers."
Specifically,
as
set forth in the Order, which is available
on
the Commission's website, the Commission found that:
-
On Oct. 25, 1999,
Trump Hotels issued a press release announcing its quarterly results. The
release used net income and earnings-per-share (EPS) figures that differed
from net income and EPS calculated in conformity with generally accepted
accounting principles (GAAP), in that the figures expressly excluded a
one-time charge. The earnings release was fraudulent because it created
the false and misleading impression that the Company had exceeded earnings
expectations primarily through operational improvements, when in fact it
had not.
-
The release
expressly stated that net income and EPS figures excluded a $81.4 million
one-time charge. Although neither the earnings release nor the
accompanying financial data used the term pro forma, the net income and
EPS figures used in the release were pro forma numbers because they
differed from such figures calculated in conformity with GAAP by excluding
the one-time charge. By stating that this one-time charge was excluded
from its stated net income, the Company implied that no other significant
one-time items were included in that figure.
-
Contrary to the
implication in the release, however, the stated net income included an
undisclosed one-time gain of $17.2 million. The gain was the result of the
termination, in September 1999, of the All Star Café's lease of
restaurant space at the Trump Taj Mahal Casino Resort in Atlantic City.
Trump Hotels, through various subsidiaries, owns and operates the Taj
Mahal and other casino resorts. The Company's executive offices are in New
York City, and its business and financial operations are centered in
Atlantic City.
-
Not only was
there no mention of the one-time gain in the text of the release, but
the financial data included in the release gave no indication of it,
because all revenue items were reflected in a single line item.
-
The misleading
impression created by the reference to the exclusion of the one-time
charge and the undisclosed inclusion of the one-time gain was reinforced
by the comparison in the earnings release of the stated earnings-per-share
figure with analysts' earnings estimates and by statements in the release
that the Company been successful in improving its operating performance.
Using the non-GAAP, pro forma figures, the release announced that the
Company's quarterly earnings exceeded analysts' expectations, stating:
Net income
increased to $ 14.0 million, or $ 0.63 per share, before a one-time
Trump World's Fair charge, compared to $ 5.3 million or $ 0.24 per share
in 1998. [Trump Hotels'] earnings per share of $ 0.63 exceeded First
Call estimates of $ 0.54.
In addition, the
release quoted Trump Hotels' chief executive officer as attributing the
stated positive results and improvement from third-quarter 1998 to
improvements in the Company's operations.
-
In fact, had the
one-time gain been excluded from the quarterly pro forma results as well
as the one-time charge, those results would have reflected a decline in
revenues and net income and would have failed to meet analysts'
expectations. The undisclosed one-time gain was thus material, because it
represented the difference between positive trends in revenues and
earnings and negative trends in revenues and earnings, and the difference
between exceeding analysts' expectations and falling short of them.
-
On Oct. 25, the
day the earnings release was issued, the price of the Company's stock rose
7.8 percent; subsequently, analysts learned of the one-time gain. On Oct.
28, the day on which an analysts' report and a news article revealing the
impact of the one-time gain were published, the stock price fell
approximately 6 percent.
The Commission found
that Trump Hotels violated Section 10(b) of the Exchange Act and Rule 10b-5
thereunder. The Company was ordered to cease and desist from violating those
provisions.
For information about
the use and interpretation of pro forma financial information, see the
cautionary advice for companies and their advisors at
http://www.sec.gov/news/headlines/proforma-fin.htm
and the investor alert recently issued by the Commission at
http://www.sec.gov/investor/pubs/proforma12-4.htm.
Contact:
Wayne M. Carlin tel.: (646) 428-1510
Additional Materials
Bob Jensen's threads on non-GAAP and Pro Forma Reporting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#ProForma
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 4, 2016
Qualcomm Makes $39 Billion Bet on Car
by:
Don Clark and Tim Higgins
Oct 28, 2016
Click here to view the full article on WSJ.com
TOPICS: business
combinations
SUMMARY: Qualcomm
has agreed to pay $39 billion for NXP Semiconductors NV, out of the
Netherlands. Including debt, the total is $47 billion. Currently,
"Qualcomm...leaves chip manufacturing to others"-that is, the company uses
(actually pioneered) the "fabless model" of designing chips manufactured by
others. NXP has 44,000 employees to Qualcomm's 30,000. "NXP also owns seven
factories in five countries that turn silicon wafers into chips. In
addition...NXP has older factories that wouldn't easily be adapted to make
Qualcomm's chips." According to the related article, "industry executives
say chip fabrication will require entirely new skills of Qualcomm...[while
CEO Steve] Mollenkopf and some analysts say people tend to overlook the
expertise Qualcomm has built up over the years through overseeing its
manufacturing partners."
CLASSROOM
APPLICATION: Questions
relate to business combination accounting and management accounting
(integration following the business combination).
QUESTIONS:
1. (Introductory) By acquiring NXP Semiconductors NV, do you think
that Qualcomm is conducting a horizontal acquisition or a vertical
integration? Support your answer with a clear description of Qualcomm's
strategic reasoning for making this acquisition.
2. (Introductory) Which is larger, Qualcomm or NXP Semiconductors?
Explain your answer.
3. (Advanced) How do accountants define an acquirer in a business
combination? Provide references to authoritative accounting literature and
support the conclusion that Qualcomm is the acquirer in this instance.
4. (Introductory) What hurdles does Qualcomm face in executing
this business combination? What do critics say about Qualcomm's abilities to
handle these hurdles?
5. (Advanced) What is a learning curve? How does Qualcomm's CEO argue
that the company has already progressed on the learning curve associated
with the new activities inherent in this business combination? (Refer to the
related article)
Reviewed By: Judy Beckman, University of Rhode Island
"Qualcomm Makes $39 Billion Bet on Car," by Don Clark and Tim Higgins, The Wall Street Journal,
October 28, 2016
---
http://blogs.wsj.com/cfo/2016/10/27/qualcomm-creating-subsidiary-to-avoid-nxp-tax-hit/?mod=djemCFO_h?mod=djem_jiewr_AC_domainid
Semiconductor company
Qualcomm
is creating a new foreign subsidiary to buy Eindhoven, Netherlands-based
NXP Semiconductors N.V.,
and avoid paying tax on its offshore cash.
Qualcomm on Thursday announced a
$39 billion deal to buy NXP
and said it would use $11 billion of new debt and offshore cash to fund the
acquisition.
San
Diego-based Qualcomm had $2.4 billion of cash and equivalents in the U.S.,
and another $28.6 billion offshore at the end of June, according to a filing
with the Securities and Exchange Commission. The company doesn’t have to pay
U.S. tax on the offshore cash, as long as it
indefinitely reinvests the money offshore.
To keep all
the cash outside U.S. borders, a new subsidiary based in Amsterdam, Qualcomm
River Holdings B.V., is making the tender offer for NXP’s shares.
Under current
law, companies can avoid paying U.S. tax on their foreign earnings if they
keep the money outside the country’s borders. That’s left some $2 trillion
of foreign earnings outside the U.S., but companies have found creative ways
to deploy that money.
Many
companies use cash held outside the U.S. to pay interest on their
borrowings. The tax deductions on the interest help offset tax from
repatriating the cash, said Robert Willens, a tax analyst.
Qualcomm’s
finance chief, George Davis, said during a conference call Thursday morning
that the company will be able to use the offshore cash to pay down the new
debt.
“They care about not paying taxes,” said Mr. Willens, in reference to the
Qualcomm deal structure
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 4, 2016
Auditor's Role Questioned
by:
Michael Rapoport
Nov 02, 2016
Click here to view the full article on WSJ.com
TOPICS: Audit
Quality
SUMMARY: Sen.
Elizabeth Warren and three colleagues sent a letter to KPMG LLP saying that
"the firm's failure to uncover practices that included Wells Fargo employees
opening as many as two million accounts without customers' knowledge 'raises
questions about the quality of [the firm's] audits.'" The article discusses
the role and responsibilities of auditors to detect fraud and its limitation
to those frauds which would materially impact the financial statements.
CLASSROOM
APPLICATION: The
article may be used in an auditing class.
QUESTIONS:
1. (Advanced) What is an auditor's responsibilities in detecting
fraud? Provide a specific reference to audit standards issued by the Public
Company Accounting Oversight Board.
2. (Introductory) How does the author describe these responsibilities
in the article?
3. (Advanced) Does a finding of fraud by employees of a company whose
financial statements and internal control systems have received clean audit
opinions necessarily imply that audit quality was poor? Explain your answer.
4. (Advanced) Consider Senator Warren's (and colleague's) letter to
KPMG LLP. Does a finding of fraud imply that one could question the quality
of an audit? Again, explain your answer.
5. (Introductory) Note that the article highlights the amount of
audit fees of $179.4 million. Why do you think that fee is highlighted? Why
does the article state that Wells Fargo paid $234.5 million overall?
Reviewed By: Judy Beckman, University of Rhode Island
"Auditor's Role Questioned," by Michael Rapoport, The Wall Street Journal, November
2, 2016
---
http://www.wsj.com/articles/wells-fargo-where-was-the-auditor-1478007838?mod=djem_jiewr_AC_domainid
Wells Fargo & Co. isn’t the only one having to
answer to Washington over its sales-practices scandal. Its longtime auditor,
KPMG LLP, is getting questioned, too. In a letter to KPMG last week, Sen.
Elizabeth Warren (D., Mass.) and three colleagues said the firm’s failure to
uncover practices that included Wells Fargo employees opening as many as two
million accounts without customers’ knowledge “raises questions about the
quality of your audits.” Whether KPMG should have found the problems
highlights a longstanding and troubling issue for investors: the role of
auditors in catching frauds and the types of scams they are—and
aren’t—supposed to spot.
Under audit rules, auditors are required to watch
for potential fraud and conduct a variety of checks to try to unearth it.
But they aren’t expected to catch every fraud, or even to actively look for
every fraud. If a fraud doesn’t have a direct, material impact on a
company’s financial reports—and Wells Fargo says its problems didn’t—then
the auditor isn’t required to proactively search for it. “The
financial-statement audit is not designed to detect every fraud,” said Doug
Prawitt, a Brigham Young University accounting professor.
The
limits on an auditor’s responsibility to find fraud may help explain why it
has been rare in recent years for regulators to pursue accounting firms over
the issue. Ernst & Young LLP
recently agreed to pay $11.8 million
to settle Securities and Exchange Commission allegations it failed to detect
fraud at audit client
Weatherford International
PLC, but that was the first such case the SEC had brought against a Big Four
accounting firm since 2009.
That doesn’t
mean the issue isn’t hotly debated. “I think people are raising the right
questions over Wells Fargo, ’Hey, why didn’t the auditors tell us’,” said
Lynn Turner, a former SEC chief accountant.
KPMG
and its predecessors have audited Wells Fargo’s books since 1931. The audit
firm gave the bank’s financial statements a clean bill of health each year
while employees were engaged in the sales-practices behavior that led Wells
Fargo in September to
agree to a $185 million settlement with regulators.
During that period, from 2011 through 2015, Wells Fargo paid KPMG $179.4
million in audit fees and $234.5 million overall.
After the
senators’ letter, KPMG said in a statement the firm was “confident in our
work and look(s) forward to responding.”
Wells Fargo
didn’t admit or deny wrongdoing in its regulatory settlement. The bank has
said it regrets its employees’ behavior and is working to refund improperly
charged fees to customers.
John Stumpf,
Wells Fargo’s now-former chief executive, has defended KPMG. The bank’s
auditor does “a wonderful job,” he told the House Financial Services
Committee in September. The scandal “is on us.”
Auditing
standards make clear auditors do have a responsibility to look for fraud
that would materially change the numbers the company reports to investors.
And if auditors become aware of any fraud, no matter how small, they must
tell the company about it.
“If they
learn of any kind of illegal behavior in the course of reporting the audit,
they have to report that,” said Dan Goelzer, senior counsel at the law firm
Baker & McKenzie LLP and a former acting chairman of the Public Company
Accounting Oversight Board, the government’s auditing regulator.
The key
issue, though, is what is “material.” If a fraud is too small to affect the
financial statements, and no evidence about the fraud crosses an auditor’s
path, the auditor doesn’t have to go out of its way to look for it, Mr.
Goelzer said.
Wells Fargo
has contended its sales-practice scandal wasn’t material to its finances.
The number of unauthorized accounts, the amount of money customers lost and
the $185 million settlement had only tiny effects on the giant bank’s
overall numbers.
The scandal
did damage Wells Fargo’s reputation, but that is not something an auditor is
charged with scrutinizing. “Auditors’ expertise is in financial statements,”
Mr. Prawitt said. “They can’t be expected to anticipate other impacts like
reputational impact or effects on the stock.”
Besides
blessing Wells Fargo’s books, KPMG’s audits found no problems with the
bank’s internal controls—policies and procedures to protect against fraud or
error affecting the financial statements. Again, though, scrutinizing those
wouldn’t necessarily turn up any fraud if it didn’t bear directly and
significantly on the accuracy of the company’s numbers. “I’m not sure the
internal-controls audit changes anything,” Mr. Goelzer said.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 4, 2016
How
'Management' Came to Mean Business
by:
Lauren Weber
Nov 02, 2016
Click here to view the full article on WSJ.com
TOPICS: Consulting
SUMMARY: The
article provides an interesting brief history of the development of
management consulting, including the role of accounting in that process.
CLASSROOM
APPLICATION: The
article may be used in an introductory level financial or managerial
accounting class.
QUESTIONS:
1. (Introductory) What two disciplines combined to begin what we know
today as management consulting?
2. (Advanced) Give one example of combining of the two disciplines
given in answer to question one to improve business management practices.
Clearly explain your answer.
3. (Advanced) How does hiring consultants help to improve the
implementation of changes in business practices?
4. (Introductory) Who was Frederick Winslow Taylor?
5. (Introductory) How did economic events in the early 20th century
lead to involvement of accounting professionals in management improvement
efforts?
Reviewed By: Judy Beckman, University of Rhode Island
"How 'Management' Came to Mean Business," by Lauren Weber, The Wall Street Journal, November
2, 2016
---
http://www.wsj.com/articles/how-a-250-billion-industry-lost-its-bad-reputation-1478007657?tesla=y
A new book charts the evolution of management
consulting
Before the
term “management” referred to a multibillion-dollar industry with enormous
influence over business practices, it applied to women’s skills overseeing
their households. The first management best seller was “Beeton’s Book of
Household Management,” a cookbook published in 1861.
Today,
management advice is everywhere—taught in business schools, practiced by
consulting firms, and disseminated by Harvard Business Review and The Wall
Street Journal. Even the
Vatican engaged
McKinsey & Co. and other consulting firms recently.
Yet it wasn’t
always certain that an industry built around running enterprises would have
so much authority or cachet, according to “Defining Management,” a new book
that charts the industry’s evolution.
Early in the
last century, the profession’s reputation was so dim that one management
consultant in the 1930s was too embarrassed to tell his mother about his
work. Instead, he said he was working as a pianist in a brothel, said Matthias Kipping, a business historian at York University in Canada and a co-author of
the book with Lars Engwall of Sweden’s Uppsala University and Behlül Üsdikenof Sabanci University
in Turkey.
A
$250 billion industry
in the U.S. alone, management consulting was born from two distinct fields,
engineering and accounting. At the turn of the last century, mechanical
engineer Frederick Winslow Taylor popularized the notion of restructuring
factory operations to strip out wasted movements and prioritize efficiency
above all. His ideas about optimizing work processes—dubbed Taylorism—were
soon adapted from the shop floor to offices and government activities.
Around that
same time, accountants were getting more involved in business operations,
especially as they helped big companies through bankruptcies during the
Great Depression.
The American
model of management consulting—which involved privatizing, packaging and
selling advice—gained traction after World War II, said Mr. Kipping. U.S.
firms had been hired for military and government projects during the war,
and the American victory helped legitimize the role of these outside
advisers, particularly the U.S. consultants.
That
dominance continued even when the advice the firms were dispensing
originated elsewhere, said Mr. Kipping. “Even when everyone wanted to learn
about Japan, they still hired Boston Consulting Group instead of Japanese
consulting firms.”
The authors
note that some management advice goes in and out of fashion, only to come
back again. In the 1970s, business schools and consultancies pushed firms to
diversify, resulting in conglomerates like LTV Corp. When enthusiasm for
that strategy waned in the 1970s, paid advisers urged companies to get
smaller and focus on their core competency.
Even today,
the term management often seems vague and detached from some stable set of
principles, Mr. Kipping said. “That’s the beauty of the term. It’s so
generic.”
Mr.
Kipping and his co-authors float the possibility that consulting and
b-schools will return to the kind of social mission that business schools
once had, which was to create more enlightened managers and “better” people,
who would then make socially responsible business decisions. For example,
firms like health-care consultancy
Advisory Board
Co. are
offering more pro bono
and nonprofit work to appeal to younger employees.
Mr. Kipping
remains skeptical of the management industry, though he believes the
competition among firms offering advice and ideas results in greater
innovation for companies across industries.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 4, 2016
In
Shift, Exxon Signals Energy Reserves at Risk
by:
BRADLEY OLSON and LYNN COOK
Oct 29, 2016
Click here to view the full article on WSJ.com
TOPICS: Oil
and Gas Accounting
SUMMARY: "Exxon
warned it may be forced to eliminate nearly 20% of its future oil and gas
prospects, yielding to the sharp decline in energy prices." In addition, the
first related article highlights the current state of the energy industry:
"quarterly profits fell sharply at some of the world's biggest oil firms."
This article is a follow on to one published on September 21, 2016 and
covered in this review. That earlier article described an SEC inquiry of
Exxon regarding its impairment accounting and expectations for future
regulatory costs. The article is listed as the second related article.
CLASSROOM
APPLICATION: The
article may be used in a specialized class on oil and gas accounting or in
an advanced financial reporting class covering impairment testing.
QUESTIONS:
1. (Introductory) What major financial events have impacted Exxon in
the last year?
2. (Advanced) What are proved oil reserves? Summarize the accounting
for these assets.
3. (Advanced) "Exxon is alone among major oil companies in not having
written down the value of its future wells as prices fell." Why does the
plunge in worldwide oil prices affect not only oil companies' revenues line
item but also impact potential impairment of recorded assets?
4. (Advanced) Refer to the related article. How are oil companies
responding to the current economic environment? What has been the impact on
their financial performance in the third quarter of 2016?
5. (Introductory) What are oil sands? How do future environmental
regulatory costs impact the value today of oil reserves held in this form?
Hint: you may also refer to the second related article.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED
ARTICLES:
Energy Slump Hits Oil Majors' Results
by Bradley Olson and Selina Williams
Oct 29, 2016
Online Exclusive
SEC Probes Exxon Over Accounting for Climate Change
by Bradley Olson and Aruna Viswanatha
Sep 21, 2016
Page: A1
"In Shift, Exxon Signals Energy Reserves at Risk," by Bradley Olson and
lynn Cook, The Wall Street Journal, October
29, 2016
---
http://www.wsj.com/articles/exxon-mobil-profit-revenue-slide-again-1477657202?mod=djem_jiewr_AC_domainid
Oil producer to examine whether assets in an area
devastated by low prices and environmental concerns should be written down
Exxon Mobil
Corp. warned that it may be forced to eliminate almost 20% of its future oil
and gas prospects, yielding to the sharp decline in global energy prices.
Under investigation
by the U.S. Securities and Exchange Commission and New York state over its
accounting practices—and
the impact of future climate change regulations on its business—Exxon on
Friday disclosed that some 4.6 billion barrels of oil in its reserves,
primarily in Canada, may be too expensive to tap.
Exxon is
facing near- and long-term threats as it seeks to exploit the full value of
a vast oil and gas portfolio that stretches from Texas to the Caspian Sea,
and deliver the handsome dividends that its shareholders have come to expect
since it was part of John D. Rockefeller’s Standard Oil.
Today, the
company is suffering amid a two-year plunge in oil prices that has a barrel
trading for around $50, a level Chief Executive Rex Tillerson believes may
linger as U.S. shale producers ramp up at the first uptick in prices,
prolonging the current glut and putting a ceiling on any price upswing.
Earlier
this year, Exxon lost the triple-A bond rating it had held from Standard &
Poor’s Rating Services since 1930, a standing of creditworthiness shared
with just two other companies,
Microsoft
Corp. and
Johnson & Johnson.
Last year, it failed to find enough new oil and gas to replace what it
produced for the first time in 20 years. Its profits in the last 12 months
are the lowest since 1999, before it merged with Mobil Corp.
Exxon is
alone among major oil companies in not having written down the value of its
future wells as prices fell. It has said it follows conservative practices
in booking reserves. It now plans to examine its assets to test, under rules
governed by accounting standards, whether they are worth less than carried
on its books.
The company
said the 20% reserves reductions, which are governed separately by SEC
rules, may be necessary based on the average 2016 price by the end of the
year, though higher prices in November and December could mitigate the
extent of the decline. It added that any reserve reductions could be added
back if prices recover.
In an
investor call on Friday, Exxon declined to discuss potential reserve
write-offs or accounting write-downs in detail beyond its statement. The SEC
declined to comment on Exxon’s disclosure.
“Exxon has
long been the best at what they do, but these external constraints are
putting them more in line with everyone else, forcing them to the level of
their competitors,” said Sean Heinroth, a principal in the energy practice
at management consultancy A.T. Kearney.
Though Exxon
didn’t mention climate change or regulators in its disclosure, most of the
assets it said may not be economic are among the most scrutinized by climate
change activists: Canada’s oil sands.
Since 1999,
energy companies have invested more than $200 billion in Alberta’s oil
sands, which has the third largest oil reserves behind Venezuela and Saudi
Arabia, says the Canadian Association of Petroleum Producers.
Nine of
the world’s top oil companies, including Exxon,
Chevron
and
Royal Dutch Shell
PLC, have been counting on wringing more Canadian crude from the ground in
the coming decades. Combined, Canadian crude accounts for 23% of the firms’
proven reserves, according to data from investment bank Peters & Co.—up from
only 5% in 2006.
New
investments in the oil sands may be much harder to come by after Exxon’s
announcement, said Andrew Logan, director of the oil and gas program at
Ceres, a Boston-based nonprofit that has pushed Exxon and other companies
for better disclosure on the potential impact of climate change on the
energy business.
“Why would
any company invest billions of dollars in a new oil sands project now, given
the near certainty that the world will be transitioning away from fossil
fuels during the decades it will take for that project to pay back?” Mr.
Logan said.
The potential
loss of reserves has broad ramifications for Canada, which depends on the
development of its crude stores to support its economy, but like other
western countries has been moving to strengthen regulations to address
climate change. Canadian Prime Minister Justin Trudeau
earlier this month unveiled a national carbon-pricing proposal, sparking an
immediate clash between the national government and the province of Alberta.
The Liberal
government’s proposal to charge a price for carbon emissions compounds the
headwinds energy companies already face if they want to mine Canada’s oil
sands for decades to come.
Amy Myers
Jaffe, executive director for Energy and Sustainability at University of
California, Davis, said Exxon’s warning signals that it doesn’t believe oil
prices will rise significantly in the near future.
“This company
had positioned itself for growth and oil sands were a key part of its
strategy,” she said, adding: “If lots of companies have to do write downs on
their Canadian reserves, it sends a gloomy message about the oil sands,” she
said.
Longer term,
Exxon faces headwinds from regulations aimed at reducing carbon dioxide and
other greenhouse gas emissions, measures that are widely expected to fall
most heavily on its industry.
Exxon’s other
major obstacle: U.S. competition. Advanced shale drilling techniques have
unleashed a new wave of American oil into world markets. Those drilling and
fracking techniques have made smaller American companies the industry’s new
“swing producers,” or those most able to ramp up output quickly.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 11, 2016
Election Marks Crossroads for SEC
by:
Tatyana Shumsky
Nov 08, 2016
Click here to view the full article on WSJ.com
TOPICS: Securities
and Exchange Commission
SUMMARY: Under
Chair Mary Jo White, the SEC is working on three major initiatives
(questions ask the students to identify the three). Change in leadership of
the Commission following the presidential election, and filling of two
vacant seats as well, could lead to change in these initiatives.
CLASSROOM
APPLICATION: The
article is useful to highlight to students the influence of the political
environment on reporting requirements. It may be used in any level of class
on financial reporting.
QUESTIONS:
1. (Introductory) How will the presidential election change the
staffing of the U.S. Securities and Exchange Commission SEC?
2. (Introductory) What are the 3 major initiatives under current SEC
Chair Mary Jo White that could change corporate financial reporting?
3. (Introductory) What might happen to these initiatives after the
presidential election?
4. (Advanced) Chris Stansbury of Arrow Electronics "says he is doing
a radar sweep ahead of the election." What does that mean he is doing? Why
do you think he is doing these things?
5. (Advanced) What is the mission of the SEC? (Hint: you may go to
the SEC's web site at
www.sec.gov and click on "About.") How
did focusing on the mission of the SEC affect Chair White's decision about
pursuing requirements for publicly-traded companies to disclose political
spending?
Reviewed By: Judy Beckman, University of Rhode Island
"Election Marks Crossroads for SEC by: Tatyana Shumsky, The Wall Street Journal,
November 8, 2016
---
http://www.wsj.com/articles/election-marks-crossroads-for-sec-1478562158?mod=djem_jiewr_AC_domainid
The Securities and Exchange Commission is likely to
get a new chairman no matter who wins Tuesday’s presidential election,
raising doubts about the agency’s priorities. The SEC has yet to complete
three major initiatives that would change corporate financial reporting. A
new leader could shelve work on rules governing the disclosure of executive
pay, corporate sustainability efforts and a push to streamline financial
filings, a signature project of the agency’s current chairman, Mary Jo
White. An incoming chairman also could revive rules requiring companies to
report their political spending, which Ms. White dropped from the SEC’s
agenda, or focus on new issues, shifting the regulatory outlook for
corporate America. “No matter which party takes office, there’s going to be
legislative initiatives and regulatory changes that will result in new
compliance risks,” said Richard Chambers, chief executive of the Institute
of Internal Auditors.
Chris Stansbury, finance chief of Arrow Electronics
Inc., said he is doing a “radar sweep” ahead of the election. That involves
speaking with other chief financial officers and talking to auditors,
advisers at large accounting firms and consulting firms. “In the short-run
it’s a nonevent, no matter who gets in,” he said. “Everybody is anticipating
gridlock.” Both Democratic presidential candidate Hillary Clinton and
Republican Donald Trump would probably have trouble persuading a divided
Congress to back their proposals immediately, Mr. Stansbury said. Whether to
require companies to disclose their political spending has been a
particularly controversial issue. Ms. White, an independent, dropped the
matter from the SEC’s agenda in 2013. She said such requirements would be
aimed primarily at changing corporate behavior, and not at ensuring that
investors get timely information about matters affecting a company’s
financial health. Senate Democrats want companies to disclose the sums they
spend on lobbying efforts, trade organizations and other political
activities. Sen. Elizabeth Warren of Massachusetts, a consumer-protection
advocate, last month asked President Barack Obama to demote Chairman White
for her failure to press the issue. Others support Ms. White’s stance. Using
disclosure rules for purposes other than to inform investors pulls the SEC
away from its mandate of protecting investors and politicizes the agency,
said Harvey Pitt, who was SEC chairman under former President George W.
Bush. “It has really pushed the SEC into territory it is ill-equipped to
handle,” he said, adding that a Republican chairman would be unlikely to
pick up the issue. The SEC says it already has completed nearly 80% of the
rulemaking under the Dodd-Frank financial overhaul law, which was enacted in
2010. The agency’s remaining tasks under the law include completing rules
requiring companies to report how executive pay is linked to performance and
to outline their policies on clawbacks and hedging and how they are
enforced.
“A Trump chairman could look at what’s been done
and go back and amend things,” said Daniel Gallagher, a former Republican
SEC commissioner and now a partner at Washington-based consulting firm
Patomak Global Partners LLC. A Republican SEC chairman could curtail some
already implemented Dodd-Frank rules, such as those requiring miners and oil
producers to report payments to government officials. New rules could be
watered down or delayed, said former SEC commissioners. A chairman of either
party could continue Ms. White’s campaign to improve and modernize financial
reporting. Ms. White directed a review of corporate reporting requirements
and in April the SEC sought public comment on how to prioritize the
information companies disclose to better serve investors. The next step
would be to propose and adopt new reporting rules. “Part of [Ms. White’s]
legacy will be that she started an agencywide reconsideration of exactly how
disclosure serves investors,” said Mr. Pitt, the former agency chairman. “We
are at a point where there is too much disclosure in ways that will not
enhance the public’s understanding of important issues,” he said. The SEC
declined to comment for this article. About 80% to the responses to the
SEC’s April request for comment called for better information on the
sustainability of corporate practices and how companies would be affected by
climate change and other public-policy issues, according to the
Sustainability Accounting Standards Board, a nonprofit group developing
accounting guidelines for environmental and social impact.
Continued in article
Teaching Case on Cash Holdingsfrom The Wall Street Journal Accounting Weekly Review on
November 11, 2016
The
Big Number: 16.7%
by: Maxwell
Murphy
Nov 08, 2016
Click here to view the full article on WSJ.com
TOPICS: Cash
SUMMARY: Moody's
Investors Service forecasts that cash holdings by 5 technology firms will
grow by 16.7% this year. The analyst firm expects cash holdings of all other
corporations it rates to remain approximately level and notes that the
technology sector accounts for almost half of corporate cash holdings.
Moody's includes non-cash equivalent short-term and long-term investments in
these cash counts.
CLASSROOM
APPLICATION: The
article may be used in a financial reporting class to discuss cash
equivalents and analysts' use of their own metrics.
QUESTIONS:
1. (Introductory) Why do you think Moody's Investors' Service
forecasts cash growth for the companies it rates?
2. (Advanced) What are cash equivalents? Cite the source for this
response in authoritative accounting literature.
3. (Advanced) Does Moody's limit its tally of corporate cash holdings
to cash and cash equivalents? Why or why not?
Reviewed By: Judy Beckman, University of Rhode Island
"The Big Number: 16.7%," by Maxwell Murphy, The Wall Street Journal,
November 8, 2016
---
http://www.wsj.com/articles/the-big-number-1478569242?mod=djem_jiewr_AC_domainid
Add this to the
tale of haves and have-nots: Corporate coffers will likely swell this year,
thanks to five big U.S.-based multinational companies.
The combined cash holdings of
Apple Inc.,
Microsoft
Corp., Google parent Alphabet Inc.,
Cisco Systems
Inc. and
Oracle
Corp. are expected to grow 16.7% to $587 billion by year-end, according to
Moody’s Investors Service.
The increase is
expected to boost the cumulative cash position of U.S. companies rated by
Moody’s by 5% to roughly $1.77 trillion. Excluding the top five, corporate
cash holdings are on pace to be unchanged at $1.18 trillion.
“It’s a
meritocracy,” said Moody’s analyst Richard Lane. “They have the cash because
they generate the cash, and they generate the cash because they have a good
business model.”
The Moody’s cash
tally includes short-term and long-term investments.
A handful of
cash-rich companies like Apple invest in securities that don’t technically
qualify as cash-like short-term investments. But analysts consider them cash
because they aren’t worried about principal loss.
Apple, the
corporate cash king, is expected to end the year with about $250 million in
cash, cash equivalents and marketable securities, Moody’s said.
The company
reported cash and cash equivalents of $237.59 billion for the quarter ended
Sept. 24, according to a filing.
Apple, Alphabet, Cisco and Oracle didn’t respond to requests for comment.
Microsoft declined to comment.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 11, 2016
SEC
Investigating Banks over Handling of ADRs
by: Jean
Eaglesham
Nov 08, 2016
Click here to view the full article on WSJ.com
TOPICS: Banking,
Internal Controls
SUMMARY: Though
American Depositary Receipts (ADRs) have declined 18% over the past five
years, investors such as pension funds still hold $502 billion of them. The
Securities and Exchange Commission has sent subpoenas for information
relating to handling of these securities to four banks. According to sources
for this WSJ article, the SEC wants to determine whether banks have
sufficient controls to prevent market abuse and tax fraud.
CLASSROOM
APPLICATION: The
article may be used in a class covering financial institutions or one
covering internal controls in general.
QUESTIONS:
1. (Introductory) What are American Depositary Receipts (ADRs)?
2. (Advanced) What types of entities still hold ADRs? Why do you
think their use has declined over time?
3. (Advanced) What risk areas related to ADRs require specific
internal controls? Name one control specifically given in the article and
describe its purpose.
Reviewed By: Judy Beckman, University of Rhode Island
"SEC Investigating Banks over Handling of ADRs," byJean Eaglesham, The Wall Street Journal,
November , 2016
---
http://www.wsj.com/articles/sec-investigating-banks-over-possible-mishandling-of-adrs-1478537802?mod=djem_jiewr_AC_domainid
The U.S.
Securities and Exchange Commission is looking into whether big banks have
been mishandling securities in the arcane but sizable market for American
depositary receipts, according to people close to the investigation.
The SEC has sent subpoenas to
four depositary banks—
Bank of New York Mellon
Corp.,
Citigroup
Inc.,
Deutsche Bank
AG and
J.P. Morgan Chase
& Co.—as it examines whether the banks have broken controls designed to
prevent market abuse and tax fraud, people close to the investigation said.
SEC
investigators are still in the process of interviewing potential witnesses,
as well as analyzing a trove of data the banks sent in response to the
subpoenas issued late last year, according to people close to the probe. The
investigation won’t necessarily result in enforcement action, they said.
Created by J.P.
Morgan in 1927, ADRs were designed to help investors to avoid many of the
complexities and costs of directly owning shares overseas while helping
foreign companies widen their investor base in the U.S.
Foreign
companies transfer shares to the banks, which use them to back corresponding
securities issued to U.S. investors. The securities track the price of the
underlying shares.
Trading volumes
for ADRs have fallen by 18% over the last five years, according to BNY
Mellon, as investors have opted for alternatives such as exchange-traded
funds. But big North American investors such as pension funds still held
$502 billion in depositary receipts in September 2015, and $3.1 trillion
worth of the securities changed hands last year, according to BNY Mellon.
One major focus
of the SEC inquiry is the “prerelease” of ADRs, where banks issue depositary
receipts without first having the underlying shares in their custody,
according to people close to the investigation. The practice was intended to
smooth trading by bridging different countries’ settlement times.
Regulators worry
the prereleased depositary receipts could be abused for “naked short
selling,” an illegal practice where traders bet against a company’s stock by
selling shares they don’t own,without borrowing or locating the shares
needed to cover the sale, the people said. The agency is also looking at
whether such receipts are being used to illegally arbitrage between
different tax systems.
Banks say they
have controls to prevent such abuses. To get prereleased depositary
receipts, brokers have to certify that they are long the shares—not betting
against them—and that they will treat the shares for tax purposes as being
owned by the bank. Brokers also have to give the bank cash or other
collateral for at least the value of the shares.
BNY Mellon,
Citigroup and J.P. Morgan are also facing lawsuits filed in federal court by
shareholders. The suits allege the banks defrauded retirement plans and
other holders of American depositary receipts by using skewed currency rates
when converting dividend payments into dollars.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 11, 2016
Berkshire's Revenue Rises
by: Maria
Armental
Nov 05, 2016
Click here to view the full article on WSJ.com
TOPICS: Book
Value, Segments
SUMMARY: Berkshire
Hathaway's revenue and operating profit increased in the third quarter but
net income declined because the conglomerate experienced lower investment
gains. The article closely follows reporting in a table given in the 3rd
quarter 2016 MD&A. As well, the article highlights Mr. Buffett's preference
for book value over market value to assess performance.
CLASSROOM
APPLICATION: The
article may be used to discuss the MD&A portion of quarterly reporting or to
highlight the importance of segment information. Note to faculty using this
review: DELETE BEFORE DISTRIBUTING TO STUDENTS: Here is the answer to
question 1: Insurance-investment income $ 850 Railroad $1,020 Utilities and
energy 932 Total RR and Utilities and Energy 1,952 Investment and
derivatives Gains/losses 2,347 All other businesses 2,049 Net earnings
attributable to Berkshire Hathaway $7,198
QUESTIONS:
1. (Advanced) Access the Berkshire Hathaway third quarter 2016 report
on the company's website at
http://www.berkshirehathaway.com/qtrly/links3rdqtr16.html Find
the Management Discussion and Analysis beginning on p. 25. Compare the
amounts shown in the table entitled "Results of Operations" to the
discussion in the article. Which line items from this table are combined?
2. (Introductory) Refer to your answer to question 1 above. Why do
you think the author combined them in discussing Berkshire Hathaway's
overall results?
3. (Introductory) What is Mr. Buffett's "preferred yardstick for
measuring net worth"? Define this term.
4. (Advanced) What is the difference between Mr. Buffett's "preferred
yardstick" and the value of each share of Berkshire Hathaway's Class A
stock?
5. (Introductory) Based on the discussion in the article, how does
Berkshire Hathaway's ownership of insurance entities assist in the company's
profitability beyond the insurance operations?
Reviewed By: Judy Beckman, University of Rhode Island
"Berkshire's Revenue Rises," by Maria Armental, The Wall Street Journal,
November 5, 2016
---
http://www.wsj.com/articles/berkshire-hathaway-reports-higher-revenue-1478292715?mod=djem_jiewr_AC_domainid
Berkshire Hathaway
Inc.’s third-quarter operating profit and revenue rose, driven by its
businesses in manufacturing, utilities and energy.
Net income,
however, declined as the Nebraska-based conglomerate recorded lower
investment gains. A year ago, Berkshire benefited from a $4.4 billion gain
from its Kraft Heinz investment.
The
conglomerate, led by renowned investor Warren Buffett, pulls in money from a
railroad, utilities, industrial manufacturers, home builders, branded-food
sellers and even an auto dealership.
In addition, the 86-year-old Nebraska tycoon, whose shrewd investments have
earned him the nickname “the Oracle of Omaha,” still has plenty of cash on
hand for future acquisitions as a way to drive profit. Berkshire held $85
billion in cash as of Sept. 30.
This year,
Berkshire bought aircraft-parts supplier Precision Castparts Corp., in what
was its largest acquisition to date. It is now part of Berkshire’s most
profitable noninsurance businesses, the so-called Powerhouse Six.
Still, the
insurance business, the engine that has fueled Berkshire’s expansion,
remains at the core of its moneymaking machine. Insurance brings in billions
of dollars of “float,” upfront premiums customers pay and that Berkshire
invests for its own gain.
Insurance float
rose to $91 billion in the most recent period.
Meanwhile, the
operating profit of its insurance underwriting business, which includes
Geico Corp., fell 34% to $272 million.
Insurance-investment income’s operating profit improved to $850 million,
while operating profit at the railroad, utilities and energy segments held
near flat at $1.95 billion. Operating profit from other businesses rose 38%
to $2.04 billion.
Burlington
Northern Santa Fe, Berkshire’s railroad, reported a 12% decline from the
year-ago period as a sluggish energy market continued to weigh on freight
volume and prices.
“The biggest
drag on earnings is [the effort in] turning the railroad around,” said Bill
Smead, chief executive of Seattle-based Smead Capital Management, a
Berkshire shareholder.
Over all, profit
fell 24% to $7.2 billion, or $4,379 a Class A share, while operating profit,
which excludes some investment results, rose 7% to $4.85 billion, or $2,951
a Class A share.
Revenue edged up
to $59.07 billion from $58.99 billion.
Analysts
surveyed by Thomson Reuters had projected operating profit of $3,058.10 a
Class A share on $57.04 billion in revenue.
Berkshire
reported $2.35 billion in investment gains in the third quarter, down
sharply from the year-ago period but helped by an after-tax gain of roughly
$1.6 billion from the sale of its crisis-era investment in Wrigley as Mars
Inc. combines its chocolate and chewing gum operations into Mars Wrigley
Confectionery.
Book value, Mr.
Buffett’s preferred yardstick for measuring net worth, rose 5.3% to $163,783
per Class A equivalent share as of Sept. 30. Last year, Berkshire reported a
3.3% increase in book value for the first nine months of the year.
Class A shares
closed Friday at $214,545, up 8% this year, while Class B shares have gained
another 8% to $142.95. In after-hours trading, Berkshire’s B shares slipped
0.2% to $142.65.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 18 2016
Tesla at Risk of Getting Sunburn
by: Charley
Grant
Nov 14, 2016
Click here to view the full article on WSJ.com
TOPICS: Accounting
Changes and Error Corrections, business combinations
SUMMARY: Elon
Musk is chairman of both Tesla Motors and SolarCity. He has argued that
Tesla's proposal to acquire SolarCity is designed to create cost
efficiencies by combining the two different sustainable energy businesses.
Consulting company Glass Lewis has argued the deal is nothing more than a
thinly-disguised bailout. SolarCity has been generating operating losses for
13 quarters. The article discusses the features of the third quarter report
including a change in the estimated useful life of SolarCity's panels in its
installed systems.
CLASSROOM
APPLICATION: The
article may be used in any financial reporting class but particularly may be
used to cover accounting changes.
QUESTIONS:
1. (Introductory) What is the reasoning behind the Tesla acquisition
of SolarCity, both chaired by Elon Musk? Why is there an opposing viewpoint
which questions the benefits of this transaction? Hint: you may access the
related article about the announcement of the deal to help with this answer.
2. (Advanced) Access the Solar City filing on Form 8-K and read the
third quarter shareholder letter. List the highlights you see as positive in
the headline and the first paragraph of the document.
http://investors.solarcity.com/secfiling.cfm?filingID=1564590-16-28624&CIK=1408356
3. (Advanced) Did you include the change in cash as one of the items
in answer to question 1? Why or why not?
4. (Introductory) What does the article point out about the reported
change in SolarCity's cash balance for the third quarter?
5. (Introductory) What accounting change is noted in the article
about SolarCity's third quarter report? What is questionable about this
change?
6. (Advanced) Is this a change in estimate or a change in accounting
principle? Describe the accounting requirements for your answer, including a
description of the impact on reported earnings.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Elon Musk Faces Cash Squeeze at Tesla, SolarCity
by Susan Pulliam, John D. Stoll and Charley Grant
Aug 31, 2016
Online Exclusive
"Tesla at Risk of Getting Sunburn," by Charley Grant, The Wall Street Journal, November
14, 2016
---
http://www.wsj.com/articles/solarcity-could-give-tesla-too-much-sun-1479057361?mod=djem_jiewr_AC_domainid
SolarCity’s third-quarter results highlight a major
risk for Tesla Motors shareholders
Election
season isn’t over quite yet.
The
outcome of
Tesla Motors’
proposed acquisition of
SolarCity
will be known next week. SolarCity’s
third-quarter results,
and the way the company flattered the numbers, shouldn’t reassure Tesla
stockholders that the deal is a wise one.
The
solar-roofing company reported a net loss of $225 million on sales of $200
million. SolarCity has reported a loss on an adjusted basis
in every quarter
since 2013, according to FactSet. SolarCity’s cost per installed watt
increased from a year ago, while the value per watt accruing to the company
has dropped. Meanwhile, SolarCity cut its guidance for total panel
installations for the third time this year.
SolarCity’s latest loss came despite a decision to extend the assumed
useful life of installed solar panels to 35 years from 30 starting July 1.
The new assumption helps flatter profitability by reducing depreciation
expense. SolarCity changed the useful life after commissioning
a new engineering study
which concluded panels will last
longer than previously expected. But since these panels are a relatively new
product, actual experience is scant.
Even
positives in the report come with big caveats: SolarCity reported a cash
balance of $259 million, a $113 million increase from the second quarter.
But that increase came in part from new debt, rather than traditional
cash-flow generation. Debt issuance of more than $200 million, net of
repayments, took place in the quarter.
Worse,
a good chunk of that debt
was bought by SolarCity executives and board members, rather than the
general public. Chairman Elon Musk, CEO Lyndon Rive and technology chief
Peter Rive bought a combined $100 million of a $124 million solar-bond issue
during the quarter.
SolarCity
will be paying a steep price for that funding—those bonds carry an annual
6.5% interest rate and mature in 18 months.
SolarCity’s
results are the last major piece of information before the results of the
shareholder vote become known on Nov. 17. If shareholders approve, Tesla
will acquire each SolarCity share outstanding in exchange for 0.11 share of
Tesla.
The
deal has
attracted controversy:
One independent shareholder advisory service, Institutional Shareholder
Services, recommended the deal be approved, citing the transaction as a
“necessary step toward [Tesla’s] goal of being an integrated sustainable
energy company.” But rival firm Glass Lewis said the deal “mostly amounts to
a thinly veiled bailout plan.” Mr. Musk is the chairman and largest
shareholder of both companies.
Regardless of
motivation, Tesla will have to scramble to meet the promises it has made to
its shareholders. Meeting its production goal of 500,000 cars by 2018, up
from about 80,000 this year, is still the key to Tesla justifying its sky
high stock valuation. Completing that task will require significant capital
to get the Model 3 mass market sedan into production on time.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 18 2016
Low
Rates Hammer Pensions
by: Timothy W.
Martin, Georgi Kantchev and Kosaku Narioka
Nov 14, 2016
Click here to view the full article on WSJ.com
TOPICS: Pensions
SUMMARY: The
article discusses worldwide trends in pension plans for government workers.
"Low rates exacerbate cash problems already bedeviling the world's pension
funds. Decades of underfunding, benefit overpromises, government austerity
measures and two recessions have left many retirement systems with deep
funding holes. A wave of retirees world-wide is leaving fewer active workers
left to contribute. The 60 and older demographic is expected to roughly
double between now and 2050, according to the United Nations.
CLASSROOM
APPLICATION: The
article may be used when covering pensions to bring a real-life impact of
the various assumptions that must be made in pension funding and accounting.
QUESTIONS:
1. (Advanced) What are the components of periodic pension cost?
2. (Advanced) How do expected rates of return on pension plan assets
impact the amount of funding required of an employer, be it a governmental
entity or a private-sector company? How does expected rate of return impact
the calculation of periodic pension cost?
3. (Introductory) Now that there has been a long-term, worldwide
period of low interest rates, where does that leave pension assets available
for paying pension benefits?
4. (Introductory) What is the difference between the pension plans in
France and Italy as compared to the plan in the Netherlands? How has that
difference led to differences in ability to pay plan benefits to retirees?
5. (Introductory) How are demographics increasing the challenges
faced by pension plans in various parts of the world?
6. (Advanced) What is Calpers? How does Calpers's investment strategy
impact the cost that California cities and counties must bear to provide
retirement benefits?
Reviewed By: Judy Beckman, University of Rhode Island
"Low Rates Hammer Pensions," by Timothy W. Martin, Georgi Kantchev and
Kosaku Narioka, The Wall Street Journal, November
14, 2016
---
http://www.wsj.com/articles/era-of-low-interest-rates-hammers-millions-of-pensions-around-world-1479067408?tesla=y
Central-bank moves pull down returns
for government-run funds, making it difficult to meet mounting obligations
to workers and retirees
As low
interest rates
suppress investment gains
in the pension plans,
it generally means one thing: Standards of
living for workers and retirees are decreasing,
not increasing.
“Unless
ordinary people have money in their pockets,
they don’t spend,” the 70-year-old Mr. Kobayashi
said during a recent protest of benefit cuts in
downtown Tokyo. “Higher interest rates would
mean there’d be more money at our disposal, even
if slightly.”
The low
rates exacerbate cash problems already
bedeviling the world’s pension funds. Decades of
underfunding, benefit overpromises, government
austerity measures and two recessions have left
many retirement systems with deep funding holes.
A wave of retirees world-wide is leaving fewer
active workers left to contribute. The
60-and-older demographic is expected to roughly
double between now and 2050, according to the
United Nations.
Central bankers lowered
interest rates to near zero or below to try to revive their gasping
economies. In the process, though, they have put in jeopardy the pensions of
more than 100 million government workers and retirees around the globe.
In Costa Mesa, Calif.,
Mayor Stephen Mensinger is worried retirement payments will soon eat up all
the city’s cash. In Amsterdam, language teacher Frans van Leeuwen is angry
his pension now will be less than what his father received, despite 30 years
of contributions. In Tokyo, ex-government worker Tadakazu Kobayashi no
longer has enough income from pension checks to buy new clothes.
Managers handling
trillions of dollars in government-run pension funds never expected rates to
stay this low for so long. Now, the world is
starved for the safe, profitable bonds
that pension funds have long needed to survive. That has pulled down
investment returns and made it difficult for funds to meet mounting
obligations to workers and retirees who are drawing government pensions.
Government-bond yields
have risen since Donald Trump was elected U.S. president, though few
investors expect a prolonged climb. Regardless, the ultralow bond yields of
recent years have already hindered the most straightforward way for
retirement funds to recover—through investment gains.
Pension officials and
government leaders are left with vexing choices. As investors, they have to
stash away more than they did before or pile into riskier bets in hedge
funds, private equity or commodities. Countries, states and cities must
decide whether to reduce benefits for existing workers, cut back public
services or raise taxes to pay for the bulging obligations.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 18 2016
Lighter Inventory Helps Lift Retailers' Fortunes for Now
by: Miriam
Gottfried
Nov 14, 2016
Click here to view the full article on WSJ.com
TOPICS: Impairment,
Inventory
SUMMARY: The
author argues this result is obtained by retailers holding lower
inventories. Questions also link students to Nordstrom's 3rd quarter press
release which discusses this inventory strategy but also reports an
impairment charge related to the Trunk Club that was acquired by Nordstrom
in 2014.
CLASSROOM
APPLICATION: Questions
relate to inventory related financial ratios and to the press release
containing the description of the impairment charge.
QUESTIONS:
1. (Introductory) Which retailers does the author identify as having
maintained "lighter" inventories as a method of improving performance? What
are possible concerns with this strategy for improving performance?
2. (Advanced) How does one track whether inventories are maintained
at an appropriate level? Name a financial ratio that will help accomplish
that objective and describe how it is calculated.
3. (Advanced) Define the terms gross margin and gross margin rate.
How can improving a gross margin rate allow a company to lose some sales
without hurting profit trends?
4. (Introductory) What are fixed costs for retailers? What category
of fixed cost is increasing for retailers such as Macy's?
5. (Advanced) Access the Nordstrom 3rd quarter press release
available through the WSJ at
http://www.wsj.com/articles/PR-CO-20161110-916798
How can the company exclaim in its press release title that operational
results exceeded expectations when the company reported a third quarter net
loss of $10 million?
Reviewed By: Judy Beckman, University of Rhode Island
"Lighter Inventory Helps Lift Retailers' Fortunes for Now," by Miriam
Gottfried, The Wall Street Journal, November
14, 2016
---
http://www.wsj.com/articles/lighter-inventory-boosts-retailers-for-now-1479057076?tesla=y
Shares of retailers have risen on
hopes that lower inventories will boost margins, but lower inventories also
have their downsides
For U.S. retailers,
lighter inventory is in vogue. In a sector with shrinking sales, however, it
is only one piece of the profitability puzzle.
As third-quarter
results roll in from department stores such as
Nordstrom,
Macy’s and
Kohl’s, as well
as many specialty retailers, lighter inventory has been a constant theme.
For many, this has meant less discounting and better gross margins. That
trend could make for a relatively strong fourth quarter, marking a swift
reversal in sentiment for a sector that just last spring many investors were
writing off as doomed. Shares of Nordstrom, for one, have climbed 30% since
the company reported fiscal first-quarter results on May 12.
But light inventory can
cut both ways, and investors may not be properly accounting for that risk.
Having lower inventory
makes it more difficult for retailers to maximize sales. That, in turn,
makes it tougher for them to cover the fixed costs of running stores and
administrative expenses. Tight inventory can also mean selling out of a
popular item. To the extent that lower inventory means less breadth of
offering, it also puts more pressure on retailers to hit the right fashion
notes. Failing to do so could mean having to discount anyway, causing a
double hit to sales.
Granted, some retailers,
among them Nordstrom and Kohl’s, have been able to find the sweet spot. They
can get away with missing a few sales because their gross margin rate has
improved enough that gross-margin dollars offset them, according to Richard
Jaffe, an analyst with Stifel Nicolaus. Both Nordstrom and Kohl’s also have
been trimming expenses, relieving some of the pressure to leverage their
fixed costs.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 18 2016
SEC
Chairman White to Leave Agency, Opening Door to Conservative Shift
by: Dave
Michaels, Aruna Viswanatha and Andrew Ackerman
Nov 14, 2016
Click here to view the full article on WSJ.com
TOPICS: Securities
and Exchange Commission
SUMMARY: SEC
Chair Mary Jo White has now formally announced her plans to step down from
her position in January. This move leaves only two commissioners until new
presidential appointments are completed: Republican Commissioner Michael
Piwowar and Democratic Commissioner Kara Stein. The SEC reports that Dr.
Piwowar is likely to lead the agency after Chair White departs, but any
action by the Commission during this time is likely to result in gridlock
due to the opposing viewpoints of the two remaining Commissioners.
CLASSROOM
APPLICATION: The
article may be used in general to assess political influence on operations
of the SEC. In particular, it may be used to emphasize the potential for
changing the requirements implemented under the Dodd-Frank Act as a result
of the likely shift in political viewpoint of the majority of the SEC
Commissioners.
QUESTIONS:
1. (Advanced) Who is Mary Jo White? How did she and her fellow
commissioners obtain their positions? Hint: you may go to the web site
www.sec.gov and click on "About" to help
answer these questions.
2. (Introductory) How does the role of the Securities and Exchange
Commission impact financial reporting?
3. (Advanced) What is the Dodd-Frank Act? How has this law impacted
the Accounting and Auditing Profession?
4. (Introductory) What could happen to the regulations implementing
the Dodd-Frank Act under President-Elect Donald Trump's administration?
Reviewed By: Judy Beckman, University of Rhode Island
"SEC Chairman White to Leave Agency, Opening Door to Conservative
Shift," by Dave Michaels, Aruna Viswanatha and Andrew Ackerman, The Wall Street Journal, November
14, 2016
---
http://www.wsj.com/articles/sec-chairman-white-to-leave-sec-opening-door-to-conservative-shift-1479160829?mod=djemCFO_h?mod=djem_jiewr_AC_domainid
Move creates uncertainty as agency
would have two of five commissioner seats filled after departure
WASHINGTON—Securities and Exchange Commission Chairman Mary Jo White plans to step down in January, opening the door to a new
Republican-appointed leader who could
move to loosen rules
on Wall Street and curb the aggressive
enforcement approach Ms. White prosecuted.
The change in
command portends
a significant shift
at the SEC, which has for six years focused
on tightening rules required by the 2010 Dodd-Frank Act, a regulatory
overhaul championed by Democrats. A Republican SEC chairman, appointed by
President-elect Donald Trump, also could pull back on a host of rules that Ms. White conceived,
including curbs on mutual funds’ use of derivatives, and stricter controls
oMs. White’s departure also creates uncertainty in the short run because the
SEC would have to operate with just two of the five
commissioner seats filled after she leaves. Gridlock could ensue because one
commissioner would have an effective veto on any regulatory decision or
enforcement action.
“Everything under
Dodd-Frank is now up in the air,” said Scott Kimpel,
a partner at Hunton & Williams LLP who previously worked as a legal adviser
to a Republican SEC commissioner.
During Ms. White’s
tenure, which began in April 2013, the SEC overhauled the regulation of
money-market mutual funds, credit-rating firms, stock exchanges, and
electronic trading venues. She frequently navigated political infighting at
the SEC to complete Dodd-Frank requirements, and such friction could
continue under a Republican chairman.
n algorithmic traders
and off-exchange venues known as dark pools.
The SEC is
normally governed by five commissioners, including three from the
president’s party and two from the other. President Barack Obama nominated
two candidates to fill the existing vacancies more than a year ago, but the
gridlocked Senate hasn’t confirmed them. Republican Commissioner Michael Piwowar is likely to
lead the agency
as acting chairman after Ms. White exits,
although Mr. Trump could nominate someone else as Ms. White’s permanent
successor.
The SEC also
pursued record numbers of enforcement cases during Ms. White’s term,
including claims against private-equity firms such as
Blackstone Group
LP and
Apollo Global Management.
Her handpicked priorities included the policing of financial-reporting fraud
and punishing even the smallest violations on the theory that it would deter
a culture of misconduct.
Mr. Trump hasn’t yet
signaled his choices to fill SEC vacancies. But his aides have tapped Paul
Atkins, a conservative former SEC commissioner, to handle issues related to
the transition for the SEC and other financial regulatory agencies.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
November 18 2016
Ahead of the Tape: Earnings Recession is Over but Don't Expect Investors to
Celebrate
by: Steven
Russolillo
Nov 14, 2016
Click here to view the full article on WSJ.com
TOPICS: Analysts'
Forecasts
SUMMARY: The
article covers trends in earnings reporting for 3rd quarter 2016 and
continues coverage of the earnings decline over 4 quarters.
CLASSROOM
APPLICATION: The
article may be used in any financial reporting class. Topics include
discussion of analysts forecasts.
QUESTIONS:
1. (Introductory) What proportion of the largest U.S. companies have
now reported their third quarter 2016 earnings?
2. (Introductory) What earnings results have been reported? How do
those results compare with what was expected to happen one year ago?
3. (Advanced) What evidence in the article supports the statement
that "the further out you go, the more optimistic analysts tend to be"?
4. (Advanced) What does it mean to say that a company managed and
"earnings beat." How have these been rewarded in third quarter 2016? How has
the market reacted to earnings misses?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED
ARTICLES:
Corporate Profits Perk Up but Caution Rules
by Theo Francis and Kate Linebaugh
Nov 07, 2016
Online Exclusive
"Ahead of the Tape: Earnings Recession is Over but Don't Expect
Investors to Celebrate," by Steven Russolillo, The Wall Street Journal, November , 2016
---
http://www.wsj.com/articles/at-long-last-the-earnings-recession-is-finally-over-1479058749?mod=djem_jiewr_AC_domainid
Stocks are near records just as
corporate earnings are finally picking up
The earnings recession
is finally over, but that might not be enough to push the market higher from
here.
With more than 90%
of S&P 500 companies having reported results for the latest quarter,
earnings for the biggest U.S. companies
are finally growing again.
Third-quarter adjusted earnings are projected to increase 2.9% from the same
period a year ago, according to FactSet. That marks the first year-over-year
growth rate after five consecutive quarters of contractions.
Better times
should be ahead, too, thanks to stabilizing oil prices and the rebounding
energy sector. Energy companies such as
Exxon Mobil
Corp. and
Valero Energy
Corp. should benefit. Their earnings growth is forecast to bounce back
significantly in 2017 following several quarters of contractions, according
to S&P Global Market Intelligence.
And it isn’t just emerging
companies that should rebound.
Continued in article
Humor for November 2016
Saturday Night Live Punctures the Liberal Bubble ---
https://www.theatlantic.com/entertainment/archive/2016/11/saturday-night-live-social-scientist/508337/
Jimmy Kimmel's 'Politically Correct' Thanksgiving School Pageant - Education
and the Media - Education Week ---
Watch What Penguin Does When He Comes Home To Cheating Wife ---
http://www.msn.com/en-us/tv/news/watch-what-penguin-does-when-he-comes-home-to-cheating-wife/ar-AAjWtu7?li=AA2qN5v&ocid=spartanntp
Jensen Comment
The ending sort of contradicts Darwin's theory of survival of the fittest.
From Web MD on November 12, 2016
Original Version |
From Web MD on November 12, 2016
Spell Checked Version |
November 12, 2016
|
November 12, 2016
|
Forwarded by Paula
A HUSBAND IS AT HOME WATCHING A FOOTBALL GAME WHEN HIS WIFE INTERRUPTS,
"HONEY, COULD YOU FIX THE LIGHT IN THE HALLWAY? IT'S BEEN
FLICKERING FOR WEEKS NOW".
HE LOOKS AT HER AND SAYS ANGRILY,
"FIX THE LIGHTS NOW?
DOES IT LOOK LIKE I HAVE GE WRITTEN ON MY FOREHEAD? I DON'T
THINK SO".
"FINE," THEN THE WIFE ASKS, "WELL THEN, COULD YOU FIX THE FRIDGE DOOR?
IT WON'T CLOSE RIGHT "
TO WHICH HE REPLIED,
"FIX THE FRIDGE DOOR? DOES IT LOOK LIKE I HAVE WESTINGHOUSE
WRITTEN ON MY FOREHEAD? I DON'T THINK SO".
"FINE", SHE SAYS.
"THEN YOU COULD AT LEAST FIX THE STEPS TO THE FRONT DOOR? THEY
ARE ABOUT TO BREAK "
"I'M NOT A CARPENTER AND I DON'T WANT TO FIX STEPS," HE SAYS,
"DOES IT LOOK LIKE I HAVE ACE HARDWARE WRITTEN ON MY FOREHEAD? I
DON'T THINK SO! I'VE HAD ENOUGH OF YOU. I'M GOING TO THE BAR!!!! "
SO HE GOES TO THE BAR AND DRINKS FOR A COUPLE OF
HOURS......................... ..........
HE STARTS TO FEEL GUILTY ABOUT HOW HE TREATED HIS WIFE, AND DECIDES
TO GO HOME
AS HE WALKS INTO THE HOUSE, HE NOTICES THAT THE STEPS ARE ALREADY
FIXED.
AS HE ENTERS THE HOUSE, HE SEES THE HALL LIGHT IS WORKING.
AS HE GOES TO GET A BEER, HE NOTICES THE FRIDGE DOOR IS FIXED.
"HONEY", HE ASKS, "HOW'D ALL THIS GET FIXED?"
SHE SAID, "WELL, WHEN YOU LEFT I SAT OUTSIDE AND CRIED.
JUST THEN A NICE YOUNG MAN ASKED ME WHAT WAS WRONG, AND I TOLD HIM.
HE OFFERED TO DO ALL THE REPAIRS, AND ALL I HAD TO DO WAS EITHER GO
TO BED WITH HIM OR BAKE A CAKE".
HER HUSBAND SAID, "SO WHAT KIND OF CAKE DID YOU BAKE?"
SHE REPLIED, "HELLOOOOO.. DO YOU SEE BETTY CROCKER WRITTEN ON MY
FOREHEAD? I DON'T THINK SO!!"
Forwarded by Paula
From the Queen to all U.S. Citizens.
Elizabeth II:
In light of your failure to nominate competent candidates for
President of the U.S.A. and thus to govern yourselves,
we hereby give notice of the revocation of your independence,
effective immediately.
Her Sovereign Majesty Queen Elizabeth II will resume monarchical
duties over all states, commonwealths and territories
(except North Dakota, which she does not fancy).
You wanted a female leader,
We’ve got one.
Our new Prime Minister, Theresa May, will appoint a Governor
for America without the need for further elections.
Congress and the Senate will be disbanded.
A questionnaire may be circulated next year to determine whether
any of you noticed.
To aid in the transition to a British Crown dependency, the following
rules are introduced with immediate effect:
-----------------------
1. The letter 'U' will be reinstated in words such as 'colour,' 'favour,'
'labour' and 'neighbour.' Likewise, you will learn to spell 'doughnut'
without skipping half the letters, and the suffix '-ize' will be replaced
by the suffix '-ise.' Generally, you will be expected to raise your
vocabulary to acceptable levels. (Look up 'vocabulary').
------------------------
2. Using the same twenty-seven words interspersed with filler
noises such as ''like' and 'you know' is an unacceptable and
inefficient form of communication. There is no such thing as U.S. English.
We will let Microsoft know on your behalf. The Microsoft spell-checker
will be adjusted to take into account the reinstated letter 'u'' and the
elimination of '-ize.'
------------------
3. July
4th will
no longer be celebrated as a holiday.
-----------------
4. You will learn to resolve personal issues without using guns,
lawyers or therapists. The fact that you need so many lawyers and
therapists shows that you're not quite ready to be independent.
Guns should only be used for shooting grouse. If you can't sort things
out without suing someone or speaking to a therapist, then you're not
ready to shoot grouse.
----------------------
5. Therefore, you will no longer be allowed to own or carry
anything more dangerous than a vegetable peeler -- although a permit
will be required if you wish to carry a vegetable peeler in public.
----------------------
6. All intersections will be replaced with roundabouts, and you
will start driving on the left side with immediate effect. At the same
time, you will go metric with immediate effect and without the benefit
of conversion tables. Both roundabouts and metrication will help you
understand the British sense of humour.
--------------------
7. The former U.S.A. will adopt U.K. prices on petrol (which you have
been calling gasoline) of roughly 10/US gallon. Get used to it.
-------------------
8. You will learn to make real chips. Those things you call French
fries are not real chips, and those things you insist on calling potato
chips are properly called crisps. Real chips are thick cut, fried in
animal fat, and dressed not with catsup but with vinegar.
-------------------
9. The cold, tasteless stuff you insist on calling beer is not
actually beer at all. Henceforth, only proper British Bitter will be
referred to as beer, and European brews of known and accepted
provenance will be referred to as Lager. South African beer is also
acceptable, as they are pound for pound the greatest sporting
nation on earth and it can only be due to the beer. They are also
part of the British Commonwealth -- see what it did for them. American
brands will be referred to as Near-Frozen Gnat's Urine, so that all can
be sold without risk of further confusion.
---------------------
10. Hollywood will be required occasionally to cast English
actors as good guys. Hollywood will also be required to cast
English actors to play English characters. Watching Andie
Macdowell attempt English dialect in "Four Weddings and a Funeral"
was an experience akin to having one's ears removed with a cheese grater.
---------------------
11. You will cease playing American football. There is only one
kind of proper football; you call it soccer. Those of you brave enough
will, in time, be allowed to play rugby (which has some similarities
to American football, but does not involve stopping for a rest every
twenty seconds or wearing full kevlar body armour like a bunch of nancies).
---------------------
12. Further, you will stop playing baseball. It is not reasonable to
host an event called the World Series for a game which is not played
outside of America. Since only 2.1% of you are aware there is a world
beyond your borders, your error is understandable. You will learn cricket,
and we will let you face the South Africans first to take the sting
out of their deliveries.
--------------------
13. You must tell us who killed JFK. It's been driving us mad.
-----------------
14. An internal revenue agent (i.e. tax collector) from Her Majesty's
Government will be with you shortly to ensure the acquisition of all
monies due (backdated to 1776).
---------------
15. Daily Tea Time begins promptly at 4
p.m. with
proper cups --
with saucers and never mugs -- with high-quality biscuits (cookies)
and cakes; plus strawberries (with cream) when in season.
God Save the Queen!
Humor November 2016 ---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor1116.htm
Humor October 2016 ---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor1016.htm
Humor
September 2016
---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor093016.htm
Humor
August 2016
---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor083116.htm
Humor
July 2016
---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0716.htm
Humor
June 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor063016.htm
Humor
May 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor053116.htm
Humor
April 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor043016.htm
Humor
March 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor033116.htm
Humor February 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor022916.htm
Humor January 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor013116.htm
Humor December 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor123115.htm.htm
Humor November 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor113015.htm
Humor October 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor103115
Humor September 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor093015
Humor August 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor081115
Humor July 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor073115
Humor June 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor May 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor April 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor March 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor033115
Humor February 1-28, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor022815
Humor January 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor013115
Tidbits Archives ---
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
An Oklahoma mother and
daughter are behind bars after it was revealed they had an incestuous marriage.
Patricia Ann Spann, 43, and Misty Velvet Dawn Spann, 25, were married in March
2016 in Comanche County. It has since been revealed that Patricia Spann, also
known as Patricia Clayton, was previously married to one of her sons, Jody
Calvin Spann, in 2008
http://www.dailymail.co.uk/news/article-3778944/Oklahoma-woman-daughter-arrested-incestuous-marriage.html
I'm My Own Grandpa ---
https://www.youtube.com/watch?v=eYlJH81dSiw
Humor November 2016 ---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor1116.htm
Humor October 2016 ---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor1016.htm
Humor September 2016 ---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0916.htm
Humor
August 2016
---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor083116.htm
Humor
July 2016
---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0716.htm
Humor
June 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor063016.htm
Humor
May 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor053116.htm
Humor
April 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor043016.htm
Humor
March 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor033116.htm
Humor February 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor022916.htm
Humor January 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor013116.htm
Humor December 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor123115.htm.htm
Humor November 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor113015.htm
Humor October 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor103115
Humor September 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor093015
Humor August 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor081115
Humor July 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor073115
Humor June 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor May 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor April 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor March 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor033115
Humor February 1-28, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor022815
Humor January 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor013115
And that's
the way it was on November 30, 2016 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
http://faculty.trinity.edu/rjensen/ListservRoles.htm
Bob
Jensen's Threads ---
http://faculty.trinity.edu/rjensen/threads.htm
Bob
Jensen's Blogs ---
http://faculty.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New
Bookmarks ---
http://faculty.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past
presentations and lectures ---
http://faculty.trinity.edu/rjensen/resume.htm#Presentations
Free
Online Textbooks, Videos, and Tutorials ---
http://faculty.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses ---
http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob
Jensen's Resume ---
http://faculty.trinity.edu/rjensen/Resume.htm
Bob
Jensen's Homepage ---
http://faculty.trinity.edu/rjensen/
Accounting
Historians Journal ---
http://www.libraries.olemiss.edu/uml/aicpa-library and
http://clio.lib.olemiss.edu/cdm/landingpage/collection/aah
Accounting Historians Journal
Archives---
http://www.olemiss.edu/depts/general_library/dac/files/ahj.html
Accounting History Photographs ---
http://www.olemiss.edu/depts/general_library/dac/files/photos.html
October 2016
Bob Jensen's New Additions to
Bookmarks
October
2016
Bob Jensen
at
Trinity University
For
earlier editions of Fraud Updates go to
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
For earlier editions of Tidbits go to
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to
http://faculty.trinity.edu/rjensen/bookurl.htm
Bookmarks for the World's Library ---
http://faculty.trinity.edu/rjensen/bookbob2.htm
Click here to search Bob Jensen's web site if you
have key words to enter --- Search Box in Upper Right Corner.
For example if you want to know what Jensen documents have the term "Enron"
enter the phrase Jensen AND Enron. Another search engine that covers Trinity and
other universities is at
http://www.searchedu.com/
Bob
Jensen's Blogs ---
http://faculty.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New Bookmarks ---
http://faculty.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's
Pictures and Stories
http://faculty.trinity.edu/rjensen/Pictures.htm
All
my online pictures ---
http://www.cs.trinity.edu/~rjensen/PictureHistory/
David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics
Science"
Bob Jensen
February 19, 2014
SSRN Download:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296
Scholarpedia (a cross between Wikipedia and Google Scholar) ---
http://www.scholarpedia.org
Google Scholar ---
https://scholar.google.com/
Wikipedia ---
https://www.wikipedia.org/
Bob Jensen's search helpers ---
http://faculty.trinity.edu/rjensen/searchh.htm
Bob Jensen's World Library ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm
Harvard: Do you understand what accountability
really is? ---
https://hbr.org/2016/10/do-you-understand-what-accountability-really-means?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Academic psychology and medical testing are both dogged by unreliability.
The reason is clear: we got probability wrong ---
https://aeon.co/essays/it-s-time-for-science-to-abandon-the-term-statistically-significant?utm_source=Aeon+Newsletter&utm_campaign=b8fc3425d2-Weekly_Newsletter_14_October_201610_14_2016&utm_medium=email&utm_term=0_411a82e59d-b8fc3425d2-68951505
Jensen Comment
In accountics science we got probability wrong as well, but who cares about
accountics science? The goal is to get research papers published. Nobody cares
about the reliability of the findings, because nobody in the real world cares
about the findings
How Accountics Scientists Should Change:
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review
I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
Also see
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong
Apply for Accounting Doctoral Scholars program ---
http://www.adsphd.org/?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Oct2016
Chosen scholars will receive up to $40,000 in addition to university-supported
funding
AACSB Data fpr 2013-14: 3,807 Full-Time Faculty Positions Filled With
2,993 Filled With Doctoral Faculty ---
http://aacsbblogs.typepad.com/dataandresearch/2014/05/signs-of-changing-faculty-compositions.html
Jensen Comment
I'm assuming that "doctoral faculty" includes lawyers that often teach tax
accounting, although some who are also CPAs teach other accounting courses.
I'm assuming 3,807 "full-time faculty positions" exclude positions that were
unfilled, some of which went unfilled due to lack of qualified applicants with
or without doctorates.
The above report does not indicate the so-called "shortage" of doctoral faculty
that typically means filled and unfilled positions for which doctoral faculty
would have been preferred. Sometimes clinical non-doctoral faculty candidates
with professional accounting experience are preferred.
Jim Hasselback discusses accounting faculty shortages in his somewhat dated
FAQs at
http://www.jrhasselback.com/AtgDoct/FAQs.pdf
Some supply data are provided in Jim's popular Ph.D. graduate table at
http://www.jrhasselback.com/AtgDoct/XDocChrt.pdf
There are always data errors in this table such that Jim always misses some
graduates --- but not a whole lot of graduates.
Both the AACSB and Jim's data tables may include some Ph.D. graduates from
non-AACSB business programs since the data are self-reported by schools to the
AACSB and Jim Hasselback. There also may be errors with respect to the number of
AACSB Bridge Program graduates where faculty with non-accounting Ph.D. degrees
have "bridged" into accounting. But the numbers of such bridged accounting
faculty are low relative to total accounting faculty with accounting and law
doctoral degrees.
One test of "shortages:" of accounting Ph.D.s is the test of having
tenure rejects get job offers from other colleges and universities. Based on
anecdotal evidence on this I think there must still be shortages of Ph.D.
accounting faculty since so many tenure rejects do find accounting faculty jobs
in other colleges and universities, often institutions that more highly praise
teaching relative to research and publication.
Many so-called accounting doctoral program shortage laments are not so much
due to shortage of Ph.D. graduates as they are due to shortage of salaries
expected by applicants. There are fewer such laments in humanities since there
are overwhelming numbers of unemployed humanities Ph.D. graduates who "will work
for food." This is not so much the case for accounting Ph.D.s except in the case
of really lousy accounting faculty applicants.
And it's difficult to compare what is a "small" faculty salary. An offer of
$150,000 is small in NYC and Palo Alto but large in Des Moines and Vermillion.
Many city slickers will not move to Des Moines or Vermillion for a starting
salary of $200,000. And many folks like me want no part of congested living
unless we're forced for some reason to live in those ant hills.
I provide more discussion of accounting faculty shortages and reasons for
those shortages at
http://faculty.trinity.edu/rjensen/theory01.htm#DoctoralPrograms
One problem that's probably not politically correct to talk about loudly is
that increasingly North American doctoral programs graduate brilliant
mathematicians who really cannot teach any accounting courses except elementary
courses or doctoral seminars. The problem is exacerbated when they communicate
poorly in English ---
http://faculty.trinity.edu/rjensen/theory01.htm#DoctoralPrograms
These "accoutics" graduates may have difficulty getting faculty offers except
when they are so good prestigious doctoral programs will hire them for their
accountics research rather than teaching skills.
Unimaginative Engineering Education: The Ingenious Richard K. Miller
http://nautil.us/issue/40/learning/ingenious-richard-k-miller
Jensen Comment
One of the most challenging courses in the Trinity University Engineering
Department is the Senior Design course. When reading the above article it I
thought about how in most five-year accounting programs accounting students
don't design anything in accountancy. They view the world of standards, rules,
and tax laws as if these were set in concrete --- and they are set in concrete
as far as the culminating CPA examination is concerned.
Wouldn't it perhaps be better if in a five-year accountancy program
accounting students had at least one accountancy design course?
October 16m 2016 reply from Jagdish Gangolly
1. I agree with Tom about CPA Journal. I used to
read it regularly when I was in the Accounting Department at Albany. I
rarely read any other practitioner journal. They publish in depth articles,
unlike JA.
2. I agree with Bob that practitioner Journals
should publish academic articles and the academic journals should publish
practitioner articles. However, the former is much more easily accomplished
because practitioners do not have skin in the academic game. On the other
hand, it is virtually impossible to achieve, at least since the early 1970s,
because the journals are the only thing in which the accounting academics
have skin in the game.
3. I think the Trumpist thinking in the so called
"positive" approach to Accounting has doomed any innovation in Financial
Accounting. Except for the very earliest work in that area, most work is
hypocritical; if you really want to adhere to the so-called positivist
ideology you can not use even simple multiple linear regression, or
confirmatory analysis (or Structural equation modeling) without being
hypocritical. They all involve some amount of normativeness. But,
unfortunately, pure positivist research would use only Exploratory Data
Analysis, or Exploratory Factor Analysis, both of which are not as sexy as
the other normative methods. Just about any statistical technique involves
optimization of some objective function, and therefore is normative. That is
the reason I have never had much respect for the so called "positive"
research in most social sciences.
One can only quote Auguste Comte, one of the
founders of Sociology, and an early positivist:
A. "Each department of knowledge passes through
three stages. The theoretic stage; the theological stage and the
metaphysical or abstract stage." I guess we are still at the
Theology stage.
B. " Every science consists in the
coordination of facts; if the different observations were entirely
isolated, there would be no science. " Where is the
coordination of facts? We are still at gthe cataloging stage?
C. " All good intellects have repeated,
since Bacon's time, that there can be no real knowledge but that which
is based on observed facts. This is incontestable, in our present
advanced stage; but, if we look back to the primitive stage of human
knowledge, we shall see that it must have been otherwise then. If it is
true that every theory must be based upon observed facts, it is equally
true that facts cannot be observed without the guidance of some theory.
Without such guidance, our facts would be desultory and fruitless; we
could not retain them: for the most part we could not even perceive
them." Where is the theory? A theory is NOT a catalog of
empirical facts, but a coherent explanation of some phenomena. In that
sense Financial Accounting is basically a theory-challenged field.
I am being deliberately combative.
Regards,
Jagdish
Accounting History Corner
University of Mississippi Accounting Digital Collection ---
http://umiss.lib.olemiss.edu:82/screens/dacopac.html
The Digital Accounting Collection is composed of
several discrete collections. The “Accounting Pamphlets Collection–
Bibliographic Citations Only” containing over 33,000 references, indexes the
pamphlets, brochures and newsletters that the American Institute of
Certified Public Accountants’ library collected from 1918 to 2000. The other
collections are full text searchable. The “Accounting Pamphlets Collection -
Full Text ” is a small, but growing, collection of full text materials
culled from the “Bibliographic Citations Only Collection.” Currently, the
"Accounting Pamphlets Collection - Full Text” features pamphlets from the
early twentieth century which were published as practical guides to
bookkeepers in various industries and organizations. The Academy of
Accounting Historians has kindly given permission to publish the Accounting
Historians Journal and the Accounting Historians Notebook. Complete runs of
both periodicals, save the last (embargoed) year, are now available. The
American Institute of Certified Public Accountants has given permission to
post the full text of all their noncurrent exposure drafts. Finally, a small
collection of accounting art provides an entertaining glimpse into
accounting through the ages. We wish to especially thank the American
Institute of Certified Public Accountants and the Academy of Accounting
Historians for providing materials and permissions for the creation of these
collections.
Accounting History Corner
Voices of Experience Series: An Academy Interview with Richard Vangermeersch,
The Accounting Historians Notebook, April 2012 ---
http://umiss.lib.olemiss.edu:82/articles/1038710.7439/1.PDF
Jensen Comment
Years ago Dick was my friend and colleague while we were both on the faculty at
the University of Maine. I suspect most everybody remembers Dick as an
unforgettable character --- independent, emotional, excitable, and very
outspoken. He was also a dedicated scholar of accounting history and very active
in the Academy of Accounting Historians. I'm proud to remember him as a true
friend, albeit not somebody you want to sit beside at a sporting event such as a
basketball game. More than once Dick yanked the phone cord out of the wall in
his faculty office. He was uncompromising in most everything in life, including
historical scholarship. He made his mark in our Academy.
Accounting History Corner
Accounting History Photographs ---
http://www.olemiss.edu/depts/general_library/dac/files/photos.html
Accounting History Corner
Report on the 13th World Congress of Accounting Historians Newcastle upon Tyne •
17-19 July 2012 ---
http://umiss.lib.olemiss.edu:82/articles/1038711.7441/1.PDF
What to know about the new CPA Exam ---
http://www.journalofaccountancy.com/newsletters/2016/oct/changes-to-cpa-exam.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=12Oct2016
FASB amends guidance for consolidating VIEs ---
http://www.journalofaccountancy.com/news/2016/oct/fasb-amends-consolidation-guidance-201615413.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=27Oct2016
EY Summary
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_03581-161US_IndirectInterest_27October2016/$FILE/TothePoint_03581-161US_IndirectInterest_27October2016.pdf
Bob Jensen's threads on What's Right and What's Wrong With SPEs, SPVs, and VIEs
---
http://faculty.trinity.edu/rjensen//theory/00overview/speOverview.htm
From MAAW's Blog Compiled by Jim Martin
Updates from the Journal of Management Accounting Research
From MAAW's Blog Compiled by Jim Martin
Journal of Management
Accounting Research - Volumes 28(1)-28(3) 2016
http://maaw.info/JMAR2016.htm
Journal of Management
Accounting Research - Volumes 1989-2016
http://maaw.info/JMAR.htm
Updates From the CPA Journal 2016
Update
From MAAW's Blog Compiled by Jim Martin
The
CPA Journal 2016
http://maaw.info/TheCPAJournal2016.htm
The
CPA Journal 2008-2016
http://maaw.info/TheCPAJournal.htm
Updates From the International Journal of Accounting Information Systems 2016
Update
From MAAW's Blog Compiled by Jim Martin
International Journal of Accounting Information Systems 2016 ---
http://maaw.info/InternationalJournalofAccInfoSys2016.htm
International Journal of Accounting Information Systems 2000-2016 ---
http://maaw.info/InternationalJournalofAccInfoSys.htm
Updates on the
Journal of Accounting and Economics
From MAAW's Blog Compiled by Jim Martin
Journal of Accounting and Economics 2016
http://maaw.info/JournalofAccountingandEconomics2016.htm
Journal of Accounting and Economics 1979 - August 2016
http://maaw.info/JournalofAccountingandEconomics.htm
Updates on the
journal Contemporary Accounting Research (a Canadian Academic Accounting
Association journal and is the Canadian equivalent to the AAA's TAR)
From MAAW's Blog Compiled by Jim Martin
Contemporary Accounting Research 2016 ---
http://maaw.info/ContemporaryAccountingResearch2016.htm
Contemporary Accounting Research 1984-1992 and 2010-2016 ---
http://maaw.info/ContemporaryAccountingResearch.htm
Updates on the
journal Decision Sciences
From MAAW's Blog Compiled by Jim Martin
Decision Sciences Volume 47(1) - 47(4) 2016
http://maaw.info/ManagementJournals/DecisionSciences2016.htm
Decision Sciences Volume 1(1) 1970 - Volume 6(4) 1975 and Volumes
41(1) 2010 - 47(4) 2016
http://maaw.info/ManagementJournals/DecisionSciences.htm
Updates on the
journal Advances in Management Accounting
From MAAW's Blog Compiled by Jim Martin
Advances in Management Accounting Volume (26) 2016
http://maaw.info/AdvancesinManageAcc2016.htm
Advances in Management Accounting Volumes (1) 1992 - (26) 2016
http://maaw.info/AdvancesinManageAcc.htm
Significance Testing: We Can Do Better
Abacas, June 13, 2016
http://onlinelibrary.wiley.com/doi/10.1111/abac.12078/full
This is not a free article
Author
Thomas R. Dyckman Professor Emeritus Cornell University
Abstract
This paper advocates abandoning null hypothesis
statistical tests (NHST) in favor of reporting confidence intervals. The
case against NHST, which has been made repeatedly in multiple disciplines
and is growing in awareness and acceptance, is introduced and discussed.
Accounting as an empirical research discipline appears to be the last of
research communities to face up to the inherent problems of significance
test use and abuse. The paper encourages adoption of a meta-analysis
approach which allows for the inclusion of replication studies in the
assessment of evidence. This approach requires abandoning the typical NHST
process and its reliance on p-values. However, given that NHST has deep
roots and wide “social acceptance” in the empirical testing community,
modifications to NHST are suggested so as to partly counter the weakness of
this statistical testing method.
Extended Quotation
. . .
2. Why The Frequentist Approach (NHSTs) Should be Abandoned in Favor of a
Bayesian Approach
Frequentist Approach:
The frequentist NHST relies on rejecting a null hypothesis of no effect or
relationship based on the probability, or “p-level”, of observing a specific
sample result X equal to or more extreme than the actual observation X₀,
conditional on the null hypothesis H₀ being true. In symbols, this
calculation yields a p-level = Pr(X≥X₀|H₀), where ≥ signifies “as or more
discrepant with H₀ than X₀”. The origin of the approach is generally
credited to Karl Pearson (1900), who introduced it in his χ˛-test (Pearson
actually called it the P, χ˛-test). However, it was Sir Ronald Fisher who is
credited with naming and popularizing statistical significance testing and
p-values as promulgated in the many editions of his classic books
Statistical Methods for Research Workers and The Design of Experiments. See
Spielman (1974), Seidenfeld (1979), Johnstone et al. (1986), Barnett (1999),
Berger (2003) and Howson and Urbach (2006) on the ideas and development of
modern hypothesis tests (NHST).
The Bayesian Approach:
Probabilities, under the Bayesian approach, rely on informed beliefs rather
than physical quantities. They represent informed reasoned guesses. In the
Bayesian approach, the objective is the posterior (post sample) belief
concerning where a parameter, β in our case, is possibly located. Bayes’
theorem allows us to use the sample data to update our prior beliefs about
the value of the parameter of interest. The revised (posterior) distribution
represents the new belief based on the prior and the statistical method (the
model) applied, and calculated using Bayes theorem. Prior beliefs play an
important role in the Bayesian process. In fact, no data can be interpreted
without prior beliefs (“data cannot speak for themselves”).
Bayesians emphasize the unavoidably subjective
nature of the research process. The decision to select a models and specific
prior or family of priors is necessarily subjective, and the sample data are
seldom obtained objectively (Basturk et al., 2014). Indeed, data quality has
become a major problem with the advent of “big data” and with the
recognition that the rewards for publication tend to induce gamesmanship and
even fraud in the data selected for the study.
When the investigator experiences difficulty and
uncertainty in specifying a specific prior distribution, the use of diffuse
or “uninformative” prior is typically adopted. The idea is to impose no
strong prior belief on the analysis and hence allow the data to have a
bigger part in the final conclusions. Ultimately, enough data will “swamp”
any prior distribution, but in reality, where systems are not stationary and
no models is known to be “true”, there is always subjectivity and room for
revision in Bayesian posterior beliefs.
The Bayesian viewpoint is that this is a fact of
research life and needs to be faced and treated formally in the analysis.
Objectivity is not possible, so there is no gain from pretending that it is.
Formal Bayesian methods for coping with subjectivity are easy to understand.
For example, one approach is to ask how robust the posterior distribution of
belief about β is to different possible prior distributions. If we can say
that we come to essentially the same qualitative belief over all feasible
models and prior distributions, or across the different priors that
different people hold, then that is perhaps the most objective that a
statistical conclusion can claim.
Continued in article
Academic psychology and medical testing are both dogged by unreliability.
The reason is clear: we got probability wrong ---
https://aeon.co/essays/it-s-time-for-science-to-abandon-the-term-statistically-significant?utm_source=Aeon+Newsletter&utm_campaign=b8fc3425d2-Weekly_Newsletter_14_October_201610_14_2016&utm_medium=email&utm_term=0_411a82e59d-b8fc3425d2-68951505
. . .
For one, it’s of little use to say that your
observations would be rare if there were no real difference between the
pills (which is what the p-value tells you), unless you can say whether or
not the observations would also be rare when there is a true difference
between the pills. Which brings us back to induction.
The problem of
induction was solved, in principle, by the Reverend Thomas Bayes in the
middle of the 18th century. He showed how to
convert the probability of the observations given a hypothesis (the
deductive problem) to what we actually want, the probability that the
hypothesis is true given some observations (the inductive problem). But how
to use his famous theorem in practice has been the subject of heated debate
ever since.
Take the proposition that the Earth goes round the
Sun. It either does or it doesn’t, so it’s hard to see how we could pick a
probability for this statement. Furthermore, the Bayesian conversion
involves assigning a value to the probability that your hypothesis is right
before any observations have been made (the ‘prior probability’). Bayes’s
theorem allows that prior probability to be converted to what we want, the
probability that the hypothesis is true given some relevant observations,
which is known as the ‘posterior probability’.
These intangible probabilities persuaded Fisher
that Bayes’s approach wasn’t feasible. Instead, he proposed the wholly
deductive process of null hypothesis significance testing. The realisation
that this method, as it is commonly used, gives alarmingly large numbers of
false positive results has spurred several recent attempts to bridge the
gap.
There is one
uncontroversial application of Bayes’s theorem: diagnostic screening,
the tests that doctors give healthy people to detect warning signs of
disease. They’re a good way to understand the perils of the deductive
approach.
In theory, picking up on the early signs of illness
is obviously good. But in practice there are
usually so many false positive diagnoses that it just doesn’t work very well.
Take dementia. Roughly 1 per cent of the population suffer from mild
cognitive impairment, which might, but doesn’t always, lead to dementia.
Suppose that the test is quite a good one, in the sense that 95 per cent of
the time it gives the right (negative) answer for people who are free of the
condition. That means that 5 per cent of the people who don’t have cognitive
impairment will test, falsely, as positive. That doesn’t sound bad. It’s
directly analogous to tests of significance which will give 5 per cent of
false positives when there is no real effect, if we use a p-value of less
than 5 per cent to mean ‘statistically significant’.
But in fact the screening test is not good – it’s
actually appallingly bad, because 86 per cent, not 5 per cent, of all
positive tests are false positives. So only 14 per cent of positive tests
are correct. This happens because most people don’t have the condition, and
so the false positives from these people (5 per cent of 99 per cent of the
people), outweigh the number of true positives that arise from the much
smaller number of people who have the condition (80 per cent of 1 per cent
of the people, if we assume 80 per cent of people with the disease are
detected successfully). There’s a YouTube video of my attempt to explain
this principle, or you can read my recent paper on the subject.
Notice, though, that it’s possible to calculate the
disastrous false-positive rate for screening tests only because we have
estimates for the prevalence of the condition in the whole population being
tested. This is the prior probability that we need to use Bayes’s theorem.
If we return to the problem of tests of significance, it’s not so easy. The
analogue of the prevalence of disease in the population becomes, in the case
of significance tests, the probability that there is a real difference
between the pills before the experiment is done – the prior probability that
there’s a real effect. And it’s usually impossible to make a good guess at
the value of this figure.
An example should make the idea more concrete.
Imagine testing 1,000 different drugs, one at a time, to sort out which
works and which doesn’t. You’d be lucky if 10 per cent of them were
effective, so let’s proceed by assuming a prevalence or prior probability of
10 per cent. Say we observe a ‘just significant’ result, for example, a P =
0.047 in a single test, and declare that this is evidence that we have made
a discovery. That claim will be wrong, not in 5 per cent of cases, as is
commonly believed, but in 76 per cent of cases. That is disastrously high.
Just as in screening tests, the reason for this large number of mistakes is
that the number of false positives in the tests where there is no real
effect outweighs the number of true positives that arise from the cases in
which there is a real effect.
In general, though, we don’t know the real
prevalence of true effects. So, although we can calculate the p-value, we
can’t calculate the number of false positives. But what we can do is give a
minimum value for the false positive rate. To do this, we need only assume
that it’s not legitimate to say, before the observations are made, that the
odds that an effect is real are any higher than 50:50. To do so would be to
assume you’re more likely than not to be right before the experiment even
begins.
If we repeat the drug calculations using a
prevalence of 50 per cent rather than 10 per cent, we get a false positive
rate of 26 per cent, still much bigger than 5 per cent. Any lower prevalence
will result in an even higher false positive rate.
The upshot is that, if a scientist observes a ‘just
significant’ result in a single test, say P = 0.047, and declares that she’s
made a discovery, that claim will be wrong at least 26 per cent of the time,
and probably more. No wonder then that there are problems with
reproducibility in areas of science that rely on tests of significance.
Continued in article
Jensen Comment
Especially note the many replies to this article
. . .
David Colquhoun
https://aeon.co/conversations/what-should-be-done-to-improve-statistical-literacy#
I think that it’s quite hard to find a really good practical guide to
Bayesian analysis. By really good, I mean on that is critical about priors
and explains exactly what assumptions are being made. I fear that one reason
for this is that Bayesians often seem to have an evangelical tendency that
leads to them brushing the assumptions under the carpet. I agree that
Alexander Etz is a good place to start. but I do wonder how much it will
help when your faced with a particular set of observations to analyze.
Henning Strandin ---
https://aeon.co/users/henning-strandin
Thank you for a good and useful article on the pitfalls of ignoring the
baseline. I have a couple of comments.
Bayes didn’t resolve the problem of induction, even in principle. The
problem of induction is the problem of knowing that the observations you
have made are relevant to some set of (perhaps as-yet) unobserved events. In
his Essay on Probabilities, Laplace illustrated the problem in the same
paragraph in which he suggests . . .
Karl Young
Nice article; as a Bayesian who was forced to quote p values in a couple of
medical physics papers for which the journal would have nothing else, I
appreciate the points made here. But even as a Bayesian one has to
acknowledge that there are a number of open problems besides just how to
estimate priors. E.g. what one really wants to know is given some
observations, how one’s hypothesis fares against as complete a list of
alternative hypothesis as can be mustered. Even assuming that one could come
up with such a list, calculating the probability that one’s hypothesis best
fits the observations in that case requires calculation of a quantity called
the evidence that is generally extremely difficult (the reason that the
diagnostic examples mentioned in the piece lead to reasonable calculations
is that calculating the evidence for the set of proposed hypotheses, that
either someone in the population has a disease or doesn’t, is
straightforward). So while I think Bayes is the philosophically most
coherent approach to analyzing data (doesn’t solve the problem of induction
but tries to at least manage it) there are still a number of issues
preventing it
Comments Continued at
https://aeon.co/conversations/what-should-be-done-to-improve-statistical-literacy
Bob Jensen's threads on Common Accountics
Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm
Tom Selling: The Parable of the Good Big-Four-Congressman ---
http://accountingonion.com/2016/10/a-tale-of-investor-protection-for-sale.html
Jensen Question
The SEC investigates deceptive accounting and fraud (read that fraudulent
intent).
The PCAOB investigates suspected deficiencies in auditing.
My question is whether the PCAOB turns the investigation over to the SEC when
there's suspected intentional fraud rather than just sloppy/negligent auditing?
From a CPA Newsletter on October 21, 2016
The AICPA provides free financial literacy resources for consumers
360 Degrees of Financial Literacy can
help your clients understand their personal finances and develop money
managementhttp://accountingonion.com/2016/10/a-tale-of-investor-protection-for-sale.html skills. It focuses on financial education as a lifelong endeavor
-- from children learning about the value of money to adults reaching a
secure retirement
http://www.360financialliteracy.org/?utm_source=mnl:cpald&utm_medium=email&utm_campaign=21Oct2016
Bob Jensen's threads on personal finance ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
SSARS 23 expands application of preparation, compilation standards ---
http://www.journalofaccountancy.com/news/2016/oct/ssars-23-201615395.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=26Oct2016
How Credit Scores Work and five Lesser-Known Reasons Why Your Credit Score
Drops ---
http://www.quickanddirtytips.com/money-finance/credit/5-lesser-known-reasons-why-your-credit-score-drops?utm_source=moneygirl&utm_medium=email&utm_campaign=MG20161013
Bob Jensen's threads on personal finance ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
The Corporate Tax Mess: Some Companies Pay Little or
No Tax While Others Pay Billions
http://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b8d22edf9c970c-popup
Harvard: Technology Will Replace Many Doctors, Lawyers, and Other
Professionals ---
https://hbr.org/2016/10/robots-will-replace-doctors-lawyers-and-other-professionals?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Jensen Comment
Some professions have more job security than others. Interestingly, the world's
oldest profession has the highest job security except for some threatened
sidelines like phone sex.
Whereas most teachers are threatened by robotics, the last to go will be K-8
teachers. Players in the professional sports are safe for now. Robots may play a
sport much better, but fans aren't much interested in buying season tickets to
watch teams of robots slug it out. After writing this it dawned on me how much
time is now wasted on video and computer games. Alas, the NFL and the NBA
and Nascar may be in big trouble.
We're not far from the days when robots will conceive, carry, and deliver
human babies, although it will take much longer to replace the contents of live
sperm and live eggs. Milking machines may still need chemicals from hay and
corn, but the cows themselves will be robots. I wonder if they will still have
to pollute the air with farts and belches?
Elections of the future might be less graphic if robots replace the likes of
Donald Trump and Bill Clinton. But think of how boring the debates will become
when IBM's Deep Blue faces off against Google's Deep Pink as candidates to
become the Mayor of Chicago. Robotic cops will one day arrive to break up
domestic disputes and street riots. There won't be many traffic cops needed for
self-driving cars and trucks.
Ironically, we used to fear the ethical issues of creating master races with
cloning ---
https://en.wikipedia.org/wiki/Cloning
Somehow the debate loses much of it's fury when creating master robots.
The enormous controversy will be fulfillment of life for humans. Work became
an enormous part of life's fulfillment most of us still left on this planet.
Retirement eases the transition between work and death, but what most of us old
folks dread the most is becoming totally "workless" while vegetating in nursing
homes. We'd rather give our bodies to soylent green cookie factories ---
https://en.wikipedia.org/wiki/Soylent_Green
What Affects Our Trust in Government?
http://daily.jstor.org/what-affects-our-trust-in-government/
Jensen Comment
One thing that affects are trust in government is lenient prison sentences for
enormous white-collar fraudsters in both the public and private sectors
---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#CrimePays i
Crime pays as long as the
crime is massive in rewards.
Another thing that affects our trust in government is the coziness of the
private and public sector such as when government bureaucrats are given fabulous
incentives to bail out of government jobs into high paying jobs in the
industries they preciously regulated. Generals hope to become defense contractor
executives. FDA regulators hope to become executives in the pharmaceutical
industry. SEC, FBI, and Department of Justice employees hope to get plush jobs
and offices in big accounting and law firms. It did take long before industries
eventually owned the government agencies that regulated and investigated those
industries. What government agency is truly independent and highly respected?
Another thing that affects our trust in government is when current or former
bureaucrats and legislators are given $250,000 or more for a short speech. That
must be some inspirational/informative speech! Yeah right!
Our legislators are not trusted by the public for good reason. They are
trusted even less when they leave office to become high-paid lobbyists.
How many mayors and governors went to prison when the loot they stashed can't
be found? Three recent governors of Illinois, for example, went to prison.
Don't expect them to be clerking at convenience stores when they're released.
Can you become a mayor of most of the USA's major cities without doing
under-the-table business with corrupt municipal labor unions?
The bigger the government program the bigger the pińata for fraud! Exhibit A
is the Department of Defense. Exhibit B is Medicare. Exhibit C is Medicaid. And
on and on and on.
Private sector fraud goes hand-in-hand with public sector fraud.
Name some of our government servants who became multimillionaires even though
they were always on the public payroll? LBJ is not an exception. He's the rule.
The real world is not a Disney movie victory of of goodness over evil.
Bob Jensen's Rotten to the Core threads ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm
Companies That Violate (Accounting) Rules
Grant More Worker (Stock) Options, Study Says ---
http://blogs.wsj.com/cfo/2016/10/18/companies-that-violate-rules-grant-more-worker-options-study-says/
Companies that violate
financial reporting rules are far more generous than their peers when
granting stock options to rank and file employees, possibly reflecting an
attempt to discourage whistleblowing, according to a new study.
By giving employees a
monetary incentive to keep quiet, they will do just that, according to Shivaram
Rajgopal, a co-author of the study.
“It’s a straightforward
story,” said Mr. Rajgopal, a professor of accounting and auditing at
Columbia Business School. “Companies compensate you for not speaking up.”
Companies that violated
financial reporting rules granted stock options to rank and file employees
that amounted to an average of 2.49% of their total shares outstanding
during the period from when the misreporting began until when it was
discovered. That compares to option grants that totaled just 1.62% of total
outstanding shares for a control group of companies.
The study, Rank and
File Employees and the Discovery of Misreporting: The Role of Stock Options,
examined 784 cases at 663 different companies that were subject to class
action shareholder litigation from 1996 to 2011. The study is expected to be
published in an upcoming issue of the Journal of Accounting and Economics.
Continued in article
Jensen Comment
I did not read the underlying JAE study that reports this implication that the
companies are paying bribes for employees to not blow the whistle on the
breaking of accounting rules. However, if and when I do read the study I will
look for possible implications of causality from spurious correlation. There may
be missing variables that cause both more stock options and accounting rules
violations.
In the roaring 1990s tech companies were doing all sorts of creative
accounting to dress up financial statements to appeal to potential
investors/creditors. At the same time those companies were also granting
boatloads of stock options, because tech labor was inordinately expensive and
rising tech companies were almost always low on cash (and legitimate GAAP
earnings). For example, Stanford's computer science graduates were given low
starting cash salaries and million-dollar stock option awards due to cash
shortages amidst feverish needs for top computer science graduates.
I suspect this is one of the many, many accountics science studies
disparately in need of replication by alternate research methodologies such as
interviews with company employees.
But accountics scientists usually abhor going off campus to gather their own
data.
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
A former U.S. Tax Court judge pleaded guilty Friday
to conspiring with her husband to fraudulently omit nearly $1 million of income
from their tax returns while she served as judge, using the gains on personal
expenses like international trips and Pilates classes. Diane Kroupa, 61, faces
up to five years in prison after pleading guilty to conspiracy to defraud the
United States in federal court in St. Paul. A federal grand jury indicted Kroupa
and her then-husband, Robert Fackler, 63, in April. ---
http://taxprof.typepad.com/taxprof_blog/2016/10/retired-us-tax-court-judge-pleads-guilty-to-tax-fraud-while-she-sat-on-the-court.html
Also see
http://taxprof.typepad.com/files/kroupa-plea.pdf
Managing the Curricular-Change Process: Implementing Competency-Based
Accounting Education
SSRN, September 27, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2844371
Authors
Raef A. Lawson Institute of Management Accountants
Karen S. Pincus University of Arkansas - Department of Accounting
James Sorensen University of Denver - School of Accountancy
Kevin Stocks Brigham Young University
David E. Stout Youngstown State University - Department of Accounting and
Finance
Abstract
Prior
research and practitioner-academic bodies (Lawson et al. 2014, 2015;
Pathways Commission 2012) have called for the development of integrated
accounting curricula to better prepare students for successful long-term
careers. This paper recognizes accounting program leaders as important
agents in the curricular-change process. Its goal is to provide accounting
leaders ideas and tools that can be used to manage the process of
implementing change to an integrated accounting curriculum. Using a
life-cycle planning approach, we identify major stages in the
curricular-change process and describe the characteristics and challenges
associated with each stage. We then propose a framework for managing the
curricular change process based on the life-cycle approach, encompassing a
comprehensive integration process and including spreadsheet formats to
facilitate management of an institution’s curricular-change initiative.
While needed in an effort to develop an integrated curriculum, the approach
is generalizable and can be used in any major revision of a curriculum. An
appendix to the paper contains a checklist of issues to be considered during
each stage of the curricular-change cycle.
Jensen Comment
You may want to download this while it's free. The authors are well known in
accounting higher education.
Accounting-Based Estimates of the Cost of Capital: A Third Way
SSRN. September 1, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2842269
Authors
Stephen H. Penman Columbia Business School - Department of Accounting
Julie Lei Zhu Boston University - School of Management
Abstract
This
paper offers an approach for estimating the cost of capital from observed
accounting information and compares the resulting estimates to so-called
implied cost of capital (ICC) calculations and those from asset pricing
models. The approach is based on two ideas. First, buying expected earnings
growth is risky; thus, any variable that predicts expected earnings growth
that is at risk of not being realized is potentially an indicator of the
cost of capital. Second, accounting principles induce earnings growth that
ties to risk; thus, an accounting number generated under these principles
potentially indicates of the cost of capital. The paper combines such
numbers into a cost-of-capital estimate. The estimates perform well in
validation tests, in contrast to the alternatives that are the current
standards
Jensen Comment
Especially note the minimalist calculation alternative discussed near the end of
the paper.
These days I'm always suspicious of outcomes relying on the CAPM given the
controversy of CAPM in recent decades.
Data Analytics and Big Data: Opportunity or Threat for the Accounting
Profession?
SSRN. September 10, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2813817
Authors
Greg Richins University of Waterloo - School of Accounting and Finance
Andrea Stapleton University of Waterloo - School of Accounting and
Finance
Theophanis C. Stratopoulos University of Waterloo - School of Accounting
and Finance
Christopher Wong University of Waterloo - School of Accounting and
Finance
Abstract
Contrary to Frey and Osborne (2013) prediction that the accounting
profession faces extinction, we argue that accountants can still create
value in a world of big data. To advance our argument, we provide a
conceptual framework based on structured/unstructured data and problem
driven/exploratory analysis. We argue that accountants already excel at
problem driven analysis of structured data, are well positioned to play a
leading role in the problem driven analysis of unstructured data, and can
support data scientists performing exploratory analysis on big data. Our
argument rests on two pillars: accountants are familiar with structured data
sets, easing the transition to working with unstructured data, and possess
knowledge of business fundamentals. Thus, rather than replacing accountants,
we argue that big data complements accountants’ skills and knowledge.
However, educators, standard setters, and professional bodies must adjust
their curricula, standards, and frameworks to accommodate the challenges of
big data.
Princeton Will Pay $18 Million to Settle Suit Over Property-Tax Exemption
---
http://www.chronicle.com/blogs/ticker/princeton-will-pay-18-million-to-settle-suit-over-property-tax-exemption/115119?elqTrackId=e7949ac77b1b43dc97aed34d6c455a21&elq=152fd248a4d244b6a1dfcf39b37cbd7c&elqaid=11117&elqat=1&elqCampaignId=4277
Yale Property Tax Bill Dies in Connecticut ---
http://www.bna.com/yale-property-tax-n57982070776/
PwC Study Maligned by Liberals in 2009 is Vindicated by Events
of 2016
From the Left-Leaning Website Called Vox
"Obamacare was built to fail," by Avik Roy, Vox, October 7,
2016---
http://www.vox.com/the-big-idea/2016/10/7/13191250/obamacare-exchanges-crisis-arrogant-progressives
. . .
In October 2009, analysts at PricewaterhouseCoopers published
a report estimating that by 2016, the Senate Finance Committee bill would
increase individual-market health insurance premiums by 47 percent. Today,
we would describe that figure as a lowball estimate. In fact, cumulatively,
median premiums for "silver plans" have nearly doubled in the ACA’s first
four plan years (49 percent in 2014, 7 percent in 2015, 11 percent in 2016,
and a projected 10 percent in 2017).
But in 2009, the ACA’s cheerleaders described it in much
different terms.
"We couldn’t stop intellectual saboteurs from introducing new
lies into the debate," wrote Cohn. "But I think we were able to expose those
lies just a little more quickly." Cohn and others slammed the PwC report as
the work of corrupt health insurance lobbyists seeking to sink reform — as
an example of
"the
insurance industry declaring war."
In the Washington Post, Ezra Klein, who went on to found Vox.com,
compared
the PwC report to lies promulgated by the tobacco and oil industries.
What was remarkable about all this controversy is that
PricewaterhouseCoopers' findings
were quite
reasonable. The ACA’s insurance market regulations were going to drive up
the underlying cost of individually purchased insurance.
For example, forcing insurers to charge their youngest
customers no less than one-third of their oldest customers meant that
premiums for young people would double, because on average, 19-year-olds
consume one-sixth as much health care as 64-year-olds. Mandating that
insurers cover a federally-prescribed suite of health care services,
regardless of whether enrollees need coverage for those services, meant that
premiums would go up. Requiring that insurers charge the same prices to the
healthy and the sick meant that healthy people in particular would pay more.
By contrast, the law’s individual mandate, forcing consumers
to buy that costlier insurance, was going to be phased in over time. As a
result, premiums would spike and enrollment would suffer.
But Obamacare’s cheerleaders, fearing that this information
might sink the bill’s fate in Congress, decided to shoot the messenger. They
brought in Jonathan Gruber, the MIT economist, to
assure everyone that "what we
know for sure the bill will do is that it will lower the [underlying] cost
of buying non-group health insurance" — that is, the cost before any
subsidies.
As a political matter, the aggressive critiques of PwC
worked. "Within hours of [the report’s] publication," Cohn recounted,
"several blogs, including this one, had published critiques … [they]
circulated in Washington and provoked a backlash against the insurers.
Wavering Democrats said they were offended by the effort at political
sabotage; the Finance Committee went on the pass the bill, as it had
originally planned."
The exchanges punish middle-income Americans
But as a matter of policy, PwC was right and the cheerleaders
and Democratic policymakers were wrong. The ACA’s exchanges
were
designed poorly, and premiums did become unaffordable for millions.
It is true that many people with incomes near the poverty line, whose
premiums were nearly fully subsidized by other taxpayers, gained coverage
through the law, many through the deeply flawed Medicaid program, whose
health outcomes are no better than those of
people without health insurance.
But millions of uninsured, taxpaying Americans don’t qualify
for Medicaid or the ACA’s exchange subsidies. Still others —
typically those with incomes between 250 and 400 percent of the federal
poverty level
— qualify for partial subsidies that don’t make up for the
fact that ACA exchange insurance costs so much more. As
Bill Clinton put it, "You’ve
got this crazy system where … people that are out there busting it
—sometimes 60 hours a week — wind up with their premiums doubled and their
coverage cut in half." That’s why ACA exchange enrollment has fallen 9
million short of initial estimates.
The people who implemented the markets were ignorant and
arrogant, too
And Obamacare didn’t suffer only from a flawed blueprint. It
was also implemented by people with poor knowledge of how health insurance
markets worked.
Continued in article
PwC Study Maligned by Liberals in 2009 is Vindicated in 2016
"Brouhaha erupts over PwC private health insurance report,"
AccountingWeb, October 21,
2009 ---
http://www.accountingweb.com/topic/cfo/brouhaha-erupts-over-pwc-private-health-insurance-report
PricewaterhouseCoopers (PwC) has found itself at
the center of a controversy over its estimates of cost increases in private
health insurance premiums if certain provisions of the heath care reform
bill passed by the Senate Finance Committee become law. PwC was engaged to
conduct the study, "Potential
Impact of Health Reform on the Cost of Private Health Insurance Coverage,"
by the American Health Insurance Plans (AHIP).
Critics have questioned the methodology used by PwC, saying it does not take
into consideration some of the cost containment measures in the bill and
potential behavioral responses that could affect premium increases.
AHIP president and CEO Karen Ignagni told ABC News,
"One of the most important things that should be done is for
PricewaterhouseCoopers, a world class firm, to speak for itself about
methodology."
PwC defends its analysis and conclusions in a
statement provided to AccountingWEB, citing the specific parameters of the
study, saying that "America's Health Insurance Plans engaged
PricewaterhouseCoopers to prepare a report that focused on four components
of the Senate Finance Committee proposal:
* Insurance market reforms and consumer protections
that would raise health insurance premiums for individuals and families if
the reforms are not coupled with an effective coverage requirement.
* An excise tax on employer-sponsored high value health plans.
* Cuts in payment rates in public programs that could increase cost shifting
to private sector businesses and consumers.
* New taxes on health sector entities.
The study concluded that collectively the four
provisions would raise premiums for private health insurance coverage. As
the report itself acknowledges, other provisions that are part of health
reform proposals were not included in the PwC analysis."
By 2019, the study says, after analysis of these
four provisions, the cost of single coverage is expected to increase by
$1,500 more than it would under the current system and the cost of family
coverage is expected to increase by $4,000 more than it would under the
current system. This amounts to an additional 18 percent increase in
premiums by 2019. The overall 18 percent increase is a composite of
increases by market segment as follows:
* 49% increase for the non-group (individual)
market;
* 28% increase for small employers (those firms with fewer than 50
employees);
* 11% increase for large employers with insured coverage; and,
* 9% increase for self-insured employers.
The highest increase would be for individuals
covered by private insurance.
In its discussion of a "Strong Workable Coverage
Requirement," the study acknowledges it methodology as it does elsewhere in
the report. "The reform packages under consideration have other provisions
that we have not included in this analysis. We have not estimated the
impact of the new subsidies on the net insurance cost to households. Also,
if other provisions in health care reform are successful in lowering costs
over the long term, those improvements would offset some of the impacts we
have estimated." The analysis of the coverage requirement shows the
potential impact on premiums for individuals without a broad coverage
requirement."
PwC says that impacts identified in the study
assume payment of tax on high-value plans, cost-shifting of cuts to public
programs, and full pass-through of industry taxes.
The PwC study also states that it factored in the
excise tax but not any anticipated behavioral changes: "We have estimated
the potential impact of the tax on premiums," the study says. "Although we
expect employers to respond to the tax by restructuring their benefits to
avoid it, we demonstrate the impact assuming it is applied."
In an earlier study based on AHIP data, PwC
estimated that structural reforms, such as improved wellness and prevention,
disease management, value based payment reform, improvements in health
information technology, comparative effectiveness, and malpractice reform,
could mitigate growth in healthcare costs by between 0.5 and 1.0 percent per
year after an initial investment period. See PricewaterhouseCoopers "A
Review of AHIP Savings Estimates" in Appendix to AHIP, "A Shared
Responsibility," 2008.
Bob Jensen's threads on the health care mess are at
http://faculty.trinity.edu/rjensen/Health.htm
How Credit Scores Work and five Lesser-Known Reasons Why Your Credit Score
Drops ---
http://www.quickanddirtytips.com/money-finance/credit/5-lesser-known-reasons-why-your-credit-score-drops?utm_source=moneygirl&utm_medium=email&utm_campaign=MG20161013
Bob Jensen's threads on personal finance ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
Kiplinger: Three States to Avoid in Retirement ---
http://www.kiplinger.com/article/retirement/T047-C000-S001-3-states-to-avoid-in-retirement.html
Jensen Comment
Millions of folks happily retired in what Kiplinger calls the "worst" retirement
states. There are many reasons to retire, including a desire to be near family,
opera, ballet, symphony orchestras, and the neighborhood you lived in for the
past 35 years.
Tax positives and negatives vary a lot with your particular situation. For
example, most retirees don't have enough valuable assets to worry about estate
taxes. In retirement income taxes may be negligible for many retirees.
If you're on welfare blue states are generally more generous than red states but
blue states are usually more expensive.
Crime risks vary even within states. For example, I don't think our Village
of Sugar Hill ever had a home invasion, but there've been some murderous ones
100 miles south in Manchester that is also part of New Hampshire.
When choosing to leave San Antonio crime risk was one of our considerations. In
San Antonio our house had heavy burglar bars for good reason. This, in part,
possibly explains why we didn't get hit like some of our less-paranoid
neighbors.
Avoiding crime, congestion, traffic, and everlasting road construction was on
our mind when we decided to leave the ant hill of San Antonio. Up in these
mountains seeing one other car means it must be rush hour (except in foliage
season when it's bumper-to-bumper in front of our cottage) ---
http://faculty.trinity.edu/rjensen/Tidbits/Lavin/2016Sept/2016FoliagePart1.htm
When living in Tallahassee one our our friends was transplanted from Texas.
He said what he missed most was Lone Star Beer and Texas swing music. In his
case, none of his ex's lived in Texas. I never cared much for beer, but I
really, really miss the swing music and line dancing.
My neighbors down the road in these mountains are Boston Pops fanatics. But
they also associate the Pops evenings with the five-star hotel that they love in
downtown Boston. They would not retire In Massachusetts for all the tea in
China. Furthermore, they
would not enjoy the Boston Pops as much if the concerts were in the nearby Sugar
Hill community center.
Residents of Las Vegas are usually not addicted to gambling like frequent
visitors from out of town. Residents in most places don't always deeply enjoy
that which attracts their tourists.
Home is where you hang your hat. Make the best of it and avoid the worst of
it!
A man probably would not be as happy as he thinks retired with a rich
nymphomaniac who owns a chain of liquor stores. A woman may not be as happy with
a retired eunuch who owns a chain of shoe stores.
The marriage of George and Martha may not really be a "breakdown." George and
Martha might actually prefer the challenges of this combative, albeit drunken,
lifestyle ---
https://en.wikipedia.org/wiki/Who%27s_Afraid_of_Virginia_Woolf%3F
Most and Least Reliable Snow Blower Brands ---
https://www.yahoo.com/news/most-least-reliable-snow-blower-000500377.html
Jensen Comment Until I put a heavy-duty snow thrower on my diesel tractor I
used a heavy-duty Craftsman snow thrower that had a frustrating engineering
design flaw. The chute cables were unnecessarily long, and this length caused
them to freeze up whenever the temperature cot below 25F (which happens almost
all the time in these mountains during snow season). It was under at-home
warranty and must've frustrated Sears repairmen who arrived 12 times making
useless efforts to correct the problem. At long last, after Craftsman designed
shorter cables, the shorter cables have not frozen up in three years although I
no longer use this machine very much since I favor the snow thrower on my
tractor.
This illustrates how a really fine product can be messed up by a single
design flaw. Sounds like a good illustration for teachers of Activities Based
Costing (ABC) in cost and managerial accounting courses. ABC costing is supposed
to back up product costing to find such things as costly design flaws. The
problem with ABC costing is that it eventually uncovers costs that were known
using less sophisticated common sense costing.
US
homeowners get a huge tax break almost nobody knows about, and it's even part of
GDP ---
http://www.businessinsider.com/imputed-rent-hidden-tax-break-homeowners-2016-9
Jensen Comment
I'm not so sure I agree with taxing imputed rents just like I'm not in favor of
eliminating the mortgage interest tax break in the USA (that's not used by all
taxpayers, especially retired owners, if they don't have enough other deductions
to make it worthwhile to itemize deductions on their tax returns).
The reason is
that there's already a housing shortage in many parts of the USA. Discouraging
home ownership relative to renting simply exacerbates the housing shortage
problem. In my opinion we should do more to encourage home ownership instead of
further discouraging the building and owning of homes.
Another drawback
of renting versus owning is that
home owners are more apt to put in more time and money maintaining their homes.
Renters usually don't care to put time and money into home maintenance.
Government housing is a perfect example of renters not caring. After 20 or so
years, government housing often has to be demolished because of the way renters
destroyed the housing.
Renting often
leads to vertical housing with ever higher and higher buildings and heavy
concentrations of people. Such population concentrations often breed crime that
led to an exodus of urban dwellers into sprawling suburbs. Sprawling suburbs
have their own problems, but for many suburban living beats living in bee hive
concentrations.
Larry Summers: Four things the Fed should do now to help the economy ---
http://larrysummers.com/2016/09/30/four-modifications-to-feds-current-posture/
Top considerations for 2016 audit cycle ---
http://www.journalofaccountancy.com/news/2016/oct/top-considerations-for-2016-audits-201615297.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=05Oct2016
Facebook's UK tax bill ---
https://www.theatlas.com/charts/BJfoa1FA
What becomes of the humans that made livings as agricultural field hands?
MIT: Agricultural Drones are relatively cheap drones with advanced
sensors and imaging capabilities are giving farmers new ways to increase yields
and reduce crop damage ---
https://www.technologyreview.com/s/526491/agricultural-drones/
Jensen Comment
Some of the first big game changers in farming were technologies in farm
equipment that expanded harvesting of crops traditionally restricted to human
pickers. For example, it was not long ago that tomatoes had to be harvested by
hand. Now they can be harvested by huge combines. It will not be long until
another game changer will take the last human workers out of tomato fields. The
combines will be driverless along with the driverless 18-wheel trucks that
collected the harvested tomatoes alongside the combines.
When I was a kid the expensive toys were remote-controlled toy vehicles and
toy airplanes. Now these are no longer just toys.
Our cost accounting textbooks must all be re-written for operations where
virtually all the direct labor cost disappears amidst an explosion of
indirect labor cost such as the cost of operation and maintenance of
remote-controlled equipment and robots. Cost allocations are becoming more and
more arbitrary. such as computing the cost of a truckload of tomatoes.
What becomes of the humans that made livings as agricultural field hands?
Especially in California many of them are on welfare --- at least while seeking
other ways to make livings for themselves and their families. Unfortunately a
million field workers cannot all become employed as equipment maintenance
workers. There may only be 50,000 skilled maintenance workers needed for every
million unskilled field hands.
CNBC: 50-state public pension unfunded liabilities to hit $1.75
trillion: Moody's ---
http://www.cnbc.com/2016/10/07/us-state-public-pension-unfunded-liabilities-to-hit-175-trillion-moodys.html
IMF Seriously Worried About Pension Fund Failures
IMF urges regulators to strengthen pension funds amid weak
growth, low interest rates ---
http://www.pionline.com/article/20161005/ONLINE/161009940?AllowView=VDl3UXlaSzVDdkdCblIzQURleUhaRUt2amt3VUErOVpHUT09&utm_campaign=smartbrief&utm_source=linkbypass&utm_medium=affiliate
GASB Addresses Variety of Practice Issues in Latest Proposal ---
http://www.accountingweb.com/aa/standards/gasb-addresses-variety-of-practice-issues-in-latest-proposal?source=ei101216
Sears Selling Craftsman for $2 Billion Likely Won't Keep Sears Afloat ---
https://www.thestreet.com/story/13841052/1/sears-selling-craftsman-for-2-billion-likely-won-t-keep-it-afloat.html
EEOC To Sue the University of Denver Law School For Underpaying Female
Faculty ---
http://taxprof.typepad.com/taxprof_blog/2016/10/eeoc-to-sue-denver-law-school-for-underpaying-female-faculty.html
Jensen Comment
Of course to sue is not necessarily to win in court. I don't know anything about
the academic credentials and performance records of any law school faculty.
But this lawsuit raises an interesting hypothetical.
Suppose any cohort (female professors, minority professors, older professors)
win in a similar court case. Further suppose that as a cohort, as a subset of
the entire departmental faculty, have markedly different credentials such as
outstanding teaching performance by markedly weak research and publication
records.
In the above scenario it's possible, in theory, that the
courts could rewrite the promotion, tenure, and performance reward systems of
academia in general.
Of course this will not happen if the courts limit their judgments to proven
discrimination of the basis of gender, race, etc. apart from academic
performance.
Almost every US tech IPO in 2016 is performing above its offering price ---
http://qz.com/797767/almost-every-tech-ipo-in-2016-is-performing-above-its-offering-price/
Pension Mess Can't Go On; That's No Reason to Ignore It ---
http://reason.com/archives/2016/09/30/pension-mess-cant-go-on-thats-no-reason
Bob Jensen's threads on the pension accounting mess ---
http://faculty.trinity.edu/rjensen/theory02.htm#Pensions
Tax Foundation
Here are the ten states with the best and worst 2017 business tax climates
---
http://taxfoundation.org/article/2017-state-business-tax-climate-index
Jensen Comment
No Surprise --- The best tend to be Republican Party states and the worst are
the Democratic Party states.
The map is a little confusing since the Republican Party states are shown in the
deepest blue color in this map.
Oregon is an exception by being a Democratic Party state with a favorable tax
climate.
Florida and Ohio are battleground states where Florida has a favorable tax
climate. Ohio has a bad tax climate.
In spite of it's taxing reputation Illinois actually comes out in the middle at
Rank 26. However, in terms of budget problems Illinois is a disaster and may
well eventually have the worst tax climate.
EY Technical Line: A closer look at the new credit impairment standard ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_03320-161US_Impairment_12October2016/$FILE/TechnicalLine_03320-161US_Impairment_12October2016.pdf
What you need to know
The FASB issued
credit impairment guidance that modifies or replaces existing models for
trade and other receivables, debt securities, loans, beneficial
interests held as assets, purchased-credit impaired financial assets and
other instruments.
For
receivables, loans and held-to-maturity debt securities, entities will
be required to estimate expected credit losses, which generally will
result in the earlier recognition of credit losses.
For
available-for-sale debt securities, entities will be required to
recognize an allowance for credit losses rather than a reduction to the
carrying value of the asset.
Entities will have
to make significantly more disclosures, including disclosures by year of
origination for certain financing receivables.
The earliest
effective date is 2020 for calendar-year public business entities that
meet the definition of an SEC filer. Despite the long lead time,
entities should be taking steps now to prepare for the potentially
significant changes they will need to make. Early adoption is permitted
beginning in 2019
EY in October 2016: Updated
US GAAP/IFRS
accounting differences identifier tool and
US GAAP versus
IFRS ---The basics ---
http://www.ey.com/Publication/vwLUAssetsAL/USGAAPIFRSAccountingDifferencesIdentifierTool_03438-161US_20October2016/$FILE/USGAAPIFRSAccountingDifferencesIdentifierTool_03438-161US_20October2016.pdf
We
have updated our
US GAAP/IFRS accounting differences
identifier tool, which was developed to help
entities that are converting from US GAAP to IFRS or that are
evaluating the effects of IFRS adoption. We also have updated
our
US GAAP versus IFRS – The basics
publication, which provides an overview of common differences
between US GAAP and IFRS. Both releases generally reflect
guidance effective in 2016 and guidance finalized by the FASB
and the IASB as of 31 May 2016. They both also discuss current
standard-setting activities at the FASB and the IASB. These
publications have not been updated for IFRS 9, Financial
Instruments, ASU 2016-01, Recognition and Measurement of
Financial Assets and Financial Liabilities, IFRS 15,
Revenue from Contracts with customers, ASU 2014-09,
Revenue from Contracts with Customers, IFRS 16, Leases,
and ASU 2016-02, Leases.
The US GAAP/IFRS Accounting Differences
Identifier Tool is designed to help entities that are
considering a future conversion to IFRS, typically during
the diagnostic phase of a conversion project, or in
conjunction with a transaction. While the Identifier Tool is
intended to help users identify some of the more common
accounting differences between US GAAP and IFRS that may
affect a converting entity’s financial statements, no
resource can possibly identify all of the differences that
exist between the two sets of standards. Many differences
depend on an entity’s specific industry, the nature and
extent of its transactions, and, where choices are
available, accounting policy elections. Accordingly, the
Identifier Tool should be viewed as a starting point for
analyzing potential accounting differences, not a
comprehensive checklist. It is not a substitute for a
careful reading of the appropriate US GAAP and IFRS
literature, or the guidance contained in EY’s US Financial
Reporting Developments publications (FRDs) or our annual
publication International GAAP®.
IFRS standards often are more “principles-based”
with less interpretive and application guidance than their
US counterparts. As a result, while some might read an IFRS
standard to require an approach similar to that contained in
its more detailed US counterpart, others might not. As the
more general IFRS standards are not always interpreted
similarly by entities in the same or similar circumstances,
not everyone will agree on whether an accounting difference
actually exists.
The Identifier Tool was developed from the
perspective of a US entity that is converting to IFRS.
Therefore, when the required accounting treatment an entity
presently follows under US GAAP would comply with IFRS, but
alternative accounting treatments are also permitted under
IFRS, such alternatives may not be described herein.
Continued in article
|
|
Bob Jensen's threads on differences between US GAAP and
IFRS ---
http://faculty.trinity.edu/rjensen/theory01.htm#MethodsForSetting
Scroll down to find references on the differences between US GAAP and IFRS
EY: New rules may affect how entities classify and account for
investments in certain money market funds ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_03335-161US_MoneyMarketFund_13October2016/$FILE/TothePoint_03335-161US_MoneyMarketFund_13October2016.pdf
Entities will need to consider whether changes in
the way money market funds operate under SEC rules will affect their ability
to continue to classify investments in certain funds as cash equivalents.
Effective tomorrow, institutional prime money market funds are required to
have floating net asset values, and all money market funds are allowed to
impose liquidity fees on redemptions or temporarily suspend redemptions in
certain situations. This To the Point publication addresses the financial
accounting and reporting considerations that investors in these funds will
need to consider as a result of those changes.
EY: FASB proposal would change accounting and disclosures for
long-duration contracts for insurers ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_03105-161US_LongDurationContracts_29September2016/$FILE/TothePoint_03105-161US_LongDurationContracts_29September2016.pdf
What you need to know
• The FASB proposed changing how insurers
account for long-duration contracts, including how they measure,
recognize and make disclosures about insurance liabilities and deferred
acquisition costs.
• The proposal would require insurers to make
annual updates to cash flow assumptions and quarterly updates to
discount rate assumptions they use to measure the liability for future
policyholder benefits for certain long-duration contracts.
• The proposal would significantly change
practice. Insurers currently base their liability for future
policyholder benefits in traditional long-duration contracts,
limitedpayment contracts and participating life contracts on assumptions
that are locked in at contract inception. • Comments are due by 15
December 2016.
Hi
Zafar,
This is why the fraud commenced on Main Street and not Wall Street. The lenders
on Main Street (like Countrywide Finance) loaned the money, often using
fraudulent appraisals, with zero risk of default loss to them because they sold
those hopeless mortgages upstream to Fannie, Freddie, and many of the Wall
Street investment banks like Lehman Bros. and Bear Stearns. The original lenders
like Countrywide bore zero risk of default on their fraudulent mortgages.
You can read a great illustration of how this worked by reading about how a
woman named Marvene in Phoenix got a $100,000 mortgage on her $3,500 shack ---
http://faculty.trinity.edu/rjensen/2008Bailout.htm#Sleaze
Search on the word "Marvene"
The fact that Marvene pocketed this $100,000 (actually she later spent $60,000
of it on a luxury truck) is what led to her mortgage being "poisoned" since
there was no hope for the Wall Street Bank that bought the mortgage to collect
on its investment in Marvene's mortgage.
Sadly the Wall Street banks that bought the poisoned mortgages were not totally
innocent dupes. They bundled the poisoned mortgages with good mortgages and sold
them as CDO bonds to big investors, e.g., investors in places like Saudi
Arabia. The problem was that the CDO bonds they sold were guaranteed by sellers
of the bonds (sounds dumb doesn't it), which is what eventually brought down the
Wall Street banks like Bear Stearns and Lehman Bros.
Finance experts now think that what brought down the Wall Street banks was
actually a math error in a Gaussian Copula Function when they bundled those
mortgages and sold them as CDO bonds ---
https://www.wired.com/2009/02/wp-quant/?currentPage=all
Bob Jensen's summary of all these happenings is at
http://faculty.trinity.edu/rjensen/2008Bailout.htm
Chronicle of Higher Education: Forget Accreditation. Bring On
the College Auditors from the Large Accounting Firms ---
http://www.chronicle.com/article/Forget-Accreditation-Bring-On/238090?cid=wc&utm_source=wc&utm_medium=en&elqTrackId=d59af57ebb954f82b5306f71e8d4d8b3&elq=89190afe57d74e48b12a8d2bd146bc79&elqaid=11152&elqat=1&elqCampaignId=4293
Jensen Comment
The large CPA accounting firms should stick with their area of auditing
expertise --- financial auditing. These firms have a history of proposing
services where they have insufficient expertise --- including failed services
such as SysTrust certifications and Eldercare certifications. They keep telling
us that forensics discovery of internal fraud is not their bag in financial
audits. For example, the SEC and other government agencies discourage fraud by
offering very large (sometimes multimillion dollar) rewards to whistle blowers.
CPA firms do not pay out rewards to whistleblowers (at least not to my
knowledge).
Why do they want take over the role of accrediting agencies in higher
education? Beats me.
One worry is that these firms now have to self-insure against litigation
resulting from financial audits. This is because the big insurance companies do
not want to take on the risk of audit firm lawsuits that sometimes are for
hundreds of millions of dollars and sometimes over a billion dollars. Do these
CPA firms really want to take on the risk of audit failure of colleges and
universities?
By the way, many colleges and universities now have audits conducted by large
CPA firms. But these are only financial audits that do not scope in all of what
is envisioned in the above article.
David Giles' October Reading List in
Econometrics
http://davegiles.blogspot.com/2016/10/some-suggested-reading-for-october.html
Some Suggested Reading for
October
For your enjoyment:
Diebold, F. X. & M. Shin,
2016. Assessing point forecast accuracy by stochastic error distance. NBER
Working Paper No.2516.
Franses, P.H.,
2016. Yet another look at MIDAS regression. Econometric Institute Report
2016-32.
Hillier, G. & F. Martellosio,
2016. Exact properties of the maximum likelihood estimator in spatial
autoregressive models. Discussion Paper DP 07/16, Department of Economics,
University of Surrey.
Li, L., M.J. Holmes, & B.S.
Lee, 2016. The
asymmetric relationship between executive earnings management and compensation:
A panel threshold regression approach.
Applied Economics, 48, 5525-5545.
Lütkepohl, H., A.
Staszewska-Bystrova, & P. Winker, 2016. Calculating joint confidence
bands for impulse response functions using highest density regions. MAGKS Joint
Discussion Paper 16-2016.
Segnon, M., R. Gupta, S.
Bekiros, & M.E. Wohar, 2016. Forecasting U.S. GNP growth: The role of
uncertainty. Working Paper 2016-67, Department of Economics, University of
Pretoria.From the CFO Journal's Morning Ledger on October 12, 2016
COSO ---
http://www.coso.org/
Fraud risk management guidance updated by COSO ---
http://www.journalofaccountancy.com/news/2016/sep/coso-fraud-risk-management-guide-201615264.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=19Oct2016
From a CPA Newsletter on October 19, 2016
Understanding taxation of gambling
How gambling income, losses and expenses are reported for federal income tax
purposes depends on whether the taxpayer is a professional gambler who
reports on Schedule C or an amateur who reports on Schedule A. In any case,
gamblers need to keep accurate records and should know that
some
states do not permit taxpayers who are amateur gamblers to deduct gambling
losses.
The Tax Adviser (10/2016)
CAO --- Chief Accounting Officer
CAE --- Chief Auditing Executive
Top watchdogs inside many companies bark louder these
days,
Joann S. Lublin writes
for CFO Journal in today’s Business & Tech. section.
Chief audit executives, or CAEs, are responsible for ensuring corporate
controls, risk management and governance practices are functioning properly.
Their clout and pay are rising as boards increasingly worry about cybercrime,
regulatory compliance and personal liability.
CAEs are becoming more visible in part because directors are playing a
bigger roles in selecting, evaluating and rewarding internal audit chiefs.
In North America, about 83% of those executives report to their employer’s
full board or audit committee, according to a 2016 report by the Institute
of Internal Auditors, a professional association. That is up from 76% in
2013. Another sign of their rising influence: This year, for the first time,
the proportion of audit leaders who report to their chief executive matched
those overseen by the chief financial officer, the report found.
39 Free QuickBooks Online Tutorials ---
http://fitsmallbusiness.com/free-quickbooks-online-tutorials/
Thank you Crystalynn Shelton and Kristian Rivera --- |
http://fitsmallbusiness.com/category/accounting/
Bob Jensen's Small Business Helpers ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#SmallBusiness
Bob Jensen's neglected threads on accounting software ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#SoftwareAccounting
Alternate Financial Performance Measures: Mind the GAAP
From the CFO Journal's Morning Ledger on October 28, 2016
Mind the GAAP
The
Securities and Exchange Commission’s enforcement division has informed some
companies in recent weeks that it is examining their use of adjusted
earnings measures. The inquiries are the latest in a series of steps by the
agency this year to discourage use of these metrics, which critics contend
allow companies to flatter their financial performance.
Should the Accounting Profession Be Renamed?
http://www.accountingweb.com/practice/practice-excellence/should-the-accounting-profession-be-renamed?source=pe102816
Jensen Comment
At the beginning of the 21st Century the AICPA searched for a new name, but the
search never went seriously beyond the XYZ designation. The proposal that the
CPAs take an added exam leading to a "Cognitor Certification " went over like a
lead balloon ---
http://www.journalofaccountancy.com/Issues/2001/Oct/TheXyzCredential
Also see
http://www.journalofaccountancy.com/Issues/2001/May/CpasSpeakUpOnNewGlobalCredential
The Agonizingly Slow Wheels of the USA's Department of Justice: The DOJ
Commences at Long Last to Round Up Credit Rating Whores
From the CFO Journal's Morning Ledger on October 24, 2016
U.S. expected to sue Moody’s
The
world’s second-biggest ratings firm said
Friday
it expected the Justice Department to sue over bond grades it issued prior
to the 2008 housing market collapse, setting up one of the industry’s last
crisis-related legal clashes. The U.S. plans to bring a case against
Moody’s Corp. that alleges violations related to residential mortgage
bonds and other complex securities, the company said, citing a Sept. 29
letter from federal authorities.
Jensen Comment
All of the credit rating agencies became banker's whores during the economic
collapse in 2007 ---
http://faculty.trinity.edu/rjensen/2008Bailout.htm#Sleaze
There's no credibility in the credit rating profession.
Will China Eventually Buy Australia?
From the CFO Journal's Morning Ledger on October 24, 2016
Counterbid for cattle empire
Four of Australia’s wealthiest farming barons have
launched a counterbid to prevent Chinese investors from buying the country’s
largest cattle farm, S. Kidman & Co. The BBHO consortium said
Sunday
it had secured financing to offer 386 million Australian dollars ($294
million) for 100% of Kidman’s shares in what would be one of the country’s
biggest agribusiness deals.
From the CFO Journal's Morning Ledger on October 24, 2016
U.K. regulator demands better reporting
British companies are unbalanced in their reporting, failing to own up to
problems and in the process are eroding public trust, according to a study
by the Financial Reporting Council (FRC), the regulator for corporate
governance and reporting, Nina Trentmann writes. The analysis of 192 company
reports, among them the biggest U.K. corporations, said they often showed a
“failure to acknowledge when things have not gone so well” and
“inappropriate use of alternative performance measures.”
From the CFO Journal's Morning Ledger on October 24, 2016
GE boosts buybacks
General Electric Co. boosted its planned
buyback by $4 billion this year, funded partially with higher-than-expected
dividends from GE Capital, Mr. Monga reports. The industrial conglomerate
on Friday said it would boost its share
repurchases to $22 billion this year, up from an earlier estimate of $18
billion.
Jensen Comment
I'm still searching for convincing reasons that this is a good idea. Perhaps the
Fed's stubborn clinging to zero interest rates destroys incentives to do better
things with cash on hand.
From the CFO Journal's Morning Ledger on October 20, 2016
EBay changes starting to pay off
EBay Inc.
on Wednesday said revenue grew 5.6%, a third
straight quarter of sales gains as a new initiative to transform the online
retailer’s search results and image has begun to pay off. The e-commerce
site has struggled to find its footing following a split from
payment-services provider PayPal Holdings Inc. last year, and has
launched a rebranding effort to shed its legacy image as an auction-style
garage sale.
The largest emerging-market bond issue ever
From the CFO Journal's Morning Ledger on October 20, 2016
As it contemplates an initial public offering of its
state-run oil company, Saudi Arabia launched the sale of $17.5 billion of
debt Wednesday,
people familiar with the situation told the
Journal, in what would mark the largest
emerging-market bond issue ever. It is the kingdom’s first international
bond sale, a bid to support a sweeping effort to keep its economy afloat as
oil income dwindles.
The sale is the latest example of a Persian Gulf state
turning to international markets to offset declining oil revenues. Other oil
exporters from the Gulf region raised $20 billion in total through
international bond issues earlier this year. The issue would
exceed Argentina’s $16.5 billion debt sale as the biggest from an
emerging-market economy. For better or worse, there are $67 billion in
orders for the debt, which seems to indicate a certain comfort level at
nearly four times oversubscribed. The global plunge in oil prices has cast
doubt about investor demand for shares in Saudi Arabian Oil Co.,
the world’s largest player.
Jensen Comment
Given the increasing unrest in the Middle East I would not advise investing in
these bonds, especially since the new revalations that Saudi Arabia has been
funding ISIS.
From the CFO Journal's Morning Ledger on October 19, 2016
We’re starting to see the
reverse edge of the sword that
is the Affordable Care Act. Finalized rates for big health-insurance plans
around the country show the magnitude of the challenge facing the Obama
administration as it seeks to stabilize the insurance market under the
president’s signature health law during his remaining weeks in office.
Several states have allowed insurers to jack up rates by 30% or more, and in
New Mexico that figure stands at a 93% hike.
Most of the 10 million people who currently get coverage through an
insurance exchange such as HealthCare.gov don’t pay the full premiums
because they receive subsidies from the federal government that are pegged
to insurance prices in their area. As many as nine million people currently
buy individual coverage without using the site, but at similar prices, and
most of them aren’t eligible for subsidies. We’ll be in a holding pattern,
more than likely, until the next president takes office in January.
Bob Jensen's health care messaging ---
http://faculty.trinity.edu/rjensen/Health.htm
From the CFO Journal's Morning Ledger on October 18, 2016
Dodd-Frank may deliver coal to stockings
A major
postcrisis rule taking effect in December will force Blackstone Group LP
and other creators of complex securities to eat some of their own cooking.
Starting Christmas Eve, the 2010 Dodd-Frank regulatory overhaul will require
companies that package most types of loans into bonds to keep at least 5% of
the securities they create.
From the CFO Journal's Morning Ledger on October 18, 2016
Accounting the accountants
More than 80% of Fortune 100 companies explicitly
stated their responsibility for appointing and overseeing the accountants
their company uses, as well as their compensation, Tatyana Shumsky writes in
today’s Big Number. That is up from just 42% in 2012, according to research
by Ernst & Young LLP.
From the CFO Journal's Morning Ledger on October 17, 2016
Pearson shares plummet on sales shortfall
Pearson PLC shares plunged more than 10% in
early
Monday
trading after it reported a 7% decline in underlying sales during the first
nine months of the year, although the educational publisher reaffirmed its
2016 targets and 2018 goals. Sales during the first nine months declined 3%
in headline terms due to the strength of the U.S. dollar against the U.K.
pound and declined 10% at constant exchange rates, the company said.
Widespread
slowdown in world trade and growing populist sentiments against new trade deals
From the CFO Journal's Morning Ledger on October 17, 2016
A number of global investors fear that the widespread
slowdown in world trade and growing populist sentiments against new trade
deals are undermining corporate profits, resulting in a new drag on the
stock market,
Riva Gold and Georgi Kantchev write.
U.S. equity prices have been supported for the past three decades by an
increase of global trade and a freer flow of capital. Those factors improved
economic growth and lead to companies expanding into new markets and reaping
the benefits of economies of scale.
But now there is worry that the party is ending. “We believe globalization
has probably reached its peak,” said Marino Valensise, head of the
multiasset team at Barings, a member of the MassMutual Financial Group with
$275 billion in assets under management. “The market won’t like it.” Some
are worried this could spill over to corporate profits. Global stock-index
provider MSCI estimates that if policies such as trade protectionism and
government deficit spending increase significantly in the developed world in
the next two years, U.S. equities would shed more than 17%, while European
equity markets would fall by close to 20%. Companies around the globe, from
shippers to manufacturers, have already pointed to slowing trade and rising
protectionism as a drag on profits.
Jensen Comment
Pretty soon we will be boarding up windows to protect the jobs of candle makers
---
https://en.wikipedia.org/wiki/Fr%C3%A9d%C3%A9ric_Bastiat#Economic_Sophisms_and_the_.22Candlemakers.27_Petition.22
From the CFO Journal's Morning Ledger on October 13, 2016
We’ll eat the extra cheese
Farmers in the U.S. are pouring out tens of millions
of gallons of excess milk, amid a massive glut that has slashed prices and
has filled warehouses with cheese. More than 43 million gallons’ worth of
milk were dumped or have been lost on truck routes or discarded at plants
through August, according to U.S. Department of Agriculture data, and the
most wasted in at least 16 years of data requested by the Journal.
Jensen Comment
Seems like a huge waste amidst all the hunger and even starvation in the
world.
I'm too young (if you can believe that?) to remember my dad and his
brother Millen dumping milk on the ground during the Great Depression in
spite of the hungry people in the nearby Iowa towns of Swea City, Ringsted,
and Fenton. They gave the milk away to people who came to the farm with
their own containers, but money was too scarce to buy gas to drive out to
the farms. There was also no market for corn. In the 1930s farmers in Iowa
stored what they needed for their own livestock and burned the corn (not
just the shelled cobs) in their iron cookstoves for heat. An exception was
my Grandfather Dourte who shifted from corn to navy beans that he harvested
and hauled to feed the hungry folks in Swea City, Iowa ---
http://faculty.trinity.edu/rjensen/Tidbits/FamilyHistory/SweaCity/Dourte.htm
From the CFO Journal's Morning Ledger on October 13, 2016
Deutsche Bank fined by SEC
Deutsche Bank AG will
pay $9.5 million to settle SEC allegations that the bank failed to properly
safeguard non-public information generated by its research analysts,
Bloomberg reports. One of the securities law violations highlighted by the
SEC
on
Wednesday was related to a high-profile case
from earlier this year in which the agency accused a Deutsche Bank
Securities analyst of maintaining a “buy” rating on Big Lots Inc.
while telling clients privately that he thought they should sell the stock.
Jensen Comment
This is peanuts compared with the $14 billion fine for fraudulent mortgage sales
---
https://www.theguardian.com/business/2016/sep/16/deutsche-bank-14bn-dollar-fine-doj-q-and-a
From the CFO Journal's Morning Ledger on October 13, 2016
Social networks, but no new jobs
The technology revolution has delivered Google
searches, Facebook friends, iPhone apps, Twitter rants and shopping for
almost anything on Amazon, all in the past decade and a half. What it hasn’t
delivered are many jobs. Google parent Alphabet and Facebook had at the
end of last year a total of 74,505 employees, about one-third fewer than Microsoft Corp. even
though their combined stock-market value is twice as big.
From the CFO Journal's Morning Ledger on October 13, 2016
Facebook vs. IRS
Facebook Inc.
is continuing its clash with the U.S. Internal Revenue Service over taxes
connected to its transfer of global operations to Ireland in 2010, Bloomberg
reports. The company is prepared to comply with seven “extraordinarily broad
summonses” demanding information “about virtually every aspect of Facebook’s
core business,” but needs more time to do so, it said in a filing
Tuesday
in San Francisco federal court.
From the CFO Journal's Morning Ledger on October 12, 2016
Another record for the SEC
The
Securities and Exchange Commission announced
Tuesday
it has again shattered its record for the number of enforcement cases it has
brought. The SEC brought 868 cases for the 12 months through September, its
highest-ever tally, according to people close to the agency. It marks the
third year in a row the 82-year-old agency has filed the most cases in its
history.
From the CFO Journal's Morning Ledger on October 10, 2016
Game over for broker commissions
Wall Street’s days of taking commissions appear
numbered. Commission-paying accounts, long a staple of the brokerage
industry, are problematic under the Labor Department’s so-called fiduciary
rule because a key provision in the rule that permits the use of
commission-based retirement accounts continues to be seen as too risky for
some in the industry.
From the CFO Journal's Morning Ledger on October 5, 2016
The Supreme Court will hear its first insider
trading case
in 20 years
Wall Street figures accused of insider trading should
be keeping a close eye on a U.S. Supreme Court appeal by a grocery
wholesaler trying to overturn his conviction for buying stock based on
information leaked by a relative. The justices will consider their first
insider-trading case since 1997
on
Wednesday, Bloomberg reports.
Four Strategies for Curtailing Insider Fraud ---
http://www.cgma.org/Magazine/News/Pages/prevent-insider-fraud-201615208.aspx?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Oct2016
Jensen Comment
To this I might add be overly generous in offers to inside and outside
whistleblowers.
An example of an outside whistleblower might be a supplier who reports that a
purchasing agent inside the organization requested a kickback.
Efficient Market Hypothesis ---
https://en.wikipedia.org/wiki/Efficient-market_hypothesis
In financial economics, the efficient-market
hypothesis (EMH) states that asset prices
fully reflect all available information. A
direct implication is that it is impossible to "beat the market"
consistently on a risk-adjusted basis since market prices should only react
to new information or changes in discount rates (the latter may be
predictable or unpredictable).
The EMH was developed by Professor Eugene
Fama who argued that stocks always trade at their fair value, making it
impossible for investors to either purchase undervalued stocks or sell
stocks for inflated prices. As such, it should be impossible to outperform
the overall market through expert stock selection or market timing, and that
the only way an investor can possibly obtain higher returns is by chance or
by purchasing riskier investments.[1] His 2012 study with Kenneth French
confirmed this view, showing that the distribution of abnormal returns of US
mutual funds is very similar to what would be expected if no fund managers
had any skill—a necessary condition for the EMH to hold.[2]
There are three variants of the hypothesis: "weak",
"semi-strong", and "strong" form. The weak form of the EMH claims that
prices on traded assets (e.g., stocks, bonds, or property) already reflect
all past publicly available information. The semi-strong form of the EMH
claims both that prices reflect all publicly available information and that
prices instantly change to reflect new public information.
The strong form of the EMH additionally claims that
prices instantly reflect even hidden "insider" information.
Critics have blamed the belief in rational markets for
much of the late-2000s financial crisis.[3][4][5] In response, proponents of
the hypothesis have stated that market efficiency does not mean having no
uncertainty about the future, that market efficiency is a simplification of
the world which may not always hold true, and that the market is practically
efficient for investment purposes for most individuals.
Continued in article
Criticisms of the EMH ---
https://en.wikipedia.org/wiki/Efficient-market_hypothesis#Criticism_and_behavioral_finance
What’s So Wrong With Insider Trading Anyway? ---
http://fivethirtyeight.com/features/whats-so-wrong-with-insider-trading-anyway/
Jensen Comment
The concept at price reflects "all available information" has always confused
me. It seems to me to be a many-to-one transformation that implicitly
implies weight of information inputs into price. Suppose there is both a
positive bit of inside information and a negative piece of inside information.
How does an insider know how the market will weight these tow pieces of
information when they are simultaneously disclosed? The answer is in most
instances that he/or she cannot know ahead of time in an otherwise fair market.
What is clear to me is that insiders can fraudulently exploit their inside
knowledge. Exhibit A is a case where all the top executives of a firm unload
their shares before announcing bad news.Or they can buy up as many shares as
possible before announcing good news In both instances the insider withheld news
is not yet reflected in the trading prices.
If insiders are repeatedly allowed to exploit the public regarding trading
before disclosing important news it's clear that one thing will happen. The
exploited investors will no longer invest in unfair markets. This is why the top
priority of the SEC and other market regulators is to prevent insider
exploitation of non-public information.
Bob Jensen's Fraud Updates
---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
The Atlantic: The Hidden Economics of
Porn ---
https://www.theatlantic.com/business/archive/2016/04/pornography-industry-economics-tarrant/476580/
Jensen Comment
This article totally confuses me. It seems to ignore that the porn industry in
more international than domestic with Russia and the former Soviet Bloc nations
leading the industry on the Internet.
What the Internet did is turn an oligopoly of porn into millions of sleazy
small business shops for pictures, video, games, "dating" sites, etc.
It's an industry out of control that was once mostly controlled by organized
crime.
I think this article mistakenly tries to convince us that the industry is
under corporate control. I don't believe that.
"SEC fines Lime Energy and four executives for accounting fraud," by
Francine McKenna, MarketWatch, October 17, 2016 ---
http://www.marketwatch.com/story/sec-fines-lime-energy-and-four-executives-for-accounting-fraud-2016-10-17
The Securities and Exchange Commission fined Lime
Energy LIME, -2.80% $1 million and four of its former executives agreed to
settle charges for an alleged accounting fraud that pushed revenue into
earlier periods to meet targets. The energy services company allegedly
recorded recognized $20 million in revenue improperly from at least 2010 to
2012. The alleged scheme centered on recording revenue for newly signed
contracts before year-end before the paperwork was received and then
eventually revenue on contracts that didn't exist. The SEC alleged the
company's then-corporate controller Julianne M. Chandler approved accounting
entries worth millions of dollars in additional 2011 revenue well after the
year-end close. In February 2012 before finalizing 2011 results, the
company's then-executive vice president James G. Smith allegedly sent
Chandler more fake accounting entries. The company and executives neither
admitted nor denied the allegations. The four executives will pay a total of
$150,000 in additional penalties. Chandler and Smith also agreed to five
year officer and director bar. The company's former utilities division vice
president of operations Joaquin Alberto Dos Santos Almeida agreed to a
permanent officer-and-director bar. The company's then-CEO John E. O'Rourke
and then-CFO Jeffrey R. Mistarz voluntarily reimbursed the company for cash
bonuses and certain stock awards they received during the period when the
company committed accounting violations eliminating the need for the SEC to
pursue a clawback action under the Sarbanes-Oxley Act of 2002.
Jensen
Comment
BDO appears to be the outside auditor.
The cynical
press calls the company Lemon Energy.
Bob Jensen's Fraud Updates
---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
From the CFO Journal's Morning Ledger on October 5, 2016
For every two steps forward corporate governance
practices take, boards always seem to take one step backward,
Theo Francis and Brody Mullins write.
The Wall Street Journal found nearly a dozen large
companies where directors on important board committees were also lobbyists
paid either by the company or by a group at which the company’s chief
executive had influence. There is no evidence the ties influenced decisions
by the CEOs or board members, but the coziness raises questions about how
independent the directors are and whether their primary concern is
shareholder interests.
Louisiana health-care company LHC Group Inc., for example, has two
lobbyists on the three-member compensation committee whose lobbying work is
paid for by LHC. The committee has approved a 90% raise for the CEO over two
years and given him personal use of the company’s plane. Josh Proffitt,
LHC’s finance chief, in an email told the Journal its board “has
affirmatively determined that these arrangements do not undermine of
compromise the independence” of the directors, each a former politician.
Corporate ties to Washington run deep: About half of the 500 largest U.S.
companies have one or more former government officials on their boards, more
than 300 directors in all.
The SEC Racket of Defending Companies You Previously Investigated
From the CFO Journal's Morning Ledger on September 6, 2016
Government parachute
The former
head of the Securities and Exchange Commission’s whistleblower program is
joining a law firm that represents those same tipsters—an unusual turn of
the revolving door that highlights the potential profitability of legal work
that didn’t even exist a few years ago. Government officials typically go
into private practice to
defend the
companies they previously might have investigated. Sean
McKessy, who left his post as the first chief of the SEC’s Office of the
Whistleblower in July, is taking the riskier path of the plaintiffs’ bar by
joining Washington-based Phillips & Cohen LLP.
Jensen Comment
The Regulator to Regulated racket is not confined to the SEC. Is there a
government agency where the top regulators don't become employees of the
companies they regulated?
Exhibits A, B, and C are attorney generals, military generals, and health
regulators in the FDA, NIH, etc.
If the road to Civil Service in Washington DC did not lead to top private
sector jobs we would have a whole lot less talent starting out in the Civil
Service.
Healthcare Kickbacks
From the CFO Journal's Morning Ledger on October 4, 2016
Tenet agrees to kickbacks fines
Tenet Healthcare Corp. said it would pay states
and the federal government $514 million to
settle allegations that its hospitals in Georgia and South Carolina paid
kickbacks for obstetric referrals of
low-income patients. Under the settlement, which must be approved by a
court, two Tenet subsidiaries will plead guilty to one count of conspiracy
to violate federal kickback laws, the company said. The agreement settles a
criminal investigation and civil litigation.
From the CFO Journal's Morning Ledger on October 4, 2016
Boeing’s nifty accounting
Boeing Co. started to make money on each 787
Dreamliner it delivers just this spring, but thanks to a unique accounting
strategy, the jet has been fattening the aircraft maker’s bottom line for
years. Boeing is one of the few companies that use a technique called
program accounting. Rather than booking the huge costs of building aircraft
as it pays them, Boeing defers the costs over
the number of planes it expects to build in the future,
and adds expected future profits in current earnings, which is acceptable
under accounting rules.
From the CFO Journal's Morning Ledger on October 4, 2016
EU is pressing for changes at Google
The European Union’s competition regulator is intent
on forcing changes to Google parent Alphabet’s business practices and
levying significant fines for breaching the bloc’s antitrust rules,
according to documents reviewed by The Wall Street Journal. According to one
of the EU documents, the commission intends to establish that Google and
Alphabet have “infringed” on EU antitrust rules, and it will seek to end
these actions and fine the companies for the alleged infringements.
Jensen Comment
I suspect the EU now has such an unfriendly environment for big multinationals
by turning the regulation process into a revenue-generating process that one
wonders why these big comjpanies like Apple, Google, and Microsoft just don't
retaliate by getting out of the EU. Or maybe the USA should retaliate becoming
more unfriendly to big EU multinationals.
From the CFO Journal's Morning Ledger on October 3, 2016
Volkswagen compensates U.S. dealers
Volkswagen AG has agreed to pay $1.2 billion to
its 652 U.S. dealers as compensation for the diesel-emissions scandal, the
Financial Times reports. The German car maker said in a statement the cash
payments would be made to resolve “alleged past, current and future claims
of losses in franchise value.” A year ago, VW admitted that up to 11 million
of its vehicles were equipped with illegal software in order to meet
emission standards. It has set aside €18 billion for potential fines.
From the CFO Journal's Morning Ledger on October 3, 2016
Tesco faces U.K. legal action over accounting
scandal
U.K. supermarket chain Tesco PLC is facing a
legal action by a group of investors who claim to have lost $193 million due
to the supermarket’s 2014 accounting irregularities scandal, the BBC
reports. “Shareholders were misled by information inaccurately provided to
the market with knowledge by management,” said Jeremy Marshall from
Bentham Europe Ltd., the firm funding the claim. In September, the
Serious Fraud Office charged three former executives as part of the
investigation into Tesco’s accounting practices.
The IRS Scandal on Day 1,258
A Federal Judge Orders the IRS to Clear the Backlog of Tea Party Applications
--- But Too Late to Help Republicans Finance Candidates for the November 2016
Election
http://taxprof.typepad.com/taxprof_blog/2016/10/the-irs-scandal-day-1258-.html
Jensen Comment
I guess you could call this a victory for the Democratic Party.
Teaching Case from The Wall Street Journal Accounting Weekly Review on
September 30, 2016
Fiscal Year Change No Fix for Funding Feuds
by: Jo Craven
McGinty
Sep 24, 2016
Click here to view the full article on WSJ.com
TOPICS: Financial
Reporting, Governmental Accounting
SUMMARY: The
article begins by discussing the federal government's fiscal year end date
but also discusses reasons for private entities to use fiscal year ends.
CLASSROOM
APPLICATION: The
article may be used in a financial reporting or governmental accounting
class.
QUESTIONS:
1. (Introductory) What is a fiscal year end date? When is the U.S.
Federal Government's fiscal year end?
2. (Introductory) Summarize the timing and events leading the U.S.
Federal Government to change its year end date.
3. (Advanced) What is the most common year end date for private
sector entities? In your answer, state the proportion of publicly traded
entities who use a fiscal year end and the proportion which uses a calendar
year end.
4. (Advanced) Summarize the factors leading private sector entities
to choose a calendar or fiscal year end date. Have these factors changed
over time? Explain
Reviewed By: Judy Beckman, University of Rhode Island
"Fiscal Year Change No Fix for Funding Feuds," by Jo Craven McGinty, The Wall Street Journal, September
24, 2016 ---
http://www.wsj.com/articles/congress-gives-itself-extra-time-then-asks-whats-the-rush-1474646733?mod=djem_jiewr_AC_domainid
Lawmakers shifted the fiscal year long ago to get
more time for budget deals, but lately the deadline is getting missed
Once upon a time, Congress thought that if it had a
few extra months to work on the federal budget, it would have sufficient
time to iron out political differences and agree on a timely budget
resolution. To that end, the legislators moved the start of the government
fiscal year from July 1 to Oct. 1, but since 1976 when the change took
effect, failures to pass new spending bills have caused all or part of the
government to shut down at least a dozen times. Right now, Congress looks
like it may again miss the deadline to reach a new spending agreement before
current funding expires at midnight on Sept. 30.
The deadline used to be December. From the
beginning of the Republic until 1843, the federal government’s fiscal year
aligned with the calendar year.
“They tried to get home as much as possible for the
beginning of the planting season,” said Richard Kogan, an expert at the
Center for Budget and Policy Priorities, referring to the nation’s earliest
elected officials. “If they missed the spring planting, they wanted to be
home for fall harvest. That still left enough time to get appropriations
enacted and have the government up and running by Jan. 1.” Mr. Kogan noted
that at the time travel was more laborious, but nonetheless, in 1843,
Congress decided it could get things done more quickly and moved the
beginning of the fiscal year up to July 1. “As long as Congress was capable
of doing its job in an orderly fashion, the question was why wait to receive
money until January?” Mr. Kogan said. “Agencies could take their
appropriations and dive in. Policy changes could be implemented more quickly
without any apparent cost.” That schedule worked fine until around the
middle of the last century when the government had grown increasingly
complex. “There were more things to consider, more things to argue about,
more things to cause problems,” Mr. Kogan said. “More and more
appropriations bills, one or two or three, or potentially all of them, were
not done by July 1.” At the time, the president was required to submit his
budget proposal by the first Monday in January, having six months of data
from the current fiscal year to review. Members of Congress, many of whom
were now full-time policy makers, decided that if they pushed the start of
the new fiscal year back to Oct. 1, they would have three additional months
to forge a deal. “The president could make do with three months of
information instead of six,” Mr. Kogan said. “It would give Congress more
time to deal with a more complex world, and yet it would give the president
enough time to prepare a budget. It seemed like a net gain for Congress
without being a problem for the president.”
The president negotiated an extra month for
himself, so the cushion for Congress turned out to be two additional months
with legislators having from the first Monday in February, the president’s
new deadline, until Oct. 1 to implement a new budget. And that’s how it
stands today. Congress’s strategy of adopting an off-calendar fiscal year
isn’t unique. About 27% of the publicly traded companies registered with the
Securities and Exchange Commission do the same thing, according to data
assembled by Audit Analytics.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
September 23 2016
Clinton Seeks Big Jump in Estate Tax
by:
Richard Rubin
Sep 23, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Tax
Policy, Estate Tax
SUMMARY: The
article discusses Clinton's tax proposals and its impact on her personal
taxes. The related opinion page piece highlights concerns with her proposal
from a conservative viewpoint. One concern is the lack of indexing for
inflation. The former secretary of state would exempt the first $3.5 million
of an estate from taxes-compared to the current $5.45 million exemption. She
would impose a 45% marginal rate on many estates with assets between $3.5
million and $10 million. Beyond that $10 million threshold, a 50% rate would
start kicking in, then a 55% rate would start at $50 million. The top rate
of 65% would affect only those with assets exceeding $500 million for a
single person. Increased Federal Revenues would cover costs of her policies
focused on family issues and the middle class such as the child tax credit
and education assistance.
CLASSROOM
APPLICATION: The
article may be used in an estate and gift tax course or in any tax course to
discuss policy and political influence on taxation.
QUESTIONS:
1. (Introductory) What is an estate tax? What is a gift tax?
2. (Advanced) What are the tax provisions proposed by Presidential
candidate Hillary Clinton? What does the "nonpartisan Committee for a
Responsible Federal Budget" say about Clinton's plan?
3. (Advanced) In her proposals drafted as part of her presidential
campaign, how does Hillary Clinton want to use the increased estate and gift
tax revenue?
4. (Advanced) Refer to the related article, an opinion page piece by
WSJ editors. What are the overall concerns with her proposal expressed in
this WSJ editorial?
5. (Advanced) Again refer to the related article. What are two
problems in Hillary Clinton's proposal that also previously plagued estate
tax law which were reformed in the 1990s?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Clinton's 65% Killer Death Tax
by WSJ opinion page editors
Sep 23, 2016
Page: A14
"Clinton Seeks Big Jump in Estate Tax," by Richard Rubin, The Wall Street Journal, September
23, 2016 ---
http://www.wsj.com/articles/clinton-seeks-big-jump-in-estate-tax-1474588735?mod=djem_jiewr_AC_domainid
Plan would levy 65% tax on largest estates—up from
today’s 40%—and make it harder for wealthy people to pass assets on to heirs
tax-free
Democratic presidential candidate Hillary Clinton
wants to levy a 65% tax on the largest estates—up from today’s 40%—and make
it harder for wealthy people to pass appreciated assets on to their heirs
without paying taxes. The proposals mark an expansion of the tax increases
Mrs. Clinton would impose on the uppermost sliver of America’s affluent. The
increase in estate and gift taxes and other new items Mrs. Clinton detailed
Thursday follow two ideas central to her campaign. First, she pairs proposed
spending increases and tax cuts with tax increases to prevent projected
budget deficits from growing. And she targets tax increases at the top of
the income and wealth scale.
The latest proposals would generate $260 billion
over the next decade, enough to pay for her plans to simplify small-business
taxes and expand the child tax credit, according to the nonpartisan
Committee for a Responsible Federal Budget, which advocates fiscal
restraint. In all, Mrs. Clinton would raise taxes by about $1.5 trillion
over the next decade to pay for expanded education assistance, paid family
leave and other programs. She would increase federal revenue by about 4%,
though the added burden would be concentrated on relatively few households.
With her own form of populism, she is drawing a particularly sharp contrast
with her Republican rival, Donald Trump, who favors repealing the estate tax
and advocates steep cuts in business tax rates. The two sides are now at
least $6 trillion apart on tax policy as they head into their first debate
Monday. Mr. Trump’s policies would add more than $5 trillion in debt over a
decade, according to the nonpartisan budget group. The businessman says his
plans will spur economic growth that will help cover the costs. Mrs.
Clinton’s proposals would add about $200 billion in debt over a decade but
are expected to be debt-neutral after she details her business-tax plan, the
budget group and her campaign say. The Clinton campaign changed its previous
estate-tax plan—which called for a 45% top rate—by adding three new tax
brackets and adopting the structure proposed by Sen. Bernie Sanders of
Vermont during the Democratic primaries. The former secretary of state would
exempt the first $3.5 million of an estate from taxes—compared to the
current $5.45 million exemption. She would impose a 45% marginal rate on
many estates with assets between $3.5 million and $10 million. Beyond that
$10 million threshold, a 50% rate would start kicking in, then a 55% rate
would start at $50 million. The top rate of 65% would affect only those with
assets exceeding $500 million for a single person. The $3.5 million
exemption and that $500 million threshold for the top rate would be doubled
for married couples, though the $10 million and $50 million thresholds would
not be doubled. The same thresholds would also apply to gifts during a
person’s lifetime. In 2014, just 223 estates with a gross value exceeding
$50 million filed taxable estate-tax returns, according to the Internal
Revenue Service. “Secretary Clinton understands that it is appropriate to
ask the top three-tenths of 1%, the very wealthiest people in this country,
to pay their fair share of taxes so that we can provide a child tax credit
for millions of working families and lower taxes for small businesses,” Mr.
Sanders said in a statement.
The 65% estate-tax rate would be the highest since
1981 and marks one of the widest gulfs between Mrs. Clinton and Mr. Trump on
a subject where they have little in common. “It is the height of hypocrisy
for Hillary Clinton to offer an even more dramatic hike in the death tax at
the same time she uses exotic tax loopholes reserved for the very wealthy to
exempt her Chappaqua estate,” said Jason Miller, a spokesman for Mr. Trump,
referring to Mrs. Clinton’s use of residence trusts in New York to lower the
value of her taxable estate. Julie Wood, a Clinton spokeswoman, said Mrs.
Clinton and her husband, former President Bill Clinton, would pay higher
taxes under her plans. “No one knows what taxes Donald Trump pays or doesn’t
pay because he refuses to release his tax returns,” she said. Mrs. Clinton
would face a major challenge getting those taxes through Congress,
especially if Republicans continue to control the House or Senate. The
current top estate tax rate of 40% was set in a bipartisan compromise in
January 2013. Mrs. Clinton’s plan is “dead on arrival,” said Rep. Kevin
Brady (R., Texas), chairman of the House Ways and Means Committee. “It will
stop family-owned businesses—including women- and minority-owned
businesses—from being passed down to their children and grandchildren.” The
shrunken version of the estate and gift tax in place in recent years brings
in less than 1% of overall federal revenue. Still, the tax carries symbolic
and political weight.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
September 30, 2016
Letters to the Editor: An Internet Sales Tax, or a Prohibited Tariff?
by:
Kevin B. Sullivan, Thornton Sanders, and John Staddon
Sep 23, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Sales
Taxes
SUMMARY: These
letters to the editor are in reaction to a recent statement by Supreme Court
Justice Anthony Kennedy that a 1992 court ruling is unfair and inflicting
harm on states. The 1992 ruling found that individuals are responsible for
state sales taxes on then-mail order (now-internet-based) sales but
businesses with no physical presence in a state cannot be compelled by that
state to collect sales taxes. These opinion page letters help students to
see varying viewpoints on tax policy--in this case, internet sales--that
impact how tax law is established.
CLASSROOM
APPLICATION: The
article may be used in a tax class or in a financial reporting class when
covering sales taxes.
QUESTIONS:
1. (Advanced) What is the state tax problem associated with online
versus sales made from physical locations? You may refer to the related
video and article to develop your answer.
2. (Advanced) How is this problem growing as online sales have
exploded over time? How does this problem lead to "inflicting extreme harm"
on the states according to Supreme Court Justice Anthony Kennedy?
3. (Introductory) Emeritus Professor John Staddon of Duke University
writes a reaction to Justice Kennedy's point that "the current law on
collecting sales tax for out-of-state purchases was 'now inflicting extreme
harm and unfairness on the States,'...." What is that reaction?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
The Great State Sales Tax Grab
by WSJ Opinion Page Editors
Sep 17, 2016
Online Exclusive
"Letters to the Editor: An Internet Sales Tax, or a Prohibited Tariff?"
Kevin B. Sullivan, Thornton Sanders, and John Staddon, The Wall Street Journal, September
23, 2016 ---
http://www.wsj.com/articles/an-internet-sales-tax-or-a-prohibited-tariff-1474567076?mod=djem_jiewr_AC_domainid
You favor limited government but embrace the U.S.
Supreme Court’s sweeping federal preemption in the Quill decision.
Regarding your editorial “The Great State Sales Tax
Grab” (Sept. 17): The Journal champions economic competition but not when it
comes to federal protectionism for internet sales. You invoke Alexander
Hamilton for the bizarre idea that the U.S. Constitution’s Commerce Clause
was meant to discriminate against in-state businesses in order to advantage
out-of-state, on-line businesses. You favor limited government but embrace
the U.S. Supreme Court’s sweeping federal pre-emption in the Quill v. North
Dakota decision. As the late Justice Antonin Scalia so aptly noted, “the
practical results we have educed from the so-called ‘negative’ Commerce
Clause form not a rock but a ‘quagmire.’” Is there truly any valid legal
policy or economic reason why remote sales are any different than other
sales? Is there really any meaningful difference in the way major on-line
retailers and those who ride along on their electronic highway avail
themselves of the state marketplace? Even as a matter of basic federal
comity, why should non-sales tax states get to continue using federal
jurisprudence and Congress to advantage their states? E-commerce is big
business, at least $4 trillion annually and growing exponentially. Remote
sellers are able to compete at far less incremental cost in a virtually
unlimited marketplace. The result, in effect, is estimated to be a $22
billion-$24 billion annual federal subsidy for those exclusively doing
business as remote sellers.
In Quill, the Supreme Court virtually begged
Congress to do something. But that was more than two decades ago, and
Congress has done nothing. No wonder the states and most businesses are fed
up. Until the Supreme Court follows Justice Anthony Kennedy’s invitation to
stop “inflicting extreme harm and unfairness on the States” or Congress
acts, states have a duty to push the envelope. Public polling demonstrates
that taxpayers strongly support federal legislation to level the playing
field. This is not a new tax. This is not some unknowable, impractical or
unfair burden. This is simply about ending the privileged status of some
on-line retailers.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
September 30, 2016
Mylan Backs Off on EpiPen Estimate
by: Mark
Maremont
Sep 22, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Gross
Profit Margin, Regulation
SUMMARY: Mylan
N.V. CEO faced Congress over pricing of EpiPens, the single-dose delivery
system for medicines to counter severe allergic reactions. Members of
Congress pushed for analysis of the EpiPen's profitability supporting the
testimony. The company then submitted to the SEC a filing on Form 8-K about
the EpiPen financial profitability analysis to fulfill responsibilities
under Regulation FD.
CLASSROOM
APPLICATION: Questions
ask students to understand why Mylan made this filing when it does not
expect to again provide public disclosure about individual products'
profitability. Questions also cover the concern over calculating
profitability with an income tax charge based on the statutory tax rate, not
the company's effective tax rate.
QUESTIONS:
1. (Advanced) The article states that House members badgered CEO
Heather Bresch "to provide more evidence for the company's claim that its
profit was $100 for a two-pack of the injectors" or about $50 per pen.
Review the related analysis of gross profit submitted with Mylan's Reg FD
filing on Form 8-K Available on the SEC web site at
https://www.sec.gov/Archives/edgar/data/1623613/000119312516719397/0001193125-16-719397-index.htm
Where is the product profit of approximately $50 per pen shown?
2. (Advanced) Again access the SEC filing on Form 8-K by Mylan N.V.
Why did Mylan make this filing? In your answer, define the requirements of
Regulation Fair Disclosure (Reg FD).
3. (Introductory) What deduction in calculating the gross profit of
EpiPen was most questioned in the article as having "nothing to do with
reality"? What is the company's response to that charge? In your answer,
define the terms statutory tax rate and effective tax rate.
4. (Introductory) According to one view in the article, how can the
calculation presented on EpiPen's gross profit be viewed as appropriate?
Reviewed By: Judy Beckman, University of Rhode Island
"Mylan Backs Off on EpiPen Estimate," by Mark Maremont, The Wall Street Journal, September
22, 2016 ---
http://www.wsj.com/articles/mylan-clarifies-epipen-profit-figures-it-provided-to-congress-last-week-1474902801?mod=djem_jiewr_AC_domainid
Company applied 37.5% tax rate onto the profits it
revealed to a House committee hearing last week
Mylan NV on Monday clarified the profit it said it
made from its lifesaving EpiPen drug, days after House members badgered the
company’s CEO to justify the device’s steep price increases. Testifying
before a congressional committee last week, CEO Heather Bresch said Mylan’s
profit was $100 for a two-pack of the injectors, despite a $608 list price.
But in response to questions from The Wall Street Journal, Mylan said Monday
that the profit figure presented by Ms. Bresch included taxes, which the
company didn’t clearly convey to Congress. The company substantially reduced
its calculation of EpiPen profits by applying the statutory U.S. corporate
tax rate of 37.5%—five times Mylan’s overall tax rate last year.
Without the tax-related reduction, Mylan’s profits
on the EpiPen two-pack were about 60% higher than the figure given to
Congress, or $166, it said in a new regulatory filing to the Securities and
Exchange Commission Monday. The company said it expects to sell about 4
million EpiPen two-packs in the U.S. this year. Mylan said it now has
provided the House Government Oversight Committee slightly changed and more
detailed figures on its EpiPen profits, clarifying that the profit estimate
was after taxes. Mylan’s explanation left some analysts scratching their
heads.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
September 23 2016
Big
Firms' Profits Set to Fall Again
by: Corrie
Driebusch
Sep 24, 2016
Click here to view the full article on WSJ.com
TOPICS: Analysts'
Forecasts
SUMMARY: As
recently as three months ago, analysts estimated U.S. corporate earnings
growth would return to positive territory by the third quarter. As of
Friday, they were predicting a 2.3% contraction from the year-earlier
period.
CLASSROOM
APPLICATION: The
article may be used to discuss the objective of financial reporting in
providing information to capital markets, the process of analyst forecasting
and management guidance. One viewpoint expressed in the article is that
market participants don't care about fundamentals.
QUESTIONS:
1. (Introductory) What have been the trends in the S&P 500 companies'
earnings over the past year? Their revenues?
2. (Introductory) What do analysts predict for the future of these
two performance metrics, revenues and earnings?
3. (Introductory) Stock prices are assessed based on their
relationship to earnings. For the S&P 500, where does that relationship
stand when one looks at current stock price relative to the preceding twelve
months' earnings? What is another way to look at that relationship with a
more forward-looking focus?
4. (Advanced) What is the objective of financial reporting? How does
this article describe the use of financial information in line with this
objective?
5. (Advanced) Name and define the qualitative characteristics of
financial reporting. How do these analysts' use of financial information
show reliance on these qualitative characteristics?
6. (Introductory) One viewpoint in this article is that "investors
don't care about fundamentals as long as central banks have their back."
What does this statement mean? What does this statement imply about the
usefulness of financial reporting?
Reviewed By: Judy Beckman, University of Rhode Islan
"Big Firms' Profits Set to Fall Again," by Corrie Driebusch, The Wall Street Journal, September
24, 2016 ---
http://www.wsj.com/articles/profit-slump-for-s-p-500-heads-for-a-sixth-straight-quarter-1474836341?tesla=y?mod=djem_jiewr_AC_domainid
Analysts have been cutting estimates for U.S.
earnings, after earlier projecting a return to growth during the third
quarter
The third quarter was supposed to be when earnings
growth returned to U.S. companies. Not anymore. Companies in the S&P 500 are
now expected to report an earnings decline for the sixth consecutive quarter
in the coming weeks, according to analysts polled by FactSet. That slump
would be the longest since FactSet began tracking the data in 2008. The
prolonged contraction has raised questions about how far stocks can rise
without corresponding strengthening in corporate earnings.
As recently as three months ago, analysts estimated
U.S. corporate earnings growth would return to positive territory by the
third quarter. As of Friday, they were predicting a 2.3% contraction from
the year-earlier period. Many of the factors pressuring U.S. corporate
earnings in recent quarters—including a stronger dollar and falling oil
prices—have abated in 2016. The WSJ Dollar Index, which measures the U.S.
dollar against a basket of 16 currencies, is down 4% this year, versus up
8.6% for all of last year, and the price of U.S.-traded crude oil has risen
20% in 2016, rebounding from its extreme lows. Still, those moves haven’t
been enough to project an end to the earnings recession. The battered energy
sector of the S&P 500 had the largest downward earnings revision for the
third quarter. Exxon Mobil Corp. , for instance, was expected to report 80
cents a share of earnings for the third quarter as of the end of June, but
as of Friday that expectation had worsened to 66 cents a share. DuPont Co.
was a drag on the projected earnings-growth rate for materials companies,
while Ford Motor Co. has contributed to a decrease in earnings expectations
for consumer-discretionary firms, according to FactSet. For the third
quarter, the energy sector is projected to yet again report the largest
year-over-year earnings decline of all sectors in the S&P 500, with a drop
of 66% expected. It would mark the eighth consecutive quarter that energy
companies in the index have reported a year-over-year fall in earnings,
FactSet data show.
Even as U.S. oil prices have stabilized, they
remain far below their 2014 highs and marginally below where they were this
time last year. In the third quarter of 2015, the average price of
U.S.-traded oil was $46.50 a barrel. During the third quarter of 2016
through Friday, the price of U.S. oil averaged $44.79 a barrel.
In four of the past five quarters, S&P 500 earnings would have been positive
if the energy sector were stripped out, according to FactSet.
Declining earnings forecasts don’t necessarily mean
falling stock prices. On average, earnings estimates are revised lower
during the three months ahead of the quarterly reporting season, according
to FactSet.
Those revisions make the forecasts easier to beat, and actual earnings tend
to be better than the forecasts. Earnings growth for the S&P 500 comes in on
average 2.8 percentage points ahead of estimates, FactSet data show.
Revenue growth, meanwhile, is set to return for companies in the S&P 500 for
the first time since the end of 2014, according to analysts polled by
FactSet. Nine of the 11 sectors are predicted to report year-over-year sales
growth during the third quarter. Consumer-discretionary companies lead with
a projected rise of 8.7%.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 7, 2016 ---
Donald Trump's Tax Numbers Sharpen Focus on Treatment of Losses
by: Richard
Rubin
Oct 03, 2016
Click here to view the full article on WSJ.com
TOPICS: Net
Operating Losses, Personal Taxation
SUMMARY: Over
the past weekend, the New York Times published parts of Donald Trump's state
tax documents from 1995. The documents showed a $915 million dollar loss.
These Wall Street Journal articles focus on the business perspective of use
of net operating loss provisions in the tax code. The NY Times article is
linked in the WSJ online article which also has a related video linked. In
the video, the New York Times reporter calls the net operating loss
provisions "lucrative" for wealthy taxpayers.
CLASSROOM
APPLICATION: The
article may be used in a tax class on net operating loss treatment or in any
class covering current politics and business topics.
QUESTIONS:
1. (Introductory) How did the New York times obtain and report on
Donald Trump's personal income tax return from 1995? Isn't a tax return
private information, only seen by a taxpayer, his or her preparer, and the
Internal Revenue Service?
2. (Introductory) Why does the author Richard Rubin write that " the
big loss revealed in the filing blurs Mr. Trump's campaign image"?
3. (Advanced) Define the terms net operating losses, net operating
loss carrybacks, and net operating loss carryforwards.
4. (Advanced) Explain how carryback and carryforward provisions
combine to make it possible for losses to offset income for two decades.
5. (Introductory) How is it that Trump's business activities in real
estate ended up impacting his personal income taxes?
6. (Advanced) How does treatment of tax losses in the manner contrast
with taxation of wages and salaries, the major taxation source for most
middle-income Americans?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
The Tax Benefit that Donald Trump May Have Used
by John D. McKinnon
Oct 02, 2016
Online Exclusive
"Donald Trump's Tax Numbers Sharpen Focus on Treatment of Losses," Richard
Rubin, The Wall Street Journal, October 3,
2016
http://www.wsj.com/articles/donald-trumps-tax-numbers-tighten-focus-on-treatment-of-losses-1475415294?mod=djem10point?mod=djem_jiewr_AC_domainid
Weekend revelations put the Republican presidential
nominee on the defensive
The weekend revelation of some of Donald Trump’s
tax records put the New York real-estate developer on the defensive by
showing the extent of his 1990s financial troubles and suggesting those
setbacks could have eliminated his federal income-tax bill for years
afterward. Parts of Mr. Trump’s state tax documents from 1995, published
over the weekend by the New York Times , show that the Republican
presidential nominee reported a $916 million loss on that year’s tax return.
That would allow him to legally soak up years of future income, earned
through his television appearances and his hotel and golf-course operations,
without paying any federal income taxes.
Mr. Trump, in response, early Sunday argued on
Twitter he knows “our complex tax laws better than anyone who has ever run
for president and am the only one who can fix them.” Some of his supporters
said on TV the disclosure proved Mr. Trump was an astute businessman, with
former New York City Mayor Rudy Giuliani calling him “an absolute genius”
for his use of the tax code. The revelations about Mr. Trump’s taxes,
following last week’s lackluster debate performance and his escalation of
attacks on a beauty-contest winner, left Republicans increasingly concerned
he is ceding momentum to Democrat Hillary Clinton. The latest revelation
could increase the pressure on Mr. Trump to fill gaps in his business
record, the extent of his liabilities and how he has accounted for it all in
the eyes of federal tax collectors. “The election is far from over. But we
don’t have a lot of time left—voting begins in Ohio in 10 days,” said Matt
Borges, chairman of the Ohio Republican Party. “So the candidate and the
campaign can’t spend any more time talking about issues that don’t help us
win.”
The big loss revealed in the filing blurs Mr.
Trump’s campaign image as a successful New York real-estate developer. The
documents also highlight the gulf between Mr. Trump and voters who have
taxes withheld from their wages with little opportunity to alter the timing
of their income or hire lawyers and accountants to seek the best possible
outcome. The U.S. taxes income, not wealth, and savvy taxpayers often try to
avoid reporting much of the former while generating the latter. They don’t
usually try to do so, however, by actually losing money. After borrowing
more than $3 billion to build his business empire during the 1980s, much of
it personally guaranteed, Mr. Trump faced a severe financial crunch starting
in 1990. That was because casinos and an airline he owned at the time didn’t
meet operating projections just as some of his debt was coming due.
Meanwhile, a downturn in the New York City real-estate market and other
factors made it hard for him to sell some assets, according to reports by
New Jersey casino regulators at the time.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
September 23 2016 ---
Death of the Stock Split: It's Value that Matters
by: Jason
Zweig
Oct 01, 2016
Click here to view the full article on WSJ.com
TOPICS: Stock
Split
SUMMARY: Jason
Zweig, "The Intelligent Investor" discusses the trends away from using stock
splits even when companies such as Berkshire Hathaway, Priceline, and
Alphabet, the parent of Google, have very high per share stock prices.
CLASSROOM
APPLICATION: The
article may be used in a financial reporting class covering financial
reporting for stockholders' equity items.
QUESTIONS:
1. (Advanced) What is the impact of a stock split? Does total
stockholders' equity change when a split is issued? Explain.
2. (Introductory) What have been the trends in use of stock splits
this year and since 2009?
3. (Introductory) How have perceived benefits of stock splits changed
or disintegrated over time?
4. (Advanced) Is there still some point to the argument that stock
splits imply management believes the value of the shares will remain high?
Explain.
Reviewed By: Judy Beckman, University of Rhode Island
"Death of the Stock Split: It's Value that Matters." by Jason Zweig,
The Wall Street Journal, October 1, 2016
http://www.wsjsmartkit.com/wsj_redirect.asp?key=AC20161006-01&mod=djem_jiewr_AC_domainid
Stock splits are going extinct. So far
in 2016, only five companies in the S&P 500 stock index — and only 63 among
more than 10,100 U.S. companies tracked by S&P Dow Jones Indices — have
split their shares. This year is on track to be the third-lowest for stock
splits in modern history, behind only 2009 and 2010, when companies were too
traumatized by the financial crisis to dare lowering their share prices.
Share prices that look like
typographical errors — Berkshire Hathaway’s, around $217,000; NVR, the
homebuilder, around $1,640; Priceline Group, about $1,470; Alphabet, the
parent of Google, over $800 — are becoming the norm. The days of giving 100
shares of stock as a confirmation or bar mitzvah or graduation gift may be
doomed; you may have to give a fixed dollar amount instead. But I am not
here to lament the demise of the stock split. In fact, that is good news. It
is a sign that the investing world may finally be learning the distinction
between the price of a stock and the value of a business.
In a typical “two-for-one” split, a
company doubles the number of its shares outstanding while halving the
per-share price. That is the stock-market equivalent of exchanging one dime
for two nickels. You end up holding twice as many units each worth half its
former price. You’d be foolish to think that makes you richer.
Back in the days when stock tickers
went clickety-clack and stockbrokers were human beings rather than websites,
it was cheaper to trade in “round lots” of 100 shares than “odd lots” of
less than 100.
And during the Internet
bubble, companies with levitating stock prices could get another boost just
by announcing a stock split, which traders erroneously regarded as a sure
sign of future gains.
But today, online
discount brokers such as Fidelity Investments or Charles Schwab charge
commissions of less than $10 per trade regardless of how much stock you buy
or what the share price happens to be.
As companies stop
splitting, the average price of an S&P 500 stock, according to Credit
Suisse, has risen to a near-record $86 per share — after decades of
remaining in a range between $25 and $45. (Adjusted for inflation,
average share prices fell by more than 90% between 1933 and 2007
— a trend that has sharply reversed since.) The average share price of
companies in the small-stock Russell 2000 index, by contrast, has risen only
to about $29.
And during
the Internet bubble, companies with levitating stock prices could get
another boost just by announcing a stock split, which traders erroneously
regarded as a sure sign of future gains.
But today,
online discount brokers such as Fidelity Investments or Charles Schwab
charge commissions of less than $10 per trade regardless of how much stock
you buy or what the share price happens to be.
As
companies stop splitting, the average price of an S&P 500 stock, according
to Credit Suisse, has risen to a near-record $86 per share — after decades
of remaining in a range between $25 and $45. (Adjusted for inflation,
average share prices fell by more than 90% between 1933 and 2007 —
a trend that has sharply reversed since.) The average share price of
companies in the small-stock Russell 2000 index, by contrast, has risen only
to about $29.
Index funds,
those autopilot portfolios that are run to minimize costs, own
proportionately more of large stocks than small stocks. Unlike individuals,
funds generally pay commissions based partly on how many shares they trade,
so it is generally more expensive for funds to buy and sell a stock after it
splits. These big funds, not individuals, are the investors most companies
cater to nowadays.
Some still
say that splitting is a signal of good health.
When
Louisville, Ky.-based beverage company
Brown-Forman
announced a two-for-one split in
May, its chief executive,
Paul Varga,
said the move “reflects the company’s confidence in our ability to
sustainably grow our sales, earnings and cash flow over the long term.”
“There’s no compelling business case to doing it,” says
Robert
M. Knight Jr.,
chief financial officer of
Omaha-based
Union Pacific,
which last split, two-for-one,
in 2014. “It’s more of a feel, kind of a subtle message of confidence that
maybe your stock is going to continue to rise.”
But even that
sort of ambivalent support is dwindling.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 7, 2016 ---
Boeing's Unique Accounting Helped Lift Profit
by: Jon
Ostrower
Oct 04, 2016
Click here to view the full article on WSJ.com
TOPICS: Advanced
Financial Accounting
SUMMARY: Being
records Deferred Production Costs (DPCs) on a program accounting approach
for its airliners. This program accounting is designed to defer the big
costs incurred at the outset of a product's life to match against
profitability over planned production. "Boeing calculates its Dreamliner
earnings based on 10-year forecasts of supplier contracts, aircraft orders
and options productivity improvements, labor contracts, and market
conditions..." all of which are reviewed by its auditors. In contrast, other
aerospace and defense contractors such as Bombardier and Airbus Group use a
different accounting system and "report losses on new aircraft programs as
they accrue during development and production."
CLASSROOM
APPLICATION: The
article may be used in a financial reporting class to discuss contract
revenue accounting, the aerospace and defense industry, deferred costs as
assets, income smoothing, and accounting estimates.
QUESTIONS:
1. (Advanced) Summarize the points in the article describing Boeing's
accounting process for commercial airliners it builds and sells. You may
also obtain a further description by accessing Boeing's 10-K filing with the
SEC for the year ended December 31, 2015, available at
https://www.sec.gov/cgi-bin/viewer?action=view&cik=12927&accession_number=0000012927-16-000099&xbrl_type=v#
Click on Summary of Significant Accounting Policies and Read the section
describing Program Accounting.
2. (Advanced) How is Boeing's accounting for significant upfront
costs of new aircraft different from accounting done by competitors Airbus
and Bombardier? Hint: Focus on deferred production costs. The difference can
occur by two companies who both use U.S. GAAP under FASB Accounting
Standards Codification section 605-20-25-4
3. (Introductory) Based on comments in the article, what estimates
used in Boeing's program accounting system do analysts focus on?
4. (Introductory) Refer to the related graphic entitled "Moving
Target" What is happening to the account balance Deferred Production Costs?
Why is that trend disconcerting over the time period 2012 to 2016?
Specifically relate the discussion to the bottom part of the graphic
highlighting profit per plane needed from future airplane sales.
5. (Advanced) What accounting standards allow for Boeing's treatment
of pre-production costs even after implementation of the new revenue
recognition accounting requirements found in FASB Accounting Standards
Codification (ASC) 606? In your answer, make specific reference to FASB
Accounting Standards Codification Section 340-10-25.
6. (Advanced) The U.S. Securities and Exchange Commission would not
comment on a possible inquiry or investigation into Boeing's accounting
practices. Why do you think the SEC declines such inquiries?
Reviewed By: Judy Beckman, University of Rhode Island
"Boeing's Unique Accounting Helped Lift Profit," by Jon Ostrower,
The Wall Street Journal, October 4, 2016
http://www.wsj.com/articles/boeings-unique-accounting-method-helps-improve-profit-picture-1475522362?mod=djem_jiewr_AC_domainid
Critics say aircraft maker’s way of calculating
Dreamliner earnings builds in too much uncertainty
SEATTLE— Boeing Co. started to make money on each
787 Dreamliner it delivers just this spring, but thanks to a unique
accounting strategy the jet has been fattening the aircraft maker’s bottom
line for years. Boeing is one of the few companies that uses a technique
called program accounting. Rather than booking the huge costs of building
the advanced 787 or other aircraft as it pays the bills,
Boeing—with the blessing of its auditors and
regulators and in line with accounting rules—defers those costs, spreading
them out over the number of planes it expects to sell years into the future.
That allows the company to include anticipated future profits in its current
earnings. The idea is to give investors a read on the health of the
company’s long-term investments.
Boeing calculates its Dreamliner earnings based on
10-year forecasts of supplier contracts, aircraft orders and options,
productivity improvements, labor contracts and market conditions, which are
reviewed by its auditors. The company, which delivered its first Dreamliner
in 2011, estimates it will sell 1,300 Dreamliners over the 10 years ending
in 2021. So far, it has delivered nearly 500 of them.
The problem, analysts and other critics say, is
that Boeing’s approach stretches its profit per plane on the Dreamliner into
such a distant and uncertain future that it isn’t clear if it will ever
recover the nearly $30 billion it has sunk into producing the plane and
validate years of projected profits.
“Any estimating process that looks this far
out in the future and has this many moving parts and assumptions is almost
certainly destined to be wrong,” said Carter Copeland, aerospace analyst at
Barclays Capital.
Boeing rivals Bombardier Inc. and Airbus Group SE
use a different accounting system. Both aircraft makers report losses on new
aircraft programs as they accrue during development and production.
If Boeing similarly accounted for its planes,
including the 787, the $22.1 billion in commercial-aircraft group earnings
it has booked since 2012 would be an $1.85 billion loss, its disclosures
say.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 7, 2016 ---
Appetite for Meat Boosts Cargill
by: Jacob
Bunge
Oct 05, 2016
Click here to view the full article on WSJ.com
TOPICS: Profitability,
Segment Analysis, Segment Reporting
SUMMARY: Cargill
has increased profits in its meat business, called its Animal Nutrition &
Protein Division, as grain prices have fallen and even as the company's
sales revenues fell. Cargill is the largest privately-held company in the
U.S. They provide some financial reporting on their web site including the
names and information about their operating segments; they accept questions
from the reporting press.
CLASSROOM
APPLICATION: The
article may be used in any financial reporting class. Topics include U.S.
GAAP based reporting by a non-public entity and segment reporting.
QUESTIONS:
1. (Advanced) Access the Cargill financial reporting on its website
at
http://www.cargill.com/company/financial/index.jsp
On what basis does this company prepare its accounting? How often does it
report?
2. (Advanced) Why do you think Cargill reports financial information
on its web site even if it is a privately-held company?
3. (Advanced) Access the Cargill financial reporting segments linked
in the Financial Information page. What are their operating segments named?
4. (Introductory) How does the author of this article describe
Cargill's fiscal fourth quarter results? How does information about the
different segments of Cargill's business help to better understand these
results?
5. (Introductory) What does the article say is the current worldwide
economic status of grains? How has that status both hurt and helped Cargill?
6. (Advanced) What is restructuring? What restructuring activities
has Cargill undertaken in the last two years?
Reviewed By: Judy Beckman, University of Rhode Island
"Appetite for Meat Boosts Cargill," by Jacob Bunge,
The Wall Street Journal, October 5, 2016
http://www.wsj.com/articles/cargill-fiscal-first-quarter-earnings-rise-66-1475587667?mod=djem_jiewr_AC_domainid
Beef, poultry operations helped bottom line as
demand for beef increases
Cargill Inc. on Tuesday reported a 66% jump in
profits for its most recent quarter, driven by expanding beef supplies and
consumers’ rising appetite for burgers and steaks.
A rebound in the Minnesota agricultural
conglomerate’s U.S. meat business, also lifted by chicken and turkey sales,
helped raise Cargill’s net earnings to $852 million for the fiscal first
quarter, even as sales declined slightly.
Cargill said the results illustrated how a
wide-ranging revamp of its voluminous business portfolio is paying off. Over
the past two years, Cargill has shuttered plants, shed assets and spun off
operations while acquiring new processing capabilities and investing in
higher-profit meat and ingredient businesses, following several years of
sliding profits.
”We’ve been
charting a new path to higher performance, and it’s rewarding to see the
many changes we’ve made resulting in gains across much of the company,”
Cargill Chairman and Chief Executive David MacLennan said.
Cargill is
one of the world’s largest food companies, employing about 150,000 people
across 70 countries. Its results come as swelling supplies of food, ranging
from wheat to dairy products and pork, have slashed profits for farmers and
pulled down the price of food, pressuring grocery chains, restaurants and
other players.
Global
oversupplies have filled up storage bins and calmed price swings in grain
markets, leaving grain merchants like Cargill, Archer Daniels Midland
Co.
with
fewer opportunities to make profitable trades. But cheap corn and soybean
meal translate to low-cost animal feed, boosting margins for meat processors
like Tyson Foods Inc.
Lower costs
to raise animals for their meat has helped bring to market massive supplies
of poultry, pork and beef, while illnesses and drought that had curbed U.S.
populations in recent years recede. So far this year, U.S. meatpackers have
produced 4.7% more beef than in the same period for 2015, and falling costs
for burgers and steaks have revived consumers’ appetites for beef.
Cargill said
its meat and animal feed division delivered the biggest contribution to
first-quarter profits, led by its beef business, while chicken, turkey and
egg processing also improved earnings over last year’s first quarter. Animal
feed sales grew in Asia and North America.
Profits from
Cargill’s grain trading and processing division grew “moderately” over the
prior year due to strength in its Brazilian operations and North American
grain shipments. In Cargill’s soybean business, trading losses booked in the
prior quarter—which drove a loss for the unit in that period—reversed,
boosting results.
Cargill’s
food-ingredients division benefited from the company’s bigger chocolate
business, expanded last year when Cargill bought ADM’s industrial chocolate
operations. Cargill’s industrial and financial services unit returned to
profitability after losing money last year due mainly to its
asset-management unit, as metals and petroleum markets face their own high
supplies.
Over all,
Cargill’s sales for the quarter declined 1.5% to $27.1 billion. Adjusting
for one-time events, such as hedging-related items, operating earnings rose
35% to $827 million from $611 million in the fiscal first quarter of 2016.
After several
years of declining profits, Mr. MacLennan has been shaking up Cargill’s
wide-ranging portfolio of businesses, selling some to competitors and
acquiring new operations, while pushing to make its processing plants and
corporate functions more efficient.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 14, 2016 ---
Pound's Drop "Cost" AB InBev $13 Billion
by: Liz
Hoffman
Oct 08, 2016
Click here to view the full article on WSJ.com
TOPICS: Advanced
Financial Accounting, business combinations, Foreign Currency Exchange Rates
SUMMARY: In
2015, ABInBev purchased forward contracts to buy British pounds in
anticipation of the cash requirements of its acquisition of SABMiller. The
contracts were disclosed in the company's Form 20-F filing available on the
SEC web site at
https://www.sec.gov/Archives/edgar/data/1140467/000119312516503662/d157331d20f.htm#rom157331_69
The weighted average contract price disclosed in that filing is $1.5295 per
British pound. (Note that the amount reported in the article differs
somewhat at $1.5267.) The main article focuses on the impact of the drop in
the pound's value following Brexit. Questions ask students to calculate the
impact of the contract price and the drop in British pound sterling of $13
billion, as described in the article. The main and related articles together
cover various topics related to business combinations including acquisition
cost, regulatory approval, sale of intellectual property, joint ventures,
and other topics.
CLASSROOM
APPLICATION: The
article may be used in an advanced financial accounting class covering
foreign exchange and/or business combinations.
QUESTIONS:
1. (Introductory) How much will AB InBev pay SABMiller shareholders
to complete its takeover of that company? What accounting entry will AB
InBev make to record this payment?
2. (Introductory) Why did AB InBev enter into a forward contract to
purchase British pounds in relation to this transaction?
3. (Advanced) Access the AB InBev SEC filing on Form 20-F for
https://www.sec.gov/Archives/edgar/data/1140467/000119312516503662/d157331d20f.htm#rom157331_69
Proceed to page 196 and read the section entitled Foreign exchange risk on
the proposed acquisition of SABMiller. What two accounting treatments are
being given to this foreign currency forward contract? Why are there two
accounting components?
4. (Advanced) Will either of the two accounting treatments impact the
accounting for the acquisition of SABMiller shares by AB InBev? Explain.
5. (Advanced) The article states that "InBev will effectively overpay
for the pounds it needs by 28 cents each. That is $13 billion in all." Show
the calculation behind this assessment. (Note: if you compare the price per
pound under the derivative contracts as reported in the press to the Form
20-F disclosures you examine, you will see a discrepancy in the price. This
should not have a significant impact on your calculation-check the amount!)
6. (Introductory) Refer to the related article. What is the objective
of regulatory approval which requires InBev to sell off some SABMiller
assets such as its 58% interest in a joint venture, MillerCoors LLC? In your
answer, define the term "joint venture."
7. (Advanced) "Denver-based Molson overnight will become the U.S.'s
second-largest brewer with a 25% market share. It is poised to challenge AB
InBev, which has a 44% market share." How do these statements indicate that
the regulatory objective given in anwer to question 6 above is being
achieved?
8. (Introductory) Refer to the related article. Explain analyst
Trevor Stirling's statement that "it will take about 10 years for AB InBev
to recoup what it spent on SABMiller, nearly five times as long as it took
to recover the $52 billion it spent on Anheuser-Busch in 2008." How will AB
InBev "recoup" its investment?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
SABMiller, AB InBev Shareholders Approve $100
Billion-Plus Merger
by Tripp Mickle
Sep 28, 2016
Online Exclusive
"Pound's Drop "Cost" AB InBev $13 Billion," by Liz Hoffman, The Wall Street Journal, October
8, 2016
http://blogs.wsj.com/moneybeat/2016/10/07/how-the-pounds-plunge-cost-ab-inbev-13-billion/?mod=djem_jiewr_AC_domainid
Trying to
play it safe with a $100 billion deal can sometimes leave you feeling sorry.
Take
AB InBev
and the beat-up British pound, whose value plunged sharply overnight.
Despite a rebound Friday, sterling is still trading near a 31-year low
against the dollar.
That is bad
news for the beer giant, which is set to complete its $100 billion-plus
takeover of SABMiller next week. When it does, it will need to come up with
Ł46 billion to pay the cash portion of the deal to SABMiller
shareholders.
That’s a lot
of pounds. And InBev is in the business of making beer, not bets on global
currencies. So, last year, it bought a type of protection known as a
forward-purchase contract. This was an agreement to buy the pounds in
the future at a locked-in price of $1.5267, according to regulatory filings.
The idea
behind such contracts is to make sure that, should the value of the
dollar fall against the pound, an acquirer doesn’t end up paying a lot more
for an acquisition. The downside is that it typically also prevents
buyers from reaping gains if the dollar strengthened.
Normally,
companies don’t worry about the prospect of missing out on currency gains.
Plus, currencies don’t usually move in dramatic fashion.
Unless
something momentous happens – like Britain’s vote to leave the European
Union. Since the June referendum, the pound is down 25 cents against the
dollar. After a partial rebound following Thursday’s overnight “flash cash,”
it was trading Friday around $1.245.
Assuming it
stays there, InBev will effectively overpay for the pounds it needs by 28
cents each. That is $13 billion in all.
Granted, this
isn’t exactly a loss, more like a lost opportunity. If InBev hadn’t hedged,
it could have bought those pounds far more cheaply in the spot market. Or if
it had waited a few months, it could have hedged at a lower exchange rate
as Brexit fears began to weigh on the pound.
Of course, no
sane company would leave itself exposed to that kind of risk. And
lenders often require borrowers to protect against swings in currency.
Still, it’s a reminder that hedging can be a high-wire act when global
politics are involved.
“Cross-currency acquisitions require a strong stomach,” said Ron Waliczek, a
managing director in interest-rate sales at INTL FCStone, a trading and
clearing firm. “You have a view that the pound is going to be relatively
stable. And then comes Brexit. And then someone hits a button and the pound
drops overnight. And now your whole hedging strategy is wrong.”Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 14, 2016 ---
Tax
Credits Powers Wind Farm Upgrades
by: Rebecca Smith
Oct 08, 2016
Click here to view the full article on WSJ.com
TOPICS: Corporate
Taxation, Tax Credits
SUMMARY: Wind
power producers are choosing to retrofit existing wind farms and taking
advantage the Production Tax Credit. Manufacturers of wind turbines are
offering to help producers with investment in the facilities to take
advantage of the credits. Some producers don't see the financial viability
of these credits in part because they have entered into long term
fixed-price contracts to sell the power output to utilities or corporations
which could be subject to renegotiation due to the upgrades.
CLASSROOM
APPLICATION: The
article may be used in a corporate tax class.
QUESTIONS:
1. (Advanced) How do tax credits help make financial investments
viable when they otherwise might not be? Be specific in describing their
impact on return on investment.
2. (Introductory) When did Congress extend the tax credit on which
these wind power retrofit investments are based?
3. (Introductory) What members of Congress are quoted in the article
as touting the economic benefits of these tax credits? How might their
viewpoints be self-interested?
4. (Advanced) What is the concern of the U.S. Governmental
Accountability Office about these renewable energy tax credits? How could an
investigation be undertaken to assess these concerns?
Reviewed By: Judy Beckman, University of Rhode Island
" Tax Credits Powers Wind Farm Upgrades," by Rebecca Smith, The Wall Street Journal, October
8, 2016 ---
http://www.wsj.com/articles/u-s-tax-credit-powers-wind-farm-upgrades-1475884313?mod=djem_jiewr_AC_domainid
Wind-power producers rush to renovate existing
facilities in boon for turbine manufacturers.
Wind-power producers are rushing to take advantage
of a green energy tax credit extended by Congress—and, in a new twist, many
are using it to renovate existing wind farms, not just build new ones.
The Production Tax Credit, which was renewed by
lawmakers last December, allows qualifying wind farms to reap tax benefits
based on their output for a 10-year period. The credits, which can be shared
with investment partners, reduce federal tax bills.
Some wind producers, encouraged by turbine makers,
are deciding to “repower” existing wind farms to tap the tax credits,
including NextEra Energy Inc., which has 110 wind farms in 19 states
and Canada. NextEra reaped $73 million in Production Tax Credit subsidies in
the first six months of the year.
Armando Pimentel, chief executive of NextEra Energy
Resources, the company arm that develops renewable power, recently told
investors that while retrofitting “certainly wasn’t something we were
thinking about six months ago,” he believes it may now make sense for nearly
a third of the company’s 13,000-megawatt wind portfolio.
In rough numbers, a
100-megawatt project with modern turbines and strong winds might produce $10
million a year in tax credits, according to an analysis by Fitch, the credit
rating firm. The current government credit is 2.3 cents per kilowatt-hour of
electricity produced, but it is adjusted for inflation and has jumped 53%
since it began in 1992.
Upgrading wind farms
makes sense for wind producers because modern turbines generate far more
electricity than those built two or three decades ago. That means some
existing wind farms will get overhauled to generate more renewable power,
while others will produce the same amount of electricity but with fewer
turbines.
Renovating an existing
wind farm is also often simpler than building a new one—they are already
connected to transmission lines and have zoning approvals—so the projects
often make better financial sense than starting from scratch, said Nick Knapp, managing director of investment bank CohnReznick Capital Markets LLC.
The market for
refurbished capacity represents an enormous opportunity for turbine
manufacturers.
“Manufacturers of wind
turbines are the ones that initially looked at this and they are approaching
companies with older wind farms and offering to help them revamp their
portfolios,” said Marlene Motyka, a U.S. alternative energy expert at Deloitte.
Existing facilities
qualify for the tax credit if refurbished enough to satisfy IRS rules, which
require investments to equal 80% of the market value of the facility being
replaced.
Michael
Bernier, senior manager of tax credits and incentives at EY, the former Ernst &
Young, estimated that 15% of the U.S. installed base of 75,000 megawatts of
wind capacity is ripe for retrofits. That is mostly turbines erected before
2006 that have exhausted their tax credits or other incentives and are
showing signs of wear.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 14, 2016 ---
Bed
Bath is Moving Beyond the Coupon
by: Imani
Moise
Oct 07, 2016
Click here to view the full article on WSJ.com
TOPICS: Gross
Margin
SUMMARY: Bed
Bath & Beyond Inc. is moving to personalize its marketing strategies, rather
than offering coupons for discounts to all shoppers alike. The company has
reported a 17% drop in profit along with increasing coupon usage in its
second fiscal quarter 2017 results from August.
CLASSROOM
APPLICATION: The
company may be used in any financial reporting class from an introductory
level and up.
QUESTIONS:
1. (Advanced) Define the gross margin.
2. (Introductory) What does the author mean by "coupon redemptions
have squeezed [Bed Bath & Beyond's] margins."
3. (Advanced) What new strategy is Bed Bath & Beyond trying? How
could this new strategy generate other streams of revenue to help reverse
the "margin squeeze" discussed above?
4. (Introductory) With what companies is Bed Bath & Beyond trying to
compete? How does this new strategy go beyond trying to generate new revenue
to tailor its method of competing?
Reviewed By: Judy Beckman, University of Rhode Island
"Bed Bath is Moving Beyond the Coupon," by Imani Moise, The Wall Street Journal, October
7, 2016
http://www.wsj.com/articles/bed-bath-tries-to-move-beyond-the-coupon-1475746974?mod=djem_jiewr_AC_domainid
Home goods retailer tests a paid
membership model that offers a 20% discount on purchases and free shipping
Bed Bath & Beyond Inc. is attempting
to go beyond those big paper coupons that are stuffed in mailboxes across
the country. Instead, the home-goods retailer is testing a membership model
that for $29 a year offers a 20% discount on all purchases and free
shipping. The paid subscription aims to generate other streams of revenue,
increase customer loyalty, improve margins and better compete with
Amazon.com Inc. ’s Prime membership program.
“The coupon is clearly
and has been strongly associated with us,” Chief Executive Steven Temares said on the retailer’s recent earnings call. “But really, we need to
be working and we are working on becoming a lot more intelligent about our
marketing and making it much more personalized.”
The
invitation-only program was launched less than two weeks after Bed Bath &
Beyond
reported a 17% drop in profit
and slowing sales growth in its most recent
quarter. In the quarter ended in August, the company reported yet another
increase in coupon usage with a slight decrease in average coupon amount.
Coupon redemptions have
squeezed the retailer’s margins for the past 15 quarters, according to UBS
analysts. The company’s shares have fallen about 25% during the past year.
It is the latest attempt
by a retailer to move away from the promotions and discounts that
proliferated after the recession and onto a paid-membership program.
Restoration Hardware Holdings Inc.,
RH
-3.53
%
Lands’ End Inc.
LE
-0.85
%
and
Barnes and Noble Inc.
BKS
-0.28
%
have introduced similar offers.
Wal-Mart Stores Inc.
WMT
0.32
%
earlier this year began offering free two-day shipping to members of
its $49-a-year ShippingPass program.
Tom Caporaso, who runs marketing-technology company Clarus Commerce LLC, said Bed
Bath & Beyond’s new program is seeking to change shopper’s reliance on its
coupons. “This is a way to wean themselves away from offering that to all
customers, and see if certain customers will raise their hand to pay a fee
to get access to these benefits,” Mr. Caporaso said.
Bed Bath & Beyond’s
program, called Beyond+, is still in the testing phase. It started last week
and has closed for new members. The company hasn’t said how many customers
it admitted.
“Our coupon policy
remains consistent, as we continue to believe that the Bed Bath & Beyond
coupons are an important benefit we provide to our customers,” a spokeswoman
said Thursday.
Analysts from Wedbush Securities Inc. said the program “appears
attractive for frequent shoppers” and is the best attempt to date to stem
lost market share.
After the 20% discount,
Wedbush said, items from Bed Bath & Beyond would be on average 13% cheaper
than Amazon.
But
the program falls short
of what members get from Amazon’s Prime.
Its shipping-free window is between three to seven days, while Prime’s is a
two-day offer. And Prime offers a range of other services, such as video
streaming and photo storage, and a wider array of inventory.
Beyond+ perks don’t
extend to purchases made at the retailer’s other brands, such as Buy Buy
Baby Inc. and Harmon Stores Inc.
The program benefits
customers who spend $145 or more annually at the retailer, according to UBS
analysts. On average, Bed Bath & Beyond shoppers visit and buy from its
stores 2.84 times a year and spend an average of $120 per trip, UBS said.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 14, 2016 ---
Companies Puzzle over the Pound
by: Nina
Trentmann
Oct 11, 2016
Click here to view the full article on WSJ.com
TOPICS: Foreign
Currency Exchange Rates
SUMMARY: "The
pound's weakness since the Brexit referendum is forcing many companies to
adjust their foreign-exchange hedging, especially given that the currency is
expected to remain volatile at least until the U.K. begins separation
negotiations....The uncertainty is 'paralyzing financial decision-making on
everything from investment decisions to tax and earnings plans...."
CLASSROOM
APPLICATION: Questions
ask students to discuss the form of foreign exchange quotation (direct
versus indirect) and to understand managerial as well as financial reporting
implications of volatile foreign exchange rates.
QUESTIONS:
1. (Introductory) "In late New York trading
Monday, the pound was trading at $1.2362, down from $1.2435
Friday." Is this exchange rate quotation direct or indirect?
2. (Advanced) Calculate the inverse price of the exchange rate given
in answer to question 1 above and state which of these quotation forms,
direct or indirect, the amount represents. Attach an appropriate currency
symbol to your answer.
3. (Introductory) U.K Prime Minister Theresa May has indicated she
will pursue a "hard Brexit" rather than a "soft Brexit." What do these terms
mean? Why are they causing exchange rate volatility?
4. (Advanced) What does the German company BASF do? Why is it too
early to tell whether the pound's fall will increase or reduce the company's
profits? Clearly explain the expected impact on the company's operations in
the U.K.
Reviewed By: Judy Beckman, University of Rhode Island
"Companies Puzzle over the Pound," by Nina Trentmann, The Wall Street Journal, October
11, 2016
http://www.wsj.com/articles/ahead-of-brexit-talks-companies-puzzle-over-the-pound-1476142800?mod=djem_jiewr_AC_domainid
Currency’s weakness forces many firms to adjust
their hedging strategies
The British pound’s recent swoon has caught many
corporate finance chiefs off guard. The currency fell 6% within minutes on
Friday in a “flash crash” that has been attributed to a trading error.
Despite a slight recovery, investors are continuing their retreat from the
pound in the wake of the U.K.’s vote to leave the European Union. The
pound’s weakness since the Brexit referendum is forcing many companies to
adjust their foreign-exchange hedging, especially given that the currency is
expected to remain volatile at least until the U.K. begins separation
negotiations with its former EU partners.
“Every CFO is now more attuned to the economic
risks around Brexit and is reassessing hedging policies to check that they
still work in the current environment,” said Lisa Francis, head of corporate
foreign-exchange sales Europe at Barclays in London. “Most corporate clients
are cautiously adopting a layered hedging approach, and we’re seeing more
interest in options-type strategies.”
Some companies are already figuring out how much
the pound’s depreciation is hurting their results. The weaker pound makes
foreign goods more expensive for British importers, but British goods more
competitive in foreign markets. Sports Direct International PLC, a
sporting-goods retailer, said last Friday it entered a U.S. dollar/pound
hedging arrangement following “extreme movements” that would cut its fiscal
2017 results by Ł15 million ($18.6 million). The Shirebrook, England,
company, a major importer, had originally based its planning on an exchange
rate of $1.30 to the pound, according to a statement on its website. The
company forecasts another Ł20 million reduction if the pound remains at
$1.20 for most of 2017. Sports Direct didn’t immediately reply to a request
for comment. In late New York trading Monday, the pound was trading at
$1.2362, down from $1.2435 on Friday. Importers and exporters are facing a
number of months of volatility and disruption, said Leslie Holstrom, global
head of products at Eurofinance in London. The uncertainty is “paralyzing
financial decision-making on everything from investment decisions to tax and
earnings plans,” she said. Less than a quarter of the roughly 2,000 CFOs
polled by Eurofinance before the Brexit vote had made contingency plans, Ms.
Holstrom said. “Hedging did increase dramatically just before the vote, but
many smaller companies in particular were caught out,” she said. Higher
costs are expected to hit the supply chains of many companies, and many have
already made adjustments.
Continental AG , the German tire maker, has already
raised its prices in the U.K., as has Groupe PSA SA, the French auto
company, and Svenska Cellulosa AB, a Swedish paper producer, according to
data compiled by Bloomberg. Continental and Svenska declined to comment.
Groupe PSA didn’t respond to a request for comment. After months of
government silence, U.K. Prime Minister Theresa May has begun offering more
specifics on the terms and conditions of Britain’s EU exit. She said early
this month that the U.K. would officially start divorce talks with the EU by
the end of March.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 14, 2016 ---
The
Big Number: 40%
by: Vipal
Monga
Oct 11, 2016
Click here to view the full article on WSJ.com
TOPICS: Corporate
Governance
SUMMARY: As
of August 31, 40% of S&P 500 companies
have adopted provisions allowing shareholders to have more influence over
the Board elections process. Termed "proxy access," the corporate by-law
provisions allow shareholders to pose a slate of Board candidates for
inclusion in proxy statements.
CLASSROOM
APPLICATION: The
article may be used to help students understand corporate governance and
proxy statement processes in any financial reporting class.
QUESTIONS:
1. (Advanced) What is the responsibility of a Board of Directors?
Whom does the Board represent?
2. (Advanced) What is a proxy statement?
3. (Introductory) What new proxy statement provisions have companies
adopted in relation to the Board of Directors?
4. (Introductory) Why does allowing a company's shareholders to put
forth a suggested slate of Board members it require "proxy access" corporate
by-law provisions?
Reviewed By: Judy Beckman, University of Rhode Island
"The Big Number: 40%," Vipal Monga, The Wall Street Journal, October
11, 2016
http://www.wsj.com/articles/the-big-number-1476140737?mod=djem_jiewr_AC_domainid
40%: Share of S&P 500 companies whose investors
have proxy access
40%
Share of S&P 500 companies whose investors have
proxy access
Big companies are opening up their corporate
elections to shareholders.
As of Aug. 31, 40% of S&P 500 companies have
adopted proxy-access provisions, giving shareholders more sway over board
elections, according to a new survey by law firm Shearman & Sterling LLP.
That’s up from just 5% in 2015.
The movement
toward proxy access reflects corporate boards’ growing awareness that they
can win favor with investors by passing the provisions, said advisers and
company insiders.
Proxy access
gives investors more power to oust directors and influence strategy by
letting them put their own slate of candidates on annual-meeting ballots.
“Proxy access is the most popular flavor of the day,” said Stephen Giove, a partner at Shearman & Sterling.
He said many
companies have anticipated growing investor demand for access, leading many
of them to amend their bylaws voluntarily.
Among
the companies that adopted proxy-access measures this year are
General Motors Co.
GM
1.14
%
,
Rockwell Automation Inc.,
ROK
0.43
%
and
Macy’s
Inc.
Rockwell’s
board decided to change its bylaws after speaking with large investors, who
said they favored the privilege, said Patrick Goris,
head of investor relations at the Milwaukee.-based maker of industrial
machinery.
Other
companies, however, have adopted proxy access under duress. Denver-based
fast-food chain
Chipotle Mexican Grill Inc.
CMG
-1.38
%
adopted it this year after roughly 57% of shares voted for the
amendment at an annual meeting in May.
The proposal was made by New York City Comptroller Scott Stringer,
who has been behind most such proposals this year. The comptroller made 72
proposals this year, up from 75 in 2015Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 21, 2016 ---
New
Rules Make It Harder for Companies to Manage Their Cash
by: Vipal
Monga
Oct 13, 2016
Click here to view the full article on WSJ.com
TOPICS: Cash
Management
SUMMARY: Companies,
pension funds and insurers have traditionally used prime funds as a place to
park cash they need for routine purposes, such as paying bills. The funds
provided slightly better returns than a bank account with little risk.
However, new SEC rules require money market funds to present fluctuating net
assets values. As a result, investors have pulled money out of prime
money-market funds at a rapid clip. Assets under management at those funds
totaled $413.07 billion as of Wednesday, according to the Investment Company
Institute. That's down 67% from $1.25 trillion at the start of the year.
CLASSROOM
APPLICATION: The
article may be used in a class on cash management.
QUESTIONS:
1. (Advanced) What is a money market fund?
2. (Introductory) Until October 14, 2016, what net asset value per
share would a money market fund always maintain?
3. (Introductory) What rule changes has the SEC put into place in
relation to money market funds?
4. (Advanced) What "accounting headaches" would arise if holding a
money market fund would lead to fluctuating values of a corporation's cash
balance? Specifically describe the accounting requirements for such an asset
which a corporation intends to access frequently.
Reviewed By: Judy Beckman, University of Rhode Island
"New Rules Make It Harder for Companies to Manage Their Cash," by Vipal
Monga, The Wall Street Journal, October 13, 2016
---
http://www.wsj.com/articles/new-rules-make-it-harder-for-companies-to-manage-their-cash-1476385011?mod=djemCFO_h?mod=djem_jiewr_AC_domainid
SEC’s changes make it possible for
some money funds to lose value, limit redemptions, undermining their appeal
Simon Gore has had a
relatively simple job over the past several years. As treasurer of budget
carrier Spirit Airlines Inc., he has
taken tens of millions of dollars of company cash and parked it in
money-market funds.
With interest rates near
historical lows, ensuring scant returns, it didn’t matter much if the money
sat in a money-market fund or a bank account. Mr. Gore just aimed to protect
Spirit’s principal and guarantee that the company could access its cash in
an emergency.
His job isn’t that
simple anymore.
New rules on
money-market funds, which are set to kick in on Friday, have made life more
difficult for corporate treasurers and chief financial officers. They face a
sometimes unfamiliar array of investment options as they seek both to
preserve and earn some return on their collective trillions.
The rules, which the
Securities and Exchange Commission adopted in 2014, make prime money-market
funds, which typically invest in short-term corporate and municipal debt,
less attractive for corporate cash managers. The regulations require the
funds to allow their net asset values to fluctuate, instead of effectively
fixing them at $1 a share, as in the past.
A floating net asset
value raises the possibility that corporate investments in the funds could
lose value, threatening a company’s principal. The rules also allow the
funds to suspend redemptions temporarily in a crisis, meaning a company
could lose access to its money.
Anticipating the new
rules, investors have pulled money out of prime money-market funds at a
rapid clip. Assets under management at those funds totaled $413.07 billion
as of Wednesday, according to the Investment Company Institute. That’s down
67% from $1.25 trillion at the start of the year.
Mr. Gore said he has
moved money out of some funds and is considering his options for depositing
the more than $1 billion of cash and investments on Spirit’s balance sheet.
Mr. Gore had previously
put almost all of Spirit’s cash in prime money-market funds. Now, he has
shifted most of it to money funds that invest in debt issued by the federal
government or agencies such as Fannie Mae and Freddie Mac, which aren’t
affected by the new rules.
He said the prospect of
a floating net asset value caused him to think twice about prime funds.
Besides facing the risk of losing money under the new rules, companies would
have to record changes in the value of their cash, creating accounting
headaches.
Companies, pension funds
and insurers have traditionally used prime funds as a place to park cash
they need for routine purposes, such as paying bills. The funds provided
slightly better returns than a bank account with little risk.
“Historically corporate
treasurers are tasked with investing in a way that they will preserve their
principal,” said Jerry Klein, head of the corporate cash management group at
Hightower Treasury Partners, an investment-management firm. “That’s one of
their biggest concerns.”
The SEC rules aim to
prevent the sort of chaos that hit the money market after Lehman Brothers
Holdings Inc.’s 2008 bankruptcy, which helped spark the financial crisis.
The goal is to give investors a way to monitor a fund’s health by tracking
its fluctuating net asset value, and to contain the fallout that could be
caused by many investors cashing out at once, the SEC wrote in the final
rules.
Ahead of the new rules,
cash has flowed briskly into money funds that invest in government
securities. Assets under management at these government money funds
increased to $2.11 trillion as of Wednesday, up 72% from $1.23 trillion on
Jan. 6.
Christina Kopec, head of retail-product strategy for global fixed income at Goldman
Sachs Asset Management, said the large move into government funds may be
temporary, as corporate treasurers wait for things to settle down after the
new rules take effect.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 21, 2016 ---
Buyout-Loan Strategy Questioned
by: Liz
Hoffman and Matt Wirz
Oct 17, 2016
Click here to view the full article on WSJ.com
TOPICS: Non-GAAP
Reporting
SUMMARY: Bank
regulatory requirements "discourage banks from lending more than six times a
company's earning before interest, taxes, depreciation and amortization, or
EBITDA." However, companies looking for financing adjust the amounts used to
determine that ratio in "potentially aggressive or unsupported" ways similar
to concerns about non-GAAP reporting of earnings in earnings releases by
publicly-traded firms. "The warnings come amid annual reviews in which
regulators expressed concerns that banks and their clients are being liberal
with adjustments to earnings to justify more borrowing...."
CLASSROOM
APPLICATION: The
article may be used in a class on financial reporting to cover non-GAAP
reporting or debt issuance.
QUESTIONS:
1. (Introductory) What are "leveraged loans"? Why are they of
particular interest now?
2. (Introductory) Why do federal banking regulators examine buyout
transactions such as the purchase of Ultimate Fighting Championship (UFC) by
William Morris Endeavor? Include in your answer a description of bank loan
portion of the transaction.
3. (Advanced) What benefit is obtained by limiting loan amounts to 6
times EBITDA?
4. (Advanced) What are the reporting requirements when publicly
traded companies disclose non-GAAP information in earnings releases? How are
regulators requiring similar information for mergers and acquisitions that
are financed with bank lending?
Reviewed By: Judy Beckman, University of Rhode Island
"Buyout-Loan Strategy Questioned," by Liz Hoffman and Matt Wirz, The Wall Street Journal, October
17, 2016 ---
http://www.wsj.com/articles/the-ultimate-earnings-fighting-championship-1476615601?tesla=y?mod=djem_jiewr_AC_domainid
Sale of UFC and other buyout deals are raising
concerns among regulators that banks and clients are being too liberal with
adjustments to earnings to justify more borrowing for transactions
When the
Ultimate Fighting Championship put itself up for sale this year, the
mixed-martial-arts organization showed one measure of earnings of about $170
million, according to people familiar with the deal.
But with a
few tweaks, the figure presented to debt investors helping finance the sale
climbed to $300 million, the people said.
The higher
number allowed the buyer, talent agency William Morris Endeavor, to borrow
$1.8 billion for the deal without exceeding a regulatory “leverage”
guideline. That discourages banks from lending more than six times a
company’s earnings before interest, taxes, depreciation and amortization, or
Ebitda.
Banking
regulators have shown increasing concern about such moves in the $900
billion-a-year leveraged-loan market, in which banks lend to risky
companies, often during a takeover, and then sell the debt in pieces to
investors. In 2013, the Federal Reserve and Office of the Comptroller of the
Currency started guiding banks to stay away from heavily leveraged deals.
In
recent weeks, Fed examiners have notified William Morris Endeavor’s lenders,
Goldman Sachs Group Inc. and
AG, that the way the UFC loans
stayed under the Ebitda guideline could be problematic, according to people
familiar with the matter.
Regulators in
recent months have also flagged at least two other buyouts—those of software
companies Cventand SolarWinds Inc.—for potentially aggressive or unsupported
adjustments to Ebitda, some of the people said.
The warnings
come amid annual reviews in which regulators expressed concerns that banks
and their clients are being liberal with adjustments to earnings to justify
more borrowing, the people said.
Goldman Sachs
and Deutsche Bank declined to comment.
Concerns
about companies massaging their financial figures in the debt markets echo
worries in stock markets. The Securities and Exchange Commission has
criticized companies’ increasing use of measures that don’t comply with
standard accounting rules.
The
adjustments often exclude charges for things like stock-based compensation
or restructuring expenses. In and of themselves, the adjustments aren’t
improper. Companies have said that the tweaks provide a truer picture of
their business. The fear is that they also provide an overly rosy view of
profits.
Continued in article
Bob Jensen's Threads on Return on Business
Valuation, Business Combinations, Investment (ROI), and Pro Forma (and Non-GAAP)
Financial Reporting ---
http://faculty.trinity.edu/rjensen/roi.htm
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 21, 2016 ---
Cities, States Need Top Financial Talent, but Fall Short on Pay
by: Maxwell
Murphy
Oct 17, 2016
Click here to view the full article on WSJ.com
TOPICS: Governmental
Accounting
SUMMARY: Cities
and states are subject to SEC and other regulatory scrutiny because they
issue publicly traded debt. Yet hiring the financial expertise to fulfill
reporting requirements and manage significant budgets is difficult at the
pay scale governmental entities can offer.
CLASSROOM
APPLICATION: The
article may be used in a governmental accounting course or in any course
discussion financial career options. Questions ask students to understand
the reason cities and towns need strong financial leadership as well as
general career discussion.
QUESTIONS:
1. (Introductory) According to the SEC's Division of Enforcement, how
expansive are holdings of municipal debt in U.S. financial markets?
2. (Advanced) What actions has the SEC recently taken against a
number of municipalities?
3. (Advanced) What do your answers to questions 1 and 2 above imply
about cities' and towns' need for financial expertise?
4. (Advanced) Why is it challenging for cities and towns to hire the
financial expertise they need? How did Fairfield, CT hire the fiscal officer
who is interviewed in this story?
Reviewed By: Judy Beckman, University of Rhode Island
"Cities, States Need Top Financial Talent, but Fall Short on Pay,"
Maxwell Murphy, The Wall Street Journal, October
17, 2016 ---
http://www.wsj.com/articles/cities-states-need-top-financial-talent-but-fall-short-on-pay-1476735713?mod=djemCFO_h?mod=djem_jiewr_AC_domainid
Under pressure to do more with less,
municipal-bond issuers struggle to fulfill SEC requirements
Help wanted: Top-notch
financial talent needed to face intense regulatory scrutiny; no bonuses or
equity awards; modest civil servant’s paycheck.
That is not a job that
would appeal to most of the nation’s best and brightest financial
executives, who enjoy the big cash and stock incentives—not to mention the
prestige—offered by the private sector. But states and towns increasingly
need such executives to manage bond sales and pension deficits, as they come
under closer government oversight.
“Getting people in
government is not easy,” said Robert Mayer, chief fiscal officer for the
town of Fairfield, Conn. “They’re all making more than the mayor.”
Municipal finance chiefs
in the Midwest earn between $85,000 and $160,000, depending on the town’s
size and affluence, while those working on either coasts can expect slightly
more, said Heidi Voorhees, head of GovHR USA LLC, an Illinois recruiter for
the public sector and nonprofit groups. By contrast, the median compensation
package—salary, bonus and stock options—for public-company finance
executives was valued at $3.57 million, based on proxies filed as of late
June.
“It’s always our
toughest recruitment,” said Ms. Vorhees.
Adding to the
difficulty: Municipalities and for-profit businesses follow very different
bookkeeping and budget rules, she said.
One thing many
public-sector CFOs have in common with private-sector peers is that they
have to answer to the Securities and Exchange Commission. The agency
regulates municipal-bond sales, as well as corporate offerings, and can
impose fines for violations.
While most corporations
have the resources they need to monitor compliance, SEC disclosure rules
pose a special challenge for cash-strapped states and cities, which are
under pressure to do more with less. While disclosure rules are less
stringent for municipalities than for companies, that doesn’t get them off
the hook for even small lapses.
If a municipality is 30
days late in filing its budget with state and federal regulators, the SEC
considers that a disclosure violation, even if the delay is unlikely to harm
its bondholders.
The SEC is “really naive
in their understanding of what municipalities are capable of,” said Jeffrey
Esser, chief executive of the Government Finance Officers Association, which
has about 18,000 members in the U.S. and Canada.
In August, the SEC
reached settlements with 71 municipalities and other public entities across
45 states over alleged bond-disclosure violations. Many of the parties that
settled had voluntarily reported their violations, such as failing to
disclose a change in tax-revenue forecasts.
The town of Fairfield
was among those that self-reported, a move that tends to win leniency. It
settled with the SEC without admitting or denying wrongdoing or paying a
monetary penalty.
Mr. Mayer, Fairfield’s
fiscal chief, is a career finance executive who left Wilkes-Barre, Pa.,
where he held a corporate job as a divisional chief executive, to be closer
to his wife and daughters, who didn’t want to relocate.
“To keep myself a little
bit busy I ended up getting into local politics,” he said. In 2012,
Fairfield’s first selectman appointed him chief of staff. When the CFO job
later opened up, Mr. Mayer was asked to step in. “Most good CFOs could make
a positive impact,” he said of government service.
Most towns, hard-pressed
to find money for such projects as pothole repair, park upgrades or a new
public-transportation extension, are reluctant to spend precious cash
staffing up their finance departments to ensure regulatory compliance. “The
attention isn’t there, the budget isn’t there,” Mr. Mayer said.
Despite
such pressures, municipalities and related entities don’t get a free pass,
Andrew Ceresney, director of the SEC’s enforcement division, said at a
conference last week. They have a total of over $3.7 trillion in outstanding
debt, spread across about 44,000 issuers, compared with the about 8,600
corporate issuers the SEC regulates, he saidContinued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 21, 2016 ---
AB-INBev
Needs Further Savings
by: Stephen
Wilmot
Oct 19, 2016
Click here to view the full article on WSJ.com
TOPICS: business
combinations, Financial Ratios
SUMMARY: The
author highlights a P/E ratio comparison that implies a valuation difference
between AB InBev and Heineken. He looks to explain the valuation difference
both in terms of expected revenue growth in beer sales (primarily expected
to come from emerging markets) and cost savings.
CLASSROOM
APPLICATION: This
article is a follow on to previous coverage of AB-In Bev's acquisition of
SABMiller. It can be used in a financial statement analysis class or a class
on business combinations.
QUESTIONS:
1. (Advanced) Summarize what you know about the AB-InBev takeover of
SABMiller. You may refer to related articles. Include in your discussion
items such as: the steps that AB-InBev has take to satisfy anti-trust
regulators; the impact of the Brexit vote and subsequent decline in the
value of the British pound; and the global beer market implications of the
combination.
2. (Introductory) According to the article, where is growth in beer
sales expected to be found?
3. (Advanced) What is a P/E ratio? Name two ways that a P/E ratio may
be calculated.
4. (Introductory) Whose P/E ratios are cited in this article and how
are they compared?
5. (Introductory) How does this P/E comparison lead the author to
identify a valuation difference?
6. (Introductory) How does expected cost savings imply one possible
explanation for this valuation difference? What has been AB InBev's
performance record on implementing cost savings?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
SABMiller, AB InBev Shareholders Approve $100
Billion-Plus Merger
by Tripp Mickle
Sep 28, 2016
Online Exclusive
Pound's Drop "Cost" AB InBev $13 Billion
by Liz Hoffman
Oct 08, 2016
Page: B1
"AB-INBev Needs Further Savings," by Stephen Wilmot, The Wall Street Journal, October
19, 2016 ---
http://commons.aaahq.org/search?find=robot&lang=en_US&opentoken=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
Anheuser-Busch InBev has to contend
with some wildly high expectations following the completion of one of the
largest deals in corporate history
After the binge comes
the diet. Investing in Anheuser-Busch whose acquisition of SABMiller
completed last week to create by far the world’s largest brewer, is above
all a bet on a target-busting slimming regime.
ABI shares trade for 26
times next year’s earnings, according to FactSet, against 20 times for
Heineken now a distant second among
global brewers. The comparison is revealing because the new-look
Belgian-American giant will make about three-fifths of profits in emerging
markets, a similar share to its Dutch peer. Since beer sales these days are
tied to developing-world population and income growth, both companies are
expected to grow revenues by roughly 6% a year.
If growth cannot account
for the valuation difference, it must be about profit. Investors have always
been prepared to pay a slight premium for ABI’s lean operating model, but
that premium has ballooned since the SAB deal was announced in September
2015. Investors are betting on savings that will boost ABI’s earnings well
beyond what top-line growth would normally allow.
The company itself has
outlined plans to take $1.4 billion out of its newly enlarged cost structure
by the end of 2020. A quarter of the total is expected to come from combined
sourcing and packaging of raw materials and another quarter from scale
benefits in brewing. The rest will be found in administrative expenses,
mainly by shutting down duplicate regional bases and SAB’s headquarters.
But in light of the
company’s record this figure is widely seen as a minimum. When InBev took
over Budweiser-brewer Anheuser-Busch in 2008 to create ABI, it targeted $1.5
billion in cost savings but found $2.25 billion. The acquisition of Grupo
Modelo in 2011 followed a similar pattern, with a $600 million target
resulting in $1 billion of savings. Brokerage Jefferies reckons ABI can pull
off an even more extreme version of this trick with SAB and save $3 billion.
Another way to look at
the potential for savings is as a share of sales. The SAB takeover is
complicated by disposals—including that of longtime Budweiser rival
Miller—made by ABI to satisfy antitrust regulators and joint-venture
partners. Strip these out and the $1.4 billion target works out at 13.3% of
sales, calculates Bernstein. That is in line with cuts at Anheuser-Busch,
but less than the 20% saved at Modelo.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
October 21, 2016 ---
Senator Calls for Firing of SEC Head
by: Andrew
Ackerman
Oct 15, 2016
Click here to view the full article on WSJ.com
TOPICS: Disclosure
Requirements, Securities and Exchange Commission
SUMMARY: Senator
Elizabeth Warren has attacked SEC Chair Mary Jo White and accused her of
conducting a "far-reaching, anti-disclosure initiative." The SEC's
Disclosure Effectiveness project, and specifically its July release
proposing to eliminate detailed requirements from SEC regulation that are
already addressed in U.S. GAAP and IFRS requirements, can be viewed
alternatively as a method to reduce disclosure overload.
CLASSROOM
APPLICATION: The
article may be used in any financial reporting class to help students
understand the political influence on the process of deciding corporate
disclosure and other regulatory requirements.
QUESTIONS:
1. (Advanced) How are commissioners appointed to the U.S. Securities
and Exchange Commission (SEC)? What is the purpose of the SEC? Hint: access
the SEC's website at
www.sec.gov and click on the tab labeled
"About."
2. (Introductory) What is Senator Elizabeth Warren's concern with the
record of the current SEC Chair, Mary Jo White?
3. (Advanced) Define the term "disclosure overload."
4. (Advanced) What is the purpose of the Securities and Exchange
Commission's Disclosure Effectiveness project? Hint: again access the sec
web site and search for Disclosure Effectiveness. Look for both the project
description and a link to a release from July 2016; the latter is the
"initiative to eliminate duplicative or outmoded corporate disclosures"
described in the article.
5. (Advanced) Do you think that the projects as described on the SEC
web site could constitute "a far-reaching, anti-disclosure initiative"?
Consider in your answer the definition of disclosure overload you offered
above. Include in your answer both supporting arguments for your position
and arguments refuting an opposing answer.
Reviewed By: Judy Beckman, University of Rhode Island
"Senator Calls for Firing of SEC Head," by Andrew Ackerman, The Wall Street Journal, October
16, 2016 ---
http://www.wsj.com/articles/elizabeth-warren-to-obama-fire-sec-chief-mary-jo-white-1476439200?tesla=y
Rule requiring public companies to disclose political spending one of
main points Sen. Warren noted to President Obama
WASHINGTON—Sen. Elizabeth Warren is calling on President Barack Obama to
dismiss Mary Jo White as chairman of the Securities and Exchange Commission,
the latest and strongest push by the Massachusetts Democrat to criticize the
top markets cop and to influence financial policy-making here.
The request comes as the former Harvard law
professor and other progressive Democrats seek to pull their party to the
left and influence the selection of the next round of presidential
appointees after the November election.
The strategy
builds on efforts by progressives to block Obama administration nominees
seen as too close to big business. Ms. White, an independent who was sworn
in as SEC chief in April 2013, had been a prominent federal prosecutor and
had also worked as a top corporate attorney.
The group
claimed a win in 2015 when its opposition to Antonio Weiss because of his
Wall Street ties led him to withdraw from consideration for a key Treasury
Department post. He ended up as a top adviser to Treasury Secretary Jacob
Lew. Ms. Warren and her allies were also instrumental in torpedoing
consideration of a well-known corporate securities lawyer for an SEC post
last year. The post remains unfilled.
Ms. Warren is
again targeting the SEC chief for her decision not to craft a rule requiring
public companies to disclose their political spending activities—even though
the agency is restricted by law from working on such a rule this year. The
senator also denounced an initiative to eliminate duplicative or outmoded
corporate disclosures—a project Ms. Warren dubbed a “far-reaching,
anti-disclosure initiative.”
“Chair
White’s comprehensive anti-disclosure agenda runs directly contrary to the
SEC’s purpose,” Ms. Warren wrote in a 12-page letter Friday to Mr. Obama.
“The only way to return the SEC to its intended purpose is to change its
leadership.”
Tensions
between Ms. Warren and Ms. White erupted at a June Senate hearing, where the
Massachusetts lawmaker said she was “more disappointed than ever” in the
regulator’s tenure.
Ms. White
shot back: “I’m disappointed in your disappointment.”
A string of
recent SEC chairmen, including Mary Schapiro and Elisse Walter, have
defended Ms. White’s record.
White House
spokesman Eric Schultz on Friday reaffirmed the president’s support for the
top U.S. markets cop. “The president continues to believe that Chair White
is the right leader for the Securities and Exchange Commission,” Mr. Schultz
told reporters.
Ms. White has
also defended her record against the attacks. In a June 2015 statement, she
said Ms. Warren’s criticisms were “unfortunate” and pointed to the SEC’s
record number of enforcement cases as well as the agency’s work “advancing
more than 30 congressionally mandated rulemakings and other transformative
policy initiatives to protect investors and strengthen our markets.“
Specifically,
Ms. Warren is calling on the White House to immediately demote Ms. White to
a commissioner and at the same time, to designate a different chairman from
among the two remaining commissioners. That would presumably mean elevating
Kara Stein, the agency’s sole Democrat, to the top office, though Ms.
Warren’s letter isn’t explicit.
Unhappy with
a 2010 Supreme Court decision that allowed unlimited corporate donations,
many Democrats have seized on the strategy of using the SEC’s unique powers
to force such companies to disclose their political spending activities.
Democrats believe more transparency—while not as strong as concrete
limits—could prompt some companies to spend less on politics if shareholders
or other influential groups protest the giving.
Republicans
generally oppose the idea, saying the SEC shouldn’t compel firms to report
political donations because securities laws require companies to report only
information that helps shareholders make investment decisions. Such
judgments usually turn on a company’s prospects for earning profits or cash
flow, not whether a business has donated money to a politically active
group, they say.
Ms. White has
said political-spending disclosures are “not one of the priorities we are
advancing,” citing an already-full agenda of postcrisis rules and other
matters.
Continued in article
Humor for October 2016
A Short Compendium of (pretty awful) Academic Humor
---
http://www.gly.uga.edu/railsback/acadhum1.html?elqTrackId=fcbfeda311d641229ab072e018ceb47c&elq=e0d27cfec29a4620bec4ee2adb4a7620&elqaid=11246&elqat=1&elqCampaignId=4343
Bob Jensen's Short Compendium of (pretty awful Enron humor and
beyond) Accounting Humor ---
http://faculty.trinity.edu/rjensen/FraudEnron.htm#Humor
John Cleese & Jonathan Miller Turn Profs Talking About Wittgenstein Into a
Classic Comedy Routine (1977) ---
http://www.openculture.com/2016/10/john-cleese-jonathan-miller-turn-profs-talking-about-wittgenstein-into-a-classic-comedy-routine-1977.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Is looking for
a gap between an object and its reflection a good way to distinguish two-way
mirrors from ordinary mirrors?
http://www.snopes.com/crime/warnings/mirror.asp
Jensen Comment
Reminds me of the time a Texas Aggie coed wore a see-through dress and nobody
wanted to
Gene Wilder Recalls the Beginnings of His Creative Life in Two Hilarious,
Poignant Stories ---
http://www.openculture.com/2016/08/gene-wilder-recalls-the-beginnings-of-his-creative-life-in-two-hilarious-poignant-stories.html
11 Books by Comedians That Will Make You Laugh ---
http://www.businessinsider.com/comedian-books-2016-8
Florida: The Punchline State ---
http://www.wsj.com/articles/florida-the-punchline-state-1472845591
I completely forgot to write about jail being one of the retirement options
70-year-old says he robbed bank because he
preferred jail to his wife -+--
http://www.thestate.com/news/nation-world/national/article100357577.html#fmp
Ex-Playboy model runs from Interpol to avoid prison for honeypot mafia-murder
plot ---
http://www.washingtontimes.com/news/2016/sep/7/slobodanka-tosic-ex-playboy-model-runs-from-interp/
Jensen Comment
You can identify her by looking for the staple scars
At the vice presidential debate last night, the
Republican nominee, Mike Pence, made sure to thank the hosts at Norwood
University. One problem: The institution is named Longwood University.
Jensen Comment
Wasn't it Robert Kennedy who, from the back of a train during whistle stop
campaign train, said good morning to the wrong Iowa town?
When he woke up Marilyn Monroe forgot to tell him where they were
The 8 Greatest Hillary Clinton and Donald Trump Impressions of All Time ---
http://time.com/4451557/donald-trump-hillary-clinton-impressions/?xid=newsletter-brief
Alec Baldwin's SNL Donald Trump Spoof ---
http://www.openculture.com/2016/10/alec-baldwin-does-a-perfect-donald-trump-watch-snls-spoof-of-the-trump-clinton-debate.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29
Video: The Twilight of the Clintons. A very funny parody of the Ring
cycle ---
https://www.youtube.com/watch?v=Prls6Iz3B3E
The funniest puns and double-entendres from 'Great British Bake Off' ---
http://www.businessinsider.com/great-british-bake-off-funniest-puns-and-double-entendres-from-2016-9
This is not funny, but it is a little ironic
'Sherlock' actress has a new mystery to solve: Who took her purse when she was
accepting her Emmy ---
http://www.businessinsider.com/amanda-abbington-purse-stolen-at-emmys-2016-9
Time Magazine: 2016 Ig Nobel Prize
Winning Quirky Research ---
http://time.com/4505383/ig-nobel-awards-2016-spoof-prize-quirky-science/?xid=newsletter-brief
Home Page and Archives ---
http://www.improbable.com/ig/
Canadian Mint employee accused of smuggling
$180K of gold in his rectum ---
http://ottawacitizen.com/news/local-news/egan-170k-in-mint-gold-allegedly-smuggled-in-body-cavity-judge-hears
Jensen Comment
This is the one and only time it might be very interesting to be a proctologist.
Johnny Cash's Cadillac could not top this one
---
https://www.youtube.com/watch?v=rWHniL8MyMM&list=RDrWHniL8MyMM
Forwarded by Paula
Knowledge is knowing a tomato is a fruit.
Wisdom is not using it in a fruit salad.
- Miles
Kington
<><>
Sometimes, when I look at my children, I say to myself, 'Lillian, you should
have remained a virgin.' - Lillian Carter (mother of Jimmy Carter)
<><>
I had a rose named after me and I was very flattered. But I was not pleased
to read the description in the catalogue: -
'No good in a bed, but fine against a wall.'
- Eleanor Roosevelt
<><>
Last week, I stated this woman was the ugliest woman I had ever seen. I have
since been visited by her sister, and now wish to withdraw that statement.
- Mark Twain
<><>
The secret of a good sermon is to have a good beginning and a good ending;
and to have the two as close together as possible.
- George Burns
<><>
Santa Claus has the right idea. Visit people only once a year.
- Victor Borge
<><>
Be careful about reading health books. You may die of a misprint.
- Mark Twain
<><>
By all means, marry. If you get a good wife, you'll become happy; if you get
a bad one, you'll become a philosopher.
- Socrates
<><>
I was married by a judge. I should have asked for a jury.
- Groucho Marx
<><>
My wife has a slight impediment in her speech. Every now and then she stops
to breathe.
- Jimmy Durante
<><>
I have never hated a man enough to give his diamonds back.
- Zsa Zsa Gabor
<><>
Only Irish coffee provides in a single glass all four essential food groups:
alcohol, caffeine, sugar and fat.
- Alex Levine
<><>
My luck is so bad that if I bought a cemetery, people would stop dying.
- Rodney Dangerfield
<><>
Money can't buy you happiness; But it does bring you a more pleasant form of
misery.
- Spike Milligan
<><>
Until I was thirteen, I thought my name was SHUT UP.
- Joe Namath
<><>
I don't feel old. I don't feel anything until
noon. Then
it's time for my nap.
- Bob Hope
<><>
I never drink water because of the disgusting things that fish do in it.
- W. C. Fields
<><>
We could certainly slow the aging process down if it had to work its way
through Congress.
- Will Rogers
<><>
Don't worry about avoiding temptation. As you grow older, it will avoid you.
- Winston Churchill
<><>
Maybe it's true that life begins at fifty .. But everything else starts to
wear out, fall out, or spread out.
- Phyllis Diller
<><>
By the time a man is wise enough to watch his step, he's too old to go
anywhere.
- Billy Crystal
<><>
And the cardiologist's diet: - If it tastes good spit it out.
( I love it)
Forwarded by Paula
One Liners In An Election Year
Sayings that never grow old!
If
God wanted us to vote,
he would have given us candidates.
~Jay Leno~
The
problem with political jokes is they
get elected.
~Henry Cate, VII~
We
hang the petty thieves and appoint
the great ones to public office.
~Aesop~
If
we got one-tenth of what was promised
to us in these State of the Union speeches,
there wouldn't be any inducement to go to heaven.
~Will Rogers~
Politicians
are the same all over.
They promise to build a bridge even
where there is no river.
~Nikita Khrushchev~
When
I was a boy I was told that anybody
could become President; I'm beginning to believe it.
~Clarence Darrow~
Politicians
are people who, when they see
light at the end of the tunnel, go out and
buy some more tunnel.
~John Quinton~
Why
pay money to have your family tree
traced; go into politics and your opponents
will do it for you.
~Author unknown
Politics
is the gentle art of getting votes
from the poor and campaign funds from
the rich, by promising to protect each from the other.
~Oscar Ameringer~
I
offer my opponents a bargain: if they will
stop telling lies about us, I will stop telling
the truth about them.
~Adlai Stevenson, 1952~
A
politician is a fellow who will lay
down your life for his country.
~ Tex Guinan~
I
have come to the conclusion that politics
is too serious a matter to be left to the politicians.
~Charles de Gaulle~
Instead
of giving a politician the keys to the
city, it might be better to change the locks.
~Doug Larson~
There
ought to be one day -- just one --
when there is open season on Congressmen.
~Will Rogers~
Forwarded by Paula
You may not remember the old-time Jewish comedians:
Shecky Green, Red Buttons, Totie Fields, Milton Berle,
Henny Youngman, and others.
But some of us miss their kind of humor. Not a single
swear word in their routines, and you don't have to be
Jewish to enjoy their jokes.
*A car hit an elderly Jewish man. The paramedic asks, "Are you
comfortable?" The man says, "I make a good living."
*I just got back from a pleasure trip. I took my mother-in-law to the
airport.
*I've been in love with the same woman for 49 years. If my wife finds
out, she'll kill me!
*Someone stole all my credit cards, but I won't be reporting it. The
thief spends less than my wife did.
*We always hold hands. If I let go, she shops.
*My wife and I went to a hotel where we got a waterbed. My wife calls it
the Dead Sea.
*My wife and I revisited the hotel where we spent our wedding night. This
time I was the one who stayed in the bathroom and cried.
*My Wife was at the beauty shop for two hours. That was only for the
estimate. She got a mud pack and looked great for two days. Then the mud
fell off.
*The Doctor gave a man six months to live. The man couldn't pay his bill,
so the doctor gave him another six months.
*The Doctor called Mrs. Cohen saying, "Mrs. Cohen, your check came
back."Mrs. Cohen replied, "So did my arthritis!"
*Doctor: "You'll live to be 60!"
Patient: "I AM 60!"
Doctor: "See! What did I tell you?"
*A doctor held a stethoscope up to a man's chest. The man asks, "Doc, how
do I stand?"
The doctor says, "That's what puzzles me!"
*Patient: "I have a ringing in my ears."
Doctor: "Don't answer!"
*A drunk was in front of a judge. The judge says, "You've been brought
here for drinking."
The drunk says, "Okay, let's get started."
*Why do Jewish divorces cost so much?
They're worth it.
*Why do Jewish men die before their wives?
They want to.
*The Harvard School of Medicine did a study of why Jewish women like
Chinese food so much.
The study revealed that the reason is Won Ton spelled backward is Not
Now.
*There is a big controversy on the Jewish view of when life begins. In
Jewish tradition, the fetus is not considered
viable until it graduates from law school.
*Q: Why don't Jewish mothers drink?
A: Alcohol interferes with their suffering.
*Q: Have you seen the newest Jewish-American-Princess horror movie? A:
It's called, "Debbie Does Dishes."
*Q: Why do Jewish mothers make great parole officers?
A: They never let anyone finish a sentence.
*A man called his mother in Florida . "Mom, how are you?"
"Not too good," said the mother. "I've been very weak."
The son asked, "Why are you so weak?"
She replied, "Because I haven't eaten in 38 days."
The son said,"That's terrible. Why haven't you eaten in 38 days?"
The mother answered, "Because, I didn't want my mouth to be full in case
you should call."
*A Jewish man said that when he was growing up, they always had two
choices for dinner - Take it or leave it.
*A Jewish boy comes home from school and tells his mother he has a part
in the play. She asks, "What part is it?"
The boy says, "I play the part of the Jewish husband."
The mother scowls and says, "Go back and tell the teacher you want a
speaking part."
*Q: Where does a Jewish husband hide money from his wife?
A: Under the vacuum cleaner.
*Q: How many Jewish mothers does it take to change a light bulb?
A: (Sigh) "Don't bother. I'll sit in the dark. I don't want to be a
nuisance to anybody."
*A Jewish mother gives her son a blue shirt and a brown shirt for his
birthday. On the next visit, he wears the
brown one. The mother says, "What's the matter
already? Didn't you like the blue one?"
*Did you hear about the bum who walked up to a Jewish mother on the
street and said, "Lady I haven't eaten in three days." "Force yourself," she
replied.
*Q: What's the difference between a Rottweiler and a Jewish mother?
A: Eventually, the Rottweiler lets go.
*Q: Why are Jewish Men circumcised?
A: Because Jewish women don't like anything that isn't 20% off.
Taxing Tattoos and Other Fine Arts ---
http://www.bna.com/sales-tax-slice-b73014447392/
Jensen Comment
I'll resist commenting further on a tattoo of one's cat (mentioned in the
article)
I guess that beats making a tattoo of one's significant other who could become
insignificant most any time.
Accountants might consider a forehead tattoo of a green eyeshade.
But that might lead to lonely times in singles bars.
I think I'll get a tattoo that reads "Test Checker for Your Inventory"
Any better suggestions?
Awful Punish Humor from Paula
Venison for dinner again? Oh deer!
* How does Moses make tea? Hebrews it.
* England has no kidney bank, but it does have a Liverpool.
* I tried to catch some fog, but I mist.
* They told me I had type-A blood, but it was a typo.
* I changed my iPod's name to Titanic. It's syncing now.
* Jokes about German sausage are the wurst.
* I know a guy who's addicted to brake fluid, but he says he can stop any time.
* I stayed up all night to see where the sun went, and then it dawned on me.
* This girl said she recognized me from the vegetarian club, but I'd never met
herbivore.
* When chemists die, they barium.
* I'm reading a book about anti-gravity. I just can't put it down.
* I did a theatrical performance about puns. It was a play on words.
* Why were the Indians here first? They had reservations.
* I didn't like my beard at first. Then it grew on me.
* Did you hear about the cross-eyed teacher who lost her job because she
couldn't control her pupils?
* When you get a bladder infection, urine trouble.
* Broken pencils are pointless.
* What do you call a dinosaur with an extensive vocabulary? A thesaurus.
* I dropped out of communism class because of terrible Marx.
* I got a job at a bakery because I kneaded dough.
* Velcro - what a rip off!
* Don't worry about old age it doesn't last
Humor October 2016 ---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor1016.htm
Humor
September 2016
---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor093016.htm
Humor
August 2016
---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor083116.htm
Humor
July 2016
---
http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0716.htm
Humor
June 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor063016.htm
Humor
May 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor053116.htm
Humor
April 2016
---
http://faculty.trinity.edu/rjensen/book16q2.htm#Humor043016.htm
Humor
March 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor033116.htm
Humor February 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor022916.htm
Humor January 2016
---
http://faculty.trinity.edu/rjensen/book16q1.htm#Humor013116.htm
Humor December 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor123115.htm.htm
Humor November 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor113015.htm
Humor October 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q4.htm#Humor103115
Humor September 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor093015
Humor August 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor081115
Humor July 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor073115
Humor June 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor May 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor April 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor March 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor033115
Humor February 1-28, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor022815
Humor January 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor013115
Tidbits Archives ---
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
And that's
the way it was on October 31, 2016 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
http://faculty.trinity.edu/rjensen/ListservRoles.htm
Bob
Jensen's Threads ---
http://faculty.trinity.edu/rjensen/threads.htm
Bob
Jensen's Blogs ---
http://faculty.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New
Bookmarks ---
http://faculty.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past
presentations and lectures ---
http://faculty.trinity.edu/rjensen/resume.htm#Presentations
Free
Online Textbooks, Videos, and Tutorials ---
http://faculty.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses ---
http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob
Jensen's Resume ---
http://faculty.trinity.edu/rjensen/Resume.htm
Bob
Jensen's Homepage ---
http://faculty.trinity.edu/rjensen/
Accounting
Historians Journal ---
http://www.libraries.olemiss.edu/uml/aicpa-library and
http://clio.lib.olemiss.edu/cdm/landingpage/collection/aah
Accounting Historians Journal
Archives---
http://www.olemiss.edu/depts/general_library/dac/files/ahj.html
Accounting History Photographs ---
http://www.olemiss.edu/depts/general_library/dac/files/photos.html
/