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 2015 Quarter 2:  April 1 - June 30 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

2015
June 30

May 31

April 30

 

 


 

June 30, 2015

 

Bob Jensen's New Bookmarks for June 1-30, 2015 

 

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 




From the Chronicle of Higher Education
Search for Job Openings in Higher Education ---
https://chroniclevitae.com/job_search/new

Higher Education Recruitment Consortium --- http://www.hercjobs.org/

How to Mislead With Statistics
The Chronicle’s interactive database to see how much top public-college presidents earned in 2014 ---
http://chronicle.com/factfile/ec-2015/?cid=at&utm_source=at&utm_medium=en#id=table_public_2014

Jensen Comment
It's very difficult to make comparisons of "compensation" since the perks of university presidents vary so much. Some live for free or for very low rent  in mansions on campus whereas some have to pay for their own housing. Some have free cars with drivers or free cars without drivers versus those who have to purchase their own cars. Access to private jets and yachts and luxury vacations vary under all sorts of deals with university trustees and alumni. There can be fixed-compensation contracts versus contracts that provide a percentage of funds raised from donors.

Deals can be even more varied among politicians. I just read where Michelle Obama had plastic surgery on taxpayer funding even though Obamacare will not pay for cosmetic surgery ---
http://www.coachisright.com/michelle-obama-has-plastic-surgery-at-walter-reed-on-taxpayers-dime/ 


Concerns Over Shortage of Competent Accounting Recruits
"Staffing issues surge to forefront of accounting firm concerns,"  by Jeff Drew, Journal of Accountancy, June 9, 2015 ---
http://www.journalofaccountancy.com/news/2015/jun/accounting-firm-issues-201512451.html 

It’s been a long time, but U.S. accounting firms are again dealing with a full-fledged talent shortage.

That’s one of the main takeaways from the 2015 Private Companies Practice Section (PCPS) CPA Firm Top Issues survey, which found staffing issues leading the list of concerns for accounting firms of all sizes except sole proprietors.

Finding qualified staff ranked as one of the two most pressing issues for all firms with more than one professional, topping the list for firms with two to 10 professionals and ranking second among firms with 11 or more professionals (see chart below). Firms in the two largest size categories (11–20 professionals and 21+ professionals) named staff retention as their No. 1 concern.

Continued in article

Bob Jensen's threads on careers are at
http://faculty.trinity.edu/rjensen/Bookbob1.htm#careers

 


AICPA ISSUES REPORT ON PROPOSED CHANGES IN NEXT VERSION OF CPA EXAM , Accounting Education.con, June 6, 2015 ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=153473


PwC:  During the delayed implementation of the forthcoming revenue standard revisions the FASB and IASB are fine tuning the rules for gross versus net reporting --- Click Here
http://www.pwc.com/us/en/cfodirect/publications/in-transition/fasb-iasb-clarify-revenue-recognition-principal-agent-guidance.jhtml?display=/us/en/cfodirect/issues/revenue-recognition


"SEC upgrades EDGAR, drops 2013 GAAP taxonomy support for XBRL," by Jeff Drew, Journal of Accountancy, June 17, 2015 ---
http://www.journalofaccountancy.com/news/2015/jun/sec-upgrades-edgar-database-201512511.html 

The SEC has released an updated version of its EDGAR company filings database that does not support the 2013 GAAP taxonomy for the XBRL tagging of financial reports.

Release 15.2 of EDGAR, which came out Monday, also no longer supports the 2013 EXCH taxonomy.

The SEC adopted the 2015 GAAP financial reporting taxonomy March 9. The GAAP taxonomy is a list of computer-readable tags in extensible business reporting language (XBRL) format.

Companies can use XBRL to tag data in financial statements and footnote disclosures. The tags allow financial statement users to search for, assemble, and process data from the filings.

A list of standard taxonomies supported by the SEC is available on the commission’s website.

Also see: “Recommendations Could Help SEC Improve EDGAR Database.”

"FASB’s proposed 2015 GAAP taxonomy available for comment," by Ken Tysiac, Journal of Accountancy, August 29, 2014 ---
http://www.journalofaccountancy.com/News/201410855.htm
To access the proposed taxonomy go to (requires login permission and password)
http://www.fasb.org/jsp/FASB/Page/LandingPage&cid=1176164131053
Note the FAQs link

Bob Jensen's threads on XBRL ---
http://faculty.trinity.edu/rjensen/XBRLandOLAP.htm


The disconnect between econometric teaching and practice
Or might we reword this as saying the disconnect between accountics science research and accounting practice?

"Why econometrics teaching needs an overhaul," by By Josh Angrist and Jorn-Steffen Pischke, World Economic Forum, May 21, 2015 ---
https://agenda.weforum.org/2015/05/why-econometrics-teaching-needs-an-overhaul/

The Global Crisis provoked some to ask, “what’s the use of economics”?, a reference to the economics that most economists had studied in college. We’d pile on, adding, “what’s the use of econometrics… at least as currently taught”? Most of the undergraduates who major in economics take a course in econometrics. This course should be one of the more useful experiences a student can have. For decades, economics undergraduates have found jobs in sectors that make heavy use of quantitative skills. As data sets have grown bigger and more complex, the demand for new grads with data-analytic skills has accelerated rapidly. Econometrics courses promise to equip our students with the powerful tools economists use to understand the economic relationships hidden in data. It’s both remarkable and regrettable, therefore, that econometrics classes continue to transmit an abstract body of knowledge that’s largely irrelevant for economic policy analysis, business problems, and even for much of the econometric research undertaken by scholars.

After a brief discussion of curve fitting, Pindyck and Rubinfeld’s (1976) first edition book began with subsections titled ‘The Model’, ‘Statistical Properties of Estimators’, and ‘Best Linear Unbiased Estimation’. The second edition of Johnston (1972) similarly started with models, assumptions, and estimators. Johnston describes multivariate regression models as “fitting the regression plane” a technical extension of the two-variable model that fits a line. The undergraduate econometrics canon has evolved little in the decades since. Becker and Greene (2001) surveyed econometrics texts and teaching at the turn of the millennium, arguing that “econometrics and statistics are often taught as branches of mathematics, even when taught in business schools… the focus in the textbooks and teaching materials is on presenting and explaining theory and technical details with secondary attention given to applications, which are often manufactured to fit the procedure at hand… applications are rarely based on events reported in financial newspapers, business magazines or scholarly journals in economics”.

The disconnect between econometric teaching and practice

Hewing to the table of contents in legacy texts, today’s market leaders continue to feature models and assumptions at the expense of empirical applications. Core economic questions are mentioned in passing if at all, and empirical examples are still mostly contrived, as in Studenmund (2011), who introduces empirical regression with a fanciful analysis of the relationship between height and weight. The first empirical application in Hill, Griffiths, and Lim (2011: 49) explores the correlation between food expenditure and income. This potentially interesting relationship is presented without a hint of why or what for. Instead, the discussion here emphasises the fact that “we assume the data… satisfy assumptions SR1-SR5”. An isolated bright spot is Stock and Watson (2011), which opens with a chapter on ‘Economic Questions and Data’ and introduces regression with a discussion of the causal effect of class size on student performance. Alas, Stock and Watson also return repeatedly to more traditional model-based abstraction.

The disconnect between econometric teaching and econometric practice goes beyond questions of tone and illustration. The most disturbing gap here is conceptual. The ascendance of the five core econometric tools – experiments, matching and regression methods, instrumental variables, differences-in-differences and regression discontinuity designs – marks a paradigm shift in empirical economics. In the past, empirical research focused on the estimation of models, presented as tests of economic theories or simply because modelling is what econometrics was thought to be about. Contemporary applied research asks focussed questions about economic forces and economic policy.

Continued in article

"A Scrapbook on What’s Wrong with the Past, Present and Future of Accountics Science," by Bob Jensen, Working Paper 450.06, Date Fluid ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsWorkingPaper450.06.pdf

The purpose of this paper is to make a case that the accountics science monopoly of our doctoral programs and publish ed research is seriously flawed, especially its lack of concern about replication and focus on simplified arti ficial worlds that differ too much from reality to creatively discover findings of greater relevance to teachers of accounting and practitioners of accounting. Accountics scientists themselves became a Cargo Cult.


In spite of lower fuel prices
Container shippers are in serious trouble
---
http://www.businessinsider.com/container-shippers-are-losing-money-2015-6


Issue 15 - E: The EITF decided that an entity would not need to determine whether a contingency related to the exercisability of a put or call option on a debt instrument is clearly and closely related to the debt host ---
http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB3003_19June2015/$FILE/EITFUpdate_BB3003_19June2015.pdf

Jensen Comment
Note how IFRS 9 in general ignores the impact of embedded derivatives on hedge effectiveness.  Little by little FASB standards are converging on weaker (in my opinion) IFRS standards.

Examples are given at
http://www.fasb.org/jsp/FASB/Document_C/DocumentPage&cid=1176166130557
Note Alternative A versus Alternative B


Replication or Lack Thereof in Accounting Research

IS THERE A MULTINATIONALITY EFFECT? A REPLICATION AND REEXAMINATION OF THE MULTINATIONALITYPERFORMANCE RELATIONSHIP
by Heather Berry and Aseem Kahl
SSRN
June 2015

Abstract:     
 
We revisit the effect of multinationality on firm performance while accounting for problems of consolidation and selection. Using detailed longitudinal data from a comprehensive sample of US manufacturing MNCs, we replicate the U-shaped relationship found in prior studies and then show that this U-shaped relationship results from the combination of a negative relationship with aggregation activities and a positive relationship with adaptation and arbitrage activities. Further, once we control for the endogeneity of multinationality, we no longer find a significant effect of overall multinationality on performance, although arbitrage activities, in the form of cross-border product transfers, continue to have a positive effect on firm performance. These findings provide fresh empirical insight into the multinationality-performance relationship, while highlighting the benefits from arbitrage across subsidiary networks.

. . .

Replication of prior studies We start by trying to replicate the approach and measures used in prior work; specifically, we try to replicate the relationships found by Lu and Beamish (2004) in their study of Japanese multinationals. We choose to replicate Lu and Beamish (2004) both because it is an important and highly cited study of the multinationality-performance relationship, and because it is the closest to our work in that it studies multinationals using panel data. Models I-IV in Table Three show the results of our attempt to replicate the findings of Lu and Beamish (2004) in our sample, using the same dependent variable and predictors that they use6, as well as a similar estimation approach..

Models I-III in Table Three show the relationship of performance with the main, squared and cubed terms of our consolidated multinationality index respectively, using a fixed effects OLS regression. Model I shows a moderately significant negative coefficient for multinationality, which becomes significant at conventional levels in Model II once we include a squared multinationality term, which takes a positive and significant coefficient. Model II thus indicates a U-shaped relationship between multinationality and performance. We do not find evidence of an S-shaped relationship (Contractor et al., 2003; Lu and Beamish, 2004), with the coefficient for the cubed term in Model III being insignificant. Lu and Beamish (2004) also find a positive interaction between multinationality and parent R&D intensity when predicting RoA. We attempt to replicate this finding in Model IV, but the coefficient of the interaction term is insignificant.

Continued in article

Jensen Comment
Replication is not at all common in accounting research ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

To my knowledge there's never been a replication study in accounting that alters the findings of the original research. When replication  does take place there's usually a relatively long time lag (ten years or more) such that the intent of the replication is not to validate the original findings. Rather the intent is to set the stage for expanding the research model to better explain the findings of the earlier studies.

The Berry and Kahl replication and model expansion fits into this pattern.
The original studies went over ten years without being replicated.
Berry and Kahl conducted a replication that did not alter the findings of the original studies. Berry and Kahl design a more complicated model to explain better explain the U-shaped relationship as described above.

 

"574 Shields Against Validity Challenges in Plato's Cave," by Bob Jensen, Evolving Web Document ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

What is an Exacting Replication?
I define an exacting replication as one in which the findings are reproducible by independent researchers using the IAPUC Gold Book standards for reproducibility. Steve makes a big deal about time extensions when making such exacting replications almost impossible in accountics science. He states:

By "exacting replication," you appear to mean doing exactly what the original researcher did -- no more and no less. So if one wishes to replicate a study conducted with data from 2000 to 2008, one had better not extend it to 2009, as that clearly would not be "exacting." Or, to borrow a metaphor I've used earlier, if you'd like to replicate my assertion that it is currently 8:54 a.m., ask to borrow my watch -- you can't look at your watch because that wouldn't be an "exacting" replication.

That's CalvinBall bull since in many of these time extensions it's also possible to conduct an exacting replication. Richard Sansing pointed out the how he conducted an exacting replication of the findings in Dhaliwal, Li and R. Trezevant (2003), "Is a dividend tax penalty incorporated into the return on a firm’s common stock?," Journal of Accounting and Economics 35: 155-178. Although Richard and his coauthor extend the Dhaliwal findings they first conducted an exacting replication in their paper published  in The Accounting Review 85 (May 2010): 849-875.

My quibble with Richard is mostly that conducting an exacting replication of the Dhaliwal et al. paper was not exactly a burning (hot) issue if nobody bothered to replicate that award winning JAE paper for seven years.

This begs the question of why there are not more frequent and timely exacting replications conducted in accountics science if the databases themselves are commercially available like the CRSP, Compustat, and AuditAnalytics databases. Exacting replications from these databases are relatively easy and cheap to conduct. My contention here is that there's no incentive to excitedly conduct exacting replications if the accountics journals will not even publish commentaries about published studies. Steve and I've played CalvinBall with the commentaries issue before. He contends that TAR editors do not prevent commentaries from being published in TAR. The barriers to validity questioning commentaries in TAR are the 574 referees who won't accept submitted commentaries ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm#ColdWater

Exacting replications of behavioral experiments in accountics science is more difficult and costly because the replicators must conduct their own experiments by collecting their own data. But it seems to me that it's no more difficult in accountics science than in performing exacting replications that are reported in the research literature of psychology. However, psychologists often have more incentives to conduct exacting replications for the following reasons that I surmise:

  1. Practicing psychologists are more demanding of validity tests of research findings. Practicing accountants seem to pretty much ignore behavioral experiments published in TAR, JAR, and JAE such that there's not as much pressure brought to bear on validity testing of accountics science findings. One test of practitioner lack of interest is the lack of citation of accountics science in practitioner journals.
     
  2. Psychology researchers have more incentives to replicate experiments of others since there are more outlets for publication credits of replication studies, especially in psychology journals that encourage commentaries on published research ---
    http://faculty.trinity.edu/rjensen/TheoryTAR.htm#TARversusJEC

My opinion remains that accountics science will never be a real science until exacting replication of research findings become the name of the game in accountics science. This includes exacting replications of behavioral experiments as well as analysis of public data from CRSP, Compustat, AuditAnalytics, and other commercial databases. Note that willingness of accountics science authors to share their private data for replication purposes is a very good thing (I fought for this when I was on the AAA Executive Committee), but conducting replication studies of such data does not hold up well under the IAPUC Gold Book.

Note, however, that lack of exacting replication and other validity testing in general are only part of the huge problems with accountics science. The biggest problem, in my judgment, is the way accountics scientists have established monopoly powers over accounting doctoral programs, faculty hiring criteria, faculty performance criteria, and pay scales. Accounting researchers using other methodologies like case and field research become second class faculty.

A Success Case for the Inability to Replicate in Validation of Social Science Research
 

"What Social Science Can Learn From the LaCour Scandal," by Joseph K. Young and Nicole Janz, Chronicle of Higher Education, June 3, 2015 ---
http://chronicle.com/article/What-Social-Science-Can-Learn/230645/?cid=cr&utm_source=cr&utm_medium=en

. . .

So why don’t more researchers replicate? Because replication isn’t sexy. Our professional incentives are to come up with novel ideas and data, not confirm other people’s prior work. Replication is the yeoman’s work of social science. It is time-consuming, it is frustrating, and it does not gain any accolades for your CV. Worse, critics of students' doing replications state that they are amateurs, or that they may jeopardize their reputations by starting their scientific careers as "error hunters." The LaCour scandal shows that critics could not be more wrong. Scientific knowledge is built on the edifice of prior work. Before we get to a stage where we need more new ideas, we need to have a better sense of what works given the data.

Others have argued that the LaCour incident shows the weakness of the social sciences. Some have decided to make this some kind of steamy academic soap opera, even dubbing it LaCourGate, with daily revelations about fake awards and fake funding. While Americans love to shame, this episode is not about LaCour or Green or what is or was not the cause of the errors in the study. This is about openness, transparency, and replication.

The important lesson, however, is that replication works. It is a verification tool that improves science and our knowledge base. The takeaway is that we need to provide more incentives for such work. We need a new, highly respected journal that is just about replication. More funding sources are needed for replications. Each current journal in all of the social sciences should establish policies that require data, tools, and processes to be completely open-source upon publication.

The data given to Science provided the evidence needed to identify errors in LaCour and Green. What prevents this from occurring more often is an incentive for others to replicate. Students can be a crucial force, and colleges should start embedding replication in their courses more rigorously and systematically. And instructors should encourage students to publish their work; currently most replications done in class are an untapped resource.

In fact, LaCour and the uproar surrounding the scandal did supporters of replication and data transparency a big favor. The field of political science was already undergoing changes toward more reproducibility. Top journals — but not all journals in the field — have started to adopt strict replication policies requiring authors to provide their materials upon publication. The American Political Science Association released new guidelines on data access and research transparency.

Those new trends toward higher-quality research were not based on a crisis in political science itself. For example, there were hardly any retractions, accusations of fraud, plagiarism, or large-scale irreproducibility scandals in political science before this one. But there were scandals in psychology, economics, and cancer research that sparked a discussion in our discipline. In fact, political science has been feeding off crises in other fields without bleeding itself. We’ve often wondered: If there were more scandals in political science, could a change toward higher research quality be more rapid, and more profound? Enter LaCour.

Joseph K. Young is an associate professor in the School of Public Affairs and the School of International Service at American University, and Nicole Janz is a political scientist and research-methods associate at the University of Cambridge.

Steve Kachelmeier called my attention to this article that can be rented for $6 at
http://onlinelibrary.wiley.com/doi/10.1111/1911-3846.12102/full
Steve wants me to stress that he's not even read the above paper in its entirety and is not (yet) taking a position on replication.
 
Steve did not mention that without citation the 2014 article makes some of the same points Steve made in July 2011.

"Introduction to a Forum on Internal Control Reporting and Corporate Debt," by Steven J. Kachelmeier, The Accounting Review, Vol. 86, No. 4, July 2011 pp. 1129–113 (not free online) ---
http://aaapubs.aip.org/getpdf/servlet/GetPDFServlet?filetype=pdf&id=ACRVAS000086000004001129000001&idtype=cvips&prog=normal
 

One of the more surprising things I have learned from my experience as Senior Editor of The Accounting Review is just how often a ‘‘hot topic’’ generates multiple submissions that pursue similar research objectives. Though one might view such situations as enhancing the credibility of research findings through the independent efforts of multiple research teams, they often result in unfavorable reactions from reviewers who question the incremental contribution of a subsequent study that does not materially advance the findings already documented in a previous study, even if the two (or more) efforts were initiated independently and pursued more or less concurrently. I understand the reason for a high incremental contribution standard in a top-tier journal that faces capacity constraints and deals with about 500 new submissions per year. Nevertheless, I must admit that I sometimes feel bad writing a rejection letter on a good study, just because some other research team beat the authors to press with similar conclusions documented a few months earlier. Research, it seems, operates in a highly competitive arena.
 


My criticisms of lack of replication in accountics research still stand:
 
        •       Replication is not a priority in accountics science like it is in real science. Journal editors do not encourage replications even to the extent of encouraging and publishing commentaries where scholars can mention they replicated the studies.

 
        •       Replications that do take place, usually when newer research extends the original studies, are long-delayed sort of like being after thoughts when research for extensions take place, usually years later. In other words, there's little interest in replicating until researchers elect to conduct extension research.

 
        •       I've not encountered failed replications in accountics science. Many examples exist in real science where original findings are thrown into doubt because other scientists could not independently reproduce the findings. The Hunton and Gold paper was not withdrawn because it could not be replicated. I was not an insider to the real reasons for the withdrawal, but I suspect it was withdrawn because insiders commenced to suspect that Jim was fabricating data.

 
        •       Most archival replications simply use the same purchased data (e.g., CompuStat or AuditAnalytics) without error checking the data. In reality errors are common in these purchased databases. But if replications are made using the same data there is no chance of detecting errors in the data.
 
I really miss Steve on the AECM. He always sparked interesting debates and made great criticisms of my tidbits critical of accountics scientists.

 

Continued at
http://faculty.trinity.edu/rjensen/TheoryTAR.htm


"Tech Companies Fly High on Fantasy Accounting," The New York Times, June 18, 2015 ---
http://www.nytimes.com/2015/06/21/business/high-tech-fantasy-accounting.html?mwrsm=Email&_r=0

Jensen Comment
It's not clear that the companies are in violation of FASB accounting standards. For example, they would be in violation of FAS 123r if they did not book employee vested stock options as expenses ---
https://en.wikipedia.org/wiki/Stock_option_expensing 

Restricted Stock --- https://en.wikipedia.org/wiki/Restricted_stock

. . .

Executive compensation practices came under increased congressional scrutiny in the United States when abuses at corporations such as Enron became public. The American Jobs Creation Act of 2004, P.L. 108-357, added Sec. 409A, which accelerates income to employees who participate in certain nonqualified deferred compensation plans (including stock option plans). Later in 2004, FASB issued Statement no. 123(R), Share-Based Payment, which requires expense treatment for stock options for annual periods beginning in 2005. (Statement no. 123(R) is now incorporated in FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation.)

Prior to 2006, stock options were a popular form of employee compensation because it was possible to record the cost of compensation as zero so long as the exercise price was equal to the fair market value of the stock at the time of granting. Under the same accounting standards, awards of restricted stock would result in recognizing compensation cost equal to the fair market value of the restricted stock. However, changes to generally accepted accounting principles (GAAP) which became effective in 2006 led to restricted stock becoming a more popular form of compensation.[4] Microsoft switched from stock options to restricted stock in 2003, and by May 2004 about two-thirds of all companies surveyed by HR consultancy Mercer had reported changing their equity compensation programs to reflect the impact of the new option expensing rules.[5]

The median number of stock options (per company) granted by Fortune 1000 firms declined by 40% between 2003 and 2005, and the median number of restricted stock awards increased by nearly 41% over the same period (“Expensing Rule Drives Stock Awards,” Compliance Week, March 27, 2007). From 2004 through 2010, the number of restricted stock holdings of all reporting executives in the S&P 500 increased by 88%.[

Continued in article.

FASB rules for stock compensation are set out in ASC 718, Compensation—Stock Compensation ---
http://www.pwc.com/en_US/us/cfodirect/assets/pdf/accounting-guides/pwc_stock_based_2013.pdf 

It would seem unlikely that auditors of companies using stock awards would allow violations of ASC 718.

My point is that it is unlikely that "Fantasy Accounting" by tech companies are outright violations of FASB accounting standards. In the 1990s the tech industry was notoriously creative in writing contracts for creative accounting for increasing revenue and decreasing expenses. It became like a game to invent creative accounting followed by new EITFs to restrain the creative accounting.
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm 

The article ["Tech Companies Fly High on Fantasy Accounting,"] cited above in  The New York Times, June 18, 2015] is not specific enough to allow us to judge whether the companies and auditors put themselves in jeopardy of huge lawsuits by blatantly violating FASB standards in a fantasy land. It would be interesting to learn more of the specifics, however, about how they are skating on the edge of FASB standards with tacit approval of their auditors. What the article does suggest is that some of the tech company transactions (such as acquisition transactions) are so complex that the FASB has not yet caught up with creative accounting. This most certainly has been the case of the new revenue recognition standard that keeps being delayed and delayed and delayed presumably because of costs of implementation.

Bob Jensen's threads on creative accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Manipulation

"Hollywood Creative Accounting: The Success Rate of Major Motion Pictures," by Sergio Sparviero (University of Salzburg), SSRN, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2617170

Abstract:     
 
Academic, trade, and popular publications commonly assert that 80 percent of motion pictures fail to make a net profit, suggesting also that the main players of the motion picture industry operate in highly volatile market conditions. More importantly, major film companies use this argument to negotiate for better terms with their production and distribution partners, to lobby for stricter copyright protections, and to argue in favor of media conglomeration as a hedge against adverse market conditions. This article disputes these assertions by calculating the full range of income that major motion pictures derive from their primary and secondary markets. It demonstrates that a large share of studio films are ultimately profitable, therefore challenging the arguments that conglomerates make with industry partners and government policy makers.

June 21, 2015 reply from Tom Selling

No good deed goes unpunished. The SEC tried to limit the use of non-GAAP financial measures by publishing pretty strict requirements prior to their use (See Reg. G and Item 10(e) of Regulation S-K. But issuers could now be assured that if they complied with the letter of the rules, then they wouldn’t have to revise their filings.

Previously (may 12 years ago?), whether a non-GAAP measure was misleading was subject to the judgment of the Division of Corporation Finance, which reviewed disclosures only very selectively. As a result of the new rules, the use of non-GAAP measures exploded.

Best,
Tom

Jensen Note
Pro forma statements must be reconciled with traditional GAAP financial statements. Hence, investors and analysts who take the time and trouble can evaluate the extent of pro forma distortions.

Bob Jensen's threads on creative accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Manipulation


"Intangible Assets in Germany," by Andreas Oehler (Bamberg University) and Hannes Frey (Bamberg University), SSRN, 2014 ---
 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2615862

 

Abstract:
Purpose – Intangible assets are regarded as the future value drivers of company performance. However, hardly anything is known about the actual importance and influence of intangible assets. The purpose of this paper is to fill this gap, so the authors analyse the German stock market index DAX and accomplish a survey among the German Certified Public Accountants (CPAs) concerning intangible assets.

Design/Methodology/Approach – In a first step, the authors analyse the balance sheet data and the corresponding notes of the companies with regard to reported values of intangible assets and applied valuation methods. The sample period covers the years from 2005 to 2008. In a second step, the authors analyse the statements of the German CPAs with regard to intangible assets. The authors sent a standardised questionnaire to all 180 offices of the top ten German auditing firms.

Findings – The results indicate that intangible assets have gained in importance, while information on valuation methods is still scarce. According to the German CPAs, the current influence of intangible assets on company performance is on a high level and even will increase during the next few years. The mostly used valuation approach for the fair value measurement of patented technologies is the income approach. Furthermore, the accounting standards leave room for accounting policy – a result which casts doubt on the reliability of financial statements.

Originality/Value – For the first time not only annual balance sheet data but also corresponding notes regarding intangible assets are analysed. The findings are connected with a survey of an expert group for the valuation of intangibles.

Bob Jensen's threads on intangibles and contingencies accounting ---
http://faculty.trinity.edu/rjensen/theory01.htm#TheoryDisputes


How to Mislead With Statistics:  Is this spurious correlation?
"The Psychology of Messiness & Creativity: Research Shows How a Messy Desk and Creative Work Go Hand in Hand ---
http://www.openculture.com/2015/06/the-psychology-of-messiness-creativity.html

Jensen Comment
I'm suspicious about messiness being psychological --- at least in general.. My hypothesis is that people highly absorbed in in art, writing, or researchl are simply putting a lower priority on things like keeping things tidy relative to other priorities in their behavior. Of course there are limits. They may be aware that bad hygiene interferes with their health and relationships to a point where orderly hygiene has priority over a clean desk or a clean lab. Also messiness just seems to go with some jobs. Avid researchers often accumulate reading and other materials to a point where there is no way of storing them neatly. Artists often accumulate artwork and materials that cannot be stored neatly in their studios or living quarters.

In any case I don't think messiness is "normally" psychological, although it may be deeply rooted in nurturing while growing up. Children of a nasty-neat parent might go either way.

There are, of course, some psychology disorders that can lead either way. Teenagers may try to be messy in defiance of parental control. For some people, extreme neatness is part of an obsessive-compulsive disorder (OCD) ---
https://en.wikipedia.org/wiki/Obsessive%E2%80%93compulsive_disorder

I'm reminded of a study of NFL lockers that I can no longer cite. One finding was that linebackers tended to have much more jumbled lockers on average than quarterbacks. I hesitate to venture into the psychology of this, although it could be that the role of a linebacker is to create disorder on the field whereas the role of a quarterback is to create order on the field.

My nasty-neat wife chronically jokes about my cluttered work stations, studio, and most of all --- my barn. Cleaning up my barn is most certainly not a priority in my life. However, I've learned the hard way about keeping tools in proper places. It is awfully frustrating to waste time looking for a tool. I always return tools to their proper places.

Sometimes what looks messy may not be so messy in reality. Along one very-long wall (over 40 feet) of our basement I have hundreds of things hanging from screws or pegs. For example, all sizes of metal plates, wires, and fasteners are hanging on this wall. My feeling is that for something I don't often use or need if you can't see it you can't find it. Another bad thing is to waste floor space when it can be hung from the ceiling. Our basement has an abnormally high ceiling. Virtually all our backpacks and other luggage hangs from the ceiling along with power cords and other bulky items.

The worst thing is to have a lot of junk drawers and cupboards and boxes that have to be emptied out every time you are looking for something. The best thing is to have your junk hanging from a wall or ceiling that's easily eyeballed.

My point is that what looks messy in our basement really is not so messy once you understand my eyeballing philosophy. Erika belatedly agrees that it's not such a bad philosophy after all as long as it's confined to the basement, studio, or barn. Unfortunately most of her junk is still hidden in stacked boxes that have to be opened quite often. She keeps way to much stuff until she at long last decides to give it away.



"Should companies eliminate audits?" by Eleanor Bloxham, Fortune, June 18, 2015 ---
http://fortune.com/2015/06/18/company-audits/

Jensen Comment
I think my friend Lynn Turner has gone a bit over the edge on this issue. What Lynn and other critics can't answer is the extent the process of auditing as we know it today prevents more bad stuff from happening beyond what is already happening.

Of course audits have lots of flaws and fail often to meet some of the PCAOB inspection tests. Of course audits are not as independent as we would like in each and every instance. Of course the benefits of spending a lot more on audits will probably have marginal net losses in terms of costs versus benefits. Of course there are many auditing scandals ---
http://faculty.trinity.edu/rjensen/Fraud001.htm
Andersen audits did not prevent fraud and financial reporting manipulation at Enron, Worldcom, etc. That, however, ignores how much worse things might have been if there had been no audits at all of any Andersen clients. Enron's executive felons would have had an unimaginable field day without having to worry a lot about Andersen auditors.

No matter how much we spend on terrorism prevention there is no way to eliminate the risk of terrorism. Perhaps some of the most costly prevention programs such as airport security inspections of passengers by TSA score low in terms of attempted cost-benefit calculations. But those calculations can never provide numbers to the prevention benefits since we will never know the number of terrorists who never try due to fear of the TSA inspections.

CEOs have shown in recent years to be willing to gamble a whole lot (in the trillions) as long as it's other peoples money. I don't want to give them the power to decide not to have our companies audited. Similarly, I don't want the CEO American Airlines to decide not to participate in TSA screening of AA passengers at airports.

Lynn implies there will be less fraud if the government becomes more involved in auditing. He never mentions that the biggest frauds in the USA are perpetrated under GAO auditing, Exhibit A being Medicare, Exhibit B being Medicaid, Exhibit C being the Pentagon, and on and on and on. The government track record on auditing is horrible relative to private sector auditing by deep pocket auditors that can and do get sued every day.

How Do You Value an Audit?

June 16, 2015 message from Glen Gray

An audit (in Canada) of senators’ expenses “flagged nearly $1 million in questionable spending from 30 current and former senators.”

Issue: the audit cost $24 million!

http://www.huffingtonpost.ca/2015/06/15/john-oliver-senate-canada-expense-scandal_n_7585756.html

Jensen Comment
It's probably impossible to put numerical values on much of anything where the consequences of the act are preventions that don't take place in the future? If an act prevents bad things from happening without knowing when and how they might have otherwise happened, everything becomes hypothetical, including valuations of the preventatives.

Beyond trying to value audits, there's the enormous problem of valuing benefits of costly protections of the environment. We can calculate how much it cost to recently plant (in one day alone) 640,000 reforestation trees in Ecuador ---
http://fusion.net/story/136589/ecuador-sets-world-record-for-planting-trees-but-its-oil-drilling-plans-will-only-add-to-deforestation/
But it's impossible to measure the value to the world of this reforestation in terms of future oxygen on the planet, prevention of soil erosion, timber harvesting values in decades to come and on and on and on.

Valuing the Unknown --- http://www.hakaimagazine.com/article-short/valuing-unknown

Hence benefit-cost calculations are often nonsense, including the benefit-cost calculations of most audits. We can never value the bad stuff that such audits prevented. We should carefully listen to what an expert like Lynn Turner has to say, but we should listen with educated and skeptical ears. 

June 19, 2015 reply from Tom Selling

Hi, Bob:

Lynn’s proposals are radical, but you still manage to exaggerate them. Lynn is not proposing that audits be eliminated, but that they not be mandated.

Regardless of whether any of us agree with Lynn, and regardless of how valuable we believe the current audit is, I think the broader point is that we recognized the existence of an "expectations gap" (or at least that’s when I became aware of the term) about 40 years ago. Notwithstanding, that gap has been growing instead of shrinking with time.

Best,
Tom

 


Data Mining Case Studies --- http://dataminingcasestudies.com/DMCS_WorkshopProceedings25.pdf
Thank you for the following link Jagdish Gangolly

Jensen Comment
DATABASE BIASES AND ERRORS
My casual studies of accountics science articles suggests that over 90% of those studies rely exclusively on one or more public database whenever the studies use data. I find few accountics science research into bias and errors of those databases. Here's a short listing of research into these biases and errors, some of which were published by accountics scientists ---
 

DATABASE BIASES AND ERRORS ---
http://www.kellogg.northwestern.edu/rc/crsp-cstat-references.htm

This page provides references for articles that study specific aspects of CRSP, Compustat and other popular sources of data used by researchers at Kellogg. If you know of any additional references, please e-mail researchcomputing-help@kellogg.northwestern.edu.

What went wrong with accountics science?
http://faculty.trinity.edu/rjensen/Theory01.htm#WhatWentWrong


"Lawsuit: Infilaw Pays Low Performing Law Grads $5k To Defer Bar Exam To Pump Up School's Pass Rate," by Paul Caron, TaxProf Blog, June 6, 2015 ---
http://taxprof.typepad.com/taxprof_blog/2015/06/lawsuit-infilaw-pays-low-performing-law-grads-5k-.html


Francine moved from her long-time home in Chicago (that was near her parents' home) and took on a full-time (and presumably better paying) job as a reporter for MoneyWatch and not just a free lance commentator ---
http://retheauditors.com/2015/05/31/re-the-auditors-is-now-at-marketwatch/


FIFA --- Fraud Involved, Fooled Auditor

"FIFA auditor KPMG totally missed the soccer scandal," by Francine McKenna, Market Watch, June 3, 2015 ---
http://www.marketwatch.com/story/fifa-auditor-kpmg-missed-scandal-but-stays-out-of-spotlight-2015-06-03 

Of all the individuals and firms tied up in the scandal over bribery and corruption at FIFA, scrutiny has so far largely escaped KPMG, the soccer association’s external auditor.

The accounting and consulting firm’s Swiss member is responsible not only for the audit of the multibillion-dollar umbrella FIFA organization, and has been since before the period under scrutiny by U.S. and Swiss prosecutors, but also audits a large sample of member associations around the world that receive FIFA funding on an annual basis. KPMG also prepares a compilation of all financial reports after the completion of each four-year World Cup cycle.

Also read: Sepp Blatter to resign as FIFA president

KPMG was also the auditor and adviser for the official Russia and Qatar organizing committees when they prepared the winning bids that are now targeted in corruption investigations in the U.S. and Switzerland. KPMG continues to support Russia’s organizing committee, while Qatar switched to Ernst & Young in 2011.

A spokesman from KPMG declined to comment. “As FIFA’s statutory auditor, we are bound by professional confidentiality and have to refrain from any comment regarding our client.”

Robert Appleton, a former assistant United States attorney, a special investigations counsel with Paul Volcker’s U.N. Iraqi Oil for Food Commission Investigation and the former chief of the United Nations Anti-Corruption Task Force, said KPMG absolutely should have caught, and called out, these alleged illegal activities.

“There were sufficient red flags of improper and highly suspicious payments, as well as money transfers to and from officials and others, including other highly questionable activities coupled with a history of similar issues, that should have been identified and that should have caused the auditors to highlight and report on them internally, and recommend further investigation. This is especially the case in light of the recent history of this organization, where recent investigations already had found bribery and corruption activity,” Appleton said.

Though not a publicly traded company, FIFA is required by Swiss law to be audited by a qualified firm because of its size as measured by revenue and number of employees. KPMG Switzerland actually claims to be an expert in not-for-profit association audits in Switzerland, including sponsoring a “competence center” to share knowledge inside and outside the firm.

KPMG’s audit is intended to express an opinion on whether the financial statements, prepared by FIFA personnel according to International Financial Reporting Standards, are free from material misstatements. KPMG reviews the organization’s internal controls when deciding which audit procedures to perform but did not, in this case, express an opinion on the effectiveness of FIFA’s internal control system.

Jerry Silk, a partner at law firm Bernstein Litowitz Berger and Grossman who has represented investors in lawsuits against the global audit firms, said the country-level member associations that pay dues to belong to FIFA and participate in its programs and events are FIFA’s true stakeholders.

“Even though a few FIFA member associations were named in the indictment, the vast majority of the national associations and their executives are innocent of any wrongdoing. They have a fundamental right to know what KPMG did or did not do as auditor to protect their interests in the global association,” Silk said.

Also read: Blatter has dealt a blow to Switzerland’s economy

The Department of Justice indictment states that the FIFA officials conspired to solicit and receive well over $150 million in bribes and kickbacks in exchange for their official “support.” This “support” included influencing the award of marketing, broadcast rights and sponsorship contracts to those who paid bribes and, in one case, allegedly selling votes to award the 2010 World Cup to South Africa. FIFA’s internal controls would govern which payments require authorization and by what level of executive. Strict controls would also prevent a payment to an executive’s personal account if it is not a payroll transaction, for example, and would provide special instructions for international wire transactions for the bank and within FIFA.

Some of those transactions went through FIFA headquarters and used FIFA bank accounts to send money to U.S. bank accounts controlled by the indicted officials, according to the Justice Department. That means KPMG, as FIFA’s independent external auditor, could have seen the transactions while performing annual audit tests.

KPMG selects activities and transactions to be tested based on their risk of causing a material misstatement of financial reports. The transactions highlighted by the DOJ indictment may not have met KPMG’s materiality threshold, given the size of the organization. FIFA recorded more than $3 billion in revenue in 2014. However, Silk is surprised that after all this time working so closely with FIFA, KPMG would not have uncovered evidence of the illegal acts the DOJ is now alleging.

“With all the prior allegations of corruption and bribery leveled against FIFA and some of its member associations over the years, KPMG should have been on high alert to the potential for corruption,” he said. “Auditors are supposed to do more and be more vigilant when there’s clearly higher risk.”

"Corruption in FIFA? Its Auditors Saw None," by Lynnley Browning, The New York Times, June 8, 2015 ---
http://www.nytimes.com/2015/06/06/sports/soccer/as-fifa-scandal-grows-focus-turns-to-its-auditors.html?_r=0 

. . .

Accounting firms often contend that their audits are only as good as the information they receive from clients, but they are supposed to recognize patterns or anomalies that suggest they should dig a little deeper.

A key element in the Justice Department’s case is a $10 million payment that prosecutors say was transferred in 2008 from FIFA to accounts controlled by a soccer official, Jack Warner, as a bribe in exchange for helping South Africa secure the right to host the 2010 World Cup.

Mr. Epstein said that while the $10 million payment could be insignificant, or immaterial in accounting terms, given FIFA’s size, it would not be immaterial in qualitative terms. “That’s something people would want to know about,” he said.

KPMG had questioned another payment a decade earlier. In a 1999 “Revised Audit Management Letter” sent to FIFA, KPMG noted an unusual payment in connection with the Confederations Cup — an important tournament involving soccer’s continental champions that is now held the year before the World Cup.

“To cover the excess expenditure at the Confederations Cup in Saudi Arabia, the organizer has made an additional payment of 470,000 Swiss francs,” the letter, obtained by the independent journalist Andrew Jennings, says in German. “The payment was authorized by the president of FIFA, but without the authorization of the finance committee or the executive committee.”

It is unclear to whom the payment was made or which Confederations Cup in Riyadh was involved — Saudi Arabia hosted them in 1995 and 1997, part of the four-year financial cycle covered in the 1999 letter.

Even before the indictments, there was no shortage of potential red flags.

In 2002, Michel Zen-Ruffinen, FIFA’s secretary general at the time, wrote an explosive report accusing Mr. Blatter and his lieutenants of extensive fraud. The report, parts of which were published in the Swiss news media, contended that from 1999 to 2002, FIFA, which was struggling financially, booked 336 million Swiss francs in revenue from its sale of marketing rights to the 2006 World Cup in Germany — an unusual move for an organization that at the time used accounting methods that recorded income when it was received, not in advance, according to accounting experts.

KPMG noted the move in its audit of the period. Mr. Zen-Ruffinen’s report added that FIFA had destroyed financial documents before 1998, a year before KPMG was hired.

In 2008, a trial in Zug, Switzerland, of former executives of International Sports and Leisure, a FIFA-affiliated marketing firm that had collapsed amid allegations of fraud and theft, fell apart after the group’s lawyers produced internal documents contending that FIFA was involved.

By 2012, FIFA named Michael J. Garcia, a prominent former federal prosecutor, as the lead investigator of its ethics committee. Mr. Garcia, who extended his inquiry into bidding practices for the 2018 World Cup in Russia and the 2022 World Cup in Qatar, gave FIFA his final report last September but resigned from the role in December after FIFA released a redacted version that Mr. Garcia complained was erroneous and misleading.

And last November, a member of FIFA’s eight-person audit and compliance committee, Canover Watson, was charged in his native Cayman Islands with fraud and money laundering in connection with procurement of a card-swipe system for the public hospitals there. FIFA’s most recent annual report notes that Mr. Watson has “temporarily left the committee.”

“You’re looking for the tip of the iceberg in an audit,” Mr. Epstein said, adding that in KPMG’s work for FIFA, “the tip should have gotten the auditor’s attention sometime over the years.”

June 3, 2015 reply from Linda Kidwell in Romania

Bob,

All I can tell you from 3 months of living in a country with a highly corrupt political elite is that bribery is unlike other frauds for two reasons. One is that the money doesn’t pass through the firm, so there’s no evidence within the financial records for the auditors to find (though with the rife rumors, one would hope their engagement risk assessments were high). The other is that only two parties know about the bribery: the bribe payer and the bribe receiver. There may be no other people in the know, eliminating the potential for whistle-blowing. This is what the anti-corruption prosecutors here have told me. In the FIFA case, because the bribe payers were groups instead of individuals, it may be there was indeed a whistle-blower; conversely, someone on the board may have been cut out of the take, leading to revenge. But either way, the money was unlikely to flow through FIFA or any of its units.

On a related note, while I was here, the Dutch embassy released a study of convicted corrupt politicians conducted by a group of criminal justice students who interviewed them. The crux of their findings is that the convicts readily admitted to every detail of their corruption. They just didn’t think they’d done anything wrong, because that’s just the benefit of being in power. If you think of the old fraud triangle, the rationalization is completely unnecessary in a corrupt environment.

Linda

 

Bob Jensen's threads on KPMG scandals ---
http://faculty.trinity.edu/rjensen/Fraud001.htm


Bloomberg:  These Are Wall Street's Must-Read Books of the Summer of 2015 ---
http://www.bloomberg.com/news/articles/2015-06-12/these-are-wall-street-s-must-read-books-of-the-summer?cmpid=BBD061115
This list was compiled in an interesting manner.


PwC:  Medical Cost Trend: Behind the Numbers 2016 ---
http://www.pwc.com/us/en/cfodirect/industries/health-industries/medical-cost-trends-behind-numbers-2016.jhtml?display=/us/en/cfodirect/industries/health-industries


The Government Not Exactly Sure Where $3 Billion in Obamacare Subsidies Went --- Click Here
http://townhall.com/tipsheet/katiepavlich/2015/06/16/the-government-has-no-idea-where-3-billion-in-obamacare-subsidies-went-n2013393?utm_source=thdaily&utm_medium=email&utm_campaign=nl&newsletterad=


PwC:  IFRS news - June 2015 ---
http://www.pwc.com/us/en/cfodirect/publications/ifrs-news/june-2015.jhtml?display=/us/en/cfodirect/publications/ifrs-news

June 13, 2015 reply from Tom Selling

If finalized, there will be, for the first time in a long time, some real differences the IASB and FASB conceptual frameworks. This short PwC article has a convenient table for summarizing them.

I’m writing this as a heads-up to instructors who might like to use these differences as a basis for class discussions.

Best,
Tom

 


Question
Why do gun manufacturers secretly applaud political activism on gun control?

To be clear, gunmakers don't benefit from tighter gun control. They benefit when there are talks of tighter gun control but those talks go nowhere ---  Sam Roe --- http://www.businessinsider.com/smith-and-wesson-obama-was-good-for-gun-sales-2015-6#ixzz3dVv0J1uZ
Jensen Comment
The real irony is that activism on reducing gun production and sales leads to more production and sales. Activism on fuel efficiency leads to urgent demand for products with low fuel efficiency.  And so the world turns.

This type of thing happens with other products.
Every time the government talks about increasing gas mileage restrictions buyers rush out to buy big cars and trucks before it's too late. Up in these mountains a lot of home owners like me bury huge propane tanks and maintain huge inventories of propane to level out propane costs over pricing cycles. Media warnings of natural gas shortages (as in cold weather) or price hikes are applauded by tank sellers.


It's not common for a firm paying a fine to "admit wrongdoing."
"SEC charges Merrill Lynch, fines firm $11 million for short sales violations," by Francine McKenna, Market Watch, June 1, 2015 ---
http://www.marketwatch.com/story/sec-charges-merrill-lynch-fines-firm-11-million-for-short-sales-violations-2015-06-01?dist=beforebell 

The Securities and Exchange Commission announced charges Monday against Bank of America's BAC, +2.44% Merrill Lynch subsidiary for using bad data since 2012 to "locate" stock for short sales, violating Rule 203(b) of Regulation SHO. That rule prevents "naked" short sales, shorting shares that are not "easy to borrow." The firm admitted the wrongdoing and will pay a $9 million penalty plus interest and give up $1.6 million in profits. Merrill Lynch must also submit to a compliance review by an independent consultant.

Continued in article

Bob Jensen's archived timeline  about fraudulent dealings of Merrill Lynch when selling derivative financial instruments, including the infamous Orange County fraud ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds


"This mathematical law can tell you if a company is cooking its books," by Oscar Williams-Grut, Business Insider, June 4, 2015 ---
http://www.businessinsider.com/deutsche-banks-use-of-benford-law-to-detect-company-fraud-2015-6

How can you tell if a company is juicing its numbers? If you're not a forensic accountant, it is often only when it's too late and you've lost a lot of money, that you realise a firm has cooked the books. 

Deutsche Bank is recommending a pretty simple maths trick that can give you at least an indication if something is up, even if it doesn't tell you precisely what's wrong.

It all rests around Benford's Law, also known as the law of natural numbers.

Named after physicist Frank Benford, the law says that in set of data gathered from real life, such as stock prices, birth rates and electricity bills, the number 1 will appear most frequently as the first digit of numbers – for example 12, 145 or 1,012. Numbers starting with 2 to 9 then occur much less frequently, getting less common the higher you get. 

To give an example, if I took 20 stock prices at random Benford's law says about 30%, or 6, would begin with the digit 1 — 110p, 134p and 154p let's say. The frequency of numbers beginning with digits 2, 3, 4 and so on, would decline in probability until we reach 9, which is the first digit in less than 5% of numbers in real life data sets.


Read more:
http://www.businessinsider.com/deutsche-banks-use-of-benford-law-to-detect-company-fraud-2015-6#ixzz3c5VXgyiV
 

 

Jensen's Comments
Benford's Law is not a Swiss Army knife for detecting book cooking in financial statements. Many frauds in financial statements do not have good distributional properties. Often they are one-time frauds that are not repetitive. There are illustrations in accountancy where purportedly Benford's law helped to detect frauds, but these are rather rare events relative to the many, many accounting frauds in the world.

If it this rather simple mathematical tool had a higher success rate it would be in every auditor's toolbox. I think this tool is seldom in tool boxes of auditors, and the reason is not that it's too complicated for auditors. Auditors deal with more complicated software every day. For example, if KPMG had applied Benford's law to detect financial statement frauds in FIFA would those frauds have been nipped in the bud? No way Jose!

I do think Benford's law is  becoming  a more common tool when auditors are confronted with large databases that may satisfy the statistical assumptions of Benfor's Law. But reports of successful detection of fraud are few and far between. It should not shove out more important topics in auditing courses, at least not in a big way. This is a warning to auditing professors who like to teach this type of statistics.

Benford's Law --- http://en.wikipedia.org/wiki/Benford%27s_law 
Note statistical distribution assumptions and weaknesses that are likely to arise in accounting frauds.
Mathematical fraud detection, fraud mathematics, number theory
"I've Got Your Number How a mathematical phenomenon can help CPAs uncover fraud and other irregularities," 
Journal of Accountancy, May 1999, --- 
http://www.journalofaccountancy.com/Issues/1999/May/nigrini.htm 
EXECUTIVE SUMMARY

BENFORD'S LAW PROVIDES A DATA analysis method that can help alert CPAs to possible errors, potential fraud, manipulative biases, costly processing inefficiencies or other irregularities.

A PHYSICIST AT GE RESEARCH LABORATORIES in the 1920s, Frank Benford found that numbers with low first digits occurred more frequently in the world and calculated the expected frequencies of the digits in tabulated data.

CPAs CAN USE BENFORD'S DISCOVERY in business applications ranging from accounts payable to Y2K problems. In addition, subset tests identify small lists of serious anomalies in large data sets, making an analysis more manageable.

DIGITAL ANALYSIS IS WELL SUITED to finding errors and irregularities in large data sets when auditors need computer assisted technologies to direct their attention to anomalies.

 
"The Effective Use of Benford's Law to Assist in Detecting Fraud in Accounting Data," by Cindy Durtchsi, William Hillison, 
and Carl Pacini,
Journal of Forensic Accounting, Vol. 5, 2004, pp. 17-34
http://www.auditnet.org/articles/JFA-V-1-17-34.pdf 
Benford's Law Excel Add-in 
http://benford.softalizer.com/ 
June 4, 2015 reply from Sharon Gavin

I only briefly cover Benford in my Fraud Examination class (and have the students develop a spreadsheet to test for it on a data file I provide), but you are correct in saying it will not necessarily help identify frauds.

I have had more success having students do the Beneish M-Score (5-variable model) on old financial statements of companies that were later found to have committed fraud. (This year we worked on the old Sunbeam fraud.) Students pick it up quickly (especially if they are already familiar with computing the Altman Z-Score.) The M Score strategy also gets the students to thinking about the 5 different parts of the formula and how deficiencies in a particular one might help pinpoint the type of fraud to look for (which I think is the greatest benefit of covering M Scores).

Here is a link from Beneish talking about the models he has developed:

https://www.youtube.com/watch?v=gxviBoaYoUQ 

I am also attaching a handout I used in class this spring, for what it's worth. (Note it was written for both Accounting majors in Fraud Examination class and for Finance majors in a Financial Statement analysis class.)

Dr. Sharon K. Garvin Professor Business and Economics Department School of Business and Technology Gardner Hall 111A Wayne State College 1111 Main Street Wayne, NE 68787

 

Controversies in Plato's Cave

May 28, 2015 message from Jagdish Gangolly

The latest issue of the journal Physica has the following fascinating paper:
 
How much inequality in income is fair? A microeconomic game theoretic perspective Venkat Venkatasubramanian, Yu Luo, Jay Sethuraman
Physica A: Statistical Mechanics and its Applications, Volume 435, 1 October 2015, Pages 120-138,
http://ac.els-cdn.com/S0378437115003738/1-s2.0-S0378437115003738-main.pdf?_tid=c4964666-0601-11e5-afa1-00000aab0f26&acdnat=1432904216_8e5e640ae2860e9ee1873823caa8b0c8
 
The authors describe their work as follows:
 
"Our new theory shows, for the first time, a deep and direct connection between  and statistical mechanics through entropy,"
"This has led us to propose the fair market hypothesis, that the self-organizing dynamics of the ideal , i.e., Adam Smith's 'invisible hand,' not only promotes efficiency but also maximizes fairness under the given constraints. By defining and identifying the ideal outcome, our theory can provide an intellectual framework that could be used to design macroeconomic policies to correct for such inequities."
 
I consider this paper to be one of the most significant I have seen in my career. It brings together results in In formation theory, Game Theory, Probability Theory, and Statistical Mechanics/Thermodynamics to explain income inequality.
 
I somehow suspect this might have a bearing on a theory of income in accounting.
 
Regards to all,
 
Jagdish

Jensen Note
Also see
http://www.sciencedirect.com/science/article/pii/S0378437115003738

May 29, 2015 reply from Bob Jensen

Hi, Jagdish:
 
I haven’t yet accessed the paper, but perhaps you can tell us how the authors define/operationalize the concept of fairness.  
 
For example, are the outcomes of their “game” defined to be fair because all players have equal opportunity to be successful?  If so, I wonder if this corresponds to fairness in a Rawlsian sense — which to me would mean that the participants start with equal endowments and would be able to settle on what constitutes fair outcomes before the game starts.
 
Or, perhaps fairness is defined in a completely different way that I am surmising?  I would appreciate your thoughts.
 
 
Best,
Tom

May 29, 2015 reply from Bob Jensen

The authors claim entropy is the measure of fairness.

Entropy is the measure of fairness.

Entropy --- http://science.howstuffworks.com/dictionary/physics-terms/entropy-info.htm
Also see http://en.wikipedia.org/wiki/Entropy

Game Theory, Statistical Mechanics and Income Inequality

Venkat Venkatasubramanian, Yu Luo, Jay Sethuraman
(Submitted on 25 Jun 2014 (v1), last revised 12 Nov 2014 (this version, v2))
http://arxiv.org/abs/1406.6620

The widening inequality in income distribution in recent years, and the associated excessive pay packages of CEOs in the U.S. and elsewhere, is of growing concern among policy makers as well as the common person. However, there seems to be no satisfactory answer, in conventional economic theories and models, to the fundamental question of what kind of pay distribution we ought to see, at least under ideal conditions, in a free market environment and whether this distribution is fair. We propose a game theoretic framework that addresses these questions and show that the lognormal distribution is the fairest inequality of pay in an organization comprising of homogenous agents, achieved at equilibrium, under ideal free market conditions. We also show that for a population of two different classes of agents, the final distribution is a combination of two different lognormal distributions where one of them, corresponding to the top 3-5% of the population, can be misidentified as a Pareto distribution.
Our theory also shows the deep and direct connection between potential game theory and statistical mechanics through entropy, which is a measure of fairness in a distribution. This leads us to propose the fair market hypothesis, that the self-organizing dynamics of the ideal free market, i.e., Adam Smith's "invisible hand", not only promotes efficiency but also maximizes fairness under the given constraints.

 
Comments: Corresponding author: Venkat@columbia.edu
Subjects: Economics (q-fin.EC); General Finance (q-fin.GN)
Cite as: arXiv:1406.6620 [q-fin.EC]
  (or arXiv:1406.6620v2 [q-fin.EC] for this version)

Jensen Comment
Everybody knows entropy is a measure of fairness somewhat like information is defined as log 2.

Information http://en.wikipedia.org/wiki/Information

. . .
nformation resolves uncertainty. The uncertainty of an event is measured by its probability of occurrence and is inversely proportional to that. The more uncertain an event, the more information is required to resolve uncertainty of that event. The bit is a typical unit of information, but other units such as the nat may be used. Example: information in one "fair" coin flip: log2(2/1) = 1 bit, and in two fair coin flips is log2(4/1) = 2 bits.

Aside from the limits of mathematical assumptions, virtually all nations in the real word lowered their marginal tax rates (Bernie Sanders does not want to near about this) because even in Scandinavia it was found that very high marginal tax rates for egalitarian purposes are dysfunctional to economic prosperity ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm

Marginal Tax Rate Declines in the Rest of the World ---
http://www.econlib.org/library/Enc/MarginalTaxRates.html

 

*. Hong Kong’s maximum tax (the “standard rate”) has normally been 15 percent, effectively capping the marginal rate at high income levels (in exchange for no personal exemptions).
**. The highest U.S. tax rate of 39.6 percent after 1993 was reduced to 38.6 percent in 2002 and to 35 percent in 2003.

Table 1 Maximum Marginal Tax Rates on Individual Income

  1979 1990 2002
Argentina 45 30 35
Australia 62 48 47
Austria 62 50 50
Belgium 76 55 52
Bolivia 48 10 13
Botswana 75 50 25
Brazil 55 25 28
Canada (Ontario) 58 47 46
Chile 60 50 43
Colombia 56 30 35
Denmark 73 68 59
Egypt 80 65 40
Finland 71 43 37
France 60 52 50
Germany 56 53 49
Greece 60 50 40
Guatemala 40 34 31
Hong Kong 25* 25 16
Hungary 60 50 40
India 60 50 30
Indonesia 50 35 35
Iran 90 75 35
Ireland 65 56 42
Israel 66 48 50
Italy 72 50 52
Jamaica 58 33 25
Japan 75 50 50
South Korea 89 50 36
Malaysia 60 45 28
Mauritius 50 35 25
Mexico 55 35 40
Netherlands 72 60 52
New Zealand 60 33 39
Norway 75 54 48
Pakistan 55 45 35
Philippines 70 35 32
Portugal 84 40 40
Puerto Rico 79 43 33
Russia NA 60 13
Singapore 55 33 26
Spain 66 56 48
Sweden 87 65 56
Thailand 60 55 37
Trinidad and Tobago 70 35 35
Turkey 75 50 45
United Kingdom 83 40 40
United States 70 33 39**

Source: PricewaterhouseCoopers; International Bureau of Fiscal Documentation.

 

Respectfully,
Bob Jensen

May 29, 2015 reply from Jagdish Gangolly

Tom,
 
The actual thesis of the paper is far deeper than the simplistic explanation provided by Bob. And harping on tax rates is a red herring (I'll have more to say a bit later in this post).
 
Assuming that we know 
a. The total number of employees
b. The budget M for compensation
c. Minimum salary
d. Maximum salary (that is M where CEO bags the entire budget)
 
the authors are trying to ask the question what is the distribution of income among the employees that is fair. We know that employees at the low to middle of the income spectrum if an employee perceives his income to be unfair reflection of her value she will look for other opportunities where she can get a fairer compensation to reflect her contributions. Existence of markets ensures that they are paid a wage that closely reflects their contributions. Unfortunately at the high end of the spectrum, for example the CEOs, that explanation does not hold. The market is thin to non-existent, and the process determining CEO compensation is not transparent, leading to a divergence between the compensation and the actual contributions of the CEOs. This suggests a concept of fairness where the compensation reflects the contributions that the employees make. Suppose S is salary and V is the contribution of the employees. We can express the relation between compensation and value provided as: V = f(S). So the objective is to find the function f such that for any employee i,  V_i = f(S_i), ie., the salary reflects the value.
 
We know that marginal utility of money is diminishing as an incentive (a la St. Petersburg Paradox), and so we can constrain the behaviour of f as follows:
 
V=f(S) such that    dV/dS = 1/f(S)
 
which means for any employee i we have
 
V_i = C log S-i
 
In other words, the distribution that can be considered fair is a logarithmic function. The paper assumes natural logarithms, but the jump to binary logarithms is trivial. Now the use of entropy in the rest of the paper comes naturally.
(Those further interested in this line of research may like to read the following paper: http://www.mdpi.com/1099-4300/11/4/766/pdf).
 
One of the most ingenious papers I have read. Much of this was known because Theil's measure of inequality came close in spirit to this, but he did not have an underlying model that made the whole thing very transparent and the argument very appealing.
 
Incidentally, in Accounting the first use of entropy was by Theil's student Baruch Lev. His dissertation at Chicago was what piqued my interest and made me change my mind about being an accountant. This in spite of the fact that I found the dissertation rather trivial but innovative; I was just transitioning from Operations Research to Accounting. It was a required reading at Pitt, and I asked the professor  who was teaching us how such a trivial dissertation could merit a PhD at Chicago. His answer was rather facile, that Henri Theil must have got tired of the student and wanted him to graduate. Nevertheless I have great admiration for Baruch Lev; he made such research acceptable in Accounting.
 
On the matter of Bob's harping on tax rates, I have an alternative explanation.  In the early days, even in Scandinavian countries the income inequalities must have been very high. The draconian tax rates probably helped moderate such inequalities and facilitate transition from a feudal to an egalitarian society. Once that was achieved, the draconian tax rates had served their purpose and it is no longer necessary to maintain them. We can not say the same of the US. In the US, the journey has been in reverse. We have been moving from an egalitarian society up to the seventies back to a feudal society with a small number of oligarchs rule the roost. The only thing is the absence of fealty; may be that is the next stage. One sees initial signs already, with the politicians fawning over the oligarchs.
 

Jensen Comment
I don't think any compensation comparisons of people or nations can meaningfully take place on a before-tax basis. For example, what good would it do to compare high-end earnings in a Bernie Sander's world where the top marginal tax rate is 90%?  My point was that when taxes were factored in virtually all nations  lowered their top marginal tax rates to stimulate economic growht.

 
Regards,  
 
Jagdish

 

May 31, 2015

What gets to me the most is the following quotation from the article at
http://www.sciencedirect.com/science/article/pii/S0378437115003738 
 

. . .

We find similar close-to-ideality trends in Sweden, Denmark, and Switzerland, for the bottom 90% and top 10%–1%. In these countries, typically, the bottom 90% ψψ is within ∼10% of the ideal value; the top 10%–1% ψψ is within ∼15%–25%.

 

Do these nations really have close to ideal trends in dealing with compensation and inequality?

Or is it the entropy game theory model that is deceiving us?

 

If the author's are going to make policy conclusions like this based upon an entropy game theory model then we must look closer at the assumptions of that model. For example, is Sweden really the ideal? Sweden has the highest youth unemployment rate in Europe. Finland is also struggling with unemployment, and the average citizen in Norway has some of the highest debt and highest prices in the world.

And as much as Jagdish thinks I am ranting about the lowering of marginal tax rates in virtually all developed nations, he's ignoring what I think is very important. You cannot compare nations regarding compensation and inequality on a before-tax basis implicit in this entropy game theory model.

Jagdish nicely summarizes the  the following assumptions in the log utility model.:

Assuming that we know 
a. The total number of employees
b. The budget M for compensation
c. Minimum salary
d. Maximum salary (that is M where CEO bags the entire budget

This begs the question of how realistic these assumptions become.

The first challenge is to reduce the "budget for compensation" to a parameter M. The budget for compensation is more realistically a complicated "formula" that is a prioi dependent upon ex post outcomes, particularly stock prices. The simplest example is where employees receive commissions or other performance-based stock options, stock awards, stock purchase discounts, etc.

Second, a large share of USA Silicon Valley compensation, especially in the executive suite, is deferred compensation of some sort.

These points are not trivial in market-based economies since compensation has all sorts of performance-based incentive plans. Some of these are good in the sense that they encourage innovation and invention. Some are bad in the sense that they may be myopic in terms of short-term performance at the expense of long-term performance.

Thus it becomes a huge stretch to assume that what is considered fair compensation can be assumed to be a "logarithmic function." There's almost no basis for assuming this in the way tech company executives are compensated in the USA mostly based upon stock price performance. There is no fixed parameter M for budgeted compensation.

The problem of M becomes exacerbated when comparing nations based upon the outcomes of this entropy model. In some of these nations equity compensation is downplayed because equity (stock) markets of companies in those nations are not nearly as developed and do not play nearly as much of a role in financing either operations or IPOs.

Thus I think the paper Jagdish introduced us to is an extremely interesting paper for accoutics scientists and others deeply into game theory. However, the paper is not as useful when it comes to compensation policy matters. It's conclusions may be entirely misleading when it comes to long-term inequality issues.

By way of example, Nokia in Finland may have what the authors term an "ideal compensation" policy when Nokia had the lion's share of the mobile phone market. However, perhaps the egalitarian compensation policy dragged it down when it came to innovation and product performance. Most certainly Nokia crashed in terms of world competition as the highly-compensated executives of Apple Corporation introduced vastly superior products that left Nokia in the dust.

My point is that the entropy model proposed in this paper for reducing inequality in compensation may make Nokia compensation policies, along with the compensation policies of Nordic countries in general, look "ideal" when in fact the  highly criticized compensation practices of Apple Corporation and Silicon Valley in general may be beating the pants off Nordic companies and hurting employees in the long-term.

Apple pays some of the highest compensation in the world with enormous inequality between highest and lowest paid employees. Perhaps performance-based compensation inequality policies  are not as bad as lowly-paid professors in ivory towers would have us believe.


"Labor Department Finds Problems with CPA Audits of Employee Benefit Plans," by Michael Cohn, Accounting Today, May 28, 2015 ---
http://www.accountingtoday.com/news/audit-accounting/labor-department-finds-problems-with-cpa-audits-of-employee-benefit-plans-74739-1.html

. . .

More than 7,300 licensed CPAs nationwide audit more than 81,000 employee benefit plans. EBSA's review found that 61 percent of audits fully complied with professional auditing standards or had only minor deficiencies under professional standards. The remaining 39 percent of the audits contained major deficiencies, however, which put $653 billion and 22.5 million plan participants and beneficiaries at risk. These figures reflect increases in the amount of plan assets and number of plan participants at risk compared with prior EBSA studies.

Continued in article



Computer Sciences Corporation --- http://en.wikipedia.org/wiki/Computer_Sciences_Corporation

. . .

1) Millions of visas allowing foreigners to enter Britain are being issued by them rather than British Diplomats.
2) As one of the Obamacare contractor hired by the Internal Revenue Service to modernize its tax-filing system. They told the IRS it would meet a January 2006 deadline, but failed to do so, leaving the IRS with no system capable of detecting fraud. It failure to meet the delivery deadline for developing an automated refund fraud detection system cost the IRS between $200 million and $300 million.

 

Accounting Fraud
"SEC Reaches $190 Million Settlement From Computer Sciences:  Agency says CSC manipulated financial results, concealed problems with contract," by Lisa Beilfuss. The Wall Street Journal, June 5, 2015 ---
http://www.wsj.com/articles/sec-reaches-190-million-settlement-from-computer-sciences-1433516418?mod=djemCFO_h

The Securities and Exchange Commission on Friday reached a $190 million settlement with Computer Sciences Corp. in connection with accounting fraud charges against the information-technology services provider.

The agency had reached a tentative settlement with Computer Sciences worth the same amount in December, but recent media reports suggested that infighting at the agency could result in a lower fine.

The Wall Street Journal said this week that Chairwoman Mary Jo White’s agenda at the SEC has been thwarted by bickering among its five members, and the New York Times reported late last month that divisions within the agency had disrupted the case against Computer Sciences.

A representative from the SEC declined to comment, and CSC neither admitted nor denied the findings.

According to the commission, CSC manipulated financial results and concealed problems about the company’s largest contract, with the U.K.’s National Health Service, on which it was set to lose money on account of missed deadlines.

To avoid a resulting hit to its earnings, Robert Sutcliffe, CSC’s finance director for the multibillion-dollar contract, allegedly added items to CSC’s accounting models that artificially increased its profits.

With then-Chief Executive Michael Laphen’s approval, CSC continued to avoid the financial effect of its delays by basing its models on contract amendments it was proposing to the NHS, and that the NHS was rejecting, rather than on the actual contract, the SEC said.

By basing its models on a negotiated contract rather than the actual contract, CSC artificially avoided recording significant reductions in its earnings in 2010 and 2011, according to the SEC.

Continued in article

CSC 2014 Independent Auditors Report

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Computer Sciences Corporation
Falls Church, Virginia

We have audited the accompanying consolidated balance sheets of Computer Sciences Corporation and subsidiaries (the "Company") as of March 28, 2014 and March 29, 2013, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and changes in equity for each of the three fiscal years in the period ended March 28, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. W e believe that our audits provide a reasonable basis for our opinion.

 In our opinion, such consolidated financial statements present fairly , in all material respects, the financial position of Computer Sciences Corporation and subsidiaries as of March 28, 2014 and March 29, 2013, and the results of their operations and their cash flows for each of the three fiscal years in the period ended March 28, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly , in all material respects, the information set forth therein.

 We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of March 28, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 22, 2014 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP
McLean, Virginia
May 22, 2014

 



LIBOR --- http://en.wikipedia.org/wiki/Libor

. . .

Reliability and scandal

Main article: Libor scandal

On Thursday, 29 May 2008, The Wall Street Journal (WSJ) released a controversial study suggesting that banks might have understated borrowing costs they reported for Libor during the 2008 credit crunch.[35] Such underreporting could have created an impression that banks could borrow from other banks more cheaply than they could in reality. It could also have made the banking system or specific contributing bank appear healthier than it was during the 2008 credit crunch. For example, the study found that rates at which one major bank (Citigroup) "said it could borrow dollars for three months were about 0.87 percentage point lower than the rate calculated using default-insurance data."

In September 2008, a former member of the Bank of England's Monetary Policy Committee, Willem Buiter, described Libor as "the rate at which banks don't lend to each other", and called for its replacement.[36] The former Governor of the Bank of England, Mervyn King later used the same description before the Treasury Select Committee.[37][38]

To further bring this case to light, The Wall Street Journal reported in March 2011 that regulators were focusing on Bank of America Corp., Citigroup Inc. and UBS AG.[39] Making a case would be very difficult because determining the Libor rate does not occur on an open exchange. According to people familiar with the situation, subpoenas have been issued to the three banks.

In response to the study released by the WSJ, the British Bankers' Association announced that Libor continues to be reliable even in times of financial crisis. According to the British Bankers' Association, other proxies for financial health, such as the default-credit-insurance market, are not necessarily more sound than Libor at times of financial crisis, though they are more widely used in Latin America, especially the Ecuadorian and Bolivian markets.

Additionally, some other authorities contradicted the Wall Street Journal article. In its March 2008 Quarterly Review, The Bank for International Settlements has stated that "available data do not support the hypothesis that contributor banks manipulated their quotes to profit from positions based on fixings."[40] Further, in October 2008 the International Monetary Fund published its regular Global Financial Stability Review which also found that "Although the integrity of the U.S. dollar Libor-fixing process has been questioned by some market participants and the financial press, it appears that U.S. dollar Libor remains an accurate measure of a typical creditworthy bank’s marginal cost of unsecured U.S. dollar term funding."[41]

On 27 July 2012, the Financial Times published an article by a former trader which stated that Libor manipulation had been common since at least 1991.[42] Further reports on this have since come from the BBC[43][44] and Reuters.[45] On 28 November 2012, the Finance Committee of the Bundestag held a hearing to learn more about the issue.[46]

In late September 2012, Barclays was fined £290m because of its attempts to manipulate the Libor, and other banks are under investigation of having acted similarly. Wheatley has now called for the British Bankers' Association to lose its power to determine Libor and for the FSA to be able to impose criminal sanctions as well as other changes in a ten-point overhaul plan.[47][48][49]

The British Bankers’ Association said on 25 September that it would transfer oversight of LIBOR to UK regulators, as proposed by Financial Services Authority Managing Director Martin Wheatley and CEO-designate of the new Financial Conduct Authority.[9]

On 28 September, Wheatley's independent review was published, recommending that an independent organization with government and regulator representation, called the Tender Committee, manage the process of setting LIBOR under a new external oversight process for transparency and accountability. Banks that make submissions to LIBOR would be required to base them on actual inter-bank deposit market transactions and keep records of their transactions supporting those submissions. The review also recommended that individual banks' LIBOR submissions be published, but only after three months, to reduce the risk that they would be used as a measure of the submitting banks' creditworthiness. The review left open the possibility that regulators might compel additional banks to participate in submissions if an insufficient number do voluntarily. The review recommended criminal sanctions specifically for manipulation of benchmark interest rates such as the LIBOR, saying that existing criminal regulations for manipulation of financial instruments were inadequate.[10] LIBOR rates may be higher and more volatile after implementation of these reforms, so financial institution customers may experience higher and more volatile borrowing and hedging costs.[11] The UK government agreed to accept all of the Wheatley Review's recommendations and press for legislation implementing them.[12]

Bloomberg LP CEO Dan Doctoroff told the European Parliament that Bloomberg LP could develop an alternative index called the Bloomberg Interbank Offered Rate that would use data from transactions such as market-based quotes for credit default swap transactions and corporate bonds.[50][51]

Criminal investigations

On 28 February 2012, it was revealed that the U.S. Department of Justice was conducting a criminal investigation into Libor abuse.[52] Among the abuses being investigated were the possibility that traders were in direct communication with bankers before the rates were set, thus allowing them an advantage in predicting that day's fixing. Libor underpins approximately $350 trillion in derivatives. One trader's messages indicated that for each basis point (0.01%) that Libor was moved, those involved could net "about a couple of million dollars".[53]

On 27 June 2012, Barclays Bank was fined $200m by the Commodity Futures Trading Commission,[6] $160m by the United States Department of Justice[7] and £59.5m by the Financial Services Authority[8] for attempted manipulation of the Libor and Euribor rates.[54] The United States Department of Justice and Barclays officially agreed that "the manipulation of the submissions affected the fixed rates on some occasions".[55][56] On 2 July 2012, Marcus Agius, chairman of Barclays, resigned from the position following the interest rate rigging scandal.[57] Bob Diamond, the chief executive officer of Barclays, resigned on 3 July 2012. Marcus Agius will fill his post until a replacement is found.[58][59] Jerry del Missier, Chief Operating Officer of Barclays, also resigned, as a casualty of the scandal. Del Missier subsequently admitted that he had instructed his subordinates to submit falsified LIBORs to the British Bankers Association.[60]

By 4 July 2012 the breadth of the scandal was evident and became the topic of analysis on news and financial programs that attempted to explain the importance of the scandal.[61] On 6 July, it was announced that the UK Serious Fraud Office had also opened a criminal investigation into the attempted manipulation of interest rates.[62]

On 4 October 2012, Republican U.S. Senators Chuck Grassley and Mark Kirk announced that they were investigating Treasury Secretary Tim Geithner for complicity with the rate manipulation scandal. They accused Geithner of knowledge of the rate-fixing, and inaction which contributed to litigation that "threatens to clog our courts with multi-billion dollar class action lawsuits" alleging that the manipulated rates harmed state, municipal and local governments. The senators said that an American-based interest rate index is a better alternative which they would take steps towards creating.[63]

Aftermath

Early estimates are that the rate manipulation scandal cost U.S. states, counties, and local governments at least $6 billion in fraudulent interest payments, above $4 billion that state and local governments have already had to spend to unwind their positions exposed to rate manipulation.[64] An increasingly smaller set of banks are participating in setting the LIBOR, calling into question its future as a benchmark standard, but without any viable alternative to replace it.[65]

Continued in article

 

From the CFO Journal's Morning Ledger on June 9, 2015

Libor trial hears global banks submitted skewed data
http://www.wsj.com/articles/libor-trial-hears-global-banks-submitted-skewed-data-1433761036?mod=djemCFO_h
A succession of global banks told a British trade association in 2005 and 2006 that they and their rivals were deliberately submitting inaccurate data for inclusion in Libor in some cases to boost the interest rates that borrowers had to pay on their loans
.

Bob Jensen's Fraud Updates --- http://faculty.trinity.edu/rjensen/FraudUpdates.htm



Pro Forma Misguidance


To accounting experts, however, it is another in a long line of “pro forma” figures that companies have trotted out over the years to show their business in a better light than possible under generally accepted accounting principles.
"How Big Is GE Capital? It Depends," by Ted Mann, The Wall Street Journal, June 9, 2015 ---
http://www.wsj.com/articles/ge-uses-own-metric-to-value-its-finance-arms-assets-1433842205?mod=djemCFO_h

. . .

To accounting experts, however, it is another in a long line of “pro forma” figures that companies have trotted out over the years to show their business in a better light than possible under generally accepted accounting principles.

GE does report total assets as well. But in slides, investor discussions and forecasts, it consistently refers to ENI.

“We disclose ENI in addition to total assets so that our investors can better assess our total capital invested in financial services,” GE spokesman Seth Martin said.

Pro forma reporting really took off in the 1990s, and after dropping off in the wake of the dot-com bust, is back on the upswing, according to Ben Whipple, an assistant professor of accounting at the University of Georgia who has researched the subject.

Mr. Whipple and several collaborators went through nearly 130,000 earnings announcements filed with the Securities and Exchange Commission from 2003 through 2013. They found that nearly 50% of those announcements used a pro forma earnings per share metric in 2013, up from about 20% in 2003. The research didn’t track other kinds of pro forma figures, such as GE’s ENI number.

In the best case, pro forma metrics can reveal details that might be lost in official figures, he said. Consumer products companies, for instance, regularly report sales excluding currency effects to show the strength of underlying demand. But the problem for investors is that, by definition, there aren’t any rules for coming up with pro forma data.

“The discretionary nature of non-GAAP reporting might allow some firms to simply use metrics that portray firm performance in a more favorable light and that are not necessarily better measures of performance,” Mr. Whipple said in an email.

To come up with ENI, GE counts up the assets in its lending businesses, then subtracts liabilities that don’t require it to pay interest, like accounts payable or insurance reserves. GE says that provides a better measure of the positions on its books that it has to fund, whether with deposits or with money borrowed in the market.

Continued in article

Bob Jensen's threads on pro forma scandals ---
http://faculty.trinity.edu/rjensen/theory02.htm#ProForma


In this new world, Mr. Edmans writes, intangibles such as employee satisfaction have a real impact on the bottom line

From the CFO Journal's Morning Ledger on June 25, 2015

Time was, companies built success by mass-producing standardized products for the lowest cost. But modern consumers, and the firms that serve them, have entirely different expectations, writes Alex Edmans, professor of finance at London Business School. That means that chief financial officers must focus on qualitative measures in addition to the quantitative. As consumers now tend to favor customization and quality over reliable sameness, he says, CFOs need to learn to protect innovation in their businesses.

In this new world, Mr. Edmans writes, intangibles such as employee satisfaction have a real impact on the bottom line. But persuading shareholders that such investments are worth it can present a hurdle. “If a firm invests in its corporate culture, this isn’t immediately visible, so investors may interpret the resulting low cash position as stemming from poor managerial quality,” he writes.

Some shifts in perspective can help. Among them is to focus on the long term over quarterly results. But changes in practice can also help a CFO push a company to perform better. For instance, Mr. Edmans advises companies to avoid providing earnings guidance, because he says that markets then hold firms accountable for them, which forces companies to think short term.

Read his five ways for CFOs to focus on the long term.

 


Internal Auditor Shortage

From the CFO Journal's Morning Ledger on June 23, 2015

Companies are facing the most severe internal-auditor shortage in more than a decade at the same time that the regulatory burden has increased, and those combined forces have raised the importance of internal auditors in corporate finance departments, CFO Journal’s Emily Chasan reports. CFOs are working to build up their teams of internal auditors as they face concerns ranging from cybersecurity threats to the implementation of new guidelines for internal-control systems.

But for CFOs, the concern isn’t only that there are fewer unemployed auditors to choose from. Risks have changed significantly over the past decade, so finding the right skill set among auditors is a challenge in its own right.

“Ten years ago internal audit was really focused on financial controls. Five years ago we were fresh into the financial crisis, and internal auditors were focused on cost containment and risks related to profitability,” said Richard Chambers, chief executive of the Institute of Internal Auditors. “Today, we see information-technology and compliance and regulatory risks emerging.”

 


Obamacare Cadillac Tax --- https://en.wikipedia.org/wiki/Cadillac_insurance_plan

Companies are cautious about raising the quality of their employee health insurance plans because of the Cadillac Tax
From the CFO Journal's Morning Ledger on June 18, 2015

CFOs mindful of “Cadillac Tax” in upcoming union talks
http://blogs.wsj.com/cfo/2015/06/17/cfos-mindful-of-cadillac-tax-in-upcoming-union-talks/?mod=djemCFO_h
Finance executives of companies with unionized workers are bracing for the impact that excise tax on high-cost healthcare benefits will have on their businesses in three years, write CFO Journal’s Kimberly S. Johnson and Vipal Monga. Verizon Communications Inc. CFO Fran Shammo,  said the issue of health plans will be the subject of “very difficult negotiations.” The company covered almost 700,000 people last year at a cost of roughly $3.2 billion, and begins negotiations for a new contract with its unions next week. CSX Corp. has already begun scaling back costs, said finance chief Fredrik Eliasson. About 85% of the company’s workforce is unionized and talks with the United Transportation Union begin this year.

Bob Jensen's universal health care messaging --- http://faculty.trinity.edu/rjensen/Health.htm


From the CFO Journal's Morning Ledger on June 19, 2015

FASB Issues Proposed ASU to Amend Equity Method Accounting

http://deloitte.wsj.com/cfo/2015/06/19/fasb-issues-proposed-asu-to-amend-equity-method-accounting/
The accounting for equity method investments could be amended if a proposal from FASB is approved. The proposal would eliminate the requirement for an investor to account for basis differences related to its equity method investees. Deloitte’s “Heads Up” provides an overview of this and other proposed amendments, including changes to disclosures. If adopted, the proposal also would affect equity method goodwill. Comments are due by August 4, 2015.
Continue »

Read more Deloitte Insights »

 


Financial Stress Testing --- https://en.wikipedia.org/wiki/Stress_test_%28financial%29

From the CFO Journal's Morning Ledger on June 17, 2015

Fed faulted BofA regarding its foresight
http://www.wsj.com/articles/fed-faulted-bofa-regarding-its-foresight-1434496115?mod=djemCFO_h
The Federal Reserve reprimanded Bank of America Corp. earlier this year for not anticipating problems with its “stress test” submission. The Fed has told Bank of America it doesn’t believe its management is forward-looking enough and instead merely reacts to problems after they are raised by regulators. In response to the criticism, Bank of America hired several outside consultants, including McKinsey & Co., KPMG LLP, Ernst & Young and Deloitte, to scrutinize the way it runs the tests, according to others close to the situation. The bank disclosed in April that it would spend an extra $100 million this year to improve its stress-testing procedures
.

 


From the CFO Journal's Morning Ledger on June 15, 2015

Ways to Build Strong Ethical Cultures
http://deloitte.wsj.com/cfo/2015/06/15/ways-to-build-strong-ethical-cultures/

Culture is the single biggest determinant of behavior in any organization, and one thing that is clear—if an organization is not managing culture, culture might be managing it. Keith Darcy, an independent senior advisor to Deloitte & Touche LLP, discusses the four principles of an ethical culture and the cultural impacts raised by M&A and multinational operations, as well as insights on strengthening bonds among employees and building stronger ethical cultures. Continue »

Read more Deloitte Insights »


From the CFO Journal's Morning Ledger on June 11, 2015

Ex-controller testifies he altered Dewey accounting records
http://www.wsj.com/articles/ex-controller-testifies-he-altered-dewey-accounting-records-1433972860
 Years before Dewey & LeBoeuf collapsed, the law firm’s accounting department scrambled to avoid trouble with its banks by making the firm’s income appear higher than it was, Dewey’s former controller testified.


Activist Funds Put Executive Pay Formulas Under Microscope

From the CFO Journal's Morning Ledger on June 10, 2015

Activist funds are scanning corporate filings for what they see as skewed incentives and overly generous formulas that determine what top executives get to take home, the WSJ’s Liz Hoffman reports. Some activists argue that ill-designed plans encourage the wrong kinds of growth—for example, boosting revenue at the expense of profitability. Others point to nonstandard financial metrics they say reward executives even when business falters.

Case in point: Shutterfly Inc., where an activist hedge fund is seeking three board seats at the online photo retailer at a shareholder vote set for Friday. The founder of Marathon Partners Equity Management LLC said once the fund “started peeling back the onion” on Shutterfly’s pay plans, it found “a compensation scheme that had run amok.”

WSJ Article
http://www.wsj.com/articles/activist-funds-put-executive-pay-formulas-under-microscope-1434058799?mod=djemCFO_h

The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.
John Kenneth Galbraith --- Click Here

If you aren’t (cynical) now, you will by the time you finish the new Bebchuk and Fried paper on executive compensation.  They paint a fairly gloomy picture of managers exerting their power to “extract rents and to camouflage the extent of their rent extraction.”  Rather than designed to solve agency cost problems, the paper makes the case that executive pay can by an agency cost in and of itself.  Let’s hope things aren’t this bad. 
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=364220

They say that patriotism is the last refuge
To which a scoundrel clings.
Steal a little and they throw you in jail,
Steal a lot and they make you king.
There's only one step down from here, baby,
It's called the land of permanent bliss.
What's a sweetheart like you doin' in a dump like this?

Lyrics of a Bob Dylan song forwarded by Damian Gadal [DGADAL@CI.SANTA-BARBARA.CA.US

Bob Jensen's threads on Outrageous Executive Compensation Schemes That Reward Failure and Fraud ---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation


Sky-High Valuations of Startups Using Non-GAAP Measures

From the CFO Journal's Morning Ledger on June 10, 2015

The tech startup scene has a taste for non-GAAP measures, and skeptics say the perfectly legal practice may be behind many of their sky-high valuations, the WSJ reports. They warn that the tactic is yet another sign that the tech sector is plagued with overconfidence and is setting itself up for a fall. Investors who go along with vague, unconventional financial terms, they say, are inflating valuations and leaving almost no room for error at fledgling technology companies.

Instead of revenue, these closely held firms tout “bookings,” “annual recurring revenue” or other numbers that often far exceed actual revenue. Uber Technologies Inc., for instance, has told investors that its “bookings” are on pace to reach $10 billion in 2015, even though the company keeps little of the money from all those bookings.

 


From the CPA Newsletter on June 9, 2015

The Global Management Accounting Principles
 http://www.cgma.org/Resources/Reports/Pages/GlobalManagementAccountingPrinciples.aspx
Quality decision-making has never been more important -- or more difficult. New innovations and innovators daily disrupt the status quo. The volume and velocity of unstructured data are increasingly complex. The Global Management Accounting Principles, prepared by the AICPA and CIMA, reflect the perspectives of CEOs, CFOs, academics, regulators, government bodies and other professionals in 20 countries across five continents.


From the CFO Journal's Morning Ledger on June 8, 2015

SEC may seek more information from audit committees
http://blogs.wsj.com/cfo/2015/06/05/sec-may-seek-more-information-from-audit-committees/?mod=djemCFO_h
U.S. securities regulators are preparing a “concept release” that could push corporate boards of directors to disclose more about how they oversee their outside auditors, a top official said on Friday. CFO Journal’s Emily Chasan reports that the SEC’s chief accountant, James Schnurr, said he would like to understand “how investors currently use the information provided in audit committee disclosures” and the usefulness of additional disclosures.


From the CFO Journal's Morning Ledger on June 5, 2015

SEC Proposes Rule on Pay Versus Performance

http://deloitte.wsj.com/cfo/2015/06/05/sec-proposes-rule-on-pay-versus-performance/
The SEC has issued its proposal to amend the rule requiring a registrant to disclose the relationship between executive compensation actually paid and the financial performance of the registrant. The proposal, which is intended to improve shareholders’ ability to objectively assess the link between executive compensation and company performance, raises a number of interesting questions and challenges, including where in the proxy to present this disclosure and how to integrate it into the other extensive compensation disclosures already required by SEC rules.
Continue »

Read more Deloitte Insights »


Elizabeth Warren --- http://en.wikipedia.org/wiki/Elizabeth_Warren

Mary Jo White --- http://en.wikipedia.org/wiki/Mary_Jo_White

From the CFO Journal's Morning Ledger on June 3, 2015

Warren sharply criticizes SEC chairman in letter
http://www.wsj.com/articles/sen-elizabeth-warren-sharply-criticizes-sec-chairman-in-letter-1433250001?mod=djemCFO_h
Sen. Elizabeth Warren sharply criticized Mary Jo White, saying her tenure as chairman of the SEC has been “extremely disappointing” and that she appeared to have broken promises made to lawmakers during her confirmation hearings in early 2013. Ms. White, in a written statement, disputed Ms. Warren’s charges.


From the CFO Journal's Morning Ledger on June 3, 2015

Biggest MasterCard issuers scuttled deal on Target data breach
http://www.wsj.com/articles/biggest-mastercard-issuers-scuttled-deal-on-target-data-breach-1433253072?mod=djemCFO_h
MasterCard Inc
.’s $19 million settlement with Target Corp. over a data breach was scuttled when it was rejected as too small by MasterCard’s largest U.S. credit-card issuers: Citigroup Inc., Capital One Financial Corp. and J.P. Morgan Chase & Co. News of the deal’s failure was reported last month, but the banks behind its demise weren’t reported at the time. The three banks decided to quash the pact that was negotiated on the industry’s behalf by MasterCard because they thought it was too small to cover their losses in the incident.


Clawback --- http://en.wikipedia.org/wiki/Clawback

SEC Eyes Broadened ‘Clawback’ Restrictions

From the CFO Journal's Morning Ledger on June 3, 2015

The Securities and Exchange Commission is targeting executive pay in its latest bid to keep errors out of corporate financial statements. The commission will soon propose long-awaited rules forcing companies to claw back, or revoke, some of their top officials’ incentive pay if they have to restate the financial results that led to it, the WSJ’s Andrew Ackerman reports.

The rules, if finalized, could force an executive who received stock options after the company met a performance target, such as a revenue figure, to return some or all of that compensation if a misstatement shows revenue fell below the executive’s performance target. The rules would also apply to a larger group of executives than existing rules, although it isn’t clear how many top executives would be covered under the restrictions. Existing rules passed in the wake of accounting scandals in the early 2000s affect only a company’s chief executive and chief financial officer.

SEC Eyes Broadened ‘Clawback’ Restrictions
http://www.wsj.com/articles/sec-eyes-broadened-clawback-restrictions-1433285178?mod=djemCFO_h


USA Public Company Accounting Oversight Board (PCAOB)  --- http://en.wikipedia.org/wiki/Public_Company_Accounting_Oversight_Board

PCAOB Inspections That Tend to Be Critical of Both Large and Small Auditing Firms in the USA ---
http://pcaobus.org/Inspections/Pages/default.aspx
There are many complaints, but a common finding is that audit firms are too eager to replace detail testing with dubious analytical reviews. Other complains include such things as poor supervision of inexperienced auditors.

Big Firms Getting Better Grades on Internal Control Audits: PCAOB ---
http://blogs.wsj.com/cfo/2015/06/04/big-firms-getting-better-grades-on-internal-control-audits-pcaob/?mod=djemCFO_h

The largest public accounting firms made significant improvements in their audits of corporate internal controls this year, their regulator says.

Audits of internal controls—the systems and processes that act as a first line of defense against corporate fraud and financial misstatements—have been a sticking point with regulators over the past few years.

In some years, failures by auditors to adequately test controls comprised as much as 15% of audit deficiencies found by regulators.

But the larger firms have “shown some real improvements in the [inspection] findings,” says Helen Munter, director of the Division of Registration and Inspections at the government’s audit watchdog, the Public Company Accounting Oversight Board.

The improvements came as audit firms increased guidance and training for internal control audits, and demanded more proof from companies that internal controls were working, Ms. Munter said in an interview.

In the past, auditors may have simply asked a financial staffer if a control, such as a purchasing manager’s approval for large purchases, existed and occurred, Ms. Munter said. Now auditors are more likely to get proof that a meeting occurred to approve the purchase, to seek documentation showing the approval, or event to talk to the approver about what they did to ensure the control is working.

Deloitte & Touche LLP, was the first of the large accounting firms to have its 2014 inspection report released by the regulator this week, while the others should follow in the next few months.

Deloitte’s report showed just 21% of audits inspected by the PCAOB had deficiencies — the lowest level in the past five years for the firm. However, the inspection report still cited several deficiencies in internal control audits, such as the auditor failing to properly test internal controls over billing rates and revenue.

Deloitte has made “significant investments” in audit quality over the last several years and emphasized to our professionals the importance of our internal control work,” Deloitte spokesman Dan Mucisko said. He said the firm has provided enhanced training and tools targeted at internal controls audits.

In a letter to the SEC and PCAOB last week, the U.S. Chamber of Commerce said it is worried the board’s inspection process may have “unintended consequences,” which could be increasing costs and burdens on companies, while not necessarily leading to more effective audits or internal control systems at companies.

“Spending inordinate amounts on audits does not promote investor protection or provide the basis for an effective and sustainable system of controls,” Tom Quaadman, vice president of the Chamber’s Center for Capital Markets Competitiveness wrote in the letter. It is seeking a meeting with the regulators to discuss its concerns.

Continued in article

"PCAOB Inspection Reports at 5: What Can We Learn," by Tammy Whitehouse, Compliance Week, March 30, 2015 ---
https://www.complianceweek.com/news/news-article/pcaob-inspection-reports-at-5-what-can-we-learn

After a decade of regulating the audit of public companies in the United States, only one thing is certain about the quality of audits: that even today, nobody is quite sure how good audits actually are.

The Public Company Accounting Oversight Board, formed under the Sarbanes-Oxley Act, continues to adjust its approach to regulating the audit profession, especially the method by which it inspects audits to determine where problems exist that auditors need to fix. That has sent auditors on an odyssey—especially in the last five years—to determine what will satisfy regulators and the public. How can auditors deliver a tough but fair audit at a cost that clients are willing to pay?

“If I’m sitting in Congress or at the Securities and Exchange Commission and I want to see if the auditing profession is getting better or worse, could I figure it out?” asks Joe Carcello, executive director of the corporate governance center at the University of Tennessee and a past member of.

The remainder of the article is for subscribers only (subscriptions are very expensive to Compliance Week)

Other References
Improving Quality of Audits --- http://pcaobus.org/News/Speech/Pages/10302014_SBF.aspx

Helen A. Munter Speech --- http://pcaobus.org/News/Speech/Pages/12102014_Munter_AICPA.aspx

The CPA Journal Archive on Auditing --- http://www.cpajournal.com/acc.htm

Canadian Public Accounting Board (CPAB) ---
http://en.wikipedia.org/wiki/Canadian_Public_Accountability_Board

CPAB Inspection Reports are Linked in the right-hand column at
http://www.cpab-ccrc.ca/en/Pages/default.aspx

Current Trends in the Audit Industry ---
http://www.cpab-ccrc.ca/Documents/News and Publications/Speeches and Presentations/Brian Hunt Remarks to PCAOB November 19 2014.pdf

Deloitte's 2014 Transparency Report --- http://www2.deloitte.com/content/dam/Deloitte/ca/Documents/audit/ca-en-audit-2014-transparency-report.pdf
Search for PCAOB or CPAB

Auditing:  Paying More for Less

From the CFO Journal's Morning Ledger on June 3, 2015

Regulator (PCAOB) finds deficiencies in 11 audits by Deloitte & Touche
http://www.wsj.com/articles/regulator-finds-deficiencies-in-11-audits-done-by-deloitte-touche-1433286148?mod=djemCFO_h
 The 11 deficient audits found by the Public Company Accounting Oversight Board represent 21% of the 53 audits and partial audits reviewed by the board in its 2014 inspection report of Deloitte & Touche LLP, issued Tuesday. In the previous year’s report, the board found 15 deficient audits at Deloitte out of 53 surveyed, a 28% deficiency rate.

Bob Jensen's threads on Deloitte's auditing controversies ---
http://faculty.trinity.edu/rjensen/Fraud001.htm


FASB:  Simplifying Accounting Standards --- http://www.fasb.org/simplification

The FASB has launched a tightly-focused initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects.

The projects included in the initiative are intended to improve or maintain the usefulness of the information reported to investors while reducing cost and complexity in financial reporting.

In addition to the Simplification Initiative, the FASB recently completed several projects, and currently is working on several projects, that are intended to reduce cost and complexity in financial reporting.

Many suggestions for simplification were identified by our stakeholders. We encourage stakeholders to submit additional ideas for simplification in other areas of accounting. Stakeholders should email their suggestions to
fasbcomments@fasb.org.

Read more about the FASB’s current projects, and projects that were successfully completed.

Completed Projects --- http://www.fasb.org/cs/ContentServer?c=Page&pagename=FASB%2FPage%2FSectionPage&cid=1176164432588

Current Projects --- http://www.fasb.org/cs/ContentServer?c=Page&pagename=FASB%2FPage%2FSectionPage&cid=1176164432556

The Board will consider opportunities to align with IFRS 9 Financial Instruments.
Jensen Comment
Please say it isn't so.

For more information on Emerging Issues Task Force (EITF) projects that seek to reduce complexity, visit the EITF page.

For more information on Private Company Council (PCC) projects that seek to reduce complexity, visit the PCC page.
 

Purchase Price Allocation (FAS 141r and FAS 142 embodied in ASC Topic 805) ---
https://en.wikipedia.org/wiki/Purchase_price_allocation

"What is the FASB’s Simplification Initiative, Really?," by Tom Selling, The Accounting Onion, June 16, 2015 --- Click Here
http://accountingonion.com/2015/06/what-is-the-fasbs-simplification-initiative-really.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29

The FASB’s “simplification” proposals are coming fast, and some of them are making me furious. Proposed ASU No. 2015-260, which would roll back important anti-abuse provisions in ASC Topic 805—Business Combinations, is a very nice place to start.

A Perfectly Good GAAP

GAAP has long permitted companies to revise “provisional” measures of assets acquired and liabilities assumed (AA&LA) in a business acquisition. It’s more than a little bit hard for me to sympathize with a company that doesn’t have a really good idea of the actual value of the assets it acquired and the liabilities it has assumed, but that’s beside the point. The reality is that accounting rules have long accommodated management’s desire to have a “measurement period” in M&A accounting during which it may collect and process additional information about conditions that existed at the balance sheet date pertaining to particular assets and liabilities.

It is important for you to be aware as well that up until the issuance of FAS 141(R) in 2007, the measurement period rules had loopholes that made for interesting and imaginative financial statement manipulations. Paragraphs 52 -55 (ASC 805-10-25-13 thru 19 of FAS 141(R)) set forth a simple, reasonable and effective anti-abuse provision: if the acquirer adjusts during the measurement period its provisional amounts for the AA&LA, it must do so by restating the comparative financial statements in subsequent financial reports as needed.

And whaddyaknow, those paragraphs in FAS 141(R) worked as they were intended. Adjustments during the measurement period dwindled. Perhaps it did little to incentivize acquirors to adequately performing their due diligence at the time they closed on a deal; but now, at least they were acting as if they had.

Since It’s Not Broken, We Gotta “Simplify” It (If You Know What I Mean)

Now come some of the FASB’s “stakeholders” — that’s the doublespeak the Board uses to refer to groups when they can’t legitimately say that “users” or “investors” are included — to complain that GAAP is working too well. Quick like a fox, the FASB issues a fast-track “simplification” proposal that roll back the restatement requirement.

To set the stage for examining the Board’s questionable basis for the proposal, let’s use a simple example* to understand the effects it would have. My example is an adaption of the current and proposed illustrative example set forth in ASC 805-10-55-27 thru 28. The base case is rather vanilla, but just a few tweaks will get at the heart of the matter.

Continued in article

Jensen Comment
Tom goes on to make a case that the proposal really does not simplify the standard. I might note that this is not a completed FASB project topic so there's a chance that he can influence the final outcome if he convinces the FASB to read his posting.

I'm more worried about pending simplifications to accounting for derivatives and hedging activities. It will be awful if FAS 133 does become a clone of hedge accounting in IFRS 9.

 


EITF Updates From EY on June 20, 2015

The Emerging Issues Task Force (EITF) reached final consensuses on the following issues:

 

 

 

The EITF reached consensuses-for-exposure on the following issues:

 

 

 

The EITF also discussed but didn’t reach a consensus-for-exposure on the classification of certain cash receipts and cash payments on the statement of cash flows.

 

For further information on related topics, see our AccountingLink site.
http://www.ey.com/UL/en/AccountingLink/Accounting-Link-Home

Novation --- https://en.wikipedia.org/wiki/Novation



A Success Case for the Inability to Replicate in Validation of Social Science Research
"The Unraveling of Michael LaCour," by Tom Bartlett, Chronicle of Higher Education, Chronicle of Higher Education, June 2, 2015 ---
http://chronicle.com/article/The-Unraveling-of-Michael/230587/?cid=at

By his own account, Michael J. LaCour has told big lies. He claimed to have received $793,000 in research grants. In fact, he admits now, there were no grants.

The researchers who attempted to replicate his widely lauded Science paper on persuasion instead exposed a brazen fabrication, one in which Mr. LaCour appears to have forged an email and invented a representative for a research firm. New York magazine’s Science of Us blog noted that Mr. LaCour claimed to have won a nonexistent teaching award, and then caught him trying to cover up that fiction.

As more facts emerge from one of the strangest research scandals in recent memory, it becomes clear that this wasn’t merely a flawed study performed by a researcher who cut a few corners. Instead it appears to have been an elaborate, years-long con that fooled several highly respected, senior professors and one of the nation’s most prestigious journals.

Commenters are doling out blame online. Who, if anyone, was supervising Mr. LaCour’s work? Considering how perfect his results seemed, shouldn’t colleagues have been more suspicious? Is this episode a sign of a deeper problem in the world of university research, or is it just an example of how a determined fabricator can manipulate those around him?

Those questions will be asked for some time to come. Meanwhile, though, investigators at the University of California at Los Angeles, where Mr. LaCour is a graduate student, are still figuring out exactly what happened.

It now appears that even after Mr. LaCour was confronted about accusations that his research was not on the level, he scrambled to create a digital trail that would support his rapidly crumbling narrative, according to sources connected to UCLA who asked to speak anonymously because of the university investigation. The picture they paint is of a young scholar who told an ever-shifting story and whose varied explanations repeatedly failed to add up.

An Absence of Evidence

On May 17, Mr. LaCour’s dissertation adviser, Lynn Vavreck, sent him an email asking that he meet her the next day. During that meeting, the sources say, Ms. Vavreck told Mr. LaCour that accusations had been made about his work and asked whether he could show her the raw data that underpinned his (now-retracted) paper, "When Contact Changes Minds: An Experiment on Transmission of Support for Gay Equality." The university needed proof that the study had actually been conducted. Surely there was some evidence: a file on his computer. An invoice from uSamp, the company that had supposedly provided the participants. Something.

That paper, written with Donald Green, a professor of political science at Columbia University who is well-known for pushing the field to become more experimental, had won an award and had been featured in major news outlets and in a segment on This American Life. It was the kind of home run graduate students dream about, and it had helped him secure an offer to become an assistant professor at Princeton University. It was his ticket to an academic career, and easily one of the most talked-about political-science papers in recent years. It was a big deal.

Jensen Comment
Detection of fraud with inability to replicate is quite common in the physical sciences. It occasionally happens in the social sciences. More commonly, however, whistle blowers are the most common source of fraud detection, often whistle blowers that were insiders in the research process itself such as when insiders revealed the faked data of http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize 

I know of zero instances where failure to replicate detected fraud in the entire history of accounting research.
One reason is that exacting replication itself is a rare event in academic accounting research ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm#Replication
Academic accountants most likely consider themselves more honest than other academic researchers to a point where journal editors do not require replication and in most instances like The Accounting Review will not even publish critical commentaries about published articles ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

Whereas real scientists are a suspicious lot when it comes to published research, accounting researchers tend to be a polite and unsuspecting lot ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm 

"The Case of the Amazing Gay-Marriage Data: How a Graduate Student Reluctantly Uncovered a Huge Scientific Fraud," by Jesse Singal, New York Magazine, May 2015 ---
http://nymag.com/scienceofus/2015/05/how-a-grad-student-uncovered-a-huge-fraud.html

The exposure of one of the biggest scientific frauds in recent memory didn’t start with concerns about normally distributed data, or the test-retest reliability of feelings thermometers, or anonymous Stata output on shady message boards, or any of the other statistically complex details that would make it such a bizarre and explosive scandal. Rather, it started in the most unremarkable way possible: with a graduate student trying to figure out a money issue.

It was September of 2013, and David Broockman (pronounced “brock-man”), then a third-year political-science doctoral student at UC Berkeley, was blown away by some early results published by Michael LaCour, a political-science grad student at UCLA. On the first of the month, LaCour had invited Broockman, who is originally from Austin, Texas, to breakfast during the American Political Science Association’s annual meeting in Chicago. The pair met in a café called Freshii at the Palmer House Hilton, where the conference was taking place, and LaCour showed Broockman some early results on an iPad.

. . .

So when LaCour and Green’s research was eventually published in December 2014 in Science, one of the leading peer-reviewed research publications in the world, it resonated far and wide. “When contact changes minds: an expression of transmission of support for gay equality” garnered attention in the New York Times and a segment on "This American Life" in which a reporter tagged along with canvassers as they told heart-wrenching stories about being gay. It rerouted countless researchers’ agendas, inspired activists to change their approach to voter outreach, generated shifts in grant funding, and launched follow-up experiments.

But back in 2013, the now-26-year-old Broockman, a self-identifying “political science nerd,” was so impressed by LaCour’s study that he wanted to run his own version of it with his own canvassers and his own survey sample. First, the budget-conscious Broockman had to figure out how much such an enterprise might cost. He did some back-of-the-envelope calculations based on what he’d seen on LaCour’s iPad — specifically, that the survey involved about 10,000 respondents who were paid about $100 apiece —  and out popped an imposing number: $1 million. That can’t be right, he thought to himself. There’s no way LaCour — no way any grad student, save one who’s independently wealthy and self-funded — could possibly run a study that cost so much. He sent out a Request for Proposal to a bunch of polling firms, describing the survey he wanted to run and asking how much it would cost. Most of them said that they couldn’t pull off that sort of study at all, and definitely not for a cost that fell within a graduate researcher’s budget. It didn’t make sense. What was LaCour’s secret?

Eventually, Broockman’s answer to that question would take LaCour down.

 

A Success Case for the Inability to Replicate in Validation of Social Science Research
"The Unraveling of Michael LaCour," by Tom Bartlett, Chronicle of Higher Education, June 2, 2015 ---
http://chronicle.com/article/The-Unraveling-of-Michael/230587/?cid=at

By his own account, Michael J. LaCour has told big lies. He claimed to have received $793,000 in research grants. In fact, he admits now, there were no grants.

The researchers who attempted to replicate his widely lauded Science paper on persuasion instead exposed a brazen fabrication, one in which Mr. LaCour appears to have forged an email and invented a representative for a research firm. New York magazine’s Science of Us blog noted that Mr. LaCour claimed to have won a nonexistent teaching award, and then caught him trying to cover up that fiction.

As more facts emerge from one of the strangest research scandals in recent memory, it becomes clear that this wasn’t merely a flawed study performed by a researcher who cut a few corners. Instead it appears to have been an elaborate, years-long con that fooled several highly respected, senior professors and one of the nation’s most prestigious journals.

Commenters are doling out blame online. Who, if anyone, was supervising Mr. LaCour’s work? Considering how perfect his results seemed, shouldn’t colleagues have been more suspicious? Is this episode a sign of a deeper problem in the world of university research, or is it just an example of how a determined fabricator can manipulate those around him?

Those questions will be asked for some time to come. Meanwhile, though, investigators at the University of California at Los Angeles, where Mr. LaCour is a graduate student, are still figuring out exactly what happened.

It now appears that even after Mr. LaCour was confronted about accusations that his research was not on the level, he scrambled to create a digital trail that would support his rapidly crumbling narrative, according to sources connected to UCLA who asked to speak anonymously because of the university investigation. The picture they paint is of a young scholar who told an ever-shifting story and whose varied explanations repeatedly failed to add up.

An Absence of Evidence

On May 17, Mr. LaCour’s dissertation adviser, Lynn Vavreck, sent him an email asking that he meet her the next day. During that meeting, the sources say, Ms. Vavreck told Mr. LaCour that accusations had been made about his work and asked whether he could show her the raw data that underpinned his (now-retracted) paper, "When Contact Changes Minds: An Experiment on Transmission of Support for Gay Equality." The university needed proof that the study had actually been conducted. Surely there was some evidence: a file on his computer. An invoice from uSamp, the company that had supposedly provided the participants. Something.

That paper, written with Donald Green, a professor of political science at Columbia University who is well-known for pushing the field to become more experimental, had won an award and had been featured in major news outlets and in a segment on This American Life. It was the kind of home run graduate students dream about, and it had helped him secure an offer to become an assistant professor at Princeton University. It was his ticket to an academic career, and easily one of the most talked-about political-science papers in recent years. It was a big deal.

Jensen Comment
Detection of fraud with inability to replicate is quite common in the physical sciences. It occasionally happens in the social sciences. More commonly, however, whistle blowers are the most common source of fraud detection, often whistle blowers that were insiders in the research process itself such as when insiders revealed the faked data of http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize 

I know of zero instances where failure to replicate detected fraud in the entire history of accounting research.
One reason is that exacting replication itself is a rare event in academic accounting research ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm#Replication
Academic accountants most likely consider themselves more honest than other academic researchers to a point where journal editors do not require replication and in most instances like The Accounting Review will not even publish critical commentaries about published articles ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

Whereas real scientists are a suspicious lot when it comes to published research, accounting researchers tend to be a polite and unsuspecting lot ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm 

Large-Scale Fake Data in Academe
"The Case of the Amazing Gay-Marriage Data: How a Graduate Student Reluctantly Uncovered a Huge Scientific Fraud," by Jesse Singal, New York Magazine, May 2015 ---
http://nymag.com/scienceofus/2015/05/how-a-grad-student-uncovered-a-huge-fraud.html

The exposure of one of the biggest scientific frauds in recent memory didn’t start with concerns about normally distributed data, or the test-retest reliability of feelings thermometers, or anonymous Stata output on shady message boards, or any of the other statistically complex details that would make it such a bizarre and explosive scandal. Rather, it started in the most unremarkable way possible: with a graduate student trying to figure out a money issue.

It was September of 2013, and David Broockman (pronounced “brock-man”), then a third-year political-science doctoral student at UC Berkeley, was blown away by some early results published by Michael LaCour, a political-science grad student at UCLA. On the first of the month, LaCour had invited Broockman, who is originally from Austin, Texas, to breakfast during the American Political Science Association’s annual meeting in Chicago. The pair met in a café called Freshii at the Palmer House Hilton, where the conference was taking place, and LaCour showed Broockman some early results on an iPad.

. . .

So when LaCour and Green’s research was eventually published in December 2014 in Science, one of the leading peer-reviewed research publications in the world, it resonated far and wide. “When contact changes minds: an expression of transmission of support for gay equality” garnered attention in the New York Times and a segment on "This American Life" in which a reporter tagged along with canvassers as they told heart-wrenching stories about being gay. It rerouted countless researchers’ agendas, inspired activists to change their approach to voter outreach, generated shifts in grant funding, and launched follow-up experiments.

But back in 2013, the now-26-year-old Broockman, a self-identifying “political science nerd,” was so impressed by LaCour’s study that he wanted to run his own version of it with his own canvassers and his own survey sample. First, the budget-conscious Broockman had to figure out how much such an enterprise might cost. He did some back-of-the-envelope calculations based on what he’d seen on LaCour’s iPad — specifically, that the survey involved about 10,000 respondents who were paid about $100 apiece —  and out popped an imposing number: $1 million. That can’t be right, he thought to himself. There’s no way LaCour — no way any grad student, save one who’s independently wealthy and self-funded — could possibly run a study that cost so much. He sent out a Request for Proposal to a bunch of polling firms, describing the survey he wanted to run and asking how much it would cost. Most of them said that they couldn’t pull off that sort of study at all, and definitely not for a cost that fell within a graduate researcher’s budget. It didn’t make sense. What was LaCour’s secret?

Eventually, Broockman’s answer to that question would take LaCour down.

June 2, 2015 reply from Patricia Walters

  I'm sure many of you received the announcement today of this new journal.  I added the emphasis (bold & purple) to the last sentence of the description that encourages (at least, IMHO) replications.  Only time will tell whether replications and eventual publication will occur.
Pat
 
The Financial Accounting and Reporting Section (FARS) of the AAA is excited to announce the official opening of submissions for its new journal:
 
The Journal of Financial Reporting
 
The Journal of Financial Reporting (JFR) is open to research on a broad spectrum of financial reporting issues related to the production, dissemination, and analysis of information produced by a firm's financial accounting and reporting system. JFR welcomes research that employs empirical archival, analytical, and experimental methods, and especially encourages less traditional approaches such as field studies, small sample studies, and analysis of survey data. JFR also especially encourages "innovative" research, defined as research that examines a novel question or develops new theory or evidence that challenges current paradigms, or research that reconciles, confirms, or refutes currently mixed or questionable results. 
 
Editors: Mary Barth, Anne Beatty, and Rick Lambert
 
See the complete Editorial Advisory Board and more details about the journal's background and submission guidelines at:
 
http://www2.aaahq.org/fars/JFR.cfm (includes a link to submit)

 

 


More Retractions of Jim Hunton's Publications

March 28, 2015 message from XXXXX

Hi Bob,

I know you’ve been interested in the Hunton retractions. I thought you might want to know that he recently had his three publications in JAR retracted (bringing the total to six retractions). I think these are all his JAR publications.

If you post this or pass this along, I’d rather not be associated with the news.

Here is the link: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1475-679X/earlyview 

Here is a document with the text from the retractions.

The third one is the most interesting in my opinion. Someone said it sounds like he got his excuse from a student!

Contemporary Accounting Research. 2014. Retracted: Hunton, J. E., R. Hoitash and J. C. Thibodeau. 2011. The relationship between perceived tone at the top and earnings quality. Contemporary Accounting Research 28(4): 1190-1224. Contemporary Accounting Research 31(4): 937-938 ---
http://maaw.info/ContemporaryAccountingResearch2014.htm

March 28, 2015 reply from Bob Jensen

"Following Retraction, Bentley Professor Resigns," Inside Higher Ed, December 21, 2012 ---
http://www.insidehighered.com/quicktakes/2012/12/21/following-retraction-bentley-professor-resigns

James E. Hunton, a prominent accounting professor at Bentley University, has resigned amid an investigation of the retraction of an article of which he was the co-author, The Boston Globe reported. A spokeswoman cited "family and health reasons" for the departure, but it follows the retraction of an article he co-wrote in the journal Accounting Review. The university is investigating the circumstances that led to the journal's decision to retract the piece.

REPORT OF JUDITH A. MALONE, BENTLEY UNIVERSITY ETHICS OFFICER, CONCERNING DR. JAMES E. HUNTON
July 21, 2014 ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

Pursuant to the Bentley University Ethics Complaint Procedures (“Ethics Policy”), this report summarizes the results of an eighteen - month investigation into two separate allegations of research misconduct that were received by Bentley in November 2012 and January 2013 against James E. Hunton, a former Professor of Accountancy. The complainants – one a confidential reporter (as defined in the Ethics Policy) and the other a publisher – alleged that Dr. Hunton engaged in research misconduct in connection wit h two papers that he published while a faculty member at the University: “A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures: Nominal Group, Round Robin, and Open Discussion,” The Accounting Review 85 (3): 911 - 935 (“Fraud Br barnstorming”) and “The Relationship between Perceived Tone at the Top and Earnings Quality,” Contemporary Accounting Research 28 (4): 1190 - 1224 (“Tone at the Top”).

Because of concerns regarding Fraud Brainstorming that the editors at The Accounting Review had been discussing with Dr. Hunton since May 2012, the editors withdrew that paper in November 2012. Bentley received the allegation of research misconduct from the confidential reporter later that month. The confidential reporter also raised questions about ten other articles that Dr. Hunton published or provided data for while he was at Bentley, which, the reporter alleged, raised similar questions of research integrity.

In my role as Ethics Officer, it was my duty to make the preliminary determination n about whether the allegations warranted a full investigation. To make that determination, I met with Dr. Hunton in person when Bentley received this allegation, after I first instructed Bentley IT to back up and preserve all of his electronic data store d on Bentley’s servers. During that meeting, we discussed the allegation, I explained the process that would be followed if I found an investigation was warranted, and I described the need for his cooperation, including the specific admonition that he pre serve, and make available to me, all relevant materials, including electronic and paper documents. This information and these instructions were confirmed in writing to Dr. Hunton. Dr. Hunton resigned shortly after that meeting, which coincided with my de termination that a full investigation was warranted.

In January 2013 as the investigation was just getting underway, Bentley received the second allegation of research misconduct from the editor of Contemporary Accounting Research. The editor had contacted ted Dr. Hunton directly in November 2012 with concerns about Tone at the Top after the Fraud Brainstorming paper was retracted. The journal brought the issue to Bentley’s attention after the response it received failed to resolve its concerns. When Bentley received this second allegation, I informed Dr. Hunton of it, as well.

Continued in article

Jensen Comment
The last paragraph of the article suggests that Professor Hunton did not cooperate in the investigation to the extent that it is unknown if his prior research papers were also based upon fabricated data. The last paragraph reads as follows:

Bentley cannot determine with confidence which other papers may be based on fabricated data. We will identify all of the co - authors on papers Dr. Hunton published while he was at Bentley that involve research data. We will inform them that, unless they have independent evidence of the validity of the data, we plan to ask the journals in which the papers they co - authored with Dr. Hunton were published to determine, with the assistance of the co - authors, whether the data analyzed in the papers were valid. The various journals will then have the discretion to decide whether any further action is warranted, including retracting or qualifying, with regard to an y of Dr. Hunton’s papers that they published

Years ago Les Livingstone was the first person to detect a plagiarized article in TAR (back in the 1960s when we were both doctoral students at Stanford). This was long before digital versions articles could be downloaded. The TAR editor published an apology to the original authors in the next edition of TAR. The article first appeared in Management Science and was plagiarized in total for TAR by a Norwegian (sigh).

 

November 28, 2012 forward from Dan Stone

Anna Gold sent me the following statement and also indicated that she had no objections to my posting it on AECM:

Explanation of Retraction (Hunton & Gold 2010)

On November 9, 2012, The Accounting Review published an early-view version of the voluntary retraction of Hunton & Gold (2010). The retraction will be printed in the January 2013 issue with the following wording:

“The authors confirmed a misstatement in the article and were unable to provide supporting information requested by the editor and publisher. Accordingly, the article has been retracted.”

The following statement explains the reason for the authors’ voluntary retraction. In the retracted article, the authors reported that the 150 offices of the participating CPA firm on which the study was based were located in the United States. In May 2012, the lead author learned from the coordinating partner of the participating CPA firm that the 150 offices included both domestic and international offices of the firm. The authors apologize for the inadvertently inaccurate description of the sample frame.

The Editor and the Chairperson of the Publications Committee of the American Accounting Association subsequently requested more information about the study and the participating CPA firm. Unfortunately, the information they requested is subject to a confidentiality agreement between the lead author and the participating firm; thus, the lead author has a contractual obligation not to disclose the information requested by the Editor and the Chairperson. The second author was neither involved in administering the experiment nor in receiving the data from the CPA firm. The second author does not know the identity of the CPA firm or the coordinating partner at the CPA firm. The second author is not a party to the confidentiality agreement between the lead author and the CPA firm.

The authors offered to print a correction of the inaccurate description of the sample frame; however, the Editor and the Chairperson rejected that offer. Consequently, in spite of the authors' belief that the inaccurate description of the sample does not materially impact either the internal validity of the study or the conclusions set forth in the Article, the authors consider it appropriate to voluntarily withdraw the Article from The Accounting Review at this time. Should the participating CPA firm change its position on releasing the requested information in the future, the authors will request that the Editor and the Chairperson consider reinstating the paper.

Signed:

James Hunton Anna Gold

References: Hunton, J. E. and Gold, A. (2010), “A field experiment comprising the outcomes of three fraud brainstorming procedures: Nominal group, round robin, and open discussions,” The Accounting Review 85(3): 911-935.

 

December 1, 2012 reply from Harry Markopolos <notreallyharry@outlook.com

Harry Markopolos <notreallyharry@outlook.com>

The explanation provided by the Hunton and Gold regarding the recent TAR retraction seems to provide more questions than answers. Some of those questions raise serious concerns about the validity of the study.

1. In the paper, the audit clients are described as publically listed (p. 919), and since the paper describes SAS 99 as being applicable to these clients, they would presumably be listed in the U.S. However, according to Audit Analytics, for fiscal year 2007, the Big Four auditor with the greatest number of worldwide offices with at least one SEC registrant was PwC, with 134 offices (the remaining firms each had 130 offices). How can you take a random sample of 150 offices from a population of (at most) 134?

Further, the authors state that only clients from the retail, manufacturing, and service industries with at least $1 billion in gross revenues with a December 31, 2007 fiscal year-end were considered (p. 919). This restriction further limits the number of offices with eligible clients. For example, the Big Four auditor with the greatest number of offices with at least one SEC registrant with at least $1 billion in gross revenues with a December 31, 2007 fiscal year end was Ernst & Young, with 102 offices (followed by PwC, Deloitte and KPMG, with 94, 86, and 83 offices, respectively). Limiting by industry would further reduce the pool of offices with eligible clients (this would probably be the most limiting factor, since most industries tend to be concentrated primarily within a handful of offices).

2. Why the firm would use a random sample of their worldwide offices in the first place, especially a sample including foreign affiliates of the firm? Why not use every US office (or every worldwide office with SEC registrants)? The design further limited participation to one randomly selected client per office (p. 919). This design decision is especially odd. If the firm chose to sample from the applicable population of offices, why not use a smaller sample of offices and a greater number of clients per office? Also, why wouldn’t the firm just sample from the pool of eligible clients? Finally, would the firm really expect its foreign affiliates to be happy to participate just because the US firm is asking them to do so? Would it not be much simpler and more effective to focus on US offices and get large numbers of clients from the largest US Offices (e.g., New York, Chicago, LA) and fill in the remaining clients needed to reach 150 clients from smaller offices?

3. Given the current hesitancy of the Big Four to allow any meaningful access to data, why would the international offices be consistently willing to participate in the study, especially since each national affiliate of the Big Four is a distinct legal entity? The coordination of this study across the firm’s international offices seems like a herculean effort, at least. Further, even if the authors were not aware that the population of offices included international offices, the lead author was presumably aware of the identity of the partner coordinating the study for the firm. Footnote 4 of the paper and discussion on page 919 suggest that the US national office coordinated the study. It seems quite implausible that the US national office alone would be able to coordinate the study internationally.

4. In the statement that has been circulated among the accounting research community, the authors state:

“The second author was neither involved in administering the experiment nor in receiving the data from the CPA firm. The second author does not know the identity of the CPA firm or the coordinating partner at the CPA firm. The second author is not a party to the confidentiality agreement between the lead author and the CPA firm.”

However, this statement is inconsistent with language in the paper suggesting that both authors had access to the data and were involved in discussions with the firm regarding the design of the study (e.g. Footnote 17). Also, isn’t this kind of arrangement quite odd, at best? Not even the second author could verify the data. We are left with only the first author’s word that this study actually took place with no way for anyone (not even the second author or the journal editor) to obtain any kind of assurance on the matter. Why wouldn’t the firm be willing to allow Anna or Harry Evans to sign a confidentiality agreement in order to obtain some kind of independent verification? If the firm was willing to allow the study in the first place, it seems quite unreasonable for them to be unwilling to allow a reputable third party (e.g. Harry) to obtain verification of the legitimacy of the study. In addition, assuming the firm is this extremely vigilant in not allowing Harry or Anna to know about the firm, does it seem odd that the firm failed to read the paper before publication and, therefore, note the errors in the paper, including the claim that is made in multiple places in the paper that the data came from a random sample of the firm’s US offices?

5. Why do the authors state that the paper is being voluntarily withdrawn if the authors don’t believe that the validity of the paper is in any way questioned? The retraction doesn’t really seem voluntary. If the authors did actually offer to retract the study that implies that the errors in the paper are not simply innocent mistakes.

Given that most, if not all US offices would have had to be participants in the study (based on the discussion above), it wouldn’t be too hard to obtain some additional information from individuals at the firms to verify whether or not the study actually took place. In particular, if we were to locate a handful of partners from each of the Big Four who were office-managing partners in 2008, we could ask them if their office participated in the study. If none of those partners recall their office having participated in the study, the reported data would appear to be quite suspect.

Sincerely,

Harry Markopolos

Jensen Comment
Thanks to the Ethics Officer at Bentley College on July 14, 2014 we now know more of the story.

I have no idea what happened to Professor Hunton after he resigned from Bentley University in 2012.

Accounting professor faked data for two studies, destroyed evidence: University report ---
http://retractionwatch.com/2014/07/22/accounting-professor-faked-data-for-two-studies-destroyed-evidence-university-report/

Jim Hunton appears to have become the Scarlet Letter Professor of Accounting Research. Once a professor becomes known as a cheat his or her entire body of research may be retracted. To my knowledge no accounting researcher attempted to replicate Jim's research. It should be noted, however, that replication cannot prevent cheating in research. Fiction can, and sometimes is, repeated in real life.

The American Accounting Associated brought the total number of Jim's retractions up to 25 retractions to 25 plus a section of an article ---
http://aaahq.org/Portals/0/documents/Website-FinalListofRetractedArticles-6-25-15.pdf
A list of the retractions is provided.

It is extremely rare to detect an accounting professor who cheated.
Bob Jensen's threads on the Jim Hunton saga plus a listing of professors in other disciplines who cheated ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

June 28, 2015 reply from Bob Jensen

I'm not sure how to formulate my question. What about the other authors on these retracted papers? It's difficult for me to believe that Hunton controlled all of this research in such a way that it's all suspect.

Thoughts?

Pat

June 28, reply from Bob Jensen

Hi Patricia,

In the first article retracted by TAR the co-author from Canada claimed she had no knowledge that the data collected by Jim was fabricated. Bentley did some investigation of this and found that, in this one case, the co-author appeared to be innocent. Jim kept may have kept his cheating secret from co-authors on other papers, although I'm suspicious that this may not have been the case in 27+ papers and counting. It's not clear, however, that there was even cheating in all retracted papers. It may be that some papers were retracted simply because they were tainted with Jim Hunton's name and cheating reputation.

We may never know unless Jim writes a tell-all article or book about his cheating history. If done well, the book could probably have some decent sales in the academic market. However, he could be vulnerable to lawsuits if he rats on co-authors.

Sometimes cheaters do tell all out of conscience, greed (book sales and speaker fees), or revenge. I watched the show "American Greed" last night about Ponzi felon (20 years in Club Fed) and big-time Miami Hurricanes booster Nevin Shapiro ---
https://en.wikipedia.org/wiki/Nevin_Shapiro 

Apparently out of revenge Shapiro ratted on Miami's coaches, administrators, and players who were lured into luxurious partying, gambling, and sex by the high-living Nevin Shapiro.

My point is that sometimes those who get caught drag others down with them --- often out of revenge. Eight players did get kicked off Miami's team, but they were not part of his Ponzi fraud. Dragging them down seems to be low meanness even for a scumbag like Shapiro.

Bob Jensen

June 28, 2015 reply from Dan Stone

Regarding Bob's post about the most retracted scientists
"Here are the most-retracted scientists in the world, ranked," by Julia Belluz, Vox, June 25, 2015 ---
http://www.vox.com/2015/6/24/8834405/scientists-most-retractions

Jim Hunton is moving up this list with 25 American Accounting Association retractions. And I'm betting that we haven't seen the last of the retracted Hunton papers.

Here's the AAA list:

http://aaahq.org/Portals/0/documents/Website-FinalListofRetractedArticles-6-25-15.pdf  

I have written an essay about this episode:

Dan N. Stone (2015) Post-Hunton: Reclaiming Our Integrity and Literature. Journal of Information Systems, In-Press.

which is available to AIS section members of the AAA:
http://aaajournals.org/doi/10.2308/isys-51094 

Abstract
A Bentley University investigation of allegations of data fabrication by Jim Hunton concludes that, "...The whole body of Dr. Hunton's extensive research while a faculty member at Bentley University must now be considered suspect (Malone 2014 p. 5)." Jim served as President of the Information Systems (IS) section of the American Accounting Association (AAA) in 2002-2003 and is the most cited author in the Journal of Information Systems (JIS) (Guffey and Harp 2013). This essay is a personal reflection on, with proposed lessons for the AIS community from, the Hunton fraud. These include developing skepticism, recognizing the limited usefulness of Cressey's fraud "stump" (formerly triangle), noting the dysfunctional implications of agency theory, and adopting contemplative practices designed to increase observational awareness.

Sincerely,

Dan Stone

Bob Jensen's threads on professors who plagiarized or otherwise cheated ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize


"Can we Reverse the Declining Ethic in Society?" by Steven Mintz, Ethics Sage, June 16, 2015 ---
http://www.ethicssage.com/2015/06/can-we-reverse-the-declining-ethic-in-society.html


PwC:  PCAOB issues staff consultation paper seeking comment on the auditor using the work of specialists ---
http://www.pwc.com/us/en/cfodirect/publications/in-brief/pcaob-auditor-using-work-of-specialists.jhtml?display=/us/en/cfodirect/issues/auditing

. . .

Overview of the approach being considered by the PCAOB staff

This staff consultation paper describes that the PCAOB staff is considering:

Continued in article


June 3, 2015 Message from Scott Bonacker

The Internal Revenue Service will now provide identity theft victims with copies of fraudulent tax returns filed in their name.

http://time.com/money/3906160/irs-fraudulent-tax-returns/

This is a good idea I think. Now we need to get the procedure.

Scott


CENTER FOR AUDIT QUALITY LAUNCHES “PROFESSION IN FOCUS” WEB VIDEO SERIES ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=153458


IRS asks for comments on accounting method changes for proposed (FASB) revenue recognition standards ---
http://www.journalofaccountancy.com/news/2015/may/revenue-recognition-accounting-method-changes-201512408.html


New GASB Standards on Retirement and Post-Employment Benefit Accounting
From EY on June 4, 2015

The GASB approved three standards that will require state and local governments to align their reporting about certain retiree obligations with the pension accounting standards it issued in 2012. The standards, which the GASB said will be available on its website in late June, are:

 

 

 

GASB Link ---
http://www.gasb.org/cs/ContentServer?c=GASBContent_C&pagename=GASB%2FGASBContent_C%2FGASBNewsPage&cid=1176166092700


From EY on May 27, 2015

To the Point: FASB proposes simplifying measurement-period adjustments in business combinations

 http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2991_MeasurementPeriod_27May2015/$FILE/TothePoint_BB2991_MeasurementPeriod_27May2015.pdf

The FASB proposed eliminating today’s requirement that an acquirer in a business combination account for a measurement-period adjustment retrospectively. Instead, an acquirer would recognize a measurement-period adjustment during the period in which the amount of the adjustment is determined. Comments are due by 6 July 2015.

What you need to know

• The FASB proposed guidance that would eliminate the requirement for an acquirer in a business combination to account for measurement - period adjustments retrospectively .

• Instead, an acquirer would recognize a measurement - period adjustment during the period in which the amount of the adjustment is determined .

 • The proposal is part of the FASB’s simplification initiative to reduce the cost and complexity of applying US GAAP . • Comments are due by 6 July 2015.


From EY on May 27, 2015

To the Point: FASB addresses collectibility assessment for lessors and other topics in leases project
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2985_Leases_27May2015/$FILE/TothePoint_BB2985_Leases_27May2015.pdf

 

The FASB came back to the table on its leases project and decided to add a requirement that lessors assess the collectibility of lease payments for purposes of lease classification, recognition and measurement. The FASB also decided to change its previous decisions about how lessors would account for modifications to Type A leases and evaluate Type A lease assets for impairment. In addition, the FASB decided to carry forward today’s guidance on a lessee’s accounting for the purchase of a leased asset during the lease term. The Board will set an effective date before issuing the new standard, which is expected in the fourth quarter of 2015.

 

What you need to know

• The FASB decided to add a requirement that lessors assess the collectibility of lease payments for purposes of lease classification, recognition and measurement .

 

• The FASB also decided to change its previous decisions about how lessors would account for modifications to Type A leases and evaluate Type A lease assets for impairment.

 

• The Board will set an effective date before issuing the new standard, which is expect ed in the fourth quarter of 2015.

 


Capacity Accounting --- http://maaw.info/CapacityRelatedMain.htm

Electric Power Company Dilemma:  Those Pesky Capacity Costs
"Frank Wolak: How to Keep Green Policies from Crashing the Electricity Grid As California embarks on “cap and trade,” Stanford researchers employ advanced trading games to head off nasty surprises," by Edmund Andrews, Stanford University Graduate School of Business, May 13, 2015 --- Click Here
http://www.gsb.stanford.edu/insights/frank-wolak-how-keep-green-policies-crashing-electricity-grid?utm_source=Stanford+Business&utm_campaign=7df5032836-Stanford-Business-Issue-63-5-31-2015&utm_medium=email&utm_term=0_0b5214e34b-7df5032836-70265733&ct=t%28Stanford-Business-Issue-63-5-31-2015%29

. . .

The games also highlight what is perhaps the biggest long-term conundrum tied to regulatory mandates for solar and wind power: a pricing dynamic that sends spot-market electricity prices crashing to almost zero at times when sunlight and wind are abundant, which can make it hard for other electricity providers that are essential during periods of peak demand to recover their fixed costs.

Price crashes have already become a serious issue in Germany, where government-supported mechanisms have propelled renewables to the point that, during a few hours of the year, renewables are the nation’s largest source of electricity. Germany has actually experienced negative spot prices on days in the summer when solar output is high and electricity demand is relatively low. Negative prices also occur in US electricity markets with substantial renewable energy shares, such as California and Texas.

Continued in article

Jensen Comment
This topic should be great for student projects in both cost accounting and environmental accounting.



MAAW's Blog:   list of articles that appeared in the 2014 issues of Management Accounting Research ---
http://maaw.blogspot.com/2015/06/management-accounting-research-2014.html


MAAW's Blog:  list of articles that appeared in the 2014 issues of Contemporary Accounting Research ---
http://maaw.blogspot.com/2015/06/contemporary-accounting-research-2014.html


How to Mislead With Statistics
"Report: Social Security overpaid disability benefits by $17 billion," by Stephen Ohlemacher, Business Insider, June 5, 2015 ---
http://www.businessinsider.com/social-security-17-billion-in-overpayments-2015-6

Social Security overpaid disability beneficiaries by nearly $17 billion over the past decade, a government watchdog said Friday, raising alarms about the massive program just as it approaches the brink of insolvency.

Many payments went to people who earned too much money to qualify for benefits, or to those no longer disabled. Payments also went to people who had died or were in prison.

In all, nearly half of the 9 million people receiving disability payments were overpaid, according to the results of a 10-year study by the Social Security Administration's inspector general.

Social Security was able to recoup about $8.1 billion, but it often took years to get the money back, the study said.

"Every dollar misallocated is a dollar lost for those who truly need it most," said Sen. Orrin Hatch, R-Utah, chairman of the Senate Finance Committee. "Today's report shows the inability of the Social Security Administration to properly safeguard payments, which has no doubt contributed to speeding the fund toward exhaustion."

The trust fund that supports Social Security's disability program is projected to run out of money late next year, triggering automatic benefit cuts, unless Congress acts. The looming deadline has lawmakers feuding over a solution that may have to come in the heat of a presidential election.

The program's financial problems go beyond the issue of overpayments — Social Security disability has paid out more in benefits than it has collected in payroll taxes every year for the past decade. But concerns about waste, fraud and abuse are complicating the debate in Congress over how to address the program's larger financial problems.

Read more: http://www.businessinsider.com/social-security-17-billion-in-overpayments-2015-6#ixzz3cHL6x2se

Jensen Comment
The $17 billion is a totally misleading understated number.

Firstly, the $17 billion is understated because it does not include the Medicare participation that accompanies being declared disabled. Retirees cannot participate in Medicare until age 65. However, disabled people at any age can participate in Medicare, and Medicare is one of the best medical insurance programs in the USA.

My wife was injured on the job (as a nurse injured in an operating room), and after about ten years on worker compensation insurance (salary and medical) she was put on SS Disability and Medicare. Her Medicare billings afterwards exceeded  well over $1 million, way more than the disability benefits she collected over the years until she turned 65. Ten of her really expensive spine (sometimes 14-hour) surgeries came after she was on Medicare. She truly is disabled and in constant pain since the medications no longer work very well. We recently had her evaluated in Boston for a pain pump, but her surgeon says that with four rods in her back there's no room for a pain pump.

Secondly, the government will never know the number of so-called disabled people that are faking it. I'm told that fraud is especially rampant in South Florida among the Cuban immigrant population where doctors and lawyers often are co-conspirators in getting fake disability status. Up the road from where we live a young man (these days I consider age 40 to be young) moved up here from Florida. He's on full SS disability and Medicare for spinal disability. When driving by I cringe every time I wave at him while he's shoveling his driveway with a snow shovel. He tells me that on his limited disability income he cannot afford to pay to have his drive plowed. Say what?

 




Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

Management Accounting Skills Found Lacking in Entry-Level Talent
by: Kimberly S. Johnson
May 19, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Accounting Careers, Accounting Education

SUMMARY: Accounting and finance majors need a broader range of skills to get a foot in the door, particularly if they aspire to be finance chiefs. The American Productivity and Quality Center, a Houston business benchmarking nonprofit, sought to quantify the "skills gap" between competencies needed for success within a company and the level possessed by entry-level finance employees.

CLASSROOM APPLICATION: This article is excellent to help students to begin thinking about their careers, in addition to being helpful for accounting faculty and business schools to develop accounting curriculum.

QUESTIONS: 
1. (Introductory) What is a skills gap? What does the article state regarding the skills gap in accounting and finance majors?

2. (Advanced) What are the differences between financial and managerial accounting? Why are skills and knowledge in both areas important for accounting majors?

3. (Advanced) What are the career options for accounting majors? How do those options change as accountants proceed through their careers?

4. (Advanced) How should students prepare for entry-level jobs, as well as for positions later in their careers? What additions and changes will you make after reading this article?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Management Accounting Skills Found Lacking in Entry-Level Talent by: Kimberly S. Johnson, The Wall Street Journal, May 19, 2015 ---
http://blogs.wsj.com/cfo/2015/05/19/management-accounting-skills-found-lacking-in-entry-level-talent/?mod=djem_jiewr_AC_domainid

Accounting and finance majors need a broader range of skills to get a foot in the door, particularly if they aspire to be finance chiefs.

CFO Journal Tuesday looked at the problems companies have filling entry-level jobs.  The Institute of Management Accounts considers the situation dire, calling it a competency crisis,” because many college graduates are ill-equipped to tackle modern-day corporate challenges.

“Unfortunately, students are unaware of these needs—and the opportunities—until it’s too late,” said Jeff Thomson, president and CEO of the IMA.

The group, along with the American Productivity and Quality Center, a Houston business benchmarking nonprofit, sought to quantify the “skills gap” between competencies needed for success within a company and the level possessed by entry-level finance employees.

recent survey of 173 hiring managers found that the skills with the biggest gap between “needed” and “possessed” are not traditionally associated with entry-level work.

For example, 80% of company hiring managers said they need employees with internal financial reporting experience, but only a paltry 13% of workers possess those skills.

When it comes to all around business acumen, 75% of survey respondents said it’s needed to help the company succeed, but only 7% of entry-level workers have the chops.

“The research found that there were systemic problems,” said Mary Driscoll, senior research fellow for the APQC. “Companies need perspective in finance, way beyond what happened during the last quarter.”

More than three-quarters said leadership is a quality needed “quite a bit” or “extremely,” while only 14% said hires demonstrate the skill.

The Montvale, N.J. IMA is focused on management accounting globally and offers its members a certified management accounting program and credential. The group says higher education places too much focus on public accounting.

“They’re prepared for entry-level jobs in audit and tax, but not for long-term careers in management accounting,” Mr. Thomson said. “This is where they will likely land.”

Continued in article

Jensen Comment
This article is a bit misleading in that there are so few entry-level jobs for managerial accounting graduates. For decades employers seeking managerial accountants require experience that most newly-minted college graduates lack. There are low-level accounting jobs such as when small firms are seeking employees with skills in Quickbooks or other accounting software. But these are not managerial accountants from major universities who usually have zero training skills in Quickbooks.

Most managerial accounting jobs are filled by employees who have experience, including public accounting employees who have 1-10 years of experience in public accounting firms. Other managerial accounting jobs are filled by employees who have been working in AIS  and are moving up to advanced levels of managerial accounting.

Bob Jensen's threads on how to save managerial accounting courses in the Academy ---
http://faculty.trinity.edu/rjensen/Theory02.htm#ManagementAccounting


Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

Hertz Accounting Fix Keeps CFO in Financial No-Man's Land
by: Maxwell Murphy
May 15, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Financial Reporting, Restatements

SUMMARY: Hertz will ultimately restate results for the years 2011 through 2013. But so far, 367 days have passed since it announced that it would restate results. And yet, no restatements. The company disclosed it had again found additional errors that would add at least another $30 million to the non-cash charges. Hertz first disclosed accounting problems in May 2014, after it discovered problems that include the timing of write-downs of certain assets, the allowance for doubtful accounts in Brazil and uncollectible damages for rented vehicles.

CLASSROOM APPLICATION: This article can be used when discussing restatements and annual meetings.

QUESTIONS: 
1. (Introductory) What is a restatement? In what situations do companies issue restatements?

2. (Advanced) What is a reasonable time frame for a company to issue a restatement? Why is timing important for restatements?

3. (Advanced) What are the timing issues with Hertz's restatements? How can this impact the company? How might the markets, investors, and other external parties react to the restatement issues?

4. (Advanced) What are the issues regarding Hertz's annual meeting? Why do companies have annual meetings? How could the delay affect Hertz?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Hertz Accounting Fix Keeps CFO in Financial No-Man's Land," by Maxwell Murphy, The Wall Street Journal, May 15, 2015 ---
http://blogs.wsj.com/cfo/2015/05/15/hertz-accounting-fix-keeps-cfo-in-financial-no-mans-land/?mod=djem_jiewr_AC_domainid

Thomas Kennedy’s move from hotels to rental cars in December 2013 came with an unexpected twist.

The finance chief came aboard Hertz Global Holdings Inc.HTZ -1.53% barely five months before it announced a restatement.

Hertz will ultimately restate results for the years 2011 through 2013.  But so far, 367 days have passed since it announced that it would restate results.

And yet, no restatements.

On Thursday the company disclosed it had again found additional errors that would add at least another $30 million to the non-cash charges. Hertz first disclosed accounting problems in May 2014, after it discovered problems that include the timing of write-downs of certain assets, the allowance for doubtful accounts in Brazil and uncollectible damages for rented vehicles.

Among restatements since 2011, just 20, including Hertz’s, entailed investigations that were pending for more than 170 days, according to research firm Audit Analytics, which studied 1,450 restatements back in November.

Nut-and-snacks-producer Diamond Foods Inc. currently holds the crown among actively-traded companies, at 379 days, according to Audit Analytics. But for those of you keeping score, Hertz will likely take the top spot in less than two weeks.

Hertz moved its headquarters to Florida from New Jersey, and former CFO Elyse Douglas left in late 2013 rather than relocate.

The company last held an annual meeting one year ago, and has yet to file proxy materials for its 2015 gathering of shareholders. By the middle of June the company will potentially be in violation of a little-known Delaware law that has been used by activists from time to time to force meetings and director elections.

Under the law, investors can sue Delaware-incorporated companies that go 13 months without holding a meeting, citing undue delay.


Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

Etsy Reports Wider Loss on Higher Costs
by: Suzanne Kapner and Tess Stynes
May 20, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Financial Reporting

SUMMARY: Etsy Inc.'s tax-reducing handicraft came at a high cost. The online crafts bazaar reported a deeper-than-expected loss in its first outing as a public company thanks to millions of dollars in costs associated with a restructuring it said could lower its future tax bill. The company, which began trading publicly after an IPO last month, also reported lower-than-expected sales and warned of rising expenses as it ramps up hiring and spends more heavily on marketing.

CLASSROOM APPLICATION: This is an interesting article regarding a company's financial activities after an IPO, including financial and tax issues.

QUESTIONS: 
1. (Introductory) What is an IPO? How does a company's financial reporting change as it goes through an IPO?

2. (Advanced) What is restructuring? Why did Etsy do this restructuring? What benefits does management expect it to bring? What problems did the restructuring cause?

3. (Advanced) What changes is management making in its business model after the IPO? How will those changes affect the financial statements and results? What are management's hopes for long-term benefits as a result of those changes?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Etsy Inc. Prices IPO at $16 Share
by Corrie Driebusch
Apr 15, 2015
Online Exclusive

"Etsy Reports Wider Loss on Higher Costs," by Suzanne Kapner and Tess Stynes, The Wall Street Journal, May 20, 2015 ---
http://www.wsj.com/articles/etsy-reports-wider-loss-on-higher-costs-1432067604?mod=djem_jiewr_AC_domainid

 

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

Etsy Inc. ’s tax-reducing handicraft came at a high cost.

The online crafts bazaar reported a deeper-than-expected loss in its first outing as a public company thanks to millions of dollars in costs associated with a restructuring it said could lower its future tax bill.

The company, which began trading publicly after an IPO last month, also reported lower-than-expected sales and warned of rising expenses as it ramps up hiring and spends more heavily on marketing.

Shares fell 17.4% to $17.34 in after-hours trading. Through Tuesday’s close, the stock had risen 31% from its initial public offering price of $16. On its first day of trading in April, the stock surged as high as $35.74 before closing at $31.

Etsy lost $36.6 million in the first three months of the year, compared with a year-earlier loss of $463,000. Revenue jumped 44% to $58.5 million.

Analysts polled by Thomson Reuters expected revenue of $59 million.

The company said its restructuring led to a $10.5 million increase to its tax provision and a $20.9 million loss on currencies largely because of intercompany debt taken on as part of the moves.

The company said it has shifted to a more global structure now that about 30% of its gross merchandise sales come from outside the U.S.

It didn’t provide details, but an earlier securities filing indicated the changes involved transfers of intellectual property within the company.

“Our new corporate structure changes how we use our intellectual property and implements certain intercompany arrangements, which we expect may result in a reduction in our overall effective tax rate and other operational efficiencies,” Etsy said in the filing.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

The Plain-Vanilla Accountant Goes Out of Style
by: Kimberly S. Johnson
May 19, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Accounting Careers, Accounting Education

SUMMARY: As the chief financial officer's role becomes less numbers-oriented and more strategic, so are lower-ranking jobs in corporate finance departments. Tighter regulation, automation and an increasingly complex business landscape require even entry-level accountants to possess a wider range of technical and communications skills. More CFOs say they want people who have initiative and can do things like analyze data and present their findings coherently to colleagues.

CLASSROOM APPLICATION: This article offers excellent information for accounting majors to help them understand how to make themselves marketable and valuable in the workplace.

QUESTIONS: 
1. (Introductory) What skills are important for accounting majors? What skills and experience are employers seeking?

2. (Advanced) How are careers in accounting evolving and changing? What knowledge and skills are becoming less valuable and which ones are more valuable? What are some reasons for these changes?

3. (Advanced) What are your strengths and weaknesses? What steps should you take to develop your skills and gain experience to be prepared for your career?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"The Plain-Vanilla Accountant Goes Out of Style," by Kimberly S. Johnson, The Wall Street Journal, May 19, 2015 ---
http://blogs.wsj.com/cfo/2015/05/19/the-plain-vanilla-accountant-goes-out-of-style/?mod=djem_jiewr_AC_domainid

Judi Pulig would like to hire two junior accountants this year. The videoconferencing company where she is finance chief is offering them yearly salaries of about $55,000 apiece.

But, she said, most of the 118 people who have applied for the openings at York Telecom Corp., in Eatontown, N.J., don’t have what it takes.

As the chief financial officer’s role becomes less numbers-oriented and more strategic, so are lower-ranking jobs in corporate finance departments.

Tighter regulation, automation and an increasingly complex business landscape require even entry-level accountants to possess a wider range of technical and communications skills.

More CFOs say they want people who have initiative and can do things like analyze data and present their findings coherently to colleagues. But demand is outpacing supply. The U.S. unemployment rate for accountants and auditors was 2.9% in the first quarter. That compares with an overall jobless rate of 5.4% in April.

Leadership, forecasting, strategic thinking, cost management and financial reporting are the skills where the gaps between demand and supply are the widest, according to a survey of 173 finance and human resources hiring managers.

According to the Institute of Management Accountants, a Montvale, N.J., accreditation group and the American Productivity & Quality Center, a Houston-based nonprofit organization, 81% of those polled said planning, budgeting and forecasting skills were “quite a bit” or “extremely” necessary for their organization to succeed.

Yet the same respondents said only 30% of entry-level finance professionals possess those skills. Though 77% agreed that leadership ability was a necessity, only 14% said their employees had it.

“What I need is someone who can analyze data, see problems and figure out solutions,” said Benjamin Mulling, CFO of Tente Casters Inc., a wheel maker with its North American headquarters in Hebron, Ky. He said he has a hard time hiring junior- and senior-level accountants.

“A college grad telling me they know how to do debits and credits and financial statements doesn’t really help me,” Mr. Mulling added, because Tente Casters uses software to automate many order-processing and billing tasks.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

Fees Rise as Internal Controls Draw Auditor Focus
by: Emily Chasen
May 19, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Audit Fees, Auditing, Internal Controls

SUMMARY: Companies spent more money for outside audits this year, amid an increased focus on internal controls, which act as a first line of defense against financial fraud. External auditors are broadly increasing the scrutiny they give internal controls, due to pressure to give closer attention to them from regulators including the Public Company Accounting Oversight Board. The fees companies paid their outside auditors as well as internal costs are on the rise.

CLASSROOM APPLICATION: This article is appropriate for an auditing class when covering internal controls and audit fees.

QUESTIONS: 
1. (Introductory) What are internal controls? What are the purposes of internal controls? How are they included in the accounting system?

2. (Advanced) What are external auditors? How do their responsibilities differ from those of internal auditors?

3. (Advanced) Why are external auditors focusing more on internal controls? What additional work is required as a result of this increased focus?

4. (Advanced) What is the purpose of an audit? How is the increased focus affecting audit fees? Why? How is the internal audit function of the business affected?

5. (Advanced) What are the ranges of audit fees for businesses of various sizes? Are you surprised at the sizes of the fees?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Fees Rise as Internal Controls Draw Auditor Focus," by Emily Chasen, The Wall Street Journal, May 19, 2015 ---
http://blogs.wsj.com/cfo/2015/05/19/fees-rise-as-internal-controls-draw-auditor-focus/?mod=djem_jiewr_AC_domainid

Companies spent more money for outside audits this year, amid an increased focus on internal controls, which act as a first line of defense against financial fraud.

External auditors are broadly increasing the scrutiny they give internal controls, due to pressure to give closer attention to them from regulators including the Public Company Accounting Oversight Board. The fees companies paid their outside auditors as well as internal costs are on the rise, according to a survey this week from consulting firm Protiviti.

Nearly three out of four companies in a poll of 460 firms this year are reporting an increase in external audit fees. Mid-size companies reported the largest jump in fees, with 38% of companies saying their audit fees increased by between 16% and 19%.

According to the consulting firm’s survey, nearly three out of four organizations said their auditors put more focus on evaluating internal controls this year, as auditors sought better evidence and documentation for companies to prove their controls were working, said Jim DeLoach, a managing director at Protiviti. That has led to higher internal costs for companies also as they respond to the requests.

“When the auditor says we need more evidence in this specific area, the client needs to spend more time as well,” Mr. DeLoach said.

Some 58% of large companies with revenues over $10 billion said they spent more than $1 million on internal costs for their audit on top of the fees paid to the outside firm, while 25% reported spending $2 million plus. Audit costs for small companies with revenues under $100 million mostly were under $500,000, Protiviti said.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 29, 2015

Emails to Play Key Role in Dewey & LeBoeuf Trial
by: Sara Randazzo
May 26, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Cash Basis Accounting, Financial Accounting, Fraud, Auditing

SUMMARY: When opening arguments kick off in a criminal trial over the collapse of once-elite law firm Dewey & LeBoeuf LLP, emails will play a starring role. Prosecutors will be trying to prove that three of Dewey's former leaders intentionally misled banks and others in an ultimately futile effort to keep the firm afloat. Prosecutors allege that soon after the merger, Messrs. Davis, DiCarmine and Sanders began manipulating the law firm's finances to make it appear they were in compliance with bank-loan covenants requiring the firm to maintain certain levels of cash flow.

CLASSROOM APPLICATION: This is a great article for auditing, fraud examination, and financial accounting classes. The fact situation involves leaders of a major law firm who are facing criminal charges for manipulating financial statements and hiring a "clueless auditor" to stay in compliance with debt covenants.

QUESTIONS: 
1. (Introductory) What are the facts of this case? Who are the defendants? What was their occupation and what were their positions?

2. (Advanced) What is a loan covenant? How are they related to financial reporting? Why were the defendants concerned about loan covenants?

3. (Advanced) What were the defendants' alleged wrongdoings related to the firm's financial reporting? Why could these actions be considered fraud?

4. (Advanced) What is cash-basis accounting? What is the alternative? How do they differ? Why was the law firm's accounting cash basis? How did being cash basis affect the financial statements?

5. (Advanced) What did the defendants communicate in the emails? Why could that be problematic for them?

6. (Advanced) How do criminal cases differ from civil cases? Why were criminal charges pursued in this case?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Fallen Law Firm's Leaders Are Charged With Fraud
by Jennifer Smith and Ashby Jones
Mar 06, 2014
Online Exclusive

"Emails to Play Key Role in Dewey & LeBoeuf Trial," by Sara Randazzo, The Wall Street Journal, May 26, 2015 ---
http://www.wsj.com/articles/emails-to-play-key-role-in-dewey-leboeuf-trial-1432546382?mod=djem_jiewr_AC_domainid

Prosecutors will try to prove that three of Dewey’s former leaders intentionally misled banks and others.

When opening arguments kick off on Tuesday in a criminal trial over the collapse of once-elite law firm Dewey & LeBoeuf LLP, emails will play a starring role.

Prosecutors will be trying to prove that three of Dewey’s former leaders intentionally misled banks and others in an ultimately futile effort to keep the firm afloat.

“Can you find another clueless auditor for next year?” one of the defendants, former chief financial officer Joel Sanders, allegedly wrote in one email included in the 100-count indictment. The recipient responds: “That’s the plan. Worked perfect this year.”

Mr. Sanders and his co-defendants, former chairman Steven Davis and former executive director Stephen DiCarmine, have denied any guilt, saying they worked honestly to head off a 2012 bankruptcy that brought an end to a firm with roots dating back more than a century. The firm carried the name of former New York governor and onetime presidential hopeful Thomas E. Dewey.

Prosecutors in the office of Manhattan District Attorney Cyrus Vance Jr. allege the three defendants intentionally inflated revenue and used other accounting tricks to stay in compliance with covenants on $100 million in term debt and revolving credit lines of more than $130 million from four banks. The fraud, prosecutors say, was also used to deceive more than a dozen insurance companies into participating in a $150 million bond offering in 2010.

In addition to scores of emails, the prosecution will rely on testimony from some of the seven lower-level employees at the firm who have pleaded guilty to related crimes. The trial is expected to last between four and six months, and the eight women and four men on the jury must weigh the evidence against each defendant separately.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 29, 2015

Shareholder Group Says Ernst & Young Knew About Wal-Mart Mexico Bribery Allegations
by: Sarah Nassauer
May 25, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Auditing, External Auditors, FCPA, PCAOB

SUMMARY: A small shareholder group says Wal-Mart 's longtime auditor, Ernst & Young, knew about possible bribery in Mexico long before the company disclosed it to U.S. authorities, highlighting a little-plumbed area of U.S. anticorruption law. The challenge raises the question of external auditors' responsibilities when their clients may have violated the Foreign Corrupt Practices Act, the tough U.S. antibribery law. If an outside auditor discovers a potentially illegal act, it generally is only expected to notify responsible authorities within the company, accounting and legal experts said. But it may be obliged to notify the government if the appropriate steps aren't being taken and a company's books may be compromised.

CLASSROOM APPLICATION: This article covers an interesting issue regarding what external auditors should do when they find possible bribery. This would be a valuable example for an auditing class.

QUESTIONS: 
1. (Introductory) What are the facts of Wal-Mart's bribery case? What is Ernst & Young? How is it involved with Wal-Mart and Wal-Mart's activities?

2. (Advanced) What are external auditors? What are their duties and responsibilities? What did the auditors do in this case that is being questioned?

3. (Advanced) What are the rules for external auditors for situations like this? Are these rules appropriate or should they be changed? Why?

4. (Advanced) What is the FCPA? How does it apply to Wal-Mart's actions? Could it also apply to Ernst & Young's actions? Why or why not?

5. (Advanced) What is the PCAOB? What are its responsibilities? How is it involved in this case? What is it likely to do to address this situation?

6. (Introductory) What is the SEC? How could it have been involved in this situation?

7. (Introductory) How has FCPA enforcement changed in recent years? How has the FCPA investigation affected Wal-Mart?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Wal-Mart Discloses a Corruption Probe
by Miguel Bustillo and Joe Palazzolo
Dec 09, 2011
Online Exclusive

Rash of Civil Suits Complicates FCPA Cases
by Joel Schechtman
Feb 17, 2015
Online Exclusive

"Shareholder Group Says Ernst & Young Knew About Wal-Mart Mexico Bribery Allegations," by Sarah Nassauer, The Wall Street Journal, May 25, 2015 ---
http://www.wsj.com/articles/shareholder-group-ctw-says-ernst-young-knew-about-wal-mart-mexico-bribery-allegations-1432580954?mod=djem_jiewr_AC_domainid

CtW Investment Group made claim in letter to Public Company Accounting Oversight Board.

A small shareholder group says Wal-Mart ’s longtime auditor, Ernst & Young, knew about possible bribery in Mexico long before the company disclosed it to U.S. authorities, highlighting a little-plumbed area of U.S. anticorruption law.

CtW Investment Group, which works with union pension funds that hold about 0.15% of Wal-Mart Stores Inc. stock, made the claim in a letter last Thursday to the Public Company Accounting Oversight Board, which oversees public companies’ outside accounting firms.

The letter cites an internal Wal-Mart email dated Feb. 27, 2006, that says employees in Wal-Mart’s Bentonville, Ark., headquarters “briefed Ernst & Young over the past several months,” along with some of the company’s directors, on an internal investigation into the possible bribery. It wasn’t until late 2011 that Wal-Mart disclosed its investigation to the Justice Department and Securities and Exchange Commission, according to the company’s securities filings.

CtW said in its letter that Ernst & Young likely should have reported the suspected bribery to the SEC and should be investigated by the accounting oversight board, because the acts under investigation and how the investigation was handled could have affected the retailer’s financial statements.

The challenge raises the question of external auditors’ responsibilities when their clients may have violated the Foreign Corrupt Practices Act, the tough U.S. antibribery law. If an outside auditor discovers a potentially illegal act, it generally is only expected to notify responsible authorities within the company, accounting and legal experts said. But it may be obliged to notify the government if the appropriate steps aren’t being taken and a company’s books may be compromised, they said.

Ernst & Young, which has been Wal-Mart’s outside accountant for decades, said it couldn’t comment on matters involving its clients. Wal-Mart wouldn’t comment, saying the bribery investigation is ongoing. PCAOB and the SEC also declined to comment.

The PCAOB can investigate public company accounting firms for poor audits, including fraud, and in some cases hands out disciplinary fines or revokes a firm’s right to practice. It has never sanctioned an outside accountant for issues related to the Foreign Corrupt Practices Act, a spokesman for the regulatory body said. Nor have any been penalized by the SEC, which along with the Justice Department has jurisdiction over the FCPA.

Continued in article

Bob Jensen's threads on EY scandals ---
http://faculty.trinity.edu/rjensen/Fraud001.htm


Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 29, 2015

House Votes to Permanently Extend Research Tax Credit
by: John D. McKinnon
May 21, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Individual Taxation, Research Tax Credit

SUMMARY: The House voted to permanently extend a popular federal tax credit for research. The research break is one of about 50 targeted tax breaks that have been enacted repeatedly on a temporary basis. Starting last year, congressional Republicans sought to extend a few of the largest and most popular ones on a permanent basis, without offsetting the budgetary cost through budget cuts or other means. Such permanent extensions could greatly simplify the task of overhauling the federal tax code.

CLASSROOM APPLICATION: This article is a good update regarding the status of temporary tax breaks. It could be used in either an individual or corporate tax class.

QUESTIONS: 
1. (Introductory) What is the research tax credit? What did the House do regarding that tax credit? What are the chances of this becoming law? Why?

2. (Advanced) What is a temporary tax break? Why are some tax breaks temporary? Why are they renewed each year? Why aren't they enacted permanently?

3. (Advanced) Why would it be beneficial for taxpayers to know if temporary tax breaks were going to be renewed? Who is benefited by certainty in the tax code? Consider ripple effects and include all parties.
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
House Republicans Advance Expanded, Permanent Tax Cuts
by John D. McKinnon
Feb 12, 2015
Online Exclusive

"House Votes to Permanently Extend Research Tax Credit," by John D. McKinnon, The Wall Street Journal, May 21, 2015 ---
http://www.wsj.com/articles/house-votes-to-permanently-extend-research-tax-credit-1432164443?mod=djem_jiewr_AC_domainid

Move sets up likely clash between Republicans and Obama.

The House on Wednesday voted to permanently extend a popular federal tax credit for research, in a move that foreshadows a likely clash between congressional Republicans and President Barack Obama later this year.

The vote was 274 to 145.

The legislation appears unlikely to become law on its own. But it could become a bargaining chip in a developing debate over taxes as well as highway funding.

The research break is one of about 50 targeted tax breaks that have been enacted repeatedly on a temporary basis.

Starting last year, congressional Republicans sought to extend a few of the largest and most popular ones on a permanent basis, without offsetting the budgetary cost through budget cuts or other means. Such permanent extensions could greatly simplify the task of overhauling the federal tax code.

But many Democrats including Mr. Obama have objected, arguing that the price tag of the permanent extensions would be too high. The permanent research credit, for example, would cost the government about $180 billion over the next decade.

Mr. Obama intervened late last year to scuttle a bipartisan deal on the extenders that likely would have made some of them permanent. Instead, they generally were re-enacted for 2014 only. Indications are that Republicans will try again this year for a package that includes some permanent extensions, such as the research credit. But it appears the White House will try to hold its ground.

The White House this week threatened again to veto the permanent research credit, accusing Republicans of a “double standard” that would cut taxes for businesses and the wealthy, while “slashing investments and programs that serve middle-class and working Americans in the name of fiscal rectitude.”

Still, with pressure growing for legislation to boost the economy and jobs—such as a tax overhaul and changes to boost U.S. infrastructure spending—the tax extenders debate eventually could become a vehicle for a broader tax deal, some lawmakers say. That could open the door to horse-trading over the extenders as well as other tax measures.

“We’re looking at all these options,” Rep. Charles Boustany (R., La.), an influential Ways and Means Committee member, said in a recent interview. He added that the environment for a tax rewrite is “a difficult landscape, but it doesn’t mean we’ll give up.”

The legislation approved Wednesday would make permanent and simplify the research credit, which has been criticized as too complicated.

In Wednesday’s debate, Democrats criticized Republicans for dragging their feet this year on a tax overhaul. Democrats and Republicans alike are hoping to use a tax rewrite to generate one-time corporate tax revenues that could boost spending on highways and other infrastructure.

Rep. Earl Blumenauer (D., Ore.) said that while Congress dickers, the U.S. is “falling behind [in infrastructure] while America falls apart.” He and other Democrats called on Republicans to hold hearings on how to finance more highways.

Democrats, including Rep. Mike Thompson of California, also complained about the bill’s cost.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 29, 2015

As Activism Rises, U.S. Firms Spend More on Buybacks Than Factories
by: Vipal Monga, David Benoit, And Theo Francis
May 27, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Financial Accounting, Managerial Accounting, Return on Investment, Strategy

SUMMARY: U.S. businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital. Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments, such as new factories and research and development.

CLASSROOM APPLICATION: This article offers a real-world case study of how management strategies and decisions influence what is reported on the financial records.

QUESTIONS: 
1. (Introductory) What are activists? What are their intentions regarding large corporations?

2. (Advanced) What benefits can activists offer businesses, the economy, and society? What harm could their activities cause?

3. (Advanced) How would a company's financial statements differ if management chooses to pay dividends rather than buying back shares of the company's stock or continue to help the cash?

4. (Advanced) What can management do with excess cash instead of paying dividends or buying back shares? How are investors affected by each of these options? How is the economy and society affected by each option? What are potential short-term and long-term ripple effects of each option?

5. (Advanced) How have levels of dividends, stock purchases, and investments changed in recent years? What are the expectations for the future?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
GM Sets Buyback, Placating Activists
by Vipal Monga and David Benoit
Mar 09, 2015
Online Exclusive

Tech Firms Seek Ways to Fend Off Activist Investors
by Shira Ovide and Don Clark
May 26, 2015
Online Exclusive

"As Activism Rises, U.S. Firms Spend More on Buybacks Than Factories," by Vipal Monga, David Benoit, and Theo Francis, The Wall Street Journal, May 27, 2015 ---
http://www.wsj.com/articles/companies-send-more-cash-back-to-shareholders-1432693805?mod=djem_jiewr_AC_domainid

New data reveals S&P 500 companies spent 36% of cash flow on shareholder payouts; Are giants like Apple and GE ‘underinvesting in innovation’?

U.S. businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital.

Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments such as new factories and research and development.

Activist investors have been pushing for such changes, but it isn’t just their target companies that are shifting gears. More businesses sitting on large piles of extra cash are deciding to satisfy investors by giving some of it back. Rock-bottom interest rates have made it cheap to borrow to buy back shares, which can boost a company’s stock price. And technology-driven productivity gains are enabling some businesses to do more with less.

As the trend picks up steam, so too has debate about whether activist investors—who take sizable stakes in companies, then agitate for changes they think will boost share prices—have caused companies to tilt too far toward short-term rewards.

Laurence Fink, chief executive of BlackRock Inc., the world’s largest money manager, argued as much in a March 31 letter to S&P 500 CEOs. “More and more corporate leaders have responded with actions that can deliver immediate returns to shareholders, such as buybacks or dividend increases, while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth.”

An analysis conducted for The Wall Street Journal by S&P Capital IQ shows that companies in the S&P 500 index sharply increased their spending on dividends and buybacks to a median 36% of operating cash flow in 2013, from 18% in 2003. Over that same decade, those companies cut spending on plants and equipment to 29% of operating cash flow, from 33% in 2003.

At S&P 500 companies targeted by activists, the spending cuts were more dramatic. Targeted companies reduced capital expenditures in the five years after activists bought their shares to 29% of operating cash flow, from 42% the year before, the Capital IQ analysis shows. Those companies boosted spending on dividends and buybacks to 37% of operating cash flow in the first year after being approached, from 22% in the year before.

Continued in article


Crummey Trust --- http://en.wikipedia.org/wiki/Crummey_trust

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 29, 2015

A Way to Make Big Gifts to Family Without Tax
by: Laura Saunders
May 23, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Crummey Trust, Estate Tax, Gift Tax

SUMMARY: The U.S. Tax Court affirmed in a recent decision affirmed the use of Crummey trusts, and ruled against the Internal Revenue Service and allowed a New York couple to use Crummey trusts-named after a Methodist minister who was the plaintiff in a 1968 case-to make tax-free transfers of $1.6 million without dipping into their lifetime gift-tax exemptions. Experts say the decision serves as reminder of how useful Crummey trusts can be for estate planning-especially for people who aren't ultrarich. The affluent often owe significant state death duties even if they don't owe anything to the federal government, which often has a higher exemption.

CLASSROOM APPLICATION: This is a great update for the use of Crummey trusts, and is appropriate for tax courses.

QUESTIONS: 
1. (Introductory) What is Crummey trust? To what areas of tax law does it apply?

2. (Advanced) What the benefits of a Crummey trust? How do they work? What must a taxpayer do to take advantage of this type of trust?

3. (Advanced) How do state estate tax laws differ from federal? How does this impact taxpayer estate planning? How do Crummey trusts affect state estate taxes?

4. (Advanced) What are the facts of the Mikel case? How do the facts differ from other Crummey trust cases? What aspects did the IRS challenge? What did the court decide? How does this decision affect tax planning?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"A Way to Make Big Gifts to Family Without Tax," by Laura Saunders, The Wall Street Journal, May 23, 2015 ---
http://www.wsj.com/articles/a-way-to-make-big-gifts-to-family-without-tax-1432311083?mod=djem_jiewr_AC_domainid

The Tax Court cleared a couple’s use of Crummey trusts to give $1.6 million free of U.S. gift or estate tax.

There’s nothing crummy about “Crummey” trusts for people planning their estates—as the U.S. Tax Court affirmed in a recent decision.

In Mikel v. Commissioner, the court ruled against the Internal Revenue Service and allowed a New York couple to use Crummey trusts—named after a Methodist minister who was the plaintiff in a 1968 case—to make tax-free transfers of $1.6 million without dipping into their lifetime gift-tax exemptions.

Experts say the decision serves as reminder of how useful Crummey trusts can be for estate planning—especially for people who aren’t ultrarich. The affluent often owe significant state death duties even if they don’t owe anything to the federal government, which often has a higher exemption.

Currently 18 states plus the District of Columbia have a state estate tax, an inheritance tax or both, according to the Tax Foundation, a nonprofit group in Washington. Some can be stiff.

In New York, for example, the top estate-tax rate is 16%, and a feature known as “the cliff” can catch taxpayers unawares. This year, it rescinds the $3.125 million estate-tax exemption if an estate has taxable assets exceeding 105% of that amount, or $3,281,250, says Linda Hirschson, an estate attorney with Greenberg Traurig in New York. In that case, the estate tax takes effect from the first dollar, rather than applying only to the amount above the exemption.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 5, 2015

The 109,894-Word Annual Report
by: Vipal Monga and Emily Chasan
Jun 02, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Annual Reports

SUMMARY: Companies are spending an increasing amount of time and energy beefing up their regulatory filings to meet disclosure requirements. The average 10K is getting longer-about 42,000 words in 2013, up from roughly 30,000 words in 2000. By comparison, the text of the Sarbanes-Oxley Act of 2002 has 32,000 words. Some companies wonder whether investors benefit from the additional information. Their question: How much is too much? Regulators at the Securities and Exchange Commission and the Financial Accounting Standards Board say they are working on projects to reduce the volume of useless information in company filings, while increasing transparency.

CLASSROOM APPLICATION: This is a great article discussing the length and contents of today's annual reports.

QUESTIONS: 
1. (Introductory) What is an annual report? Why do companies issue them?

2. (Advanced) What are the components of an annual report? What are the typical lengths? How have annual reports grown over the years?

3. (Advanced) Who reads and uses annual reports? What information do these parties need? Is there enough information in the annual reports for these parties?

4. (Advanced) What is a 10-K? What is its purpose? What information does it provide? Who uses it? What additional information and value does it provide in addition to the annual report?

5. (Advanced) What issues or problems does the article present? How should those issues or problems be remedied?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
The 109,894-Word Annual Report
by Vipal Monga and Emily Chasan
Jun 02, 2015
Online Exclusive

Investors: Filings Are For Searching, Not Reading
by Emily Chasan
Jun 02, 2015
Online Exclusive

The 109,894-Word Annual Report As regulators require more disclosures, 10-Ks reach epic lengths; how much is too much?" by Vipal Monga and Emily Chasan, The Wall Street Journal, June 2, 2015 ---
http://www.wsj.com/articles/the-109-894-word-annual-report-1433203762?mod=djem_jiewr_AC_domainid

From the CFO Journal's Morning Ledger on June 3, 2015

Investors: filings are for searching, not reading
http://blogs.wsj.com/cfo/2015/06/02/investors-filings-are-for-searching-not-reading/?mod=djemCFO_h
Institutional investors and analysts are much more likely to search filings for specific information they need than to read them cover-to-cover these days, CFO Journal’s Emily Chasan reports. And even though corporate filings are getting longer, some investors say that it is still terribly difficult to get the information they need from companies to do fundamental analysis. Companies can “use 1,000 words and say nothing,” said Brian Barnier, an analyst at investment-research firm ValueBridge Advisors.

Are we giving Tolstoy too much credit for long novels in this era of monumental SEC 10K reports (not to suggest that 10K reports are entirely fiction)?

From the CFO Journal's Morning Ledger on June 2, 2015

Good morning. With page counts once reserved for epic novels, annual reports and other required corporate filings have grown substantially longer as regulatory burdens have increased, CFO Journal’s Vipal Monga and Emily Chasan report. That’s forcing companies to spend a growing amount of time on the lengthy filings. The average 10K has grown to about 42,000 words in 2013 from roughly 30,000 words in 2000.

General Electric Co. Chief Financial Officer Jeffrey Bornstein was taken aback by the company’s 246-page report. “Not a retail investor on planet Earth could get through” it, let alone understand it, he said. Packed with text on the company’s internal controls, auditor statements and regulator-mandated boilerplate on “inflation, recession and currency volatility,” the 2013 annual report was 109,894 words long.

Part of the reason for the ballooning filings: More U.S. companies are operating internationally, exposing their investors to new geopolitical risks. In addition, many also use abstract financial instruments such as derivatives and sophisticated hedging tactics to protect themselves from swings in currency and commodities markets.

Jensen Comment
War and Pease in English has over 500,000 words, such that 10K reports are not yet competitive.

This begs the question of when robots will commence to seriously read long books and reports and analyze the outcomes in varying  contexts.

When will a neurotic Hal be followed by millions of readers in Fortune Magazine?
http://en.wikipedia.org/wiki/2001:_A_Space_Odyssey


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 5, 2015

Avago's Pending Broadcom Purchase Taps Arcane Tax Structure
by: Liz Hoffman
May 29, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Mergers, Tax Deferrals, Tax Planning

SUMMARY: Avago Technologies Ltd. 's pending takeover of Broadcom Corp. taps an arcane tax structure that's being dusted off amid a rise in cross-border mergers. Avago said it is prepared to offer Broadcom shareholders special partnership units that would defer any taxes triggered by the $37 billion tie-up. The cross-border nature of the deal might otherwise generate tax bills for Broadcom investors. The partnership arrangement would give those shareholders flexibility in deciding when to take their tax hit. Broadcom negotiated for the partnership units with the founders in mind. Stock mergers of two U.S. companies are typically tax-free to shareholders. But under Internal Revenue Service rules that govern cross-border mergers, if Broadcom is larger than Avago by the time the deal closes, the transaction could be taxable to Broadcom's U.S. shareholders, though the IRS could issue a waiver.

CLASSROOM APPLICATION: This transaction is a good example of tax planning. Our students should understand the value of structuring deals to manage the tax effect.

QUESTIONS: 
1. (Introductory) What are the facts of the merger discussed in the article? What companies are involved?

2. (Advanced) What special tax plans has management arranged for the merger? What are the details of that plan?

3. (Advanced) Why did management develop these plans? What are the benefits? Who will benefit? Who is most likely to use it? Who will not benefit as a result of the plan?

4. (Advanced) What are potential issues or limitations related to the plan? Should the parties go forward with it?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Avago Dives Deep With Broadcom
by Dan Gallagher
May 29, 2015
Online Exclusive

"Avago's Pending Broadcom Purchase Taps Arcane Tax Structure," by Liz Hoffman, The Wall Street Journal, May 29, 2015 ---
http://www.wsj.com/articles/avagos-pending-broadcom-purchase-taps-arcane-tax-structure-1432847788?mod=djem_jiewr_AC_domainid

Avago Technologies Ltd. ’s pending takeover of Broadcom Corp. taps an arcane tax structure that’s being dusted off amid a rise in cross-border mergers.

Avago said it is prepared to offer Broadcom shareholders special partnership units that would defer any taxes triggered by the $37 billion tie-up, which was announced Thursday. The cross-border nature of the deal—Avago is based in Singapore, while Broadcom is in California—might otherwise generate tax bills for Broadcom investors.

The partnership arrangement would give those shareholders—including Broadcom’s two co-founders, who collectively own about 8.6% of the company—flexibility in deciding when to take their tax hit. Broadcom negotiated for the partnership units with the founders in mind, said a person familiar with the deal.

At issue is the relative size of the two companies, experts say. Stock mergers of two U.S. companies are typically tax-free to shareholders. But under Internal Revenue Service rules that govern cross-border mergers, if Broadcom is larger than Avago by the time the deal closes, the transaction could be taxable to Broadcom’s U.S. shareholders, though the IRS could issue a waiver.

As of Tuesday’s close, before The Wall Street Journal first reported the negotiations, Avago had a market value of $34 billion, while Broadcom had a market value of $28 billion. But by Thursday trading, the gap had narrowed, with Avago worth about $36.7 billion and Broadcom worth about $34.6 billion.

The issue arose several times last year, when overseas deals known as inversions were in vogue. Those deals, in which a U.S. acquirer buys a foreign target and redomiciles to a lower-tax venue, generally prompted taxes for the U.S. shareholders, often without generating much, if any, cash to cover the bill.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 5, 2015

Government Retiree Costs to Be Put in the Spotlight
by: Michael Rapoport
Jun 03, 3201
Click here to view the full article on WSJ.com
 

TOPICS: GASB, Governmental Accounting

SUMMARY: State and local governments will have to add hundreds of billions of dollars in retiree obligations to their books under rules that spotlight the growing costs of health insurance and other benefits owed to former municipal employees. The new rules approved unanimously by the Governmental Accounting Standards Board, which sets accounting rules for states and municipalities, will require governments to carry their unfunded retiree-benefit obligations on their balance sheets-thus making their overall financial position look worse. Currently, governments are required only to disclose the benefit costs in the footnotes to their financial statements.

CLASSROOM APPLICATION: This is an excellent update to use for coverage of governmental accounting.

QUESTIONS: 
1. (Introductory) What is the Governmental Accounting Standards Board? What is its area of authority?

2. (Advanced) What are the details of the new rules passed by GASB? What is the reason for the rules? What additional information and value does it add?

3. (Advanced) How will financial statements and reporting change with this new rule? What changes in management of the entities could occur as a result of this change in reporting?

4. (Advanced) Why haven't these liabilities been included in the financial statements before this rule? How were they reported? Was that sufficient? Why or why not?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Government Retiree Costs to Be Put in the Spotlight," by Michael Rapoport, The Wall Street Journal, June 3, 2015 ---
http://www.wsj.com/articles/state-governments-must-add-billions-in-obligations-to-books-under-new-gasb-rules-1433273603?mod=djem_jiewr_AC_domainid

State and local governments will have to add hundreds of billions of dollars in retiree obligations to their books under rules enacted Tuesday that spotlight the growing costs of health insurance and other benefits owed to former municipal employees.

The new rules approved unanimously by the Governmental Accounting Standards Board, which sets accounting rules for states and municipalities, will require governments to carry their unfunded retiree-benefit obligations on their balance sheets—thus making their overall financial position look worse. Currently, governments are required only to disclose the benefit costs in the footnotes to their financial statements.

In addition, governments will have to use more conservative interest-rate assumptions in calculating the value of benefit obligations that they haven’t funded. That could increase the current value of the obligations, thus worsening the plans’ funding shortfalls.

The changes are intended to provide more information to taxpayers, policy makers and municipal-bond analysts, GASB Chairman David Vaudt said in a statement. The rules won’t require governments to commit more money to pay for retiree benefits, nor do they require any changes in the level of benefits provided to retirees. But by making benefit costs more visible, the changes could prompt more governments to take action to address rising benefit costs.

“I think we would expect to see ongoing efforts by governments to control these costs,” Moody’s Investors Service analyst Marcia Van Wagner said.

The rising costs of retiree benefits have plagued state and local governments and have played a role in the bankruptcies of cities like Detroit. According to Moody’s, state governments alone had $454 billion in unfunded retiree-benefit liabilities for 2013, the most recent data available.

“These costs have been rising pretty significantly, and it’s a cost states want to control,” Ms. Van Wagner said.

Continued in article

Bob Jensen's threads on government retiree costs ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Pensions


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 5, 2015

Tech Firms Fret Over Looming Revenue Accounting Changes
by: Kimberly S. Johnson and Emily Chasan
Jun 01, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Financial Accounting, Revenue Recognition

SUMMARY: More technology companies are fretting over accounting rule changes that will affect how companies report their top-line sales numbers to investors. The U.S. Financial Accounting Standards Board handed down new rules on the way companies book revenue last May. There's uncertainty surrounding the mandates final version and implementation date, which involves changes to deferred revenue, or the money companies collect from customers and recognize as revenue over time. U.S. companies are required to disclose meaningful risk factors in securities filings if they could materially affect the company's stock, profitability or growth. Federal, state and local regulations were the most frequently cited risk this year, along with competition in the technology industry and pricing pressures. But accounting concerns made one of the biggest jumps as a frequently cited risk this year.

CLASSROOM APPLICATION: This article offers an example of how a business or industry could be affected by changes in accounting rules.

QUESTIONS: 
1. (Introductory) What changes to accounting rules are mentioned in the article? What companies or industries are affected?

2. (Advanced) How are these companies affected by the accounting changes? How could those changes affect the way the companies do business?

3. (Advanced) Why does the Financial Accounting Standards Board make changes to accounting rules? How often are changes made? Should FASB take the possible impact on business into account when deciding what changes to make and how often to make them? Why or why not?

4. (Advanced) What are companies' views toward the impact of accounting rule changes on their businesses? How do those views compare with other risk factors they have rated?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Tech Firms Fret Over Looming Revenue Accounting Changes," by Kimberly S. Johnson and Emily Chasan, The Wall Street Journal, June 1, 2015 ---
http://blogs.wsj.com/cfo/2015/06/01/tech-firms-fret-over-looming-revenue-accounting-changes/?mod=djem_jiewr_AC_domainid

More technology companies are fretting over accounting rule changes that will affect how companies report their top-line sales numbers to investors.

This year, 92% of top tech companies cited regulatory accounting, internal controls and compliance standards as a leading risk factor in 2015, according to BDO USA LLP.

That figure jumped 13 percentage points from last year. In 2014, 79% of companies mentioned them, and nearly two-thirds did so in 2013.

U.S. companies are required to disclose meaningful risk factors in securities filings if they could materially affect the company’s stock, profitability or growth.

Federal, state and local regulations were the most frequently cited risk this year, along with competition in the technology industry and pricing pressures. But accounting concerns made one of the biggest jumps as a frequently cited risk this year.

The U.S. Financial Accounting Standards Board handed down new rules on the way companies book revenue last May, according to BDO.

“Companies that sell software and maintenance service, or that sell through distribution channels are those we think will be largely impacted by the new rules,” said Aftab Jamil, leader of BDO’s technology and life sciences practice.

Accounting, control and compliance issues came in 11th in terms of frequency among the 100 U.S. tech companies, ranked by revenue, according to the BDO ranking.

Amid a list of risks to the company’s growth strategy and competitive position, chip-maker Intel Corp.INTC -1.45%, for example, said in its latest annual report in February that changes in the way it applies accounting policies could be material to its bottom line. “These methods, estimates, and judgments are subject to large risks, uncertainties, and assumptions and changes could affect our results of operations,” it said in the filing.

A BDO survey of technology company CFOs earlier this year found that 50% hadn’t taken the steps necessary to implement the new revenue recognition standard, Mr. Jamil said.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 5, 2015

Tax Identity Theft Victims Cite Woes With IRS
by: Laura Saunders
May 28, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Individual Taxation, Tax Identity Theft

SUMMARY: The Internal Revenue Service's announcement of a data breach affecting more than 100,000 households has prompted fresh complaints from victims of tax identity theft about delayed refunds, red tape, cumbersome IRS procedures and continued effects on their finances. Tax ID theft occurs when criminals steal personal information and use it to claim a tax refund in a taxpayer's name before he or she files. The IRS said it would contact the 104,000 taxpayers whose information was compromised, as well as the 100,000 for whom attempts were unsuccessful. The first group will be offered credit monitoring, while the second will be warned that thieves have their personal information.

CLASSROOM APPLICATION: This article and the related articles are appropriate to update discussions regarding tax identity theft and the IRS problems managing this issue.

QUESTIONS: 
1. (Introductory) What is tax identity theft? What challenges do taxpayers face when this occurs?

2. (Advanced) How do thefts of tax data and identity happen? What things could taxpayers be doing that could increase the risk of this happening? What does the IRS do to contribute to the problem?

3. (Advanced) What is the IRS doing to combat tax identity theft? What should the agency be doing to combat this problem? What internal controls, processes, procedure, guards, etc. should the agency use to stop these problems from occurring?

4. (Advanced) What future problems could taxpayers face as a result of IRS actions or lack of controls?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
IG Report: IRS Paid Billions in Refunds on Potentially Fake Returns
by John D. McKinnon
May 28, 2015
Online Exclusive

Protect Yourself From Tax Identity Theft
by Laura Saunders
Feb 28, 2015
Online Exclusive

IRS Data Breach Draws Capitol Hill Scrutiny
by John D. McKinnon
May 28, 2015
Online Exclusive

Even the Tax Man Has a Taxing Time
by Laura Saunders
Apr 16, 2015
Online Exclusive

"Tax Identity Theft Victims Cite Woes With IRS," by Laura Saunders, The Wall Street Journal, May 28, 2015 ---
http://www.wsj.com/articles/tax-identity-theft-victims-cite-woes-with-irs-1432767512?mod=djem_jiewr_AC_domainid 

When criminals file fraudulent returns, taxpayers say they have to wade through red tape and wait months longer for refunds.

The Internal Revenue Service’s announcement Tuesday of a data breach affecting more than 100,000 households has prompted fresh complaints from victims of tax identity theft about delayed refunds, red tape, cumbersome IRS procedures and continued effects on their finances.

Tax ID theft occurs when criminals steal personal information and use it to claim a tax refund in a taxpayer’s name before he or she files. Many refunds are put on debit cards that can be hard to trace, experts say. IRS Commissioner John Koskinen said the agency assisted 875,000 victims of tax ID theft in the fiscal year ended Sept. 30.

Rick Yost, a tire salesman from Palm City, Fla., said his troubles began when he got an unsolicited Green Dot Corp. debit card in the mail in March. It turned out, Mr. Yost learned, that a $9,856 tax refund had been claimed in his name by a fraudster who obtained Mr. Yost’s date of birth and Social Security number.

The criminal opened the account with $20 and withdrew the tax refund as soon as it posted, he said.

In a statement Wednesday night, Green Dot said it “detected suspicious activity and blocked the account for further verification…the fraudster never gained access to the funds.” The company said it would return the money to the IRS “so that they can help reunite Mr. Yost with his tax refund.”

Mr. Yost said he was frustrated to learn from a Green Dot representative that the firm never verified personal information about him that was required to open an account—and most of it didn’t match his actual information.

Mr. Yost also learned he would have to file separate legal affidavits with the IRS and other agencies, notify credit bureaus, and file his 2014 tax return on paper. He might have to wait six months for his refund.

“We are the ones who are inconvenienced, not the thieves,” said Mr. Yost. He said he asked an IRS staffer working on his case why no red flag was raised by the change from longtime direct-deposit information to a debit card. The staffer replied: “ ‘We’re working on that!’ ” Mr. Yost said.

A spokeswoman for the IRS said the agency is continually adjusting its fraud filters.

Vicki Niesen, a chemical engineer who works with an oil firm in Houston, believes her ID theft began when her husband’s 2014 W-2 information was stolen through Get Transcript, the compromised IRS application that prompted Tuesday’s announcement.

The false return filed in their names, she said, had her husband’s 2014 salary information “to the dollar”—although the thieves included $28,000 of Social Security income in the false return. It claimed a refund of $26,424.

Continued in article

June 3, 2015 Message from Scott Bonacker

The Internal Revenue Service will now provide identity theft victims with copies of fraudulent tax returns filed in their name.

http://time.com/money/3906160/irs-fraudulent-tax-returns/

This is a good idea I think. Now we need to get the procedure.

Scott


EY:  Fair Value: The Audit Committee's Role --- Click Here
http://www.pwc.com/us/en/cfodirect/publications/point-of-view/fair-value-measurements-820-audit-committee-role.jhtml?display=/us/en/cfodirect/issues/fair-value

The importance of audit committee oversight

• For the past two decades, the use of fair value to measure assets and liabilities in financial reporting has been on the rise. Fair value is generally used to measure the values of financial instruments, assess and calculate impairments, and record most as sets acquired and liabilities assumed in a business combination. Companies are required to disclose information regarding the valuation processes and key judgments supporting the ir fair value measurements in their footnotes.

• Fair value is based on the selling price in transactions between market participants. However, fair value measurements can be subjective and require judgment when a quoted price or market transaction is not available. In these cases, management determines the fair value measurement usin g valuation techniques and assumptions developed by the company or with the assistance of an external valuation specialist.

• Financial institutions may have more financial instruments in their day - to - day activity that require measurement at fair value; however, the increased use of fair value in financial reporting often results in the need for companies in all industries to measure and disclose fair value information.

• In its oversight of financial reporting , the audit committee might focus on fair value measurements, if significant. This could entail considering how “big picture” changes in the business or the marketplace may impact the use of fair value currently and in the future; the processes and controls related to valuation; and the procedures performed by internal and external auditors to test them.

Bob Jensen's threads on fair value measurement controversies ---
http://faculty.trinity.edu/rjensen/Theory02.htm#FairValue

 


Teaching Case (from Real Life)
"Bleak Weather for Sun-Shine AG: A Case Study of Impairment of Assets," by  Dominic Detzen, Tobias Stork genannt Wersborg, and Henning Zülch, Issues in Accounting Education, Volume 30, Issue 2 (May 2015) ---
http://aaajournals.org/doi/full/10.2308/iace-51007
Not a Free Case

ABSTRACT:

This case originates from a real-life business situation and illustrates the application of impairment tests in accordance with IFRS and U.S. GAAP. In the first part of the case study, students examine conceptual questions of impairment tests under IFRS and U.S. GAAP with respect to applicable accounting standards, definitions, value concepts, and frequency of application. In addition, the case encourages students to discuss the impairment regime from an economic point of view. The second part of the instructional resource continues to provide instructors with the flexibility of applying U.S. GAAP and/or IFRS when students are asked to test a long-lived asset for impairment and, if necessary, allocate any potential impairment. This latter part demonstrates that impairment tests require professional judgment that students are to exercise in the case.

THE CASE
Introduction

On a rainy and gray December morning in 20X1, Thomas Schmidt enters the offices of Sun-Shine AG on the 20th floor of the “Opera Tower” in Frankfurt, Germany.1 He has been the accounting manager of Sun-Shine for several years and enjoys working for a company in the solar industry.

Today, however, Thomas appears a little tense as he enters the office. He has been thinking for a while about the analyst conference that is set for the next morning and for which he still needs to brief Sun-Shine's CEO, Sebastian Albers. When walking down the corridor, Thomas is stopped by Daniela Gruber, his assistant. Daniela is an International Financial Reporting Standards (IFRS) specialist and has been with Sun-Shine for four years. Typically a rather relaxed person, she appears very anxious today because of a message she received the previous night from California-Sun Corp., Sun-Shine's U.S.-based subsidiary, which was acquired six months ago and mainly produces solar modules for the U.S. market. Daniela tells her boss that the state government of California has unexpectedly decided to cut its subsidies of solar installations by 50 percent. Due to the financial and economic crisis, the state of California has been forced to lower its budget deficit, with the subsidy cut being its latest measure. Daniela says, “California-Sun now expects a severe decline in demand for solar modules and a significant drop in sales. Their assets may need to be written down, which would certainly ruin our numbers this year.”

Background

Sun-Shine was founded ten years ago by its current CEO, Sebastian Albers, who expected to profit from the increasing interest in renewable energies from both the German government and the German public. Still headquartered in the city of Frankfurt where the company was founded, Sun-Shine has ever since specialized in the production of solar modules and now runs several solar parks, mainly in the sunnier Mediterranean countries of Italy and Spain. In recent years, Sun-Shine recorded a tremendous sales and profit growth because renewable energies have been on the rise, not only in Germany, but also in the entire European Union.

Five years ago, the company's great economic success led the management to list all of Sun-Shine's 10 million shares on the German stock exchange, which also brought about the requirement to apply IFRS in the company's consolidated financial statements. The shares were first listed at a face value of 5 euros each.

. . .

Implementation Guidance

We tested this case in two classes at the Master's level: “Advanced International Financial Reporting” is an elective in the Master of Science program, while “International Accounting” is part of the M.B.A. program. The classes are similar in nature in that they aim at educating students in applying IFRS, providing them with problem-solving skills, and an understanding of IFRS accounting. Students passing the courses are generally able to handle IFRS and critically reflect on them. Naturally, the M.B.A. class focuses more on decision-making issues, while the M.Sc. class covers the standards more comprehensively.

Students were to prepare the case for discussion in class, after having heard about the accounting rules behind impairment tests, which was about halfway through the course. Following the lecture, the case was distributed for completion as an individual exercise (M.Sc. class) and as a group exercise (M.B.A. class). Our assistance was limited to giving hints as to where to find background material and to explaining the more technical issues. We then allocated one class session (90 minutes) to the discussion, which seemed sufficient for an in-depth coverage of the case. The discussion in the M.B.A. class gravitated to the management-relevant questions and the implications of impairment charges. We expect that students spend about seven hours on the case. This estimate considers one hour for reading, about two hours for searching and reading empirical research, and four hours discussion with team members to work out the case requirements. The time needed to complete the case depends on students' knowledge and is reduced if the case is used as an individual exercise.

While we used the case on a discussion basis, it can also be applied as a written exercise, either individually or in small groups. Such an assignment would have to allow students more time to complete the case because the written answers can be quite extensive. Accordingly, some guidance should be given regarding the length of answers expected. Grading could be done along the answers provided in the Teaching Notes. To increase the case's ease of use, we have prepared the resource such that each part can be assigned separately.

The resource can be used in a number of classes, primarily at a graduate level. Financial reporting classes in a Master of Accountancy program, e.g., (Advanced) Financial Accounting, (Advanced) Financial Reporting, or a Capstone Seminar, seem to be suited best for the case. International Accounting and, especially, Comparative Accounting would be able to discuss the differences between IFRS and U.S. GAAP in detail. With a slight change of focus, instructors could also use the case in an Auditing class. The case may be too complex for Intermediate Accounting at an undergraduate level because it requires basic knowledge of accounting and finance. However, instructors may well choose to discuss the case in senior-level classes such as Advanced Financial Accounting or Special Topics in Accounting.

As for students' background knowledge, we believe that a basic understanding of impairment requirements and corporate finance (determining cash flows, discount rate, etc.) should be provided. To some extent, this knowledge can be expected from students at a more advanced level. To be sure, we recommended Palepu, Healy, and Peek (2013, Chaps. 7 and 8) to students as background reading. Detailed understanding of impairment tests is not necessary, as it is part of the assignment and students should work this out independently.

We estimate that a first-time adopter of the case needs approximately four hours to prepare the case (one hour of reading and preparing classroom discussion, one hour for the technical aspects and Part I, and two hours for Part II). While focusing on impairment tests, the resource allows instructors flexibility when distributing the case. It can be applied by focusing on comparing U.S. GAAP and IFRS requirements, or on one of the two frameworks. The accompanying handout (see the Teaching Notes) helps instructors discuss similarities and differences between impairment requirements, if they choose to discuss only one of the accounting frameworks.

Student Feedback

The effectiveness of the case study was assessed by a feedback questionnaire of 12 questions, based on a five-point Likert scale, where 1 indicated “Strongly Agree” and 5 “Strongly Disagree.” Thirty-two students completed the questionnaire (Table 4).

Continued in article

Bob Jensen's Threads on Impairment ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Impairment


Teaching Case
"The City of Providence, RI: A Case Examining the Financial Condition of a U.S. Municipality." by Christine E. Earley, Nancy Chun Feng, and Patrick T. Kelly, Issues in Accounting Education, Volume 30, Issue 2 (May 2015)  ---
http://aaajournals.org/doi/full/10.2308/iace-51042
This case is not free

Continued in artciel

Bob Jensen's Threads on the Sad State of Governmental Accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting


Teaching Case from MIT's Technology Review
"Cyber-Espionage Nightmare:  A groundbreaking online-spying case unearths details that companies wish you didn’t know about how vital information slips away from them," by David Talbot, MIT's Technology Review, June 10, 2015 --- Click Here
http://www.technologyreview.com/featuredstory/538201/cyber-espionage-nightmare/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20150610

On a wall facing dozens of cubicles at the FBI office in Pittsburgh, five guys from Shanghai stare from “Wanted” posters. Wang Dong, Sun Kailiang, Wen Xinyu, Huang Zhenyu, and Gu Chunhui are, according to a federal indictment unsealed last year, agents of China’s People’s Liberation Army Unit 61398, who hacked into networks at American companies—U.S. Steel, Alcoa, Allegheny Technologies (ATI), Westinghouse—plus the biggest industrial labor union in North America, United Steelworkers, and the U.S. subsidiary of SolarWorld, a German solar-panel maker. Over several years, prosecutors say, the agents stole thousands of e-mails about business strategy, documents about unfair-trade cases some of the U.S. companies had filed against China, and even piping designs for nuclear power plants—all allegedly to benefit Chinese companies.

It is the first case the United States has brought against the perpetrators of alleged state-sponsored cyber-espionage, and it has revealed computer-security holes that companies rarely acknowledge in public. Although the attackers apparently routed their activities through innocent people’s computers and made other efforts to mask themselves, prosecutors traced the intrusions to a 12-story building in Shanghai and outed individual intelligence agents. There is little chance that arrests will be made, since the United States has no extradition agreements with China, but the U.S. government apparently hopes that naming actual agents—and demonstrating that tracing attacks is possible—will embarrass China and put other nations on notice, inhibiting future economic espionage.

That may be unrealistic. Security companies say such activity is continuing, and China calls the accusations “purely ungrounded and absurd.” But there’s another lesson from the indictment: businesses are now unlikely to keep valuable information secure online. Whatever steps they are taking are not keeping pace with the threats. “Clearly the situation has gotten worse, not better,” says Virgil Gligor, who co-directs Carnegie Mellon University’s computer security research center, known as CyLab. “We made access to services and databases and connectivity so convenient that it is also convenient for our adversaries.” Once companies accept that, Gligor says, the most obvious response is a drastic one: unplug.

Fracking and hacking

Sitting at a small conference table in his office in the federal courthouse in Pittsburgh, David Hickton, the United States attorney for western Pennsylvania, opened a plastic container he’d brought from home and removed and peeled a hard-boiled egg for lunch. Although we were discussing an investigation involving global players and opaque technologies, the homey feel of our meeting was apt: the case had many roots in close-knit business and political circles in Pittsburgh. Hickton showed me a framed photo on a shelf. In the picture, he and a friend named John Surma are standing next to their sons, the boys wearing hockey uniforms, fresh from the ice. Both fathers had attended Penn State. As Hickton rose in the prosecutorial ranks, Surma rose in the corporate world, becoming CEO of U.S. Steel. When Hickton became the top federal prosecutor in the area in 2010, one of his meet-and-greet breakfasts was with Surma and Leo Girard, the boss of United Steelworkers, which represents 1.2 million current or retired workers in several industries. “I was asking them in a completely unrelated matter to serve on a youth crime prevention council,” Hickton recalls. “They said, ‘Can we talk to you about something else?’”

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 19, 2015

Big Firms Getting Better Grades on Internal Control Audits: PCAOB
by: Emily Chasan
Jun 04, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Auditing, Internal Controls, PCAOB

SUMMARY: The largest public accounting firms made significant improvements in their audits of corporate internal controls this year. Audits of internal controls - the systems and processes that act as a first line of defense against corporate fraud and financial misstatements - have been a sticking point with regulators over the past few years. In some years, failures by auditors to adequately test controls comprised as much as 15% of audit deficiencies found by regulators.

CLASSROOM APPLICATION: This is a good update on the PCAOB's inspections of auditors' internal controls evaluations.

QUESTIONS: 
1. (Introductory) What are internal controls? Why do companies implement them? Why are they important?

2. (Advanced) What are auditors duties regarding client internal controls? Why are auditors involved in that area?

3. (Advanced) What is the PCAOB? What are its duties and its area of authority? How is it involved with auditing in general, and more specifically with auditing of internal controls?

4. (Advanced) How has auditing of internal controls changed? How have those changes affected the statistics the PCAOB has collected?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
PCAOB Warns on Internal-Control Problems
by Emily Chasan
Oct 25, 2013
Online Exclusive

"Big Firms Getting Better Grades on Internal Control Audits: PCAOB," by Emily Chasan, The Wall Street Journal, June 4, 2015 ---
http://blogs.wsj.com/cfo/2015/06/04/big-firms-getting-better-grades-on-internal-control-audits-pcaob/?mod=djem_jiewr_AC_domainid

The largest public accounting firms made significant improvements in their audits of corporate internal controls this year, their regulator says.

Audits of internal controls—the systems and processes that act as a first line of defense against corporate fraud and financial misstatements—have been a sticking point with regulators over the past few years.

In some years, failures by auditors to adequately test controls comprised as much as 15% of audit deficiencies found by regulators.

But the larger firms have “shown some real improvements in the [inspection] findings,” says Helen Munter, director of the Division of Registration and Inspections at the government’s audit watchdog, the Public Company Accounting Oversight Board.

The improvements came as audit firms increased guidance and training for internal control audits, and demanded more proof from companies that internal controls were working, Ms. Munter said in an interview.

In the past, auditors may have simply asked a financial staffer if a control, such as a purchasing manager’s approval for large purchases, existed and occurred, Ms. Munter said. Now auditors are more likely to get proof that a meeting occurred to approve the purchase, to seek documentation showing the approval, or event to talk to the approver about what they did to ensure the control is working.

Deloitte & Touche LLP, was the first of the large accounting firms to have its 2014 inspection report released by the regulator this week, while the others should follow in the next few months.

Deloitte’s report showed just 21% of audits inspected by the PCAOB had deficiencies — the lowest level in the past five years for the firm. However, the inspection report still cited several deficiencies in internal control audits, such as the auditor failing to properly test internal controls over billing rates and revenue.

Deloitte has made “significant investments” in audit quality over the last several years and emphasized to our professionals the importance of our internal control work,” Deloitte spokesman Dan Mucisko said. He said the firm has provided enhanced training and tools targeted at internal controls audits.

In a letter to the SEC and PCAOB last week, the U.S. Chamber of Commerce said it is worried the board’s inspection process may have “unintended consequences,” which could be increasing costs and burdens on companies, while not necessarily leading to more effective audits or internal control systems at companies.

“Spending inordinate amounts on audits does not promote investor protection or provide the basis for an effective and sustainable system of controls,” Tom Quaadman, vice president of the Chamber’s Center for Capital Markets Competitiveness wrote in the letter. It is seeking a meeting with the regulators to discuss its concerns.

Continued in article


Pro Forma Reporting --- http://faculty.trinity.edu/rjensen/Theory02.htm#ProForma

Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 19, 2015

Tech Startups Woo Investors With Unconventional Financial Terms - but Do Numbers Add Up?
by: Telis Demos, Shira Ovide, and Susan Pulliam
Jun 10, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Financial Reporting, GAAP

SUMMARY: As young technology companies jostle for investors who will pour money into the firms as they try to make it big and strike it rich, some companies are using unconventional financial terms. Instead of revenue, these privately held firms tout "bookings," "annual recurring revenue" or other numbers that often far exceed actual revenue. The practice is perfectly legal and doesn't violate securities rules because the companies haven't sold shares in an initial public offering. Public companies can use "non-GAAP" financial terms but must explain them and disclose how they differ from measurements that follow strict accounting rules.

CLASSROOM APPLICATION: This is a very interesting article about the use of nontraditional - "non-GAAP" - information by startups when they report to investors.

QUESTIONS: 
1. (Introductory) What is GAAP? What purpose does it serve? Why do companies and outside parties use it?

2. (Advanced) What is the trend regarding providing "non-GAAP" financial information? Who is doing this? To whom are they providing it? What is their reasoning for doing this?

3. (Advanced) In what situations would non-GAAP be acceptable reporting? In what situations would it not be allowed?

4. (Advanced) What additional value does non-GAAP reporting add to other parties' decision-making processes? Would these parties also want GAAP information, or is the non-GAAP information sufficient?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Blowing the Froth Off Tech Earnings
by Miriam Gottfried
May 19, 2015
Online Exclusive

"Tech Startups Woo Investors With Unconventional Financial Terms - but Do Numbers Add Up?," by Telis Demos, Shira Ovide, and Susan Pulliam, The Wall Street Journal, June 10, 2015 ---
http://www.wsj.com/articles/how-tech-startups-play-the-numbers-game-1433903883?mod=djem_jiewr_AC_domainid

Hortonworks Inc. Chief Executive Rob Bearden forecast in March 2014 that the software firm would have a “strong $100 million run rate” by year-end. But the number looked a lot smaller after Hortonworks went public and then reported financial results: just $46 million in revenue last year.

It turns out that Mr. Bearden wasn’t talking about revenue, though he didn’t say so at the time. The Santa Clara, Calif., company now says the $100 million target was for “billings,” a gauge of future business that isn’t part of generally accepted accounting principles. Mr. Bearden declines to comment.

As young technology companies jostle for investors who will pour money into the firms as they try to make it big and strike it rich, some companies are using unconventional financial terms.

Instead of revenue, these privately held firms tout “bookings,” “annual recurring revenue” or other numbers that often far exceed actual revenue.

The practice is perfectly legal and doesn’t violate securities rules because the companies haven’t sold shares in an initial public offering. Public companies can use “non-GAAP” financial terms but must explain them and disclose how they differ from measurements that follow strict accounting rules.

Continued in article

"Tech Companies Fly High on Fantasy Accounting," The New York Times, June 18, 2015 ---
http://www.nytimes.com/2015/06/21/business/high-tech-fantasy-accounting.html?mwrsm=Email&_r=0

Jensen Comment
It's not clear that the companies are in violation of FASB accounting standards. For example, they would be in violation of FAS 123r if they did not book employee vested stock options as expenses ---
https://en.wikipedia.org/wiki/Stock_option_expensing 

Restricted Stock --- https://en.wikipedia.org/wiki/Restricted_stock

. . .

Executive compensation practices came under increased congressional scrutiny in the United States when abuses at corporations such as Enron became public. The American Jobs Creation Act of 2004, P.L. 108-357, added Sec. 409A, which accelerates income to employees who participate in certain nonqualified deferred compensation plans (including stock option plans). Later in 2004, FASB issued Statement no. 123(R), Share-Based Payment, which requires expense treatment for stock options for annual periods beginning in 2005. (Statement no. 123(R) is now incorporated in FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation.)

Prior to 2006, stock options were a popular form of employee compensation because it was possible to record the cost of compensation as zero so long as the exercise price was equal to the fair market value of the stock at the time of granting. Under the same accounting standards, awards of restricted stock would result in recognizing compensation cost equal to the fair market value of the restricted stock. However, changes to generally accepted accounting principles (GAAP) which became effective in 2006 led to restricted stock becoming a more popular form of compensation.[4] Microsoft switched from stock options to restricted stock in 2003, and by May 2004 about two-thirds of all companies surveyed by HR consultancy Mercer had reported changing their equity compensation programs to reflect the impact of the new option expensing rules.[5]

The median number of stock options (per company) granted by Fortune 1000 firms declined by 40% between 2003 and 2005, and the median number of restricted stock awards increased by nearly 41% over the same period (“Expensing Rule Drives Stock Awards,” Compliance Week, March 27, 2007). From 2004 through 2010, the number of restricted stock holdings of all reporting executives in the S&P 500 increased by 88%.[

Continued in article.

FASB rules for stock compensation are set out in ASC 718, Compensation—Stock Compensation ---
http://www.pwc.com/en_US/us/cfodirect/assets/pdf/accounting-guides/pwc_stock_based_2013.pdf 

It would seem unlikely that auditors of companies using stock awards would allow violations of ASC 718.

My point is that it is unlikely that "Fantasy Accounting" by tech companies are outright violations of FASB accounting standards. In the 1990s the tech industry was notoriously creative in writing contracts for creative accounting for increasing revenue and decreasing expenses. It became like a game to invent creative accounting followed by new EITFs to restrain the creative accounting.
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm 

The article ["Tech Companies Fly High on Fantasy Accounting,"] cited above in  The New York Times, June 18, 2015] is not specific enough to allow us to judge whether the companies and auditors put themselves in jeopardy of huge lawsuits by blatantly violating FASB standards in a fantasy land. It would be interesting to learn more of the specifics, however, about how they are skating on the edge of FASB standards with tacit approval of their auditors. What the article does suggest is that some of the tech company transactions (such as acquisition transactions) are so complex that the FASB has not yet caught up with creative accounting. This most certainly has been the case of the new revenue recognition standard that keeps being delayed and delayed and delayed presumably because of costs of implementation.

Bob Jensen's threads on creative accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Manipulation

"Hollywood Creative Accounting: The Success Rate of Major Motion Pictures," by Sergio Sparviero (University of Salzburg), SSRN, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2617170

Abstract:     
 
Academic, trade, and popular publications commonly assert that 80 percent of motion pictures fail to make a net profit, suggesting also that the main players of the motion picture industry operate in highly volatile market conditions. More importantly, major film companies use this argument to negotiate for better terms with their production and distribution partners, to lobby for stricter copyright protections, and to argue in favor of media conglomeration as a hedge against adverse market conditions. This article disputes these assertions by calculating the full range of income that major motion pictures derive from their primary and secondary markets. It demonstrates that a large share of studio films are ultimately profitable, therefore challenging the arguments that conglomerates make with industry partners and government policy makers.

June 21, 2015 reply from Tom Selling

No good deed goes unpunished. The SEC tried to limit the use of non-GAAP financial measures by publishing pretty strict requirements prior to their use (See Reg. G and Item 10(e) of Regulation S-K. But issuers could now be assured that if they complied with the letter of the rules, then they wouldn’t have to revise their filings.

Previously (may 12 years ago?), whether a non-GAAP measure was misleading was subject to the judgment of the Division of Corporation Finance, which reviewed disclosures only very selectively. As a result of the new rules, the use of non-GAAP measures exploded.

Best,
Tom

Jensen Note
Pro forma statements must be reconciled with traditional GAAP financial statements. Hence, investors and analysts who take the time and trouble can evaluate the extent of pro forma distortions.

GAAP versus Non-GAAP Accounting for IPOs
From the CFO Journal's Morning Ledger on January 8, 2015

Forty companies went public last year reporting losses under traditional accounting rules but showing profits under their own tailor-made measures, the WSJ’s Michael Rapoport reports. That is 18% of all U.S. IPOs for the year. Some IPO market observers have raised fears that companies’ increased use of nonstandard earnings measures could confuse or mislead investors.

Companies that use the non-GAAP measures insist that they give investors a better picture of the company. But that worries some experts, and hasn’t stopped the SEC from demanding that some of the companies revise their filings, saying that they give too much prominence to the specialty calculations over more standard measures.

Nonstandard metrics give investors “the best measure” of continuing performance, said Jason Morgan, chief financial officer of Zoe’s Kitchen Inc., one of the firms that had to revise its filings at the request of the SEC. Do you feel that you need to look beyond GAAP to tell the full story of your company’s performance? Send us a note to let us know or tell us in the comments

"Tailored Accounting at IPOs Raises Flags Critics Say:  Companies’ Increased Use of Customized Earnings Measures Could Confuse Investors," by Michael Rapoport, The Wall Street Journal," January 7, 2015 ---
http://www.wsj.com/articles/tailored-accounting-at-ipos-raises-flags-1420677431

 

Bob Jensen's threads on Pro Forma Reporting --- http://faculty.trinity.edu/rjensen/Theory02.htm#ProForma

Bob Jensen's threads on creative accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Manipulation


Tax Deferral --- https://en.wikipedia.org/wiki/Tax_deferral

Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 19, 2015

How to Cut Taxes on Tax-Deferred Retirement Accounts
by: William Reichenstein
Jun 05, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Individual Taxation, Tax Planning

SUMMARY: This article illustrates tax planning for individuals that could help many taxpayers extend the life of their financial portfolio by using the key principle that funds in tax-deferred accounts like a 401(k) are pretax funds that will eventually be taxed.

CLASSROOM APPLICATION: This article is appropriate to use as an example of tax planning in an individual income tax class.

QUESTIONS: 
1. (Introductory) What is a tax-deferred account? What types of accounts are tax-deferred?

2. (Advanced) What are the facts of the scenario used in this article? What is the purpose of the tax planning? What is the tax advisor's goal? What tools does he use?

3. (Advanced) What makes this example tax-efficient? What do taxpayers often do in this kind of situation that is not as beneficial?

4. (Advanced) What advantages does a tax-deferred account offer? What are the advantages of having assets in taxable accounts?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"How to Cut Taxes on Tax-Deferred Retirement Accounts," by William Reichenstein, The Wall Street Journal, June 5, 2015 ---
http://blogs.wsj.com/experts/2015/06/05/how-to-cut-taxes-on-tax-deferred-retirement-accounts/?mod=djem_jiewr_AC_domainid

A key principle that could help many taxpayers extend the life of their financial portfolio is that funds in tax-deferred accounts like a 401(k) are pretax funds that will eventually be taxed. If converted this year, then they will be taxed at this year’s marginal tax rate. If retained in the tax-deferred account and withdrawn later, they will be taxed at that year’s tax rate. If this year’s tax rate will be lower than your usual tax rate later in retirement, then look to convert funds to a Roth account this year.

Here is a hypothetical example. Like many retirees, Sue has funds in tax-deferred accounts and taxable accounts. She has $300,000 in taxable accounts and $1,450,000 in tax-deferred accounts. She is 65 and plans to spend about $60,000 a year. For simplicity, we assume she does not qualify for Social Security benefits. She plans to withdraw $60,000 from her taxable account for the next five years, thus allowing her tax-deferred accounts to benefit from five more years of tax-deferred growth. Then, beginning at age 70, she would withdraw over $70,000 of pretax funds from her tax-deferred accounts to provide the $60,000 of after-tax funds.

For the first five years, her adjusted gross income will consist of interest, dividends, and realized capital gains on remaining assets held in her taxable account. This may be $6,000 in the first year (i.e., 2.5% of the $240,000 in taxable account assets that remain after the first-year’s $60,000 withdrawal). Her adjusted gross income will be even lower in her next four years. Since the sum of personal exemption plus standard deduction in 2015 will be $11,850, her adjusted gross income would not be enough to cover this tax-free portion of her adjusted gross income. In contrast, at age 70 and beyond, she would have about $21,000 of tax-deferred account withdrawals taxed at the 25% tax rate.

There is a more tax-efficient withdrawal strategy. In the early years, she should convert enough funds from her tax-deferred account to a Roth IRA to fully use the 15% tax bracket. This will reduce or eliminate the amount of tax-deferred account withdrawals later in life that will be taxed at 25%. In short, it is better to convert some funds to a Roth each of the first five years and pay 0% to 15% on these conversions than to withdraw these funds later at a 25% tax rate. She should convert at least enough to ensure that she will fully use the 15% tax bracket. Suppose she converts $49,000 in 2015 and learns in March 2016 that this amount would raise her 2015 taxable income into the 25% bracket by $2,345. Then she recharacterizes $2,345. Perfect!

Continued in article


Audit Committee --- https://en.wikipedia.org/wiki/Audit_committee

Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 19, 2015

SEC May Seek More Information from Audit Committees
by: Emily Chasan
Jun 05, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Audit Committees, SEC

SUMMARY: U.S. securities regulators are preparing a "concept release" that could push corporate boards of directors to disclose more about how they oversee their outside auditors. Under the 2002 Sarbanes-Oxley Act audit committees took on a much larger role in the oversight of auditors, yet the law didn't require them to disclose many details about their efforts.

CLASSROOM APPLICATION: This article is an update to use in auditing classes.

QUESTIONS: 
1. (Introductory) What is the Sarbanes-Oxley Act? When was it enacted? What activities does it cover?

2. (Advanced) What are audit committees? What are their duties and areas of authority? Why are they important?

3. (Advanced) What is the SEC? What is its areas of authority? How is the SEC involved with the Sarbanes-Oxley Act and with audit committees? What does the SEC want from audit committees? Why? What types of information and disclosures should the SEC require?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"SEC May Seek More Information from Audit Committees," by Emily Chasan, The Wall Street Journal, June 5, 2015 ---
http://blogs.wsj.com/cfo/2015/06/05/sec-may-seek-more-information-from-audit-committees/?mod=djem_jiewr_AC_domainid

U.S. securities regulators are preparing a “concept release” that could push corporate boards of directors to disclose more about how they oversee their outside auditors, a top official said on Friday.

The Securities and Exchange Commission could soon publish a document, seeking formal feedback from investors about whether they are getting enough information from audit committees, the agency’s chief accountant James Schnurr said Friday. He made the remarks at a financial reporting conference in Pasadena, California.

Under the 2002 Sarbanes-Oxley Act audit committees took on a much larger role in the oversight of auditors, yet the law didn’t require them to disclose many details about their efforts. SEC Chairman Mary Jo White said last year that the agency would consider issuing a release this year on whether audit committees should disclose more to investors about their role.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 19, 2015

Another Death-Triggered Tax Event to Worry About
by: Jonathan Clements
Jun 13, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Individual Taxation, Tax Planning

SUMMARY: Thanks to 2015's $5.43 million federal estate-tax exclusion, perhaps just one out of 600 deaths this year will trigger federal estate taxes. Yet many heirs still will face steep tax bills, partly because some states levy their own estate tax, but mostly because of the income taxes due on inherited retirement accounts.

CLASSROOM APPLICATION: This article is filled with great tax planning strategies related to retirement accounts and would be good for an individual tax class.

QUESTIONS: 
1. (Introductory) What is the federal estate-tax exclusion? Why does U.S. tax law allow for this? What is the current dollar amount for this exclusion?

2. (Advanced) How are taxable accounts treated for estate tax purposes? How does this differ from the treatment of retirement accounts? Why are these types of accounts treated differently?

3. (Advanced) What uncertainty exists in this area of tax law? Why does Congress create or allow this kind of uncertainty? What impact does uncertainty have on tax planning? How can tax professionals manage this kind of uncertainty?

4. (Advanced) What tax planning strategies does the writer of this article offer? What types of taxpayers would benefit from this kind of plan? Who would not benefit?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Another Death-Triggered Tax Event to Worry About," by Jonathan Clements, The Wall Street Journal, June 12, 2015 ---
http://www.wsj.com/articles/another-death-triggered-tax-event-to-worry-about-1434145527?mod=djem_jiewr_AC_domainid

Your death could be more taxing than you imagine.

Thanks to 2015’s $5.43 million federal estate-tax exclusion, perhaps just one out of 600 deaths this year will trigger federal estate taxes. Yet many heirs still will face steep tax bills, partly because some states levy their own estate tax—but mostly because of the income taxes due on inherited retirement accounts.

If you bequeath, say, a stock in a regular taxable account that has climbed in value, the cost of the investment for tax purposes automatically rises to its current value as of your death. This “step-up in cost basis” means that the potential capital-gains tax bill can disappear.

But if you die owning traditional retirement accounts, such as 401(k) plans and individual retirement accounts, the income taxes owed on withdrawals still have to be paid by your heirs.

Moreover, this tax problem could get a whole lot worse if Congress kills off the “stretch” IRA. Right now, after you die, your IRA’s beneficiaries can draw down the account slowly over their lifetime.

But if the stretch IRA disappears, your heirs may be forced to empty inherited retirement accounts within five years of your death—and the extra income could push them into a much higher tax bracket.

This change almost became law in 2013. The White House proposed eliminating the stretch IRA again this year for all beneficiaries, except for spouses and in certain special situations, and many experts believe it is just a matter of time until the law gets changed.

“I think there’s a better than 50% chance that the death of the stretch IRA will eventually pass,” says Pittsburgh accountant and investment adviser James Lange, author of “Retire Secure.”

All this is bad news for many Americans. For the typical household approaching retirement age, retirement accounts are the second-largest asset they own, after their home, according to calculations by Boston College’s Center for Retirement Research. (This ignores any value assigned to Social Security and traditional employer pensions.)

How much do older Americans have in retirement accounts? According to the Federal Reserve’s 2013 Survey of Consumer Finances, retirement accounts are owned by 48% of families headed by someone 65 to 74 years old, and the median value is $149,000.

A 2014 report by the Investment Company Institute, a fund-industry trade group, found that 19.2% of IRA investors age 75 and older have accounts worth $200,000 or more—and the number would be even larger if 401(k), 403(b) and other retirement accounts were included.

What should these investors do? There are three key strategies that many folks ought to consider, and two others that could make sense for some families.

First, you might shelve the standard advice for retirees, which is to tap your taxable accounts first, while leaving retirement accounts to continue growing tax-deferred. Instead, you might hang on to taxable-account investments, with a view to getting the step-up in cost basis upon your death.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 19, 2015

FedEx to Book $2.2 Billion Pension Accounting Charge
by: Chelsey Dulaney and Laura Stevens
Jun 13, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Contingent Liabilities, Financial Reporting, Pension Accounting

SUMMARY: FedEx Corp. said that it will book a $2.2 billion pretax charge in its most recently ended quarter as a result of its decision to switch to a pension accounting method that it said makes it easier to gauge plan performance. FedEx joins dozens of companies, such as AT&T Inc., that have adopted mark-to-market pension accounting in the last few years. The method allows pension gains and losses to flow into earnings sooner than under old rules, which allow companies to smooth out the impact over several years.

CLASSROOM APPLICATION: This article is useful for a financial accounting class regarding several reporting issues FedEx is facing, including pension accounting.

QUESTIONS: 
1. (Introductory) What financial issues is FedEx facing? When will reporting of the financial impact of these issues take place? Will it be an ongoing factor?

2. (Advanced) What is pension accounting? What are the rules? What choices does a company have in reporting pension expense? What option did FedEx select? Why?

3. (Advanced) Why can pensions have a substantial impact on a company's financial statements? Why are users of the financial statements interested in pension information?

4. (Advanced) What are the details of the legal settlement FedEx recently settled? How will that impact the company's financial statements?

5. (Advanced) What is a contingent liability? What are the rules regarding financial reporting of contingent liabilities? What information in the article could be a contingent liability for FedEx? How should the company present this information on its financial statements?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"FedEx to Book $2.2 Billion Pension Accounting Charge," by Chelsey Dulaney and Laura Stevens, The Wall Street Journal, June 13, 2015 ---
http://www.wsj.com/articles/fedex-to-book-2-2-billion-pension-accounting-charge-1434115094?mod=djem_jiewr_AC_domainid

FedEx Corp. said Friday that it will book a $2.2 billion pretax charge in its most recently ended quarter as a result of its decision to switch to a pension accounting method that it said makes it easier to gauge plan performance.

FedEx joins dozens of companies, such as AT&T Inc., that have adopted mark-to-market pension accounting in the last few years. The method allows pension gains and losses to flow into earnings sooner than under old rules, which allow companies to smooth out the impact over several years.

FedEx said it will now recognize actuarial gains and losses in the fourth quarter of its fiscal year rather than amortizing them over several years, making its operating performance easier to understand and more transparent.

Net of tax, the charge is valued at $1.4 billion, or $4.88 a share. Before the announcement, analysts polled by Thomson Reuters expected FedEx to post $2.68 a share in adjusted earnings in its fiscal fourth quarter, which ended in May.

FedEx said the plan won’t impact its employees’ pension benefits or the company’s cash flows.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 19, 2015

Small Firms Slower to Adopt New Internal-Control Guidelines
by: Kimberly S. Johnson
Jun 16, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Internal Controls

SUMMARY: Just two-fifths of small public companies use updated internal-control guidelines that public companies rely on to design and test these systems. Among the largest public companies, by contrast, 84% use the guidelines. Small companies typically don't have resources or don't spend the resources to implement sweeping audit-related changes, unless there is a deadline looming or penalty involved.

CLASSROOM APPLICATION: This article is appropriate for financial accounting classes when covering the topic of internal controls.

QUESTIONS: 
1. (Introductory) What are internal controls? What are their purposes?

2. (Advanced) What does the article report regarding internal controls for companies of various sizes? Why is there such a variety of compliance and priorities? What will it take to get all businesses adopting proper internal controls?

3. (Advanced) What benefits could small businesses glean from internal controls? What are the costs involved? Are the benefits worth the costs? Please explain your answer.
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Small Firms Slower to Adopt New Internal-Control Guidelines," Kimberly S. Johnson, The Wall Street Journal, June 13, 2015 ---
http://blogs.wsj.com/cfo/2015/06/16/small-firms-slower-to-adopt-new-internal-control-guidelines/?mod=djem_jiewr_AC_domainid

Small public companies in the U.S. are taking more time to adopt the latest corporate safeguards against fraud and reporting errors.

Just two-fifths of the companies use updated internal-control guidelines that public companies rely on to design and test these systems. Internal controls range from requiring two people to sign off on purchasing orders to limiting access to sales systems.

Among the largest public companies, by contrast, 84% use the guidelines, which were released by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, two years ago. The latest framework added 17 guidelines to the five from 1992.

The figures are based on an examination of 2014 annual reports filed as of June 1. Consulting firm Audit Analytics compiled the data. Small companies, as defined by regulators for filing purposes, have freely traded shares valued at less than $75 million. The largest companies have $700 million or more in freely traded shares.

Small companies typically don’t have the resources to implement sweeping audit-related changes, unless there is a deadline looming or penalty involved. “Without a deadline, it’s going to slide down the list,” said David Garrison, finance chief of Tecogen Inc., a Waltham, Mass., maker of combined heating and power systems.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 19, 2015

IRS, Tax-Preparation Firms Join Forces to Combat Return Fraud
by: John D. McKinnn and Laura Saunders
Jun 12, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Tax Fraud, Tax Identity Theft

SUMMARY: The Internal Revenue Service is working with states and tax-preparation firms to find new ways to strengthen security of the tax-filing system, after criminals this year used increasingly sophisticated strategies to commit stolen-identity refund fraud. The steps are likely to include finding better ways to validate taxpayers' identities when they file returns. The new approach also will include more sharing of broad-based data about trends in suspected identity fraud.

CLASSROOM APPLICATION: This update is appropriate for an individual income tax class.

QUESTIONS: 
1. (Introductory) What is tax identity theft? What problems is it causing?

2. (Advanced) What is the IRS doing to address tax fraud? What is the agency asking of private companies? Why is the IRS enlisting the help of outside parties?

3. (Advanced) Are these steps sufficient to stop this type of fraud? Why or why not? What could the IRS do or do better to prevent tax fraud and losses due to tax identify theft or other issues?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Questions About the IRS Data Breach
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by John D. McKinnon and Laura Saunders
May 26, 2015
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IRS Takes Step to Tighten Security for Tax System
by John D. McKinnon
Jun 02, 2015
Online Exclusive

Even the Tax Man Has a Taxing Time
by Laura Saunders
Apr 15, 2015
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IG Report: IRS Paid Billions in Refunds on Potentially Fake Returns
by John D. McKinnon
May 28, 2015
Online Exclusive

FBI to Investigate Internal Revenue Data Breach
by Devlin Barrett
May 28, 2015
Online Exclusive

"IRS, Tax-Preparation Firms Join Forces to Combat Return Fraud," by John D. McKinnn and Laura Saunders, The Wall Street Journal, June 12, 2015 --- |
http://www.wsj.com/articles/irs-tax-preparation-firms-join-forces-to-combat-return-fraud-1434050523?mod=djem_jiewr_AC_domainid

The Internal Revenue Service is working with states and tax-preparation firms to find new ways to strengthen security of the tax-filing system, after criminals this year used increasingly sophisticated strategies to commit stolen-identity refund fraud.

The steps are likely to include finding better ways to validate taxpayers’ identities when they file returns. The new approach also will include more sharing of broad-based data about trends in suspected identity fraud.

“We’re asking every company that helps taxpayers file returns to provide us information that will add layers of security and step up their pre-refund authentication,” IRS Commissioner John Koskinen said Thursday. “We’re also making clear that companies need to let the IRS know if they detect any suspicious activity or refund fraud patterns.”

The IRS said industry and government groups have identified several new types of data that can be shared at filing time to help authenticate a taxpayer’s identity and detect potential refund fraud. Those data include the Internet address and computer associated with the return, as well as other characteristics of the transaction.

Already this year, the IRS has stopped some 3 million fraudulent filings, up about 30% from last year, Mr. Koskinen said. States also report surges in suspicious filings. Utah had more than 37,000 this year, for instance, up from 1,200 last year.

The IRS lost more than $5.8 billion to identity-theft fraud in 2013, according to a study by the Government Accountability Office.

The attacks are growing in sophistication. In the highest-profile problem this year, criminals—possibly operating from Russia and other countries—used ID data stolen elsewhere to obtain about 100,000 taxpayers’ prior-year return data from an IRS online application, the agency announced recently. Those data in some cases helped crooks defeat existing security systems and file fraudulent return claims using the taxpayers’ identities.

Continued in article


Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 19, 2015

Ex-Controller Testifies He Altered Dewey Accounting Records
by: Sara Randazzo
Jun 11, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Business Crime, Fraud, Loan Covenant

SUMMARY: Years before Dewey & LeBoeuf LLP collapsed, the law firm's accounting department scrambled to avoid trouble with its banks by making the firm's income appear higher than it was, Dewey's former controller told a jury.

CLASSROOM APPLICATION: This is an excellent article to share with our accounting students to show the ramifications - both criminal and financial - of "cooking the books."

QUESTIONS: 
1. (Introductory) What are the facts of the case featured in the article? Who is on trial and what are the charges? Who is the witness and what was his position in the firm?

2. (Advanced) What reasons does Mr. Mullikin give for his actions? What was the firm's management seeking to accomplish?

3. (Advanced) What is a loan covenant? How do they relate to financial statements?

4. (Advanced) What internal controls can a company implement or a lender require to insure that the financial statements are accurate and the loan covenants requirements are met?

5. (Advanced) What charges were filed against Mr. Mullikin? What is his potential punishment? Does that punishment seem in proportion to what he admits doing? Why or why not?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Prosecutor Alleges Dewey & LeBoeuf Cooked the Books for Years
by Sara Randazzo
May 26, 2015
Online Exclusive

"Ex-Controller Testifies He Altered Dewey Accounting Records," by Sara Randazzo, The Wall Street Journal, June 11, 2015 ---
http://www.wsj.com/articles/ex-controller-testifies-he-altered-dewey-accounting-records-1433972860?mod=djem_jiewr_AC_domainid

Years before Dewey & LeBoeuf LLP collapsed, the law firm’s accounting department scrambled to avoid trouble with its banks by making the firm’s income appear higher than it was, Dewey’s former controller told a jury Wednesday.

In January 2009, with just days to find a way to boost 2008 income by $25 million, members of the department used fraudulent adjustments to get the numbers where they wanted them, former controller Thomas Mullikin said during the third week of a criminal trial of Dewey’s three top leaders, accused of conspiring to defraud the firm’s banks and creditors.

“Did you falsify accounting records to make it appear the firm’s financial condition was better than reality?” Assistant District Attorney Steve Pilnyak asked. “Yes I did,” replied Mr. Mullikin, who left Dewey in June 2011, less than a year before the firm collapsed into bankruptcy.

Mr. Mullikin, 54 years old, is the first of seven cooperating witnesses to take the stand for the Manhattan district attorney’s office in what is expected to be a six-month-long trial. Mr. Mullikin has pleaded guilty to a scheme to defraud in the first degree tied to his actions in Dewey’s accounting department, and prosecutors will recommend he receive five months in a Manhattan detention center.

Continued in article


Forwarded by Rev. Hahn

The best sermons are lived....

1.  Today, I interviewed my grandmother for part of a research paper I'm working on for my Psychology class.  When I asked her to define success in her own words, she said, "Success is when you look back at your life and the memories make you smile."

   ----------------------------------------------------------
  2. Today, I asked my mentor - a very successful business man in his 70s- what his top 3 tips are for success.  He smiled and said, "Read something no one else is reading, think something no one else is thinking, and do something no one else is doing."

    -----------------------------------------------------------------------------------------
  3.   Today, after a 72 hour shift at the fire station, a woman ran up to me at the grocery store and gave me a hug.   When I tensed up, she realized I didn't recognize her.  She let go with tears of joy in her eyes and the most sincere smile and said, "On 9-11-2001, you carried me out of the World Trade Center."

    -----------------------------------------------------------------------------------------
  4.  Today, after I watched my dog get run over by a car, I sat on the side of the road holding him and crying.  And just before he died, he licked the tears off my face.

   -----------------------------------------------------------------------------------------
  5.  Today at 7AM, I woke up feeling ill, but decided I needed the money, so I went into work.   At 3PM I got laid off.  On my drive home I got a flat tire.  When I went into the trunk for the spare, it was flat too.   A man in a BMW pulled over, gave me a ride, we chatted, and then he offered me a job. I start tomorrow.

   -----------------------------------------------------------------------------------------
  6.  Today, as my father, three brothers, and two sisters stood around my mother's hospital bed, my mother uttered her last coherent words before she died. She simply said, "I feel so loved right now.  We should have gotten together like this more often."

   -----------------------------------------------------------------------------------------
  7. Today, I kissed my dad on the forehead as he passed away in a small hospital bed.   About 5 seconds after he passed, I realized it was the first time I had given him a kiss since I was a little boy.

  -----------------------------------------------------------------------------------------
  8. Today, in the cutest voice, my 8-year-old daughter asked me to start recycling.  I chuckled and asked, "Why?"  She replied, "So you can help me save the planet."   I chuckled again and asked, "And why do you want to save the planet?"  Because that's where I keep all my stuff," she said.

  ------------------------------------------------------------------------------------------
  9. Today, when I witnessed a 27-year-old breast cancer patient laughing hysterically at her 2-year-old daughter's antics,  I suddenly realized that I need to stop complaining about my life and start celebrating it again.

  ------------------------------------------------------------------------------------------
  10. Today, a boy in a wheelchair saw me desperately struggling on crutches with my broken leg and offered to carry my backpack and books for me.  He helped me all the way across campus to my class and as he was leaving he said, "I hope you feel better soon."

   ------------------------------------------------------------------------------------------
  11.  Today, I was feeling down because the results of a biopsy came back malignant.  When I got home, I opened an e-mail that said, "Thinking of you today.  If you need me, I'm a phone call away."  It was from a high school friend I hadn't seen in 10 years.

   ------------------------------------------------------------------------------------------
  12. Today, I was traveling in Kenya and I met a refugee from Zimbabwe.  He said he hadn't eaten anything in over 3 days and looked extremely skinny and unhealthy.  Then my friend offered him the rest of the sandwich he was eating.  The first thing the man said was, "We can share it.

   -----------------------------------------------------------------------------------------
  The best sermons are lived, not preached...

  -----------------------------------------------------------------------------------------
  I am glad I have you to send these to.
“Thousands of candles can be lit from a single candle, and the life of the candle will not be shortened.

   Happiness never decreases by being shared.

 




Humor June 1-30, 2015

I have something that rhymes with "bucket list."
Barack Obama --- http://www.businessinsider.com/white-house-correspondents-association-dinner-2015-2015-4

Maya Rudolph Finally Did the Rachel Dolezal Impression We’ve All Been Waiting For ---
http://www.vulture.com/2015/06/maya-rudolph-rachel-dolezal-late-night.html 

Man caught stuffing assault rifles down his pants at pawn shop ---
http://www.wrcbtv.com/story/29191303/man-caught-stuffing-assault-rifles-down-his-pants-at-pawn-shop
He might have gotten away with it if women did not keep asking him to dance.

Interactive Fun for Kids and Bored Adults
Draw a Stickman With Legs and Arms ---
http://www.drawastickman.com/index.htm

Canadian Dad Takes Daughter for a Ride --- http://kottke.org/15/06/airplane-aerobatics-are-hilarious 

Python Eats Porcupine, Regrets It Later (Here's Why) ---
http://news.yahoo.com/python-eats-porcupine-regrets-later-heres-why-114016276.html


Pat Venditte (Oakland) can pitch with either his left or his right arm.
Small-town newspaper claims switch pitcher Pat Venditte is also 'amphibious' ---
http://www.si.com/extra-mustard/2015/06/08/oakland-athletics-pat-venditte-switch-pitcher-amphibious


Man caught stuffing assault rifles down his pants at pawn shop ---
http://www.wrcbtv.com/story/29191303/man-caught-stuffing-assault-rifles-down-his-pants-at-pawn-shop
He might have gotten away with it if women did not keep asking him to dance.


Forwarded by Auntie Bev

WELCOME to 2015: 
  
• Our Phones – Wireless
• Cooking – Fireless
• Cars – Keyless
• Food – Fatless
• Tires –Tubeless
• Dress – Sleeveless
• Youth – Jobless
• Leaders – Shameless
• Relationships – Meaningless
• Attitudes – Careless
• Babies – Fatherless
• Feelings – Heartless
• Education – Valueless
• Children – Mannerless
• Country – Godless
 
  
We are SPEECHLESS, 
Government is CLUELESS, 
  
And our Politicians are WORTHLESS ! 
  
I'm scared – Shitless

and

This is "Priceless".


Forwarded by Paula

Blonde on a plane

A plane is on its way to Chicago when a blonde in economy class gets up and moves to the first class Section and sits down.

The Flight Attendant watches her do this and asks to see her ticket.

She then tells the blonde that she paid for economy class and that she will have to sit in the back.

The blonde replies, “I’m blonde, I’m beautiful, I’m going to Chicago, and I’m staying right here.”

Another flight attendant tries to get her to move, but the blonde replies, “I’m blonde, I’m beautiful, I’m going to Chicago, and I’m staying right here.”

The head flight attendant goes to the cockpit and tells the pilot and the co-pilot that there is a blonde bimbo sitting in first class, that she belongs in economy and won’t move back to her seat.

The co-pilot goes back to the blonde and tries to explain that because she only paid for economy she will have to leave and return to her seat.

The blonde replies, “I’m blonde, I’m beautiful, I’m going to Chicago, and I’m staying right here.”

The co-pilot tells the pilot that he probably should have the police waiting when they land in Chicago, to arrest this blonde woman who won’t listen to reason.

The pilot says, “You say she’s a blonde? I’ll handle this, I’m married to a blonde. I speak ‘blonde.’”

He goes back to the blonde and whispers in her ear. She says, “Oh, I’m sorry,” gets up and goes back to her seat in economy.

The flight attendants and co-pilot are amazed and asked him what he said to make her move without any fuss.

“I told her ‘first class isn’t going to Chicago.’”




 

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

Humor December 1-31, 2014 --- http://faculty.trinity.edu/rjensen/book14q4.htm#Humor123114

Humor November 1-30, 2014 --- http://faculty.trinity.edu/rjensen/book14q4.htm#Humor113014

Humor October 1-31, 2014 --- http://faculty.trinity.edu/rjensen/book14q4.htm#Humor103114

Humor September 1-30, 2014 --- http://faculty.trinity.edu/rjensen/book14q3.htm#Humor093014

Humor August 1-31, 2014 --- http://faculty.trinity.edu/rjensen/book14q3.htm#Humor083114

Humor July 1-31, 2014--- http://faculty.trinity.edu/rjensen/book14q3.htm#Humor073114




And that's the way it was on June 30, 2015 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


 

For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://faculty.trinity.edu/rjensen/ListServRoles.htm

AECM (Accounting Educators)  http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
The AECM is an email Listserv list which started out as an accounting education technology Listserv. It has mushroomed into the largest global Listserv of accounting education topics of all types, including accounting theory, learning, assessment, cheating, and education topics in general. At the same time it provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc

Roles of a ListServ --- http://faculty.trinity.edu/rjensen/ListServRoles.htm
 

CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/  (closed down)
CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.

Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk
This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1 
This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

Business Valuation Group BusValGroup-subscribe@topica.com 
This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM

 


 

Concerns That Academic Accounting Research is Out of Touch With Reality

I think leading academic researchers avoid applied research for the profession because making seminal and creative discoveries that practitioners have not already discovered is enormously difficult. Accounting academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic)
From http://faculty.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
 

“Knowledge and competence increasingly developed out of the internal dynamics of esoteric disciplines rather than within the context of shared perceptions of public needs,” writes Bender. “This is not to say that professionalized disciplines or the modern service professions that imitated them became socially irresponsible. But their contributions to society began to flow from their own self-definitions rather than from a reciprocal engagement with general public discourse.”

 

Now, there is a definite note of sadness in Bender’s narrative – as there always tends to be in accounts of the shift from Gemeinschaft to Gesellschaft. Yet it is also clear that the transformation from civic to disciplinary professionalism was necessary.

 

“The new disciplines offered relatively precise subject matter and procedures,” Bender concedes, “at a time when both were greatly confused. The new professionalism also promised guarantees of competence — certification — in an era when criteria of intellectual authority were vague and professional performance was unreliable.”

But in the epilogue to Intellect and Public Life, Bender suggests that the process eventually went too far. “The risk now is precisely the opposite,” he writes. “Academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic). The agenda for the next decade, at least as I see it, ought to be the opening up of the disciplines, the ventilating of professional communities that have come to share too much and that have become too self-referential.”

 

What went wrong in accounting/accountics research? 
How did academic accounting research become a pseudo science?
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong

Avoiding applied research for practitioners and failure to attract practitioner interest in academic research journals ---
"Why business ignores the business schools," by Michael Skapinker
Some ideas for applied research ---
http://faculty.trinity.edu/rjensen/theory01.htm#AcademicsVersusProfession

 

Clinging to Myths in Academe and Failure to Replicate and Authenticate Research Findings
http://faculty.trinity.edu/rjensen/theory01.htm#Myths

 

Poorly designed and executed experiments that are rarely, I mean very, very rarely, authenticated
http://faculty.trinity.edu/rjensen/theory01.htm#PoorDesigns
 

Discouragement of case method research by leading journals (TAR, JAR, JAE, etc.) by turning back most submitted cases --- http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Cases
 

Economic Theory Errors
Where analytical mathematics in accountics research made a huge mistake relying on flawed economic theory and interval/ratio scaling

http://faculty.trinity.edu/rjensen/theory01.htm#EconomicTheoryErrors

 

Accentuate the Obvious and Avoid the Tough Problems (like fraud) for Which Data and Models are Lacking
http://faculty.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious

 

Financial Theory Errors
Where capital market research in accounting made a huge mistake by relying on CAPM

http://faculty.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious

 

Philosophy of Science is a Dying Discipline
Most scientific papers are probably wrong
http://faculty.trinity.edu/rjensen/theory01.htm#PhilosophyScienceDying

 

Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites  --- http://faculty.trinity.edu/rjensen/AccountingNews.htm

Accounting Professors Who Blog --- http://faculty.trinity.edu/rjensen/ListservRoles.htm

Cool Search Engines That Are Not Google --- http://www.wired.com/epicenter/2009/06/coolsearchengines

Free (updated) Basic Accounting Textbook --- search for Hoyle at
http://faculty.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination
Free CPA Examination Review Course Courtesy of Joe Hoyle --- http://cpareviewforfree.com/
 


Bob Jensen's Pictures and Stories
http://faculty.trinity.edu/rjensen/Pictures.htm

 

Bob Jensen's Homepage --- http://faculty.trinity.edu/rjensen/

 

 

 

 

 




  •  

    May 31, 2015

     

    Bob Jensen's New Bookmarks for May 1-31, 2015 

    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 




    From the Chronicle of Higher Education
    Search for Job Openings in Higher Education ---
    https://chroniclevitae.com/job_search/new

    Higher Education Recruitment Consortium --- http://www.hercjobs.org/


    "IRS Releases Spring 2015 Statistics Of Income Bulletin," by Paul Caron, TaxProf Blog, May 28, 2015 ---
    http://taxprof.typepad.com/taxprof_blog/2015/05/irs-releases-.html

    See
    http://www.irs.gov/uac/SOI-Tax-Stats-SOI-Bulletin:-Spring-2015


    Contrary to What Television Shows Lead Us to Believe
    Rhode: Law Is The Least Diverse Profession In The Nation. And Lawyers Aren’t Doing Enough To Change That." by Paul Cron, TaxProf Blog, May 20, 2015 ---
    http://taxprof.typepad.com/taxprof_blog/2015/05/rhode-law-is-the-least-diverse-profession-.html


    More Retractions of Jim Hunton's Publications

    March 28, 2015 message from XXXXX

    Hi Bob,

    I know you’ve been interested in the Hunton retractions. I thought you might want to know that he recently had his three publications in JAR retracted (bringing the total to six retractions). I think these are all his JAR publications.

    If you post this or pass this along, I’d rather not be associated with the news.

    Here is the link: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1475-679X/earlyview 

    Here is a document with the text from the retractions.

    The third one is the most interesting in my opinion. Someone said it sounds like he got his excuse from a student!

    March 28, 2015 reply from Bob Jensen

    "Following Retraction, Bentley Professor Resigns," Inside Higher Ed, December 21, 2012 ---
    http://www.insidehighered.com/quicktakes/2012/12/21/following-retraction-bentley-professor-resigns

    James E. Hunton, a prominent accounting professor at Bentley University, has resigned amid an investigation of the retraction of an article of which he was the co-author, The Boston Globe reported. A spokeswoman cited "family and health reasons" for the departure, but it follows the retraction of an article he co-wrote in the journal Accounting Review. The university is investigating the circumstances that led to the journal's decision to retract the piece.

    REPORT OF JUDITH A. MALONE, BENTLEY UNIVERSITY ETHICS OFFICER, CONCERNING DR. JAMES E. HUNTON
    July 21, 2014 ---
    http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

    Pursuant to the Bentley University Ethics Complaint Procedures (“Ethics Policy”), this report summarizes the results of an eighteen - month investigation into two separate allegations of research misconduct that were received by Bentley in November 2012 and January 2013 against James E. Hunton, a former Professor of Accountancy. The complainants – one a confidential reporter (as defined in the Ethics Policy) and the other a publisher – alleged that Dr. Hunton engaged in research misconduct in connection wit h two papers that he published while a faculty member at the University: “A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures: Nominal Group, Round Robin, and Open Discussion,” The Accounting Review 85 (3): 911 - 935 (“Fraud Br barnstorming”) and “The Relationship between Perceived Tone at the Top and Earnings Quality,” Contemporary Accounting Research 28 (4): 1190 - 1224 (“Tone at the Top”).

    Because of concerns regarding Fraud Brainstorming that the editors at The Accounting Review had been discussing with Dr. Hunton since May 2012, the editors withdrew that paper in November 2012. Bentley received the allegation of research misconduct from the confidential reporter later that month. The confidential reporter also raised questions about ten other articles that Dr. Hunton published or provided data for while he was at Bentley, which, the reporter alleged, raised similar questions of research integrity.

    In my role as Ethics Officer, it was my duty to make the preliminary determination n about whether the allegations warranted a full investigation. To make that determination, I met with Dr. Hunton in person when Bentley received this allegation, after I first instructed Bentley IT to back up and preserve all of his electronic data store d on Bentley’s servers. During that meeting, we discussed the allegation, I explained the process that would be followed if I found an investigation was warranted, and I described the need for his cooperation, including the specific admonition that he pre serve, and make available to me, all relevant materials, including electronic and paper documents. This information and these instructions were confirmed in writing to Dr. Hunton. Dr. Hunton resigned shortly after that meeting, which coincided with my de termination that a full investigation was warranted.

    In January 2013 as the investigation was just getting underway, Bentley received the second allegation of research misconduct from the editor of Contemporary Accounting Research. The editor had contacted ted Dr. Hunton directly in November 2012 with concerns about Tone at the Top after the Fraud Brainstorming paper was retracted. The journal brought the issue to Bentley’s attention after the response it received failed to resolve its concerns. When Bentley received this second allegation, I informed Dr. Hunton of it, as well.

    Continued in article

    Jensen Comment
    The last paragraph of the article suggests that Professor Hunton did not cooperate in the investigation to the extent that it is unknown if his prior research papers were also based upon fabricated data. The last paragraph reads as follows:

    Bentley cannot determine with confidence which other papers may be based on fabricated data. We will identify all of the co - authors on papers Dr. Hunton published while he was at Bentley that involve research data. We will inform them that, unless they have independent evidence of the validity of the data, we plan to ask the journals in which the papers they co - authored with Dr. Hunton were published to determine, with the assistance of the co - authors, whether the data analyzed in the papers were valid. The various journals will then have the discretion to decide whether any further action is warranted, including retracting or qualifying, with regard to an y of Dr. Hunton’s papers that they published

    Years ago Les Livingstone was the first person to detect a plagiarized article in TAR (back in the 1960s when we were both doctoral students at Stanford). This was long before digital versions articles could be downloaded. The TAR editor published an apology to the original authors in the next edition of TAR. The article first appeared in Management Science and was plagiarized in total for TAR by a Norwegian (sigh).

     

    November 28, 2012 forward from Dan Stone

    Anna Gold sent me the following statement and also indicated that she had no objections to my posting it on AECM:

    Explanation of Retraction (Hunton & Gold 2010)

    On November 9, 2012, The Accounting Review published an early-view version of the voluntary retraction of Hunton & Gold (2010). The retraction will be printed in the January 2013 issue with the following wording:

    “The authors confirmed a misstatement in the article and were unable to provide supporting information requested by the editor and publisher. Accordingly, the article has been retracted.”

    The following statement explains the reason for the authors’ voluntary retraction. In the retracted article, the authors reported that the 150 offices of the participating CPA firm on which the study was based were located in the United States. In May 2012, the lead author learned from the coordinating partner of the participating CPA firm that the 150 offices included both domestic and international offices of the firm. The authors apologize for the inadvertently inaccurate description of the sample frame.

    The Editor and the Chairperson of the Publications Committee of the American Accounting Association subsequently requested more information about the study and the participating CPA firm. Unfortunately, the information they requested is subject to a confidentiality agreement between the lead author and the participating firm; thus, the lead author has a contractual obligation not to disclose the information requested by the Editor and the Chairperson. The second author was neither involved in administering the experiment nor in receiving the data from the CPA firm. The second author does not know the identity of the CPA firm or the coordinating partner at the CPA firm. The second author is not a party to the confidentiality agreement between the lead author and the CPA firm.

    The authors offered to print a correction of the inaccurate description of the sample frame; however, the Editor and the Chairperson rejected that offer. Consequently, in spite of the authors' belief that the inaccurate description of the sample does not materially impact either the internal validity of the study or the conclusions set forth in the Article, the authors consider it appropriate to voluntarily withdraw the Article from The Accounting Review at this time. Should the participating CPA firm change its position on releasing the requested information in the future, the authors will request that the Editor and the Chairperson consider reinstating the paper.

    Signed:

    James Hunton Anna Gold

    References: Hunton, J. E. and Gold, A. (2010), “A field experiment comprising the outcomes of three fraud brainstorming procedures: Nominal group, round robin, and open discussions,” The Accounting Review 85(3): 911-935.

     

    December 1, 2012 reply from Harry Markopolos <notreallyharry@outlook.com

    Harry Markopolos <notreallyharry@outlook.com>

    The explanation provided by the Hunton and Gold regarding the recent TAR retraction seems to provide more questions than answers. Some of those questions raise serious concerns about the validity of the study.

    1. In the paper, the audit clients are described as publically listed (p. 919), and since the paper describes SAS 99 as being applicable to these clients, they would presumably be listed in the U.S. However, according to Audit Analytics, for fiscal year 2007, the Big Four auditor with the greatest number of worldwide offices with at least one SEC registrant was PwC, with 134 offices (the remaining firms each had 130 offices). How can you take a random sample of 150 offices from a population of (at most) 134?

    Further, the authors state that only clients from the retail, manufacturing, and service industries with at least $1 billion in gross revenues with a December 31, 2007 fiscal year-end were considered (p. 919). This restriction further limits the number of offices with eligible clients. For example, the Big Four auditor with the greatest number of offices with at least one SEC registrant with at least $1 billion in gross revenues with a December 31, 2007 fiscal year end was Ernst & Young, with 102 offices (followed by PwC, Deloitte and KPMG, with 94, 86, and 83 offices, respectively). Limiting by industry would further reduce the pool of offices with eligible clients (this would probably be the most limiting factor, since most industries tend to be concentrated primarily within a handful of offices).

    2. Why the firm would use a random sample of their worldwide offices in the first place, especially a sample including foreign affiliates of the firm? Why not use every US office (or every worldwide office with SEC registrants)? The design further limited participation to one randomly selected client per office (p. 919). This design decision is especially odd. If the firm chose to sample from the applicable population of offices, why not use a smaller sample of offices and a greater number of clients per office? Also, why wouldn’t the firm just sample from the pool of eligible clients? Finally, would the firm really expect its foreign affiliates to be happy to participate just because the US firm is asking them to do so? Would it not be much simpler and more effective to focus on US offices and get large numbers of clients from the largest US Offices (e.g., New York, Chicago, LA) and fill in the remaining clients needed to reach 150 clients from smaller offices?

    3. Given the current hesitancy of the Big Four to allow any meaningful access to data, why would the international offices be consistently willing to participate in the study, especially since each national affiliate of the Big Four is a distinct legal entity? The coordination of this study across the firm’s international offices seems like a herculean effort, at least. Further, even if the authors were not aware that the population of offices included international offices, the lead author was presumably aware of the identity of the partner coordinating the study for the firm. Footnote 4 of the paper and discussion on page 919 suggest that the US national office coordinated the study. It seems quite implausible that the US national office alone would be able to coordinate the study internationally.

    4. In the statement that has been circulated among the accounting research community, the authors state:

    “The second author was neither involved in administering the experiment nor in receiving the data from the CPA firm. The second author does not know the identity of the CPA firm or the coordinating partner at the CPA firm. The second author is not a party to the confidentiality agreement between the lead author and the CPA firm.”

    However, this statement is inconsistent with language in the paper suggesting that both authors had access to the data and were involved in discussions with the firm regarding the design of the study (e.g. Footnote 17). Also, isn’t this kind of arrangement quite odd, at best? Not even the second author could verify the data. We are left with only the first author’s word that this study actually took place with no way for anyone (not even the second author or the journal editor) to obtain any kind of assurance on the matter. Why wouldn’t the firm be willing to allow Anna or Harry Evans to sign a confidentiality agreement in order to obtain some kind of independent verification? If the firm was willing to allow the study in the first place, it seems quite unreasonable for them to be unwilling to allow a reputable third party (e.g. Harry) to obtain verification of the legitimacy of the study. In addition, assuming the firm is this extremely vigilant in not allowing Harry or Anna to know about the firm, does it seem odd that the firm failed to read the paper before publication and, therefore, note the errors in the paper, including the claim that is made in multiple places in the paper that the data came from a random sample of the firm’s US offices?

    5. Why do the authors state that the paper is being voluntarily withdrawn if the authors don’t believe that the validity of the paper is in any way questioned? The retraction doesn’t really seem voluntary. If the authors did actually offer to retract the study that implies that the errors in the paper are not simply innocent mistakes.

    Given that most, if not all US offices would have had to be participants in the study (based on the discussion above), it wouldn’t be too hard to obtain some additional information from individuals at the firms to verify whether or not the study actually took place. In particular, if we were to locate a handful of partners from each of the Big Four who were office-managing partners in 2008, we could ask them if their office participated in the study. If none of those partners recall their office having participated in the study, the reported data would appear to be quite suspect.

    Sincerely,

    Harry Markopolos

    Jensen Comment
    Thanks to the Ethics Officer at Bentley College on July 14, 2014 we now know more of the story.

    I have no idea what happened to Professor Hunton after he resigned from Bentley University in 2012.

    Accounting professor faked data for two studies, destroyed evidence: University report ---
    http://retractionwatch.com/2014/07/22/accounting-professor-faked-data-for-two-studies-destroyed-evidence-university-report/

    Bob Jensen's threads on professors who plagiarized or otherwise cheated ---
    http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize


    IASB proposes changes to conceptual framewor;: Income Statement Concepts Have Lowest (Garbage Can) Priority

    "IASB proposes changes to conceptual framework," by Ken Tysiac, Journal of Accountancy, May 28, 2015 ---
    http://www.journalofaccountancy.com/news/2015/may/iasb-conceptual-framework-201512404.html

    Exposure Draft ---
    http://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/Documents/May 2015/ED_CF_MAY 2015.pdf

    . . .

    This Exposure Draft continues to define income and expenses in terms of changes in assets and liabilities, but emphasises in various places that important decisions on, for example, recognition and measurement, are driven by considering the nature of the resulting information about both financial performance and financial position. The IASB explains the reasons for this in paragraph BC4.3

    Continued in article

    Jensen Comment
    What the IASB is saying is that when balance sheet concepts were give priority over income statement concepts the concept of income, earnings, adn earnings-per-share were destroyed even though these measures are arguably the most important numbers that investors and analysts track. These measures are pretty much garbage can repositories that do not distinguish unrealized ups and downs of balance sheet values from legally recognized earned revenue. No operational partitioning is recognized between other comprehensive income and net income.

    "Whither the Concept of Income?" by Shizuki Saito University of Tokyo and Yoshitaka Fukui Aoyama Gakuin University, SSRN, May 17, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2607234

    Abstract:
    Since the 1970s, the decision-usefulness has taken center stage and our attention has been concentrated on valuation of assets and liabilities instead of income measurement. The concept of income, once considered the gravitational center of accounting has lost its primacy and become a byproduct of the balance sheet derived from the measurement of assets and liabilities.

    However, we have not been equipped with robust conceptual foundation supporting theoretically reasoned accounting measurement. It is not only theoretically but also practically important to renew our seemingly waned interest in the concept of income because ongoing reforms of accounting standards cannot be successfully implemented without a sound understanding of the concept of income.

    Net earnings and EBITDA cannot be defined since the FASB and IASB elected to give the balance sheet priority over the income statement in financial reporting ---
    "The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield, FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---
    http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/

    Be that as it may, net earnings and EBITDA are all-important because investors change their portfolios based on net earnings and its derivatives more than anything in the balance sheet.
    "Accounting Alchemy," by Robert E. Verrecchia, Accounting Horizons, September 2013, pp. 603-618.
    Verrecchia alleges that it's not that managers have a functional fixation for earnings metrics as it is that they believe that other managers and investors are so fixated with earnings that it because of monumental importance not because it is inherently a great metric but because they believe deeply that the market itself makes this index of vital importance.

    . . .

    In summary, my thesis is that managers project that others are fixated on earnings—independent of any evidence in support of, or contrary to, this phenomenon. This leads to managers resisting the inclusion in earnings items that fail to enhance performance, such as the amortization of Goodwill, or measures that make future performance more volatile, such as those based on fair value. In the absence of acknowledging PEF and attempting to grapple with it, I continue to see confrontations over accounting regulation along the lines of recent debates about fair value accounting, in addition to further impediments along the path to greater transparency in financial statements.

    It's a bit like requiring calculus for undergraduate accounting courses. Calculus probably is not essential in any undergraduate accounting course in the curriculum, but faculty are fixated that the best accounting majors are the ones do well in calculus. Similarly, investors change their portfolios based on earnings, eps, EBITDA, and P/E ratios when in fact those metrics are not defined and may have a lot of misleading noise and secret manipulation

     

    Bob Jensen's threads on the differences between IASB versus FASB standards ---
    http://faculty.trinity.edu/rjensen/Theory01.htm#MethodsForSetting

    Bob Jensen's threads on accounting theory ---
    http://faculty.trinity.edu/rjensen/Theory01.htm


    Mary E. Barth --- https://www.gsb.stanford.edu/faculty-research/faculty/mary-e-barth
    Her contributions to the profession and the Academy have been exceptional.

     

    "Financial Accounting Research, Practice, and Financial Accountability," Mary E. Barth, SSRN, May 25, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2610429
    Download it now while it is still free at SSRN
    Forthcoming in Abacus

     

    Abstract:
    Financial accounting is essential to financial accountability, which is essential to a prosperous society. There are many examples of how improvements to financial accounting, supported by research, have enhanced financial accountability. Such research requires a strong relation between accounting academics and practice; this relation has ebbed and flowed during Abacus’s life. The relation seems to ebb when accounting academics embrace related fields and flows when the relevance to accounting practice emerges. Economics and finance have provided new perspectives and meaningful insights about the information investors need to make informed decisions. Regardless, there are many intriguing and open questions awaiting accounting research that can provide insights into how financial accounting — and thus financial accountability — can be improved. Thus, the future is bright for financial accounting researchers who do research relevant to accounting practice and want to contribute to a prosperous society.

     

    Jensen Questions
    Why All the Praise of Academic Research Without Any Mention of Its Failures and Limitations?

    Mary stretches deep and tenuously into how academic research, especially that published in Abucus, affected accounting practice even though she has little evidence that practitioners were even aware of this reserch. The influence seems to be via standard setters like herself (she served eight years on the IASB) who were either directly impacted by findings in academic research or impacted by academic standard setters like herself..

     

    What Mary seems to ignore is the limitations and failures of academic research that according to her impacted standard setters. The most notable limitation is that overwhelming amount of academic financial accounting research that assumed market efficiency and, in particular, relied upon the flawed CAPM model.

     

    CAPM ---  http://en.wikipedia.org/wiki/Capital_asset_pricing_model

    Assumptions of CAPM

    All investors:

    1. Aim to maximize economic utilities (Asset quantities are given and fixed).
    2. Are rational and risk-averse.
    3. Are broadly diversified across a range of investments.
    4. Are price takers, i.e., they cannot influence prices.
    5. Can lend and borrow unlimited amounts under the risk free rate of interest.
    6. Trade without transaction or taxation costs.
    7. Deal with securities that are all highly divisible into small parcels (All assets are perfectly divisible and liquid).
    8. Have homogeneous expectations.
    9. Assume all information is available at the same time to all investors.

     

    Problems of CAPM

    In their 2004 review, Fama and French argue that "the failure of the CAPM in empirical tests implies that most applications of the model are invalid".

     

    Why No Mention of the Failures of Academic Researchers to Verify Validity of Their Findings?

    For example why to academic researchers mostly accept empirical findings without any attempt at independent replication and analytical findings without any attempt to validate underlying assumptions. Bob Jensen has many references to those limitations at
    http://faculty.trinity.edu/rjensen/TheoryTAR.htm

     

    Why do academic researchers, especially accountics scientists like Mary Barth, avoid discussing research on the AAA Commons? Why is there not a a single accountics science blogger.

     

    Why is there so little discussion of statistical mistakes in academic accounting research?
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

     

    Here's a critical paper that Australian David Johnstone tells me that Abacus would never publish (even if cleaned up from its first draft)---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsWorkingPaper450.06.pdf

     

    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
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

     

    In fairness Mary does site the excellent critique of academic accounting research by Bob Kaplan in 2010. She then claims that the top academic research journals are beginning to react to such criticisms, but I've yet to see evidence of this. I think she should have been more specific about the criticisms of accountics science and more specific about evidence that the accountics scientists are changing their ways.

     

    My biggest disappointment with Mary is that she totally ignored the AAA Commons while she was President of the American Accounting Association and has never encouraged that accountics scientists commence to use the Commons when trying to communicate with teachers of accountancy.

     

    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
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm


    "Review of Recent Research on Improving Earnings Forecasts and Evaluating Accounting-Based Estimates of the Expected Rate of Return on Equity Capital," by Peter D. Easton and Steven J. Monahan, SSRN, March 1, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2606693
    Abacus, Forthcoming
    Download it while it's free

    Abstract:
    We extend Easton’s (2007) review of the literature on accounting-based estimates of the expected rate of return on equity capital, which we refer to as the ERR. We begin by reiterating the reasons why accounting-based estimates are used. Next, we briefly review the recent literature that focuses on improving forecasts of expected earnings by either: (1) removing predictable errors from analysts’ forecasts of earnings or (2) developing cross-sectional regression-based estimates of earnings using prior-period financial data. In the remainder of our review we discuss a recent debate on methods for evaluating estimates of the ERR. We highlight the key points in the debate so that the reader will find it easier to form an independent view of the relative merits of the proposed methods.


    "Determinants of Goodwill Impairment: International Evidence," by Martin Glaum, Wayne R. Landsman, and Sven Wyrwa, SSRN, May 20, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2608425

    Abstract:     
    This study investigates the determinants of firms’ decision to impair goodwill under IFRS. Our empirical analysis is based on data for the years 2005 to 2011 for 8,110 non-financial firm-years and 1,358 financial firm-years from 21 countries where firms apply IFRS. We specifically investigate which role national enforcement systems play for firms’ decisions whether or not to impair goodwill. We find that firms’ decisions are related to measures of performance, but also to proxies for managerial and firm-level incentives. We also find that goodwill impairment is associated with lagged stock-market return, suggesting that firms tend to delay necessary impairment. Further investigations reveal that the timeliness of goodwill impairment depends on the strength of national accounting and auditing enforcement systems: in countries with weak enforcement systems firms tend to delay necessary goodwill impairments, while firms in countries with strong enforcement systems tend to write off goodwill in a timely fashion, both before and after the Financial Crisis. However, even in countries with strict enforcement impairment decisions appear to be influenced by managerial and firm-level incentives, such as CEO reputation concerns and by management’s preferences for smooth earnings.

    Bob Jensen's threads on goodwill impairment ---
    http://faculty.trinity.edu/rjensen/theory02.htm#Impairment


    Impact Factors in Journal Article Rankings --- http://en.wikipedia.org/wiki/Impact_factor
    Especially note the criticisms.

    "Citation-Based Benchmarks and Individual Accounting Faculty Research Rankings by Topical Area and Methodology," by Garrison Lee Nuttall, Neal M. Snow, Scott L. Summers, and David A. Wood, SSRN, May 20, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2608491
     

    Abstract
    This paper provides citation rankings and benchmarking data for individual accounting researchers disaggregated by topic and methodological area. The data provides a unique contribution to accounting research by providing a current help for evaluating the quality of accounting researchers’ work. We gather citation data from Google Scholar for papers published in respected accounting journals to create rankings of researchers based on the number of citations crediting an individual’s work. We also provide benchmarking data that includes the average number of citations a paper has received given the year of its publication. Data are disaggregated by accounting topic area (accounting information systems, audit, financial, managerial, tax, other) and methodology (analytical, archival, experimental, other) because of significantly different citation patterns by topic area and methodology. This data will benefit accounting researchers and those interested in evaluating them by providing objective information for identifying producers of quality research
    .

    "Deep Impact: Impact Factors and Accounting Research," SSRN, Wm. Dennis Huber, May 23., 2014 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2441340 

    Jensen Comment
    My main criticism in academic accounting is that citations become a closed loop among accountics science researchers who sought articles on how to apply the general linear model (GLM) without much if any concern on the relevance of the findings
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsWorkingPaper450.06.pdf

    Citations: Two Selected Papers About Academic Accounting Research Subtopics (Topical Areas) and Research Methodologies http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceCitations.htm 


    'True and Fair View' versus 'Fair Presentation' Accountings: Are They Legally Same or Different?" Anowar Zahid Faculty of Law, European Business Law Review, Vol. 19, No. 4, 2008
    SSRN
    May 18, 2015
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2607519

    Abstract:
    For accounting statements, United States of America (USA) legally requires, as an overriding principle, the "Fair Presentation" of financial information while the European Union applies "True and Fair View" principle. Are these two principles same or similar in actual legal analysis? Such an answer is essential to harmonize laws of financial statements. This paper responds to this question by a comparative research.


    Update
    "Madoff Accountant Avoids Prison Term," by Matthew Goldstein, The New York Times, May 28, 2015 ---
    http://www.nytimes.com/2015/05/29/business/dealbook/madoff-accountant-avoids-prison-term.html?emc=edit_tnt_20150528&nlid=27162368&tntemail0=y&_r=0
     

    By his own admission, David G. Friehling was not much of an auditor for Bernard L. Madoff — pretty much rubber-stamping financial statements for the man who masterminded an enormous Ponzi scheme.

    As a cooperating witness, however, Mr. Friehling won plaudits from federal prosecutors, and because of that he will not serve any time in prison for his role in the financial fraud, which lasted more than two decades.

    A federal judge on Thursday sentenced Mr. Friehling, 55, to a year of home detention and another year of supervised release. Judge Laura Taylor Swain of Federal District Court in Manhattan noted that Mr. Friehling had cooperated extensively with federal prosecutors, including testifying for several days during a lengthy trial last year that resulted in the convictions of five former employees of Mr. Madoff’s securities firm. Continue reading the main story Related Coverage

    Frank DiPascali Jr. in Manhattan Federal Court on Monday, December 2, 2013. Bernie Madoff’s Essential ManMAY 15, 2015 Frank DiPascali Jr. faced a prison term of up to 125 years. Frank DiPascali Jr., Madoff Aide Who Pleaded Guilty in Fraud, Dies at 58MAY 10, 2015

    Mr. Friehling could have been sentenced to more than 100 years in prison for his part in the Ponzi scheme that authorities estimate caused investors to lose $17.5 billion in principal and tens of billions more in paper wealth.

    To some degree, ignorance worked in Mr. Friehling’s favor when it came to sentencing.

    Federal prosecutors, in arguing for a lenient sentence for Mr. Friehling, who also served as a personal accountant for Mr. Madoff and his sons, said he had been unaware of the full extent of Mr. Madoff’s long-running scheme. But that was only because Mr. Friehling had “abdicated” his responsibilities as the firm’s auditor and approved the financial statements Mr. Madoff gave him without asking any questions.

    “His crime came down to his failure to do his job,” said Randall W. Jackson, an assistant federal prosecutor under Preet Bharara, the United States attorney for Manhattan.

    Continued in article

    Bob Jensen's threads on Ponzi frauds ---
    http://faculty.trinity.edu/rjensen/FraudRotten.htm#Ponzi


    "The Hidden Side of Traditional Management Accounting," Vladimir Kuryakov Los Angeles International University, SSRN. April 23, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2604572

    Proceedings of the Research and Academic Conference "Research and Technology – Step into the Future". Transport and Telecommunication Institute, Riga, Latvia (2015)

    Abstract: Research by Flanholtz and Randle (1998) demonstrated striking results that successful companies from start-ups to Fortune 100 could experience extreme difficulties (and even failure) after sufficient growth including:

    • People Express, which reached $1.8 billion in revenue and then entered bankruptcy;

    • MaxiCare, which reached $1.6 billion in revenue and the entered bankruptcy;

    • Compaq Computers which reached $40 billion in revenue before it had to be sold to Hewlett-Packard to survive;

    • Osborne Computer which reached $100 million in revenue in two years, and went bankrupt in year 3;

    • Eastman-Kodak which once dominated the field of photography and now fights for survival;

    • Sears which was once “where America Shops” and now is fighting for survival.

    Many of these companies are regarded as leaders and even some of them were considered as “too big to fail”. In recent studies by Flamholtz and Randle (2007) pointed out that the common reason for failure was non-uniform development of organization, mainly delay in operation, strategic management systems and corporate culture. This is caused as management (especially of entrepreneurial type) of growing companies are not focusing on the fact that “All organizations are perfectly designed to get the result they get” and to get new higher results organizations need to be carefully re-designed, including environmental analysis and selection the proper configuration that corresponds strategy type of organization. In some cases management would like to control everything and insisting on functional configuration that suits for environment with limited scope of predictable changes and feel uncomfortable for necessity to delegate authority for matrix configuration that comply with highly unpredictable environment. Organizations with functional configuration are profitable as following effect of volume, but permitting very limited scope of changes compared to matrix and could not be successful in high unpredictable environment. Fact of inconvenience for changes is the reason that some factors limiting organizational capacities to drive growing revenues into profit were invisible for management as the hidden side of the Moon.

    We know it from the nature that it is really difficult to deal with something invisible. That is the reason for medical diagnostics for humans. The same is for organizations. Traditional management accounting excessively concentrated on revenue/profit oriented marketing metrics has limited opportunities to discover organizational risks experienced by businesses.

    The organizational risks could have been detected and eliminated early on if senior leaders had paid attention to the early warning signs.

    Flamholtz and Randle (2007) developed and validated general set of “growing pain” symptoms that could evaluate organizational risks for an organization as a result of “Growing pains Survey©”. In case of high value assessment research should be “drilled” through the organizational building blocks that helps to define specific problems as a result of “Organizational Effectiveness Survey©” that are grounds for organizational risks.

    Comparative analysis for local organizations with the similar is USA and other countries demonstrate differences in management habits and corporate culture. And such differences helps companies to become “best-in-the class” in high competitive markets and obtain sustainable competitive advantage.

    Keywords: Management science, organizational failure, organizational configuration, growing pains survey, organizational effectiveness survey, sustainable competitive advantage

    Bob Jensen's threads on managerial accounting ---
    http://faculty.trinity.edu/rjensen/Theory02.htm#ManagementAccounting


    FAF/FASB/GASB Strategic Plan, May 2015 ---
    http://www.accountingfoundation.org/cs/ContentServer?c=Page&pagename=Foundation%2FPage%2FFAFSectionPage&cid=1176164598953

    The Financial Accounting Foundation (FAF), the Financial Accounting Standards Board (FASB), and the Governmental Accounting Standards Board (GASB), working jointly, have developed a strategic plan to articulate the long-range vision and mission of each of the groups and the organization collectively. This plan represents an evolution and a refinement of previous plans and mission statements developed by the groups. The language and content will be familiar to those who have followed the work of the FAF, the FASB, and the GASB.

    The FAF is the independent, private-sector, not-for-profit organization responsible for establishing and improving financial accounting and reporting standards for companies—both public and private, not-for-profit organizations, and state and local governments. The FAF comprises the FAF Board of Trustees, two standard-setting Boards (the FASB and the GASB), and the FAF management team.
     
    Our collective mission is to establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports; and educate stakeholders on how to most effectively understand and implement those standards.

    The strategic plan affirms the discrete, individual roles of the groups comprising the FAF, while describing the overarching vision and mission that we share. The plan recognizes that the FASB and the GASB are solely responsible for developing and establishing financial accounting and reporting standards. The plan also recognizes that the role of the FAF management team is to provide strategic counsel and services that support the mission, activities, and independence of the FASB and the GASB. The FAF Trustees are responsible for overall governance of the FAF, oversight of the FASB and the GASB, and for protecting the independence of the standard-setting process, while also respecting that independence.

    Together, the FASB, the GASB, and the FAF management, according to their specific roles, work to achieve their collective objective of developing the highest-quality financial accounting standards—standards that promote financial reporting that provides investors, lenders, taxpayers, public officials, and other users of financial statements with a clear understanding of the financial performance and position of companies—both public and private; not-for-profit organizations; and state and local governments. The plan recognizes that a second critical element of our collective mission is to foster better understanding among stakeholders—those who use, prepare, and audit financial statements—as to how those standards should be applied and implemented.

    The strategic plan also describes four goals that, if achieved, will enable the FASB, the GASB, the FAF Trustees, and the FAF management to realize our collective vision and fulfill our collective mission:
    A full discussion of the vision, the mission, and the supporting goals can be found within the final Plan.

    Discretionary Accrual Controversies

    May 25, 2015 Message from Dennis Beresford

    I was asked to review a research paper on an auditing topic for a colleague. Without going into all of the details, the fundamental assumption upon which the research is based is: “Following prior researchers, we assume that audit quality is negatively correlated with the absolute value of client firms’ discretionary accruals (ADA). We estimate ADA using the performance adjusted Jones model….”

    I am concerned with how the term “discretion” is used in this context. Companies must accrue assets or liabilities according to GAAP. While there is often judgment involved in the amount of certain accruals, there is little opportunity for free choice accruals (“free to decide what should be done in a situation” sense of the word per a dictionary).

    Setting aside what might be semantics, I question how a formula applied to overall financial statements can possibly capture the actual judgments made in the accrual process. I fully recognize that researchers don’t have direct access to company general ledgers, etc. so some sort of assumptions or proxies must be established in order to estimate what is happening inside of a corporation. However, even if this measure has been accepted in several other papers does that mean it is valid?

    Finally, how can a mathematical formula applied to a company’s financial statements to somehow estimate discretionary accruals, possibly tell me anything about the quality of the audit of those financial statements? Even if the formula somehow is valid and it allows something to be said about the company’s financial statements, what relationship does that have to the audit?

    The paper in question seems to be well written (it’s very long!) with many impressive formulas and tables. But I can’t get past this basic assumption upon which all else seems placed. Any thoughts?

    Denny

     

    May 25, 2015 reply from Bob Jensen

    Hi Denny,

    There's ton of literature on this that can be cited, much of it probably already was cited. I really haven't studied this matter in depth, but I do have some references in my archives.

    When reviewing this paper I would probably focus on the earnings management issue that of course is inherent in the accrual process. The issue is what discretionary accruals bring to the debate. Here's a paper from the SEC working paper series. Generally the purpose is to limit discretion when it comes to earnings management.

    Analyst Competition and Monitoring: Earnings Management in Neglected Firms ---
    http://www.sec.gov/divisions/riskfin/workingpapers/rsfi-wp2013-04.pdf

    We investigate the analyst monitoring role using a sample of firms that lose and later regain analyst coverage along with alternative samples where loss of coverage is exogenous . Relative to otherwise similar firms that maintain coverage, dropped firms reverse earnings management from managing downward to upward, and firms that do so are more likely to regain analyst attention. After resumption of coverage, upward management is attenuated only for firms regaining coverage by multiple analysts. Our findings demonstrate that analysts select firms engaged in more aggressive reporting and suggest that the monitoring role is activated by competition rather than coverage itself.


    Earnings Quality: Measuring The Discretionary Portion Of Accruals
    http://www.investopedia.com/university/accounting-earnings-quality/earnings9.asp

    Jensen Comment
    The above article refers to the modified Jones (1991) model. The measurement process typically involves regression with all the baggage that accompanies regression models, especially the stationarity assumption attacked by Dyckman and Zeff in Accounting Horizons.

    Two proposed modifications of the Jones model in 2012:
    On the models and estimation of discretionary accruals  ---
    http://ifas.xmu.edu.cn/uploads/soft/121226/%E8%AE%BA%E6%96%87.pdf

    But then accrual accounting in general requires estimation such that even pencil and paper estimation on a napkin entails assumptions.


    Predicting earnings management: A nonlinear approach ---
    http://www.researchgate.net/publication/259520709_Predicting_earnings_management_A_nonlinear_approach

    ABSTRACT: This paper investigates whether firms engaging in accelerated share repurchases (ASRs) conduct downward earnings management prior to repurchase announcements. The ‘commitment’ and high ‘speed’ of share repurchases in ASRs appears to give ASR firms stronger incentive to deflate the pre-repurchase earnings than open market repurchase (OMR) firms, in order to reduce repurchase costs. However, in contrast to the OMRs of Gong, Louis, and Sun (2008), we do not find such earnings management for ASR firms. We conjecture that the Sarbanes-Oxley Act and greater public attention to financial reporting after financial scandals reduce the likelihood that ASR firms adopt accrual-based earnings management.

    Predicting earnings management: A nonlinear approach - ResearchGate. Available from: http://www.researchgate.net/publication/259520709_Predicting_earnings_management_A_nonlinear_approach  [accessed May 25, 2015].

     


    Discretionary Accrual Models and the Accounting Process ---
    http://www2.uhv.edu/garzax/downloads/Discretionary%20accruals%20%28Kobe%29.pdf

    This version has been accepted for publication in: Kobe Economic & Business Review Abstract This paper introduces a discretionary accrual model based on the accounting process developed by Dechow, Kothari and Watts (1998). Our model tries to prevent a big proportion of nondiscretionary accruals from being judged as discretionary. Using data from the Japanese stock market, we find that our model fits accruals much better than versions based on Jones (1991). Evidence in this paper shows that our model may modify the findings of previous research in two areas: 1) studies that use the versions of Jones model to detect earnings management and 2) studies that analyze the relation between discretionary accruals and future performance or the relation between discretionary accruals and stock returns.

    May 25, 2015 reply from Neal Hannon

    Denny, Bob

    When Craig Lewis was with the SEC, he incorporated his findings on discretionary accruals in the development of the SEC's Accounting Quality Model (A.K.A. Robo Cop). Here's a link to a speech he gave on the subject to the FEI http://www.sec.gov/News/Speech/Detail/Speech/1365171491988  in December of 2012 .

    Neal

     


    The Edublogger --- http://www.theedublogger.com

    The Edublogger has been set up by Edublogs“the largest education community on the Internet” where you can sign up for a free WordPress-powered blog — and is dedicated to helping educational bloggers with emerging technologies in education, share their own experiences and promote the blogging medium.

    It’s purpose is to share tips, tricks, ideas and provide help to the educational blogging community.

    Continued in article

    Jensen Comment
    This site also is great for education technology news.

    "Blogging changes the nature of academic research, not just how it is communicated," by Patrick Dunleavy, London School of Economics, January 2015 ---
    http://blogs.lse.ac.uk/impactofsocialsciences/2014/12/28/shorter-better-faster-free/

    Bob Jensen's threads on listservs and blogs ---
    http://faculty.trinity.edu/rjensen/ListservRoles.htm

    Bob Jensen's threads on Tools and Tricks of the Trade ---
    http://faculty.trinity.edu/rjensen/000aaa/thetools.htm

     


    John Forbes  Nash, Jr. --- http://en.wikipedia.org/wiki/John_Forbes_Nash,_Jr.

    The 27 Page Dissertation of and the Famous One-Page Article by John Nash

    From David Giles on the Econometrics Beat, May 24, 2015

    Ferdinando is referring to Nash's Ph.D. dissertation, "Non-Cooperative Games", completed at Princeton University in May of 1950. Yes, it was just 27 pages long. One of the only two references was to von Neumann and Morgenstern's classic 1944 book, Theory of Games and Economic Behavior. The other was to Nash's own paper, published in the Proceedings of the National Academy of Sciences in 1950. It spanned just two pages, but was actually less than one page long!

     
    Yes, sometimes it really is the case that, "Less is more". (Ludwig Mies van der Rohe)

    "Why John Nash Matters, by Benjamin Morris, Nate Silver's 5:38 Blog, May 25, 2015 ---
    http://fivethirtyeight.com/datalab/why-john-nash-matters/ 

    . . .

    Similar questions and scenarios come up in baseball, hockey, tennis and virtually every other sport. Indeed, once you get in this mode of thinking, you start seeing it everywhere (much like with Bayesian inference, or Tetris).

    In 1994, for his contributions to the field of game theory, Nash received the Nobel Prize in economics. But his greatest accomplishment may be the role he played in the emergence of a whole new and important way of thinking about the world and the things that happen in it.

     

    A Beautiful Mind' mathematician John Nash killed in car crash ---
    http://www.businessinsider.com/a-beautiful-mind-mathematician-john-nash-killed-in-car-crash-2015-5#ixzz3b4xnr2H6


    Inflation versus P/E Ratios (1965 to Present)

    Barry Ritholtz, May 26,  2015 ---
    http://www.ritholtz.com/blog/

    Inflation:The level of inflation also matters, and historically has had a strong relationship with PE multiples. Chart 2 below indicates that the relationship may not be linear, but many have simplified this relationship to the “Rule of 21” which suggests that the sum of the PE multiple and CPI inflation should equal 21. Given that the latest inflation data are slightly negative (-0.2%) and the trailing PE ratio of 17.6x, the Rule suggests valuations should jump 3-4 points, or that inflation should be 3-4% (or some meeting in the middle). And the chart below indicates that P/E multiples could be far higher than they are today without breaching the historical relationship between multiples and inflation.

    Graph --- http://www.ritholtz.com/blog/wp-content/uploads/2015/05/inflation-vs-pe-model.png

    Source:
    Episode I: High valuations
    Savita Subramanian, Equity & Quant Strategist
    MLPF&S
    Equity and Quant Strategy | United States 26 May 2015


    Video
    Exploring evolution of CPA profession Global growth session with  AICPA Chair Tommye Barie ---
    https://twitter.com/CurryFlorida/status/578214621955371008


    "The Paradoxical Impact of Corporate Inversions on US Tax Revenue," by  Rita Nevada Gunn Northwestern University  and Thomas Z. Lys Northwestern University, SSRN, April 4, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2596706

    Abstract:
    Do corporate inversions cost the US Treasury billions of dollars in tax revenue, justifying legislative responses and even strong-arming corporations from moving their tax domicile abroad? We show that corporate inversions not only do not appear to reduce, but, paradoxically, are even likely to increase tax collections by the US Treasury
    .

    Jensen Comment
    Good thing this was not dated April 1. I would have said it must be an April Fool joke


    Question
    Who will replace Steve Zeff as TAR's Book Review Editor?

    Stephen Addam  Zeff's Accounting Hall of Fame Tribute ---
    http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/stephen-addam-zeff/

    Jensen Comment
    Steve Zeff gave much of his life in service to the American Accounting Association, including being its President, being an Editor of the The Accounting Review (TAR), being a prolific author in AAA journals including TAR, serving on committees too numerous to mention, and most recently being a long-time Editor of TAR's book reviews. For his entire professional career Steve has been a traveling ambassador for the AAA across the globe as an international scholar and speaker and point man for the AAA in virtually every nation of the world.

    I admire Steve for many reasons, not the least of which is his willingness to stand up to accountics scientists and call much of what they publish ill-conceived and non-rigorous nonsense. Steve is no pushover when it comes to speaking his mind.

    We owe a roaring salute to the many decades of dedicated service of Professor Zeff.  May he carry on for many more years of service to the AAA and the profession in general.

    Steve swept out quite a few book reviews in his swan song as Book Review Editor of TAR ---
    http://aaajournals.org/doi/full/10.2308/accr-10455
    TAR book reviews, unlike its journal articles,  are free and open to the world.

     

    Books are an indispensable part of the accounting research literature, and each year many new and interesting books appear on the scene, a considerable number of which are published in the U.K. A book review section has appeared in The Accounting Review ever since its first issue in 1926—apart from a brief hiatus between 2003 and 2006. Since the resumption of the section in 2007, when I began as its editor, The Accounting Review has published the reviews of 129 books. This number excludes educational textbooks, which are reviewed in Issues in Accounting Education.

    As the American Accounting Association is a truly international organization, I have deliberately assigned just over half of the books to reviewers based outside the United States, drawn from a total of 17 countries. The range of coverage has been wide: empirical and analytical research in financial and management accounting, historical research, and research on auditing, taxation, standard setting, corporate governance, sustainable reporting, and corporate social reporting. Several of the books were not in English, so that we might become apprised of work done in other languages. In order to widen the net of candidate reviewers, I have challenged myself to use a particular reviewer no more than once: no one has reviewed more than a single book. For a number of books that did not justify a full review but otherwise deserved to be brought to the attention of readers, I have written a number of “capsule commentaries,” as I did back in 1962–1966, when I served previously as The Accounting Review's book review editor.

    Not all of the reviewers have been accounting academics. Two have come from sociology and law, one was a leading financial journalist, and another was a senior staff member of the IASB.

    I wish to thank the succession of my Senior Editors—Dan S. Dhaliwal, Steven J. Kachelmeier, John Harry Evans III, and Mark L. DeFond—for their support of the book review section.

    This will be my final issue as book review editor. I am very pleased to pass the baton to my successor, Gary C. Biddle.
    Steve Zeff


    Where Tom Selling and I differ on his May 20 posting on gift card "breakage"

    . . . there currently is diversity in the methodology used to derecognize the portion of the nonrefundable dollar value of prepaid stored - value cards that ultimately is unredeemed (that is, breakage)
    FASB (as eventually quoted below)

    Proposed ASU EITF 2015-15B: Lipstick for a Pig of a Revenue Presentation Standard," by Tom Selling, The Accounting Onion, May 20, 2015 ---
    http://accountingonion.com/2015/05/proposed-asu-eitf-2015-15b-lipstick-for-a-pig-of-a-revenue-presentation-standard.html

    . . .

    This post is not primarily about the Proposed Update.  Rather, I am going to focus on the accounting rules it supplements.  My goal is to convince you that the way in which merchants currently account for gift cards is a pig.  That makes the Proposed Update essentially lipstick, the specious quality of which I will reluctantly address in closing.

    The following simple fact pattern is a sufficient basis for our luau:*

    For simplicity but without loss of generality, let’s stipulate that Gary’s cost of the plastic card and the expected present value of Gary’s contingent liability are trivial; and therefore, may be ignored.  Also, the remittance of the $45 to Rick occurs instantaneously with the receipt of the $50 by Gary.  Setting aside GAAP, and using only common sense, a reasonably thoughtful student or practitioner should make the following journal entry (I apologize for the formatting, I’m no HTML whiz):

    Dr. Cash                                     $5
    Cr. Gift card revenue                       $5

    The intuition for this entry is as straightforward as accounting can be.  Gary is merely Rick’s agent and has earned a $5 commission.  Moreover, unless something really strange happens, Gary has no further obligations to its customer or to Rick.

    But, as is becoming more and more the case, GAAP diverges from common sense for this simple fact pattern.  The following GAAP journal entries hinge on the fact, however inconsequential it may be, that Gary is the “primary obligor” to the purchaser of the gift card.  Accordingly, it would require the following entry at the point of sale by Gary the grocer:

    Dr. Cash                                      5
    Dr. Deferred cost of sales         45
    Cr. Deferred revenue                    50

    When the gift card is used (redeemed), Gary would make the following entry:

    Dr. Cost of sales                       45
    Dr. Deferred Revenue              50
    Cr. Deferred cost of sales              45
    Cr. Revenue                                   50

    Continued in article

    Jensen Comment
    Tom and I differ on two aspects of this illustration.

    Difference One
    I do not agree with Tom's netting entry for Gary the Grocer:

    Dr. Cash                                     $5
    Cr. Gift card revenue                             $5

    I think all cash going into the Grocer's  till must be journalized as Patricia Walters recommended:

    Dr. Cash                                     $50
    Cr. Accounts payable                            $45
    Cr. Gift card revenue                               $5

    The reason is that for internal control purposes all cash going into and out of the till should be reconcilable.

    Difference Two

    I don't think the FASB is recommending Tom's journal entries at the point of sale for Gary the Grocer. Gary the Grocer is simply a collection agent and is not primarily liable for honoring the card. Accordingly there's zero deferred income rather than $50 deferred income for Gary the Grocer.

    My analogy goes back to when I was a paperboy as a kid. Each week I collected the prices of the papers from my customers. Suppose I collected $50 from my customers. On Saturday afternoon I remitted the $45 to the newspaper publisher and kept $5 for my collection and delivery fee. I did not have a deferred revenue of $50.

    Similarly, I think that Gary the Grocer is merely a collection agent for the gift cards of Rick’s Sporting Goods. Rick sells the cards for $50 and merely gives a $5 collection fee or sales commission to Gary the Grocer. Gary is not obligated to honor the card used in the future by the buyer of the gift card. Rick is primarily liable to honor the card.

    What is the FASB Proposing for Rick the Grocer Who is Liable to Honor the Gift Card?

    Liabilities — Extinguishments of Liabilities (Subtopic 405 - 20)
    Proposed Accounting Standards Update Issued: April 30 , 2015 Comments Due: June 29 , 2015
    http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176165974765

    . . .

    Why Is the FASB Issuing This Proposed Accounting Standards Update (Update)?
    Prepaid stored - value cards are prepaid cards with monetary values redeemable for goods, services, and/or cash. When an
    entity sells a prepaid stored-value card that is redeemable at a third - party merchant (or merchants) , it recognizes a liability for its obligation to provide the customer with the ability to purchase goods or services at that third - party merchant (or merchants) . When the customer redeems the prepaid stored - value card , the liability (or part of that liability ) between the entity an d the customer is extinguished. At the same time, the entity incurs a liability to the merchant that provided the goods or services . This liability is typically extinguished with cash thro ugh a card - settlement process. However, in some cases , a prepaid stored - value card may be unused wholly or partially for an indefinite time period .

     

    Some entities support the view that the liability that exists between an entity that sells a prepaid stored - value card and its customer prior to when the customer redeems the prepaid stored - value card (prepaid stored - value card liability) is a financial liability . Other entities support the view that a prepaid stored - value card liability is a nonfinancial liability. Although Subtopic 405 - 20, Liabilities — Extinguishments of Liabilities , currently includes derecognition guidance for both financial liabilities and nonfinancial liabilities, there currently is diversity in the methodology used to derecognize the portion of the nonrefundable dollar value of prepaid stored - value cards that ultimately is unredeemed (that is, breakage) .

     

    Topic 606 , Revenue from Contracts with Customers , includes authoritative breakage guidance. However, financial liabilities are excluded from the scope of Topic 606 . The guidance in Topic 606 is effective in fiscal years beginning after December 15, 2016, for public business entities , certain not - for - profit entities, and certain employee benefit plans or December 15, 2017, for all other entities . However, the Board also is issuing a proposed Update to defer each of those dates by one year.

     

    Under current generally accepted accounting principles ( GAAP ) , if an entity concludes that a prepaid stored - value card liability is either a financial liability or a nonfinancial liability, it should apply the derecognition guidance in Subtopic 405 - 20. That guidance typically would prohibit derecognition of the liability prior to when a customer redeems the card or when the card expires or becomes subject to unclaimed property laws . Upon the effective date of Topic 606, if an entity concludes that a prepaid stored - value card liability is a nonfinancial liability, it would apply the less restrictive breakage guidance in Topic 606. The objective of this  proposed  Update  is  to  address the current and potential  future diversity in practice related to the derecognition of a prepaid stored value card liability.

    . . .

    Questions for Respondents (BEFORE JUNE 29, 2015)
    The Board invites individuals and organizations to comment on all matters in this proposed Update, particularly on the issues and questions below. Comments are requested from those who agree with the proposed guidance as well as from those who do not agree. Comments are most helpful if they identify and clearly explain the issue or question to which they relate. Those who disagree with the proposed guidance are asked to describe their suggested alternatives, supported by specific reasoning.

    Question 1: Should the scope of the proposed amendments be limited to prepaid stored - value card liabilities resulting from the sale of card s with the characteristics specified in this proposed Update ? If not, what other liabilities should be included in the scope of this proposed Update?

    Question 2: If an entity expects to be entitled to a breakage amount, should a prepaid stored - value card liability within the scope of the proposed amendments be derecognized in proportion to the pattern of rights expected to be exercised by the card holder only to the extent that it is probable that a significant reversal of the recognized breakage amount will not subsequently occur ? If an entity does not expect to be entitled to a breakage amount, should the liability be derecognized when the likelihood of the customer exercising its remaining rights becomes remote? If not, what breakage model would be appropriate?

    Question 3: Should an entity be required to provide the disclosures specified in this proposed Update ? Should any other disclosures be required? If yes, please explain what disclosures should be provided.

    Question 4: Should the proposed amendments be applied using a modified retrospective transition method (requiring a cumulative - effect adjustment as of the beginning of the annual period in which the guidance is effective)? If not, please explain why.

    Question 5: How much time would be needed to implement the proposed amendments? Should early adoption be permitted?

    Question 6 : Do entities other than public business entities (that is, private companies and not-for-profit entities) need additional time to apply the proposed amendments? Why or why not?

    Jensen Recommendation
    I suggest that Tom send in his objections to the FASB before the comment deadline (June 29, 2015). This is what due process is all about --- giving the accounting world a voice in the standard setting process.

    Proposed ASU EITF 2015-15B: Lipstick for a Pig of a Revenue Presentation Standard,” by Tom Selling, Accounting Onion, May 20m 2015 ---  Click Here
    http://accountingonion.com/2015/05/proposed-asu-eitf-2015-15b-lipstick-for-a-pig-of-a-revenue-presentation-standard.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29

    The FASB has issued Proposed Accounting Standards Update EITF 2015-15B, Recognition of Breakage for Certain Prepaid Stored-Value Cards.  If finalized, it would change the way that retail merchants who sell gift cards for redemption at other stores account for “breakage” — the curious term used for gift card values (and similar items) that ultimately will not be redeemed.

    This post is not primarily about the Proposed Update.  Rather, I am going to focus on the accounting rules it supplements.  My goal is to convince you that the way in which merchants currently account for gift cards is a pig.  That makes the Proposed Update essentially lipstick, the specious quality of which I will reluctantly address in closing.

    The following simple fact pattern is a sufficient basis for our luau:*

    For simplicity but without loss of generality, let’s stipulate that Gary’s cost of the plastic card and the expected present value of Gary’s contingent liability are trivial; and therefore, may be ignored.  Also, the remittance of the $45 to Rick occurs instantaneously with the receipt of the $50 by Gary.  Setting aside GAAP, and using only common sense, a reasonably thoughtful student or practitioner should make the following journal entry (I apologize for the formatting, I’m no HTML whiz):

    Dr. Cash                                     $5
    Cr. Gift card revenue                       $5

    The intuition for this entry is as straightforward as accounting can be.  Gary is merely Rick’s agent and has earned a $5 commission.  Moreover, unless something really strange happens, Gary has no further obligations to its customer or to Rick.

    Continued in article

    May 23, 2015 reply from Bob Jensen

    Hi Tom,

    I have to disagree with your recommended "net" accounting of the gift card sales in your illustration of the Grocer (Gary) selling a gift card for $50 and journalizing only the net $5 net profit into the general ledger.

     

    Since the Sarbanes (SOX) legislation there is much more concern about internal control system. If $50 is going into the cash drawer for a sale I think the entire $50 must be accounted for internal control purposes.


    For internal control purposes all  cash going into the cash drawer should be booked into the computer and all cash going out should be booked. That way cash counts can be reconciled at the end of the day against one set of books.

     

    You did not mention it, but your recommended booking only the net profit of a transactions begs the need to have multiple sets of books for internal controls. Multiple sets of books works for the mafia, but the mafia has its own special procedures for enforcing internal controls against fraud and error.


    I think the crime boss always thinks in terms of gross booking of cash coming in and going out. That's traditionally been the best accounting system. It's too easy to have errors and pilfering go undetected in the net booking system.

     

    This does not mean that there cannot be better way to account for gift cards and breakage (I hate that term here) other than what the EITF recommends, and I hope other AECMers make some suggestions about this. But your net booking system is unsuitable for a good internal control system of cash and credit sales.

    Thanks,
    Bob Jensen

     

    Bob Jensen's threads on net versus gross accounting abuses ---
    http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm 


     

    "FASB Plans Next Phase of Big Accounting Changes," by Tammy Whitehouse, Compliance Week, May 1, 2015 ---
    https://www.complianceweek.com/blogs/accounting-auditing-update/fasb-plans-next-phase-of-big-accounting-changes#.VUTJepNkZLe

    As it wraps up some major projects in the coming months and pushes through some simplification initiatives, the Financial Accounting Standards Board is starting to wonder: what’s next?

    FASB plans to publish a discussion paper looking for input on what comprehensive accounting standard revisions the board should add to its technical agenda. FASB Chairman Russ Golden wrote recently that the board is looking to sink its teeth into something big.

    “Now that some of our projects are winding down and good progress is being made on our narrow-focus simplification projects, the FASB is determining whether there are big ticket issues we should tackle, and if so, when we should address them,” Golden wrote.

    FASB is working on some clarifications and simplifications to its comprehensive new standard on revenue recognition that are expected to be completed by the end of the year. The board also is expected to finish up its equally huge efforts on leasing and on impairment, classification, and measurement of financial instruments by the end of 2015.

    After those projects are complete, big projects remaining on FASB’s agenda include hedging of financial instruments, accounting for long-duration insurance contracts, and the disclosure framework. The board also has a number of narrow-scope projects, some of them focused on simplification, that are expected to be complete by the end of 2015. Those will touch on income taxes, business combinations, employee benefit plans, share-based payments, gift cards, and other technical corrections and improvements.

    So that leave FASB with some bandwidth heading into 2016. Golden says the board is open to considering issues that are comprehensive, meaning they will impact multiple industries across public and private companies as well as not-for-profit organizations. The consideration coincides with a similar agenda review at FASB’s international counterpart, the International Accounting Standards Board, creating an opportunity for collaboration, he says.

    Continued in article

    Jensen Comment
    In my opinion the most-needed standards revisions are those that call for multi-column financial statements with a goal of providing multiple bottom-line numbers for net earnings. The co-mingling of unrealized value changes with earned revenues has to be changed in some way, and having multiple net earnings numbers is the way to go in my opinion. There are of course other things to consider like having composite multivariate statements that no longer add up all the positive and negative numbers. The challenge here is to be able to efficiently compare composites.

    Bob Jensen's threads on Visualization of Multivariate Data --- http://faculty.trinity.edu/rjensen/352wpvisual/000datavisualization.htm 

    Another area the FASB should look at is sustainability accounting

    Sustainability Accounting --- http://en.wikipedia.org/wiki/Sustainability_accounting

    "Update on Social Accounting - Sustainability Reporting," by Jim Martin, MAAW's Blog, May 1, 2015 ---
    http://maaw.blogspot.com/2015/05/update-on-social-accounting.html

    "The following is a list of articles that appeared in the 2014 issues of Decision Sciences," by Jim Martin, MAAW's Blog, May 1, 2015 --- http://maaw.blogspot.com/2015/05/decision-sciences-2014-update.html
    There are some interesting accounting articles such as the Bai, Hsu and Krishnan article.


    "Review of Accounting Studies 2014 Update,"  by Jim Martin, MAAW's Blog, May 10, 2015 ---
    http://maaw.blogspot.com/2015/05/review-of-accounting-studies-2014-update.html
    A list of article titles  that appeared in the 2014 issues of Review of Accounting Studies


    NYU Stern School of Business Announces New Master of Science in Accounting (38 credits in one year) ---
    http://www.businesswire.com/news/home/20150518005248/en/NYU-Stern-School-Business-Announces-Master-Science#.VVueIUZkZLd


    "We test-drove the Toyota ‘future’ car that Elon Musk hates," by Drew Harwell, The Washington Post, May 11, 2015 ---
    http://www.washingtonpost.com/blogs/the-switch/wp/2015/05/11/we-test-drove-the-toyota-future-car-that-elon-musk-hates/

    You expect a certain sort of magic from a car like Toyota's Mirai, the world's first mass-market, hydrogen-powered all-electric named after the Japanese word for "future." It maxes out at 300 miles, refuels in five minutes and spits out zero emissions except for water, all for tens of thousands of dollars less than Tesla's electric Model S.

    But behind the wheel of the four-door Mirai, which California drivers can buy in October for around $50,000, what you get is something much more, well, boring: a smooth, quiet, mid-size sedan you wouldn't find out of place in a school pick-up circle. And that's what makes it so fascinating.

    Toyota let us test-drive one of its prototypes this week, and it became clear why one of the world's biggest automakers is making a huge bet on hydrogen as a future fuel for the world's roads. The Mirai is responsive, futuristic, fully featured and fun to drive, the kind of car you can see beating gas guzzlers at their own game.

    Continued in article

    Jensen Comment
    This article illustrates how difficult it is to compare the benefits and costs of products subject to enormous technology unknowns for the future. Japanese automobile manufacturers are betting that there will be breakthroughs in the cost of producing hydrogen. Elon Musk is betting on breakthroughs in battery technology such as batteries that do not diminish in cold weather and batteries with longer ranges between charges. Elon Musk also faces a huge problem of dependency on rare earth metals mined in only a few countries outside the USA. Hydrogen cars face unknowns in explosion and fire safety.


    "Sometimes Learning Is Dull," by David  Gooblar, Chronicle of Higher Education, May 13, 2015 ---
    https://chroniclevitae.com/news/1003-sometimes-learning-is-dull?cid=at&utm_source=at&utm_medium=en

    In the quest to motivate our students, there is one approach to definitely avoid. We shouldn’t bend over backward to make sure every single bit of the work they do is fascinating and entertaining. First, that’s not our job. And second, a certain amount of dullness is inevitable in learning any complex subject.

    In last month’s column on student motivation, I noted that faculty tend to rely too much on extrinsic forms of motivation that aren’t nearly as effective as the intrinsic types we usually ignore or take for granted. Extrinsic motivation — like the pursuit of good grades, or the fear of getting bad ones — tends to disappear as soon as the reward or punishment goes away. By contrast, students who are motivated out of genuine interest in a subject are much better learners.

    Our task, I concluded in that column, must be to sell our subjects. From the syllabus to the assignments to our manner in the classroom, I noted, we could make our jobs a lot easier if we thought about how to spark students’ interest. But of course there are limits to that approach.

    Different students are going to find different tasks more or less interesting depending on, well, their interests. Even more important, the learning process is not uniform. Mastering a subject requires students to engage in a variety of learning tasks, and it's natural that some of those tasks will be more interesting than others. Some may be — in fact, almost certainly will be — boring, tedious, and without any apparent payoff. What then? Are there conditions that make it more likely that students will persist through those necessary but tedious tasks? What separates the students who stick with something even when it’s less-than-interesting from those who quickly lose motivation?

    Those were exactly the questions asked by a group of scholars — led by David S. Yeager of the University of Texas at Austin — who published the results of their research last year in the Journal of Personality and Social Psychology. Their paper, “Boring but Important: A Self-Transcendent Purpose for Learning Fosters Academic Self-Regulation,” details the four studies they designed, involving nearly 2,000 high school and college students, which attempted to zero in on the causes of student persistence at uninteresting skill-building tasks.

    Their conclusions are surprising, at least to me. They found that giving students a “self-transcendent purpose for learning” made it much more likely that they would persist through tasks. By “self-transcendent” they mean a purpose not motivated strictly by self-interest. Students who saw their learning as ultimately beneficial to others, to an important cause, or to the world at large stayed with uninteresting schoolwork much longer than those students who saw their learning as only beneficial to themselves.

    - See more at:
    https://chroniclevitae.com/news/1003-sometimes-learning-is-dull?cid=at&utm_source=at&utm_medium=en#sthash.ZnIpLBy3.dpuf

    Jensen Comment
    Two examples from my life are accounting versus auditing courses. I found most of my accounting courses to be exciting while by auditing courses seemed inherently dull. I think accounting was more like mathematics courses in that there were numerical problems that were like puzzles to be solved to derive correct answers. Auditing seemed to have more verbiage and rules memorization without the fun puzzles.

    Course projects seemed to go on and on and soon became dull whether they were worked individually or in teams. My point is that frequent and short tasks for me comprised a less-dull and less-agonizing way to learn. However, tasks with more verbiage and larger in scope are probably more like real life.

    I guess this is why I prefer to write blog modules and journal articles relative to books.

    One way to relieve the boredom of learning is the following:
    Edutainment, Learning Games, and Gamification (including Dominos and Jeopardy and Monopoly and Fiction Writing) ---
    http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment

    However, edutainment is not always win-win. For example, playing learning games in class may force a reduction in breadth and depth of coverage.


    GradeCraft --- https://www.gradecraft.com/

    "Want to Make Your Course ‘Gameful’? A Michigan Professor’s Tool Could Help," by Casey Fabris, Chronicle of Higher Education, May 15, 2015 ---
    http://chronicle.com/blogs/wiredcampus/want-to-make-your-course-gameful-a-michigan-professors-tool-could-help/56649?cid=at&utm_source=at&utm_medium=en

    What if the classroom were more like a video game?

    Barry J. Fishman, a professor of information and education at the University of Michigan at Ann Arbor, would like to help you find out. Mr. Fishman has borrowed elements of gaming to develop GradeCraft, a learning-management system that lets instructors organize their courses in a “gameful” way.

    The system lets students choose their own path through a course, selecting the assignments that interest and challenge them. At its heart is a tool, called the “grade predictor,” that helps to “manage some of the chaos” of such a personalized system. The grade predictor also helps students figure out what they need to do to reach the classroom goals they set for themselves.

    GradeCraft also aims to give students the ability to fail without detrimental consequences. There are many assignments to choose from, so any students who do poorly on one can find plenty of other tasks to redeem themselves. Instructors, meanwhile, can allow students to revise their work. Mr. Fishman’s assessment system treats unsuccessful assignments not as failures but as learning experiences that pull students closer to mastery.

    Today’s students are often made to feel that they can’t afford to make mistakes, Mr. Fishman says. In video games, by contrast, risks don’t come with serious consequences: Maybe you just end up repeating a level. “The idea that, if you played a game and when your character died that was it, that game couldn’t be played anymore, that would not be a very good-selling game,” he says.

    Continued in article

    Edutainment, Learning Games, and Gamification (including Dominos and Jeopardy and Monopoly and Fiction Writing) ---
    http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment


    "ADVICE FROM KEN BAIN (on how to be a great teacher)," by Joe Hoyle, Teaching Blog, May 3, 2015 ---
    http://joehoyle-teaching.blogspot.com/2015/05/advice-from-ken-bain.html

    . . .

    As a true southerner, I try to have one story about everything. Here is my one story about Ken Bain (which I have repeated countless times). That evening, he spoke to about 50-70 faculty members. About halfway through his talk, someone in the back asked: “How can a person become a great teacher?” Bain stopped immediately and responded: “Oh, is that what you want to know? Well, that is an easy question to answer. I can tell anyone how to become a great teacher in just one sentence. All you have to do is get your students to care about what you are trying to teach them.” I continue to believe that is one of the most fabulous pieces of teaching advice that I have ever heard.

    Here is what he had to say recently on NPR:

    http://www.npr.org/sections/ed/2015/05/08/404960905/what-the-best-college-teachers-do

    Continued in article

    Jensen Comment
    I think there are two quite different challenges facing teachers.

    At one extreme there's the challenge of inspiring  students to want to learn the content of a course, especially those who have little interest in the course at the beginning of the term.

    At the other extreme there's the challenge of being a value added teacher to students who are already gung ho to learn the subject matter. The analogy here would be teaching Jimmy Garoppolo (Tom Brady's understudy for quarterback of the New England Patriots) how to be a top quarterback in the NFL. Garoppolo was the 62nd pick of the 2014 NFL draft. There's little doubt that he's talented and gung ho. The challenge for the Tom Brady and the coaching staff on the New England Patriots over the past year has been to perfect what he knows and does when the ball reaches his hands in a real game against a real opposing team.

    Two weeks ago Erika and I were in the office of her spine surgeon in Boston. He always has one or two advanced Harvard School of Medicine residents in both his consulting rooms and in his operating rooms. His challenge is not inspiring these residents to want to learn to be spine surgeons. The challenge is to be of value added to the considerable amount they already know about spine surgery.

    These residents are already spine surgeons. What they are learning from Dr. Stephen Parazin is the advance procedure of breaking a bent  spine into pieces and reassembling a straightened spine without killing or paralyzing the patient. Now that takes more painstaking skill than being an NFL quarterback. And the game is longer. One of my wife's surgeries took 14 hours.

    The trick for Dr. Parazin and Tom Brady is not just being good at what they do but to be value-added teachers of what they do to extremely motivated apprentices.


    May 26, 2015 message from Joe Hoyle

    I just wanted to let a couple of people know that I recently posted a new entry on my teaching blog. The posting is "Prime the Pump--What Does It Take to Become a Great Student?" and can be found at the URL below. It is my 211th posting on this blog.

    Hope your summer is off to a great start!!

    Joe

    http://joehoyle-teaching.blogspot.com/2015/05/prime-pump-what-does-it-take-to-become.htm

    May 26 reply from Bob Jensen

    To study and not think is a waste
    Confucius

    Hi Joe,

    I think what we must realize is that for a student to be great in one class is not necessarily a recipe to be followed in another class. Teachers had different pedagogies and demands. A top student adapts to different teachers to maximize the benefits of taking their courses.

    Greatness is something that cannot be achieved on your own. You have to have help and a whole lot of luck. For example, most good courses entail interactions with other students as well as the instructor. For example, suppose the teacher assigns team projects. Sometimes a student excels in one team but not another team.

    The hardest courses are those that demand creative thinking. For example, ask students why they think long-term purchase contracts should or should not be booked as liabilities and at what amounts. Or ask an even harder question as to why they think the historical cost double-entry accounting model (with accruals) survived the evolution of accountancy for well over six centuries?

    Thanks for making me think,
    Bob

    "Albert Einstein Tells His Son The Key to Learning & Happiness is Losing Yourself in Creativity (or “Finding Flow”) ---
    http://www.openculture.com/2015/05/einstein-tells-his-son-the-key-to-learning-happiness-is-losing-yourself-in-creativity.html

    http://einstein-website.de/biographies/e...

    Hans Albert, the first son of Albert Einstein (1879–1955) and Mileva Maric (1875–1948) was born in Bern in Kramgasse 49 on May 14, 1904.
    Hans Albert’s childhood was a normal one. Einstein, who worked also a lot at home on his physical theories besides his work in the Berne Patent Office liked to take care of his son. Mileva reported: “My husband spends his pastime at home mostly playing with his son.” Einstein and Mileva’s second son Eduard (1910–1965) was born in Zurich in 1910. He was given the nickname “Tete”.

    Einstein and his family moved to Berlin in 1914. As Mileva didn’t like Berlin and the marriage was broken she returned to Zurich with her sons only a short time later. Hans Albert suffered much from the separation of his parents. The marriage was divorced in 1919.
    In Zurich Mileva took care of the education of her sons by herself. Hans Albert became an independent, intelligent and decent young man. Despite the separation Einstein often visited his sons and Mileva in Zurich. He also undertook little journeys with his sons. Hans Albert was a very good student. After passing his A-levels he began to study engineering at the Swiss Technical College (ETH - Eidgenössische Technische Hochschule) in Zurich. He wanted to become an engineer. He ended his study as civil engineer in 1926 and after that worked for some time as designer in the area of steel construction in Dortmund.

    The relationship between father and son had been disturbed for many years. Only after Hans Albert and his first wife, Frieda Knecht, had married in 1927, did the relationship become a normal one. Hans Albert and Frieda had three children. Their first son, Bernhard Caesar, was born in 1930 and two years later the second son Klaus Martin was born. Klaus Martin, however, died already at the age of six on a diphtheria infection. The third child was Evelyn, an adopted child born in 1941. Frieda died surprisingly in 1958 and one year later Hans Albert married the doctor Elizabeth Roboz. This marriage produced no children.

    Albert Einstein and his second wife Elsa emigrated to the United States in the autumn of 1933. There he found a new working place in Princeton, New Jersey. Hans Albert went to the United States on his own in 1937 to look for work and a new home. He went back to Switzerland in January 1938. Only in June 1938 did he continuously stay with his family in the United States. There he worked as a research engineer at the Agricultural Experiment Station in Clemson, South Carolina. Until 1947 he worked as a research engineer at the Californian Institute of Technology in Pasadena. He went to Berkeley with his family in 1947.


    Hans Albert’s brother Eduard began suffering from schizophrenia in 1930. He died in “Burghölzli”, a psychiatric sanatorium in Zurich in 1965. Mileva died in Zurich in 1948.

    Hans Albert worked in Berkeley as professor for hydraulics at the University of California from 1947 to 1971. He gained international fame through his work. The relationship to his father got better and together they travelled through America.
    Shortly before Albert Einstein died in Princeton in 1955, his son Hans Albert had spent many hours on his sickbed.
    Hans Albert died on heart failure on July 26, 1973.

     


    "Six Decades of Research, Teaching, and Participation in the AAA," by  William H. Beaver, The Accounting Review, Volume 90, Issue 3 (May 2015) ---
    http://aaajournals.org/doi/full/10.2308/accr-50999 
    This full article is not open shared.

    Abstract
    These remarks provide some perspective on my six decades of research, teaching, and participation in the AAA. A recurring theme is that my career took several unexpected turns and that my research often had unexpected outcomes. Several areas of research are discussed, including the prediction of financial distress, the information content of earnings announcements, the information content of prices, accounting and market measures of risk, discretion in financial reporting, conservatism, and value relevance of financial statements. Included is a brief summary of some of what I have learned from six decades of teaching. I review some of the major benefits of AAA participation.

    When Mary Barth asked me to present some structured remarks around a topic of my choice, I was at a loss. I considered many possible topics, most of which many of our colleagues could do as well as and most likely better than I. So I chose a topic where there were fewer colleagues who could address the topic—at least with first-hand knowledge. I chose “Six Decades of Research, Teaching, and Participation in the AAA.”1

    Whenever possible, I like to choose a theme around which to present some semi-structured thoughts. Having a theme provides at least the appearance of a structure even if there is little or none. A few years ago, I participated in the AAA Doctoral Consortium and built my remarks around the Neil Diamond hit, “I'm a Believer.” This theme seemed appropriate since my remarks dealt with research in market efficiency. Apparently, the theme I chose was the most remembered part of my talk.

    I have decided to build my current remarks around the Rolling Stones' classic, “You Can't Always Get What You Want” and its lyric “but if you try sometimes, you might find you get what you need,” which underscores that many stages in my career took unexpected turns.

    My remarks also serve a secondary purpose. My research goal has been to combine important conceptual research from related fields with the rich institutional details of the financial reporting environment. The published study is just the tip of the iceberg. These remarks are intended to fill in some of what is below the surface. One aspect of the serendipitous nature of my career is that I was in the right place at the right time. There were research gold nuggets lying on the ground. If I had not picked them up, someone else would have in fairly short order. In the Beginning

    In my family, there was no tradition of attending college. My attending college was a family goal, and the highest level of attainment possible was to attend the University of Notre Dame. I applied only to Notre Dame. To many in my family, the apex of my career was the day I was accepted into Notre Dame. I received an excellent education at Notre Dame. It is one of the three great universities with which I have been fortunate to be associated.

    Continued in article

    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
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm


    "Has the Quality of Accounting Education Declined? by Paul E. Madsen, The Accounting Review, Volume 90, Issue 3 (May 2015) ---
    http://aaajournals.org/doi/full/10.2308/accr-50947  
    This full article is not open shared.

    Abstract
    For decades, prominent members of the accounting community have argued that the quality of accounting education is falling. Support for this claim is limited because of a scarcity of data characterizing the constructs of interest. This study is a comparative evaluation of the quality of accounting education from the 1970s to the 2000s using unique data to quantify education quality for accounting and many comparison disciplines. I find that, compared to most other types of college education, accounting education quality has been steady or increasing over the sample period. However, relative to other business degree programs, the evidence is mixed. The quality of students self-selecting non-accounting business degrees has increased while the quality of accounting students has not. The disparity in student quality is not reflected in the pay received by accounting graduates, which has remained stable relative to the pay received by graduates with other business degrees, although this result is likely influenced by regulatory changes during the 2000s, including Sarbanes-Oxley (SOX). Together, the evidence suggests that the quality of accounting education has not declined rapidly over the last four decades, but in the competition among business degree programs for high-quality students, accounting has underperformed.

    Conclusions
    Since the 1960s, a steady stream of studies and commentaries by accounting academics and practitioners, as well as reports from professional accounting organizations, has argued that the quality of accounting education is declining (AAA 1986; Albrecht and Sack 2000; Baxter 1979; Demski 2007; Fellingham 2007; Mautz 1965; Sunder 2009, 2010, 2011; Weiser 1966; West 2003; Zeff 198
    9). While accounting graduates may have significant shortcomings, it is difficult to judge from existing evidence whether these shortcomings represent serious threats to the health of the accounting profession or whether they represent shortcomings typical of many types of college education. Existing evidence characterizes accounting students and the opinions of many members of the accounting community about accounting education quality with little comparative information from other fields. In this study, I identify indicators of accounting education quality that are observable over 40 years of history and for many comparison disciplines, and test whether accounting education is showing symptoms of declining quality. I focus specifically on several measures of the quality of students selecting into accounting degree programs and the relative incomes of young, college-educated accountants. This approach enables me to quantitatively characterize the quality of accounting education in the 1970s and 2000s and estimate how it has changed relative to other disciplines.

    I find that accounting degree programs have attracted students of remarkably consistent quality from the pool of all college students. These students have had average academic ability but weak soft skills. Non-accounting business programs have attracted students with relatively low, but improving, academic ability and relatively strong, and strengthening, soft skills. I find no evidence of a decline in accounting education quality when accounting education is compared against a typical college education. Instead I find that by many measures and especially when demographic and familial differences are held constant, accounting student quality and the pay of young accounting graduates have improved relative to non-business students and workers. However, given improvements in the quality of non-accounting business students, I find evidence of a decline in the quality of accounting students when they are compared against non-accounting business students. Specifically, over 40 years, changes in the proportion of high-quality students selecting into non-accounting business programs were more favorable than changes for accounting programs by between 1.8 percent and 7 percent after controlling for demographic and familial characteristics. I further find evidence that the pay of young accountants with bachelor's degrees (but not master's degrees) fell relative to the pay of workers in non-accounting business occupations holding bachelor's degrees between 1970 and 2000. However, this decline disappeared by 2010, possibly because SOX increased the demand for accounting labor after 2002.

    Prior research has documented a number of deficiencies in accounting education. My comparative evidence enables me to gauge the magnitude of the threat posed by such deficiencies and suggests that the threat is real, with accounting programs of the 2000s losing between 2 and 7 percent of the high-quality students to other business disciplines that they were able to retain in the 1970s. Declines of this magnitude, while important, do not likely signal the impending collapse of the accounting profession, which is, perhaps, surprising given the seriousness of the deficiencies in accounting education that have been documented previously. Indeed, my findings suggest that accounting education has maintained its appeal over the previous four decades relative to the majority of college majors, likely because all types of college education are imperfect. The survival of accounting education depends upon how well it performs relative to the available alternatives. While this study suggests that accounting has not been an overwhelming winner in the competition among educational alternatives, it has also not been a loser relative to most of the alternatives.

    Jensen Comment
    If this article had been published in the 1990s my first reaction would be a tendency to agree with the conclusions, especially in terms of the 1990s losses of accounting major losses in numbers and qualities to the bubble of finance and technology majors that was happening in the 1990s. However, that bubble burst badly! I think the numbers and the quality came back into accounting programs in the 21st Century.

    The research in this study assumes a stationarity that I do not think exists in the data. It is, in my viewpoint, a study that carelessly overlooks the warnings of Dyckman and Zeff.

    From Two Former Presidents of the AAA
    "Some Methodological Deficiencies in Empirical Research Articles in Accounting." by Thomas R. Dyckman and Stephen A. Zeff , Accounting Horizons: September 2014, Vol. 28, No. 3, pp. 695-712 ---
    http://aaajournals.org/doi/full/10.2308/acch-50818   (not free)

    This paper uses a sample of the regression and behavioral papers published in The Accounting Review and the Journal of Accounting Research from September 2012 through May 2013. We argue first that the current research results reported in empirical regression papers fail adequately to justify the time period adopted for the study. Second, we maintain that the statistical analyses used in these papers as well as in the behavioral papers have produced flawed results. We further maintain that their tests of statistical significance are not appropriate and, more importantly, that these studies do not�and cannot�properly address the economic significance of the work. In other words, significance tests are not tests of the economic meaningfulness of the results. We suggest ways to avoid some but not all of these problems. We also argue that replication studies, which have been essentially abandoned by accounting researchers, can contribute to our search for truth, but few will be forthcoming unless the academic reward system is modified.

    The free SSRN version of this paper is at
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324266

    This Dyckman and Zeff paper is indirectly related to the following technical econometrics research:
    "The Econometrics of Temporal Aggregation - IV - Cointegration," by David Giles, Econometrics Blog, September 13, 2014 ---
    http://davegiles.blogspot.com/2014/09/the-econometrics-of-temporal.html 

    Added Jensen Comment
    I also think that the article ignores the quantity and quality of students that came about by greatly adding the proportion of female graduates in accounting. Relative to other business and technology careers, accountancy is probably offers the best career opportunities on average.


    Nearly half of states expected to confront big budget gaps ---
    http://www.statedatalab.org/news/detail/nearly-half-of-states-expected-to-confront-big-budget-gaps

    By Christina Cassidy (Associated Press), includes “With the nation's economy at its healthiest since the Great Recession, a surprising trend is emerging among the states - large budget gaps. An Associated Press analysis of statehouse finances around the country shows that at least 22 states project shortfalls for the coming fiscal year. … "After all, if a state is grappling with a budget deficit now, with the economic expansion approaching its sixth anniversary, what will be its condition when the next slowdown strikes?" credit analyst Gabriel Petek wrote in a recent report.”
    http://hosted.ap.org/dynamic/stories/U/US_STATE_BUDGETS_DEFICITS_RETURN?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT

    . . .

    The forces at work today are somewhat different than when the recession took hold in 2008. In some states, revenue growth has been stagnant, missing projections and making it difficult to keep pace with expanding populations and rising costs for health care and education. Other states have been hurt by a steep decline in oil prices or seen their efforts to promote growth through tax cuts fail to work as anticipated.

    The result is a nation divided between states such as California and Colorado that are riding the wave of the economic recovery and others such as Illinois and Pennsylvania that appear closer to bust than boom.

    A majority of states have failed to climb back to their pre-recession status, in terms of tax revenue, financial reserves and employment rates, said Barb Rosewicz, who tracks the fiscal health of states for The Pew Charitable Trusts.

    Alabama, for example, faces a $290 million shortfall after a voter-approved bailout expires at the end of the current fiscal year. Projected cuts would create a $27 million hole in the state's court system, forcing more than 600 layoffs and leaving just one juvenile probation officer and two clerical staffers in each county, said Rich Hobson, administrative director for the Alabama Unified Judicial System.

    Continued in article


    Toshiba eyes three-year profit markdown in accounts probe; impact seen limited, shares up ---
    http://www.reuters.com/article/2015/05/14/us-toshiba-outlook-idUSKBN0NY2S020150514

    Jensen Comment
    Toshiba's independent auditor is KPMG.


    States Differ on Retiree Tax Burden ---
    http://www.kiplinger.com/article/retirement/T037-C000-S004-states-differ-on-retiree-tax-burden.html
    Especially note the graph

    Questions in Terms of Retiree Taxation

    1. Among the three Pacific states of the west, what are the two worst states to retire?
      (California and Oregon)
       
    2. Among the non-Pacific western states, what is the worst state to retire?
      (Montana)
       
    3. Among the mid-western states, what are the two worst states to retire?
      (South Dakota and Minnesota)
       
    4. Aomong the eastern states, what are the four worst states to retire?
      (New York, Vermont, Massachusetts, and New Jersey)

    About 15 percent of the 561,000 pensioners in the California Public Employees’ Retirement System live their golden years outside the Golden State, according to a first-of-its-kind analysis of fund data by The Sacramento Bee. The vast majority have flocked to low-tax or no-tax states, creating a veritable river of cash that flows out of California and into cities such as Las Vegas; Reno; Tucson, Ariz.; and Grants Pass, Ore.
    http://www.sacbee.com/news/politics-government/the-state-worker/article20702106.html#storylink=cpy

    California is one of the five least friendly retirement states in terms of taxation
    Among the 41 states with a broad - based income tax, 3 6 offer exclusions for some or all specifically identified state or federal pension income or both , a retirement income exclusion , or a tax credit targeted at the elderly. The District of Columbia provides an exclusion for District and federal pension income . The five states that offer none of these are California, Nebraska, North Dakota, Rhode Island and Vermont. Practice regarding Social Security income varies somewhat from these generalizations. Federal law preempts t he ability of states to tax income from Railroad Retirement.
    http://www.ncsl.org/documents/fiscal/StateTaxOnPensions2015update.pdf

    Bob Jensen's tax helpers ---
    http://faculty.trinity.edu/rjensen/Bookbob1.htm#010304Taxation


    "The New Bookkeeper Is a Robot," by Vipal Monga, The Wall Street Journal, May 5, 2015 ---
    http://www.wsj.com/articles/the-new-bookkeeper-is-a-robot-1430776272

    Five years ago, 80 clerks and salespeople at Pilot Travel Centers LLC spent a combined 3,200 hours a week tracking and paying for orders for thousands of goods, ranging from candy bars to diesel fuel.

    They typed the orders into an accounts-payable database, and printed out thousands of checks to pay suppliers. After slipping them into envelopes and adding postage, they put the checks in the mail.

    “It was just awful,” said David Clothier, treasurer of the Knoxville, Tenn., company, which operates more than 500 Pilot Flying J truck stops nationwide. “There were humans everywhere.”

    Today, a computer “robot”—basically software—automates these tasks. Suppliers send their invoices to Pilot Travel electronically. Its software sends out payments and records every transaction. As a result, the company needs just 10 clerks working a weekly total of 400 hours to pay suppliers.

    Robots are taking over corporate finance departments, performing work that often required whole teams of people. Big companies such as Pilot Travel, New York-based Verizon Communications Inc. and GameStop Corp. , of Grapevine, Texas, are among those using software to automate many corporate bookkeeping and accounting tasks.

    Businesses use these programs to save time and staffing costs. Since 2004, the median number of full-time employees in the finance department at big companies has declined 40% to about 71 people for every $1 billion of revenue, down from 119, according to Hackett Group, a consulting firm.

    Continued in article


    Note that this was not the usual 5-4 USA Supreme Court Liberal-Conservative Split
    "Supreme Court: Maryland has been illegally double-taxing residents who pay income tax to other states," by Bill Turque, The Washington Post, May 18, 2015 ---
    http://www.washingtonpost.com/local/md-politics/supreme-court-rules-maryland-income-tax-law-is-unconstitutional/2015/05/18/1e92ee7a-d16f-11e4-ab77-9646eea6a4c7_story.html?hpid=z1

    A divided Supreme Court said Monday that Maryland’s income tax law is unconstitutional because it does not provide a full tax credit to residents for income tax paid outside the state, a ruling likely to cost Maryland counties and localities across the country millions of dollars in revenue.

    The court voted 5-4 to affirm a 2013 Maryland Court of Appeals decision that the state’s practice of withholding a credit on the county segment of the state income tax violated the Commerce Clause because it might discourage individuals from doing business across state lines.

    In most states, income from elsewhere is taxed both where the money is made and where taxpayers live. To guard against double taxation, states usually give residents a full credit for income taxes paid on out-of-state earnings.

    Maryland residents are permitted to deduct income taxes paid to other states from what they pay in Maryland state income tax. But the state did not allow the same deduction to be applied to a “piggy back” tax that is collected by the state for counties and some cities.

    The ruling means that Maryland taxpayers who tried to claim the credit on their county income tax returns between 2006 and 2014 are likely to be eligible for refunds, which the state Comptroller’s office says could total $200 million with interest.

    Going forward, Maryland residents who pay income taxes to another state on income earned in that state will be able to claim a credit for both the state and county portions of the Maryland tax, costing Maryland an estimated $42 million a year in revenue.

    The ruling is also likely to affect thousands of other cities, counties and states with similar tax laws, including New York, Indiana, Pennsylvania and New York.

    Continued in article


    "What Caused Capitalism? Assessing the Roles of the West and the Rest," by Jeremy Adelman, Foreign Affairs, May/June 2015 ---
    https://www.foreignaffairs.com/reviews/review-essay/2015-04-20/what-caused-capitalism


    "NY Times: The Declining Role Of Professors As Mentors," by Paul Caron, TaxProf Blog, May 14, 2015 ---
    http://taxprof.typepad.com/taxprof_blog/2015/05/ny-times-the-declining-role-.html

    New York Times Sunday Review Essay:  What’s the Point of a Professor?, by Mark Bauerlein (Emory, Department of English):

    In the coming weeks, two million Americans will earn a bachelor’s degree and either join the work force or head to graduate school. They will be joyous that day, and they will remember fondly the schools they attended. But as this unique chapter of life closes and they reflect on campus events, one primary part of higher education will fall low on the ladder of meaningful contacts: the professors. ...

    [W]hile they’re content with teachers, students aren’t much interested in them as thinkers and mentors. They enroll in courses and complete assignments, but further engagement is minimal. ... For a majority of undergraduates, beyond the two and a half hours per week in class, contact ranges from negligible to nonexistent. In their first year, 33 percent of students report that they never talk with professors outside of class, while 42 percent do so only sometimes. Seniors lower that disengagement rate only a bit, with 25 percent never talking to professors, and 40 percent sometimes. ...

    When college is more about career than ideas, when paycheck matters more than wisdom, the role of professors changes. We may be 50-year-olds at the front of the room with decades of reading, writing, travel, archives or labs under our belts, with 80 courses taught, but students don’t lie in bed mulling over what we said. They have no urge to become disciples.

    Sadly, professors pressed for research time don’t want them, either. As a result, most undergraduates never know that stage of development when a learned mind enthralled them and they progressed toward a fuller identity through admiration of and struggle with a role model. ...

    Continued in article

    Jensen Comment About Being Guilty as Charged
    I became enamored with Camtasia as a tool for making videos of computer screen-solving of problems (usually in Excel or MS Access) with my voice narrations on those videos. I captured hundreds of  such videos to help my students learn very technical solutions to things I'd previously explained over and over during office hours. The Camtasia videos were better than having to come see Professor Jensen in his office ---
    http://faculty.trinity.edu/rjensen/HelpersVideos.htm 

    1. Students did not have to take the time and trouble to come to my office. They could view the videos from any networked computer on or off campus.

       
    2. Students could learn better from the videos. At confusing moments they could stop and replay the videos over and over and over until the light went on in their brains such as how to derive the value of an interest rate swap from a yield curve derived from a bond's yield curve ---
      http://faculty.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm#Example5

       
    3. Students who had troubles with multiple problems did not have prioritize which problems to take up with Professor Jensen. They could view the videos of all the assigned problems.
       

    As a result fewer students came to my office hours. At the time it seemed great, because students were learning better and taking up less and less of my time when learning from my videos.  But as I look back, there was considerable loss of serendipity for students in my office. After getting answers to their technical questions the conversations often moved, before my Camtasia videos,  to random questions that were raised about careers and life in general.

    The bottom line is that when I flipped my classrooms using Camtasia videos my role as a mentor diminished. In theory, taking the technical explanations out of my office hours created free time to deal with other mentoring issues.

    But the is little mentoring if students stop coming around.

    My main role as a teacher after that was in creatively designing technical problems and solutions that helped students learn much better than they could learn from textbooks (which in most instances had not yet even caught up with rapidly changing accounting  theory and accounting information systems topics). That is a very important role since both accounting theory and AIS mostly involve very technical issues. But the mentoring role of my academic life imploded shortly before I retired.

    I would certainly do some things differently if I came out of retirement.


    Bitcoin --- http://en.wikipedia.org/wiki/Bit_Coin

    Private Currency --- http://en.wikipedia.org/wiki/Private_currency

    Virtual Currency --- http://en.wikipedia.org/wiki/Virtual_currency

    "USAA creates research team to study use of bitcoin technology," by Gertrude Chavez-Dreyfuss, Reuters, May 10, 2015 ---
    http://www.reuters.com/article/2015/05/10/us-usa-usaa-bitcoin-idUSKBN0NT2C620150510

    (Reuters) - USAA, a San Antonio, Texas-based financial institution serving current and former members of the military, is studying the underlying technology behind the digital currency bitcoin to help make its operations more efficient, a company executive said.

    Alex Marquez, managing director of corporate development at USAA, said in an interview this week that the company and its banking, insurance, and investment management subsidiaries hoped the "blockchain" technology could help decentralize its operations such as the back office.

    He said USAA had a large team researching the potential of the blockchain, an open ledger of a digital currency's transactions, viewed as bitcoin's main technological innovation. It lets users make payments anonymously, instantly, and without government regulation.

    The blockchain ledger is accessible to all users of bitcoin, a virtual currency created through a computer "mining" process that uses millions of calculations. Bitcoin has no ties to a central bank and is viewed as an alternative to paying for goods and services with credit cards.

    "We have serious interest in the blockchain and we think the technology would have an impact on the organization," said Marquez. "The fact that we have such a large group of people working on this shows how serious we are about the potential of this technology."

    USAA, which provides banking, insurance and other products to 10.7 million current or former members of the military, owns and manages assets of about $213 billion.

    Marquez said USAA had no plans to dabble in the bitcoin as a currency. Its foray into the blockchain reflects a trend among banking institutions trying to integrate bitcoin technology into their systems. BNY Mellon and UBS have announced initiatives to explore the blockchain technology.

    Continued in article

    Jensen Comment
    This begs questions about bitcoin and related currency implications for both managerial and financial accounting.

    "Why Bitcoin Could Be Much More Than a Currency:  Bitcoin doesn’t have to replace government-backed money to improve the way we do business online," by Mike Orcutt, MIT's Technology Review, May 8, 2015 --- Click Here
    http://www.technologyreview.com/news/537246/why-bitcoin-could-be-much-more-than-a-currency/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20150508

    Boosters of Bitcoin commonly call the digital currency the future of money. But even if it doesn’t turn out to be, a growing group of investors and entrepreneurs is convinced that the idea at the center of Bitcoin could revolutionize industries that rely on digital record keeping. It might replace conventional methods of keeping track of valuable information like contracts, intellectual-property rights, and even online voting results.

    Bitcoin’s real promise, they say, is not the currency. It’s the underlying technology, in which thousands of computers in a distributed network use cryptographic techniques to create a permanent, public record of every single Bitcoin transaction that has ever occurred (see “What Bitcoin Is and Why It Matters”). Investors are betting that this record-keeping system, called the blockchain, will be valuable for many other things besides tracking payments.

    It’s become common for enthusiasts to compare where Bitcoin is now to where the Internet was in the 1980s and early 1990s. Joel Monegro, a venture capitalist at Union Square Ventures, says the open-source technology that creates the blockchain can be fairly compared to the open-source protocol that is the basis for the Internet, called TCP/IP. Technically a pair of protocols, the Transmission Control Protocol and Internet Protocol, TCP/IP dictates the specific ways data is packaged and routed between computers in a network. For years after TCP/IP was invented, the technology was accessible only to people with a certain level of technical knowledge. Similarly, right now Bitcoin is too arcane for most people and challenging to use even for those who are familiar with it.

    Continued in article

    FASB:  No GAAP for Bitcoins ---
    http://www.bna.com/no-gaap-bit-b17179880752/

    December 17, 2013 reply from Tom Selling

    From the BNA Bloomberg piece:

    "There is no generally accepted accounting principles (GAAP) that specifically addresses financial reporting for bit coins, which means this would fall under other comprehensive basis of accounting (OCBOA), FASB members who weighed in said."

    I don't know if I agree with that assessment — assuming that it is accurately reported. Bit coins are clearly not a currency (yet), since they are not universally (or near universally) accepted as a medium of exchange. Thus, it seems to me that the portion of the ASC dealing with barter credits (starting at ASC 845-10-30-17) covers bit coins. Basically, a sale in exchange for a barter credit can be counted as revenue if the entity has a practice of converting the barter credit into cash in the "near term."

    Am I missing something? I realize that the sponsors (if that's the right word) aspire that bit coins should become a new currency, but right now, they seem to be the functional equivalent of some forms of barter credits.

    Best,
    Tom

    Jensen Reply

    Hi Tom,

    You made a very good point since both bitcoins (and other virtual currencies) and barter credits are sometimes traded on exchanges that set values apart from the fair values of the items traded initially. In the exchange markets values can be complicated by speculators in the virtual currencies and the varying willingness of businesses to accept them.

    The question is whether barter credits meet the definitions of virtual currencies. I'm not familiar enough with barter credits to know that they have the "block chain central bodies" doing the mathematical calculations that, among other things, prevent double spending ---
    http://en.wikipedia.org/wiki/Bitcoin

    Virtual currencies differ from private currencies, and I tend to view barer credits private currencies rather than virtual currencies ---
    http://en.wikipedia.org/wiki/Private_currency
    One key difference is that private currencies tend to trade in terms of specified commodities (such as gold) or regions (such as BerkShares in the Berkshire region of Massachusetts) whereas virtual currencies tend to take on a life of their own. apart from commodities or spending regions.

    It seems like accounting for bitcoins may become less complicated than accounting for private currencies in that bitcoins and other virtual currencies are more like international legal tender than private currencies subject to possible thinner markets such as the market for BerkShares. Of course bitcoins are not yet legal tender per se.

    Barter credit accounting is also complicated by other revenue recognition rules. For example, if barter credits apply to discount coupons then all the complications of revenue accounting for discount coupons enter the picture.

    I don't think the IRS, the FASB, and the IASB have yet dealt with all the complications of private currencies or virtual currencies traded on exchanges and the liquidity risks and speculation risks inherent in such transaction valuations. One complication is that the markets may be very thin such as the BerkShares trading market restricted to vendors in the Berkshires region.

    A Bit of History
    "Accounting For Transactions Involving Barter Credits," by Joel Steinberg, The CPA Journal, July 1999 ---
    http://www.nysscpa.org/cpajournal/1999/0799/departments/D56799.HTM

    Commercial barter transactions have been increasing in recent years, and there are currently a number of commercial barter websites. A barter transaction can involve an exchange of goods or services for other goods or services, or barter credits. In a transaction involving barter credits, a company exchanges an asset such as inventory for barter credits. The transaction might be done directly with another entity that will provide goods or services, or it might be done through a barter broker or network. In a barter network, goods or services are exchanged for barter credits or "trade dollars" that can be used to purchase goods or services from either the barter broker or members of the network. The goods and services to be purchased may be specified in a barter contract or may be limited to items made available by members of the network. Credits for advertising are the most common items received in barter transactions. This is because advertisers can often run additional spots with little additional overhead and are therefore willing to exchange such services for nonmonetary consideration.

    When a company enters into a barter transaction, two things need to be addressed from an accounting standpoint. First, the exchange transaction needs to be accounted for properly. Second, the recorded amount of unused barter credits has to be evaluated at each financial statement reporting date.

    Recording the Exchange Transaction

    Guidance on accounting for the exchange transaction is provided in FASB Emerging Issues Task Force (EITF) Issue No. 93-11, Accounting for Barter Transactions Involving Barter Credits. The task force reached a consensus that APB No. 29, Accounting for Nonmonetary Transactions, should be applied to an exchange of a nonmonetary asset for barter credits. The basic principle of APB No. 29 is that accounting for nonmonetary transactions should be based on the fair values of the assets or services involved. (This excludes situations where the exchange is not the culmination of an earning process, in which case the recorded amount of the asset surrendered should be used.) The transaction is generally measured based on the fair value of the asset surrendered. The fair value of the asset surrendered becomes the cost basis of the asset acquired. A gain or loss should be recognized based on the difference between the fair value of the asset surrendered and its carrying amount.

    The fair value of the asset received in an exchange should be used to record the transaction only if it is more clearly evident than the fair value of the asset surrendered. In the case of barter credits, it should be presumed that the fair value of the asset exchanged is more clearly evident than the fair value of the barter credits received. Accordingly, the barter credits received should be recorded at the fair value of the asset exchanged. That presumption might be overcome if the barter credits can be converted into cash in the near term, or if independent quoted market prices exist for items to be received in exchange for the barter credits.

    When determining the fair value of the asset surrendered, it should be presumed that the fair value of the asset does not exceed its carrying amount, unless there is persuasive evidence supporting a higher value. When determining the value of inventory or other assets exchanged in a barter transaction, skepticism should be used. The reality is that the company would prefer to sell the inventory for cash rather than barter credits. The fact that the company is bartering with inventory could indicate that the company's normal selling price may not be an accurate measure of fair value. This could also raise lower-of-cost-or-market valuation questions about any items remaining in inventory.

    The EITF also concluded that if the fair value of the asset exchanged is less than its carrying amount, an impairment should be recognized prior to recording the exchange. For example, inventory exchanged in a barter transaction should be adjusted to the lower of cost or market prior to recording the barter transaction. In the case of long-lived assets, impairment should be measured and recognized in accordance with SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of.

    Evaluating the Recorded Amount of Barter Credits

    At each balance sheet date, the recorded amount of barter credits should be evaluated for impairment. An impairment loss should be recognized if the fair value of any remaining barter credits is less than the carrying amount, or if it is probable that the company will not use all of the remaining barter credits.

    The first step in evaluating the realizability of barter credits is to evaluate the likelihood that the counterparty will perform. If the credits are directly with another entity that will provide the goods or services, that entity should be evaluated. This can be done by investigating the credit rating of that entity and obtaining references from other companies that have been involved in similar transactions with the entity. If the credits are with a barter broker or network, the credibility and history of the broker or network should be evaluated. This can be done by contacting the International Reciprocal Trade Association (www.irta.net) or similar organizations.

    The next step is to evaluate, based on current and future operations, whether the company is expected to fully utilize the recorded amount of the credits. For example, if a company has available $100,000 of advertising credits, but typically spends only $5,000 on advertising each year, it might take 20 years to fully utilize the credits. Similarly, credits may allow the company to purchase whatever goods or services happen to be available from members of the network, and it may be uncertain whether the company will ever need any of them. Barter credits may also have a contractual expiration date, at which time they become worthless. Finally, some arrangements may require the payment of cash in addition to barter credits, in which case the ability of the company to use the credits may be limited. *

    "SEC Charges Texas Man in Bitcoin-Related Ponzi Fraud:  Agency Warns Investors to Be Wary of Schemes Tied to Virtual Currencies," by Robin Sidel, The Wall Street Journal, July 23, 2013 ---
    http://online.wsj.com/article/SB10001424127887324144304578624221093071466.html?mod=djemCFO_h 

    Regulators on Tuesday charged a Texas man with running a Ponzi scheme promising big returns on the virtual currency bitcoin, and warned individual investors to be wary of similar frauds.

    The move by the Securities and Exchange Commission is the latest action by regulators to rein in suspicious activity associated with virtual currencies.

    "We are concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes in which these currencies are used to facilitate fraudulent, or simply fabricated, investments or transactions," the SEC said in an investor alert.

    In recent months federal and state agencies have started to clamp down on exchanges that trade bitcoin, the most popular virtual currency, by requiring them to follow the same guidelines as traditional money-transmission companies like Western Union Co. WU -0.40% and MoneyGram International Inc. MGI -1.25%

    Bitcoin is a decentralized currency that can be created or "mined" by users. It also can be traded on a number of exchanges or swapped privately among users. Most of the currency is traded on a Tokyo-based exchange called Mt. Gox, where one bitcoin was valued Tuesday at roughly $95.

    The SEC on Tuesday charged Trendon T. Shavers, 30 years old, with raising more than $4.5 million worth of bitcoin from investors who were "falsely" promised a weekly interest rate of 7%. Mr. Shavers, of McKinney, Texas, was the founder and operator of a website called Bitcoin Savings and Trust.

    Continued in article

    Bob Jensen's threads on Ponzi schemes ---
    http://faculty.trinity.edu/rjensen/FraudRotten.htm#Ponzi

    Bob Jensen's Fraud Updates ---
    http://faculty.trinity.edu/rjensen/FraudUpdates.htm


    In Wake of 35% Enrollment Decline, Pace Law School Dean Cuts Faculty Pay 10%, Eliminates Research Stipends And Sabbaticals, And Warns Faculty Not To Speak To Press ---
    http://taxprof.typepad.com/taxprof_blog/2015/05/in-wake-of-35-enrollment-decline-pace-law-school-dean-cuts-faculty-pay-10.html

    Jensen Comment
    Percentage losses of losses of law school students in the range 30%-40% seem to be commonly reported from Maine to California and most states in between. How these law schools deal with the crises varies. It's not common to cut faculty pay. It is common to buy our tenured faculty enabling them to go into early retirement whether they like it or not.

    Bob Jensen's threads on the decline of law schools in the USA are at
    http://faculty.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools
    Ironically my earlier versions of this module focused on overstuffed law schools that were cash cows their universities. Now they've become cash losers in their universities. How times have changed in USA legal education!


    EY:  FASB proposes first round of amendments to its new revenue recognition standard --- Click Here
    http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2984_RevenueRecognition_13May2015/$FILE/TothePoint_BB2984_RevenueRecognition_13May2015.pdf

    What you need to know:

    • The FASB proposed amendments to its new revenue recognition guidance on accounting for licenses of IP and identifying perf ormance obligations .

    • The proposal would clarify that when determining whether to recognize revenue from a license of IP over time , e ntities would consider whether the licensor undertakes activities that significantly affect the IP’s “utility” and generally recognize revenue from licensed IP over time if the IP does not have significant standalone functionality .

    • The proposal would clarify when a promised good or service is separately identifiable ( i.e., distinct within the context of the contract) and would allow entities to disreg ard items that are immaterial in the context of the contract.

    • The IASB plans to propose amendments to its new revenue standard in June 2015 . T he Boards expect the amendments to result in similar outcomes in many circumstances.

    • Comments on the FASB proposal are due by 30 June 2015

    Overview
    The F inancial Accounting Standards Board (F ASB or Board) proposed amendments to its new revenue recognition guidance on accounting for licenses of intellectual property ( IP ) and identifying performance obligations to address implementation questions that were discussed by the Joint Transition Resource Group for Revenue Recognition (TRG) created by the FASB and the International Accounting Standards Board ( IASB ) ( collectively , the Boards) . The amendments are intended to reduce diversity in practice when entities adopt the new revenue standard 1 and decrease the cost and complexity of applying the new guidance.

    Revenue Accounting Controversies --- http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm 


    "Increased Managerial Discretion in Revenue Recognition and the Value Relevance of Earnings," by Linda A. Myers, Roy Schmardebeck, and Timothy A. Seidel, and Michael D. Stuart, SSRN, February 1, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2559438

     Abstract
    Accounting Standards Update (ASU) 2009-13 and ASU 2009-14 allow managers greater discretion in the recognition of revenue for multiple deliverable sales arrangements. We find that the increased discretion afforded by ASU 2009-13 and ASU 2009-14 to accelerate revenue recognition increases the value relevance of earnings. However,
    we find no evidence that managers use this increased discretion to manage earnings or revenue to meet or just beat important benchmarks. These results should be of interest to standard setters and other stakeholders as they evaluate the potential impact of ASU 2014-09, which overhauls and converges U.S. and international revenue recognition standards and provides managers with greater discretion in revenue recognition.

    "'Old Hens Make the Best Soup': Accounting for the Earnings Process and the IASB/FASB Attempts to Reform Revenue Recognition Accounting Standards,"  by Yuri Biondi , Eiko Tsujiyama , Jonathan C. Glover , Nicole Thorne Jenkins , Bjorn Jorgensen , John M Lacey and Richard H. Macve, Accounting in Europe, 2014, Vol. 11, No. 1, 13-33
    Also see SSRN, April 23, 2014 --- http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2427943

    Abstract:
    By developing a synthesis of documents that have been released officially under the revenue recognition project jointly run by the IASB and FASB, this article points out that the earnings generation and realisation process over time (that is to say, the traditional accounting model) is in reality still playing an important role without losing its raison d'être. Although this model is supposed to have been consistently rejected since the outset on the premise of the adoption of the assets and liabilities approach amid the Boards’ attempt to establish a new revenue recognition model, this article aims at reconfirming the significance and validity of this earnings process – that is, the corporate process of generating and realising earnings over time - as the representational focus of accounting for revenue recognition. Through an internal critique , our article summarizes and discusses successive Boards’ proposals under the same asset-liability approach that they have been advocating for revenue recognition. Through a comprehensive comparative analysis (external critique), our article further criticizes the usefulness and feasibility of this approach, especially the transfer-of-control basis of revenue recognition which the Boards propose. It argues then for an alternative approach that combines asset-liability with revenue-expense accounting while re-establishing focus upon the earnings process over time.


    Sustainability Accounting --- http://en.wikipedia.org/wiki/Sustainability_accounting

    "Update on Social Accounting - Sustainability Reporting," by Jim Martin, MAAW's Blog, May 1, 2015 ---
    http://maaw.blogspot.com/2015/05/update-on-social-accounting.html

    A New Assignment for Bob Herz
    From the CFO Journal's Morning Ledger on October 15, 2014

    Sustainability accounting group taps former FASB chairman ---
    http://blogs.wsj.com/cfo/2014/10/21/sustainability-accounting-group-taps-former-fasb-chairman/?mod=djemCFO_h
    Robert Herz, the former chairman of the U.S. Financial Accounting Standards Board, will join the board of the nonprofit Sustainability Accounting Standards Board, which is working to write industry standards for corporate sustainability and environmental reporting, reports CFO Journal’s Emily Chasan. SASB sets voluntary standards for firms to disclose information on material social, governance, energy and environmental issues to investors.

    Free Book
    Bridging the Gap between Academic Accounting Research and Professional Practice
    Edited by Elaine Evans, Roger Burritt and James Guthrie
    Institute of Chartered Accountants in Australia's Academic Leadership Series
    2011
    http://www.charteredaccountants.com.au/academic

    Why is academic accounting research still lacking impact and relevance? Why is it considered so detached and worlds apart from practice and society? These and many more questions are tackled in this new publication commissioned by the Institute and the Centre for Accounting, Governance and Sustainability (CAGS) in the School of Commerce at the University of South Australia.

    Each chapter provides fresh insights from leading accounting academics, policy makers and practitioners. The book triggers a call for action, with contributors unanimously agreeing more collaboration is needed between all three elements that make up the accounting profession - researchers, policy makers and practitioners.

    Jensen Comment
    The other day, following a message from Denny Beresford complaining about how Accounting Horizons is failing it's original mission statement as clearly outlined by its first editor years ago, the messaging on the AECM focused upon the complete lack of practitioners on the AH Editorial Board and tendency to now appoint an editor or pair of co-editors who are in the academy and are far afield from the practicing world.

    Steve Zeff recently compared the missions of the Accounting Horizons with performances since AH was inaugurated. Bob Mautz faced the daunting tasks of being the first Senior Editor of AH and of setting the missions of that journal for the future in the spirit dictated by the AAA Executive Committee at the time and of Jerry Searfoss (Deloitte) and others providing seed funding for starting up AH.

    Bob Jensen's threads on sustainability accounting ---
    http://faculty.trinity.edu/rjensen/Theory01.htm#ResearchVersusProfession


    Computing History
    "This is the first news article ever written about Apple," by Jim Edwards, Business Insider, May 5, 2015 --- 
    http://www.businessinsider.com/first-article-ever-written-about-apple-kilobaud-sheila-clarke-craven-2015-5#ixzz3ZlTTePNs

    Numbers...Easy for the Machine --- http://www.criticalcommons.org/Members/sgahistory/clips/numbers-easy-for-the-machine

    In this clip from Who's Got the Action, a mafia boss describes his UNIVAC mainframe and how it keeps the records of his gambling business.

    Critical Commons (tutorials on varied topics) --- http://www.criticalcommons.org/ 


     

    America’s Politicized Tax Enforcement Is a Harbinger of Decline
    Victor Davis Hansen, Stanford University
    National Review, May 7, 2015
    http://www.nationalreview.com/article/418010/americas-politicized-tax-enforcement-harbinger-decline-victor-davis-hanson

    . . .

    Increasingly in the United States, the degree to which a law is enforced — or whether a person is indicted — depends on political considerations. But when citizens do not pay any income taxes, or choose not to pay taxes that they owe and expect impunity, a complex society unwinds.

    And when the law has becomes negotiable, civilization utterly collapses
     

    Victor Davis Hanson is a classicist and historian at the Hoover Institution, Stanford University, and the author, most recently, of The Savior Generals. 

    Read more at:
    http://www.nationalreview.com/article/418010/americas-politicized-tax-enforcement-harbinger-decline-victor-davis-hanson


    The Most Expensive Wars in United States History --- Click Here
    http://247wallst.com/special-report/2015/05/21/the-most-expensive-wars-in-u-s-history/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=MAY222015A&utm_campaign=DailyNewsletter

    Jensen Comment
    The trend in warfare is the replacement of labor with capital. Soon wars will be fought by robots and drones on both sides of battles. However, we may never be able to eliminate collateral pain, suffering, and death of civilian casualties.

    In recent wars medical (think antibiotics) and transportation (think helicopters) technology for battlefield casualties soared in terms of saving lives. This is a mixed blessing from a financial standpoint since mental and physical casualties returning from war often need subsequent lifetimes of support. It's terrible even today to recall the pain and suffering of soldiers left to die on the battlefields of the USA's Civil War. But a cold and calculating accountant would view this as less costly than treating a generation of casualties on both sides.

    In the article cited above the costs are understated.
    Firstly, there's the lifetime cost of casualties returning from war. Secondly, there's the cost of casualties left to die on historic battlefields --- such as the cost of not having them come home to support their families. The other costs not included in the article are mind boggling.


    How to Mislead With Statistics
    How Much Income is Taxed Around the World
    ---
    http://www.businessinsider.com/oecd-income-tax-wedge-chart-2015-4

    Jensen Comment
    There is some argument for comparing a given nation's income tax rate over time. Most nations have much lower top rates since the 1970s. Many lowered the average rates since the beginning of the 21st Century ---
    http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm

    Comparing income tax rates between any two different countries is almost impossible. Firstly, the definition of "income" may vary greatly, especially income that is not taxed such as muni bond interest is not taxed at the federal level in the USA. Secondly, nations vary greatly with respect to deductions in arriving at taxable income. Thirdly nations vary greatly in terms of preferences for income tax deferrals. In the USA the top 20% of the income earners pay about 80% of the income taxes. This is not the case in most other nations where the middle and lower earners bear some of the income tax burden..

    Comparing taxes for different nations must consider all types of taxes. For example, the USA has no VAT tax that tends to increase prices of goods and services in other nations, particularly in Europe.

    Comparing taxes for different nations should consider the goods and services that these taxes pay for. For example, the USA has only a partial national health care system (Medicare and Medicaid plus ACA subsidies) whereas many other nations have much broader national health care coverage of varying scope and quality.  Some nations provide totally free higher education and control the costs by only allowing a relatively small percentage of the students go to college. Other nations like the USA have nearly universal higher education and training opportunity that is only partly subsidized with taxes.

    Many nations are able to tax less because they live under the umbrella of a neighboring country that pays for most of the national defense. The USA spends a lot defending other nations like South Korea and most nations to the north and south of the USA.


    "A Partial Defense of Our Obsession with Short-Term Earnings," by Sarah Cliffe, Harvard Business Review Blog, May 7, 2015 --- Click Here
    https://hbr.org/2015/05/a-partial-defense-of-our-obsession-with-short-term-earnings?utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&cm_lm=rjensen%40trinity.edu&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&referral=00563&cm_ven=Spop-Email&cm_ite=DailyAlert-050815+%281%29

    Jensen Comment
    I see very little that's good with an obsession for short-term earnings, especially when the major incentive is executive compensation.


    At Texas A&M
    "New Graduates Test the Promise of Competency-Based Education," by Dan Berritt, Chronicle of Higher Education, May 21, 2015 ---
    http://chronicle.com/article/New-Graduates-Test-the-Promise/230315/?cid=at

    . . .

    Same Rigor, Different Method

    The Commerce campus created its program in response to a directive by Rick Perry, then the governor of Texas, for universities to develop bachelor's degree programs that would cost students $10,000.

    Led by the Texas Higher Education Coordinating Board, faculty members and administrators at Commerce collaborated with their peers at South Texas College, analyzing labor-force projections and interviewing local employers. The data suggested that the state would see growing demand for midlevel managers with bachelor’s degrees in manufacturing and the service industry. So the professors and administrators designed a bachelor of applied arts and sciences in organizational leadership, with a largely standardized series of courses and a competency-based model. The development phase attracted money from the Bill & Melinda Gates Foundation and Educause, and the program is now delivered in hybrid form, in person and online, at South Texas and entirely online through Commerce.

    Students pay $750 for a seven-week term, during which they complete as many "competencies" as they can. That means mastering skills like problem-solving and applied research as demonstrated on written assignments or video presentations. The competencies are woven into courses for the major as well as general-education requirements.

    The biggest stumbling block for faculty members was terminology, said Ricky F. Dobbs, a professor of history at Commerce and dean of its University College.

    "You can make the word ‘competency’ mean just about anything," he said. As part of a team of faculty members and administrators that was creating the program, Mr. Dobbs and his colleagues used learning outcomes defined by the Association of American Colleges and Universities to develop a set of broad competencies in areas like change management, organizational behavior, and information literacy. The group of instructors across campuses arrived at a common understanding: Their task was to think about how their various disciplines helped students develop skills.

    To use quantitative data to make decisions, for example, students must read a paper on data analysis in government and watch a video on big data in corporations. On discussion boards, the students answer questions about the material and respond to their peers.

    To finish off that particular competency, students write at least 250 words describing the utility of statistics, offering three examples of how the field "makes a difference in all our lives, all the time." Incorporating personal examples, they must explain how translating data into information can help decision-making.

    The program design is not well suited to traditional-age students, Mr. Dobbs said, because those enrolled must complete assignments largely on their own, often applying material they’ve learned in the workplace. "It’s the same rigor," he said. "It’s simply a different method of presenting it to a different population."

    New Perspectives

    Among the new graduates, several found the experience academically challenging, even occasionally overwhelming.

    R. Michael Hurbrough Sr. said that it was one of the most difficult efforts he’d undertaken, and that he often felt like abandoning it. But he stuck with it, crediting help from Commerce faculty.

    Continued in article

     

    Jensen Comment
    There are controversies that guardhouse lawyers in the academy will raise (follow the comments at the end of this article as they unfold). Firstly, we might challenge the phrase "same rigor." In competency-based examinations there may well be more rigor in terms of technical detail and grading (recall how Coursera flunked almost everybody in a computer science course at San Jose State). But there is much less rigor in terms of class participation such as participation in class analysis of comprehensive cases such as those that are central to the Harvard Business Schools and literally all onsite law schools.

     

    Secondly there are barriers to entry for some professions. To sit for the CPA examination degrees are not necessary but students must complete 150 hours of college credit in universities allowed by state boards of accountancy. Most state boards also have requirements as to the courses that must be passed in selected areas of accounting, business, information systems, and business law. If you must have approved 150 hours of credit why not get a masters degree like most students who now sit for the CPA examination?

     

    I'm convinced that the day will come when a student's transcript will have college degrees replaced by scores of badges of accomplishment in terms of course credits and competency-based badges areas where no courses were taken for credit (such as MOOC courses). But we are a long way off before professions will accept these types of transcripts.

     

    Watch the video at
    https://www.youtube.com/watch?v=5gU3FjxY2uQ
    The introductory screen on the above video reads as follows (my comments are in parentheses)

    In Year 2020 most colleges and universities no longer exist (not true since residential colleges provide so much more than formal education)

     

    Academia no longer the gatekeeper of education (probably so but not by Year 2020)

     

    Tuition is an obsolete concept (a misleading prediction since badges will not be free in the USA that already has  $100 trillion in unfunded entitlements)

     

    Degrees are irrelevant (yeah, one-size-fits-all diplomas are pretty much dead already)

     

    What happened to education?

     

    What happened to Epic?

    Threads on Competency-Based Education ---
    http://faculty.trinity.edu/rjensen/Assess.htm#ConceptKnowledge


    That some bankers have ended up in prison is not a matter of scandal, but what is outrageous is the fact that all the others are free.
    Honoré de Balzac

    Bankers bet with their bank's capital, not their own. If the bet goes right, they get a huge bonus; if it misfires, that's the shareholders' problem.
    Sebastian Mallaby. Council on Foreign Relations, as quoted by Avital Louria Hahn, "Missing:  How Poor Risk-Management Techniques Contributed to the Subprime Mess," CFO Magazine, March 2008, Page 53 --- http://www.cfo.com/article.cfm/10755469/c_10788146?f=magazine_featured
    Now that the Fed is going to bail out these crooks with taxpayer funds makes it all the worse.

    Wall Street Remains Congress to the Core
    The boom in corporate mergers is creating concern that illicit trading ahead of deal announcements is becoming a systemic problem. It is against the law to trade on inside information about an imminent merger, of course. But an analysis of the nation’s biggest mergers over the last 12 months indicates that the securities of 41 percent of the companies receiving buyout bids exhibited abnormal and suspicious trading in the days and weeks before those deals became public. For those who bought shares during these periods of unusual trading, quick gains of as much as 40 percent were possible.
    Gretchen Morgenson, "Whispers of Mergers Set Off Suspicious Trading," The New York Times, August 27, 2006 ---
    Click Here

    "Why Are Some Sectors (Ahem, Finance) So Scandal-Plagued?" by Ben W. Heineman, Jr., Harvard Business Review Blog,  January 10, 2013 --- Click Here
    http://blogs.hbr.org/cs/2013/01/scandals_plague_sectors_not_ju.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

    Jensen Comment
    The Big Banks and Wall Street in general will not learn until people are sent to jail. Until then the fines are just company money.

    From the CFO Journal's Morning Ledger on May 21, 2015

    Banks to pay $5.6 billion in probes
    http://www.wsj.com/articles/global-banks-to-pay-5-6-billion-in-penalties-in-fx-libor-probe-1432130400?mod=djemCFO_h
    The five big banks will plead guilty to criminal charges to resolve a U.S. investigation into whether traders colluded to move foreign-currency rates for their own benefit. Four of the banks, Barclays PLCCitigroup Inc., J.P. Morgan Chase & Co. and Royal Bank of Scotland Group PLC, pleaded guilty on Wednesday to conspiring to manipulate prices in the $500 billion-a-day market for U.S. dollars and euros, authorities said. The fifth bank, UBS AG, received immunity in the antitrust case but pleaded guilty to manipulating the London interbank offered rate, or Libor. It will pay a fine for violating an earlier accord meant to resolve those allegations of misconduct.

    From the CFO Journal's Morning Ledger on May 21, 2015

    Barclays fined for alleged manipulation of ISDAfix.
    Barclays PLC
    was fined $115 million by the Commodity Futures Trading Commission, which said in a statement that Barclays’s U.S. traders attempted to manipulate the U.S. dollar iteration of ISDAfix, or the International Swaps and Derivatives Association Fix, between 2007 and 2012. A group of other financial institutions including interdealer broker ICAP PLC have said they are under investigation for alleged manipulation of the ISDAfix rate.

    From the CFO Journal's Morning Ledger on May 21, 2015

    SEC votes to propose new asset-manager reporting rules
    http://www.wsj.com/articles/sec-votes-to-propose-new-mutual-fund-reporting-requirements-1432136458?mod=djemCFO_h
    The Securities and Exchange Commission voted 5-0 to significantly boost the volume of data the agency collects from the $60 trillion asset-management industry. The proposal includes requirements that funds report on their use of complex and potentially risky derivatives products, data that aren’t frequently or consistently captured by the SEC.

    Timeline of Derivatives Instruments Frauds ---
    http://faculty.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

    Rotten to the Core ---
    http://faculty.trinity.edu/rjensen/FraudRotten.htm


    From the CFO Journal's Morning Ledger on May 29, 2015

    Preparing to Adopt FASB’s Amended Consolidation Model

    The FASB’s amended consolidation model significantly changes the consolidation analysis required in ASC 810 and could result in significant impacts to the consolidation conclusions of reporting entities. Preparing to adopt the amendments include several steps, such as validating and updating an organization’s inventory of legal entities and updating its financial statement disclosures. Continue »

    Read more Deloitte Insights »


    From the CFO Journal's Morning Ledger on May 28, 2015

    Antitrust lawsuits target Blue Cross and Blue Shield
    http://www.wsj.com/articles/antitrust-lawsuits-target-blue-cross-and-blue-shield-1432750106?mod=djemCFO_h
    Lawsuits advancing in federal court in Alabama allege that the 37 independently owned Blue Cross and Blue Shield health insurers, which cover about a third of Americans, are functioning as an illegal cartel. The antitrust suits allege that the insurers are conspiring to divvy up markets and avoid competing against one another, driving up customers’ prices and pushing down the amounts paid to doctors and other health-care providers.


    Increasing Cash to Shareholders

    From the CFO Journal's Morning Ledger on May 26, 2015

    Long-term spending plans are falling by the wayside as more corporate cash is finding its way into investors’ pockets, and it isn’t just at the companies that have been targeted by activist campaigns, report Vipal Monga, David Benoit and Theo Francis on the WSJ’s front page today. More businesses sitting on large piles of extra cash are deciding to satisfy investors by giving some of it back. Rock-bottom interest rates have made it cheap to borrow to buy back shares, which can boost a company’s stock price. And technology-driven productivity gains are enabling some businesses to do more with less.

    But activists have certainly played a role in many cases, particularly at technology firms. Activists like Carl Icahn and Jana Partners have rattled tech giants including Apple Inc., Microsoft Corp. and Qualcomm Inc. in recent years, urging strategy shifts or financial moves to boost share prices. Their biggest complaints: excessive spending on pet technology projects and unproductive acquisitions.

    While some firms have just surrendered to activist demands, others are fighting back with tactics like granting founders special stock that gives them control over key decisions, the WSJ reports. To some in Silicon Valley, the wave of activism imperils the innovation machine that made Silicon Valley the envy of the world. “Public companies are being basically forced by pressure from activists and their investors to give back huge amounts of cash instead of investing it in their business,” said Marc Andreessen at a Fortune magazine conference in April.


    Increasing Cash to Shareholders
    http://www.pwc.com/us/en/cfodirect/publications/in-brief/fasb-disclosure-requirements-for-insurers.jhtml?display=/us/en/cfodirect/publications/in-brief


    From the CFO Journal's Morning Ledger on May 26, 2015

    EY knew of Wal-Mart Mexico bribery allegations, group claims
    http://www.wsj.com/articles/shareholder-group-ctw-says-ernst-young-knew-about-wal-mart-mexico-bribery-allegations-1432580954?mod=djemCFO_h
    A small shareholder group, CtW Investment Group, says Wal-Mart Stores Inc.’s longtime auditor, Ernst & Young, knew about possible bribery in Mexico long before the company disclosed it to U.S. authorities. CtW said in a letter to the Public Company Accounting Oversight Board that Ernst & Young likely should have reported the suspected bribery to the SEC and should be investigated by the PCAOB, because the acts under investigation and how the investigation was handled could have affected the retailer’s financial statements.

    Bob Jensen's threads on EY  are at --- http://faculty.trinity.edu/rjensen/Fraud001.htm


    Conflict Mineral --- http://en.wikipedia.org/wiki/Conflict_resource

    From the CFO Journal's Morning Ledger on May 26, 2015

    Conflict Minerals Rule: A View of Ongoing Compliance
     
    http://deloitte.wsj.com/cfo/2015/05/26/conflict-minerals-rule-a-view-of-ongoing-compliance/
    As the SEC’s Conflict Minerals Rule approaches its second filing deadline in June, many registrants continue to face the challenge of gaining adequate visibility into their supply chains. Learn how documentation processes are being impacted by the rule and how ongoing legal action is impacting compliance ahead of Year Two filings.
    Continue »

    Read more Deloitte Insights »

     


     

    Cadillac Tax --- http://en.wikipedia.org/wiki/Cadillac_insurance_plan
    President Obama exempted trade unions for political purposes

    From the CFO Journal's Morning Ledger on May 26, 2015

    Good morning. A provision of Obamacare set to take effect in 2018 will slap a hefty tax bill on employee health plans that exceed certain cost thresholds, and that has CFOs looking at a range of alternatives, from scaling back current offerings to eliminating the plans altogether, CFO Journal’s Kimberly S. Johnson and Maxwell Murphy report.

    “To me, it’s a penalty for giving our employees a generous benefits package,” said Action Environmental Group Chief Financial Officer Brian Giambagno. Action Environmental briefly considered doing away with employee health coverage altogether to save money. “I’d be lying if I said we haven’t had that discussion,” said Mr. Giambagno.

    Bob Jensen's universal health care messaging --- http://faculty.trinity.edu/rjensen/Health.htm


    From the CFO Journal's Morning Ledger on May 21, 2015

    Farm bust puts Deere in the headlights
    http://www.wsj.com/articles/farm-bust-puts-deere-in-the-headlights-1432230800?mod=djemCFO_h
    A reliance on farmers helped Deere & Co. until recently, but has come back to haunt it, Ahead of the Tape’s Spencer Jakab. Investors will get an update Friday on how bad Deere’s damage is. Consensus expectations are for it to report earnings of $1.56 a share for the fiscal second quarter through April, down sharply from $2.65 a year earlier.


    Denmark Preparing to be the First to Eliminate Cash ---
    http://armstrongeconomics.com/archives/30671

    Jensen Comment
    What a marvelous weapon for the war on drugs and crime in general. However, don't hold your breath for cash to be eliminated in the USA. There are two many vested interest in cash, including parties on both sides of transactions in the $2 trillion annual underground economy where nothing gets reported to government, including those cash wages to maids cleaning houses and newly disclosed cash payments to people to riot in Ferguson ---
    http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm


    Arizona State's Freshman Year MOOCs Open to All With Final Examinations for Inexpensive Credits

    "Arizona State and edX Will Offer an Online Freshman Year, Open to All," by Charles Huckabee, Chronicle of Higher Education, April 24, 2015 ---
    http://chronicle.com/blogs/ticker/arizona-state-and-edx-will-offer-an-online-freshman-year-open-to-all/97685?cid=wc&utm_source=wc&utm_medium=en

    Arizona State University is joining with the MOOC provider edX in a project that it says “reimagines the freshman year” and opens a new low-cost, low-risk path to a college degree for students anywhere in the world.

    The project, called the Global Freshman Academy, will offer a set of eight courses designed to fulfill the general-education requirements of a freshman year at Arizona State at a fraction of the cost students typically pay, and students can begin taking courses without going through the traditional application process, the university said in a news release on Wednesday. Because the classes are offered as massive open online courses, or MOOCs, there is no limit on how many students can enroll.

    . . .

    The courses to be offered through the Global Freshman Academy are being designed and will be taught by leading scholars at Arizona State. “These courses are developed to their rigorous standards,” Adrian Sannier, chief academic officer for EdPlus at ASU, said in the release. “Course faculty are committed to ensuring their students understand college-level material so that they can be prepared to successfully complete college.”

    Students who pass a final examination in a course will have the option of paying a fee of no more than $200 per credit hour to get college credit for it.

    Mr. Agarwal and Mr. Crow are scheduled to formally announce the project at a conference in Washington on Thursday.

     

    Jensen Comments and Questions
    The real test is how well these credits are accepted by other universities for transfer credit. It probably will not be an issue for graduate school admission since there are three more years of more traditional onsite or online credits. But it could be a huge issue for example when a student takes the first year of ASU MOOC credits and then tries to have these credits accepted by other universities (such as TCU) that still resist accepting any online courses for transfer credit.

    Question
    What are the main differences between MOOC online credits and traditional online credits such as those documented at the following site?
    http://faculty.trinity.edu/rjensen/CrossBorder.htm

    For example, at many universities these days there are multiple sections of a course where some sections are onsite and some are online. Often they are taught by the same instructor. The online sections are usually as small or even smaller than the onsite sections because online instructors often have more student interactions such as in instant messaging not available to onsite students ---
    http://en.wikipedia.org/wiki/Instant_messaging

    Answer
    These are the following obvious differences between MOOC online credits and traditional online credits.

    The bottom line is that it appears that the ASU freshman year MOOC course credits will be little more than competency-based credits. This will be controversial since many faculty in higher education feel like credits in general education core  courses should  entail class participation, including first-year core courses. For example, at Trinity University there is a first-year seminar that all new students take in very small classes that require a lot of class participation in discussions of assigned readings and the writing of term papers. I think some sections of this seminar don't even have examinations. I did not have examinations when I taught a section of this seminar for two years.

    In traditional large lectures courses on campus students typically are broken out into accompanying recitation sections intended for class participation and interactions with a recitation instructor.

    Jensen Note
    I never anticipated competency-based credits in the first-year of college. I think these will be wildly popular in advanced-level training courses such as a CPA examination review course in the final (fifth) year of an accounting program. Using competency-based courses for first-year general education courses is more controversial.

    Bob Jensen's threads on competency-based credits ---
    http://faculty.trinity.edu/rjensen/Assess.htm#ConceptKnowledge


    EY:  Technical Line - Consolidation considerations for asset managers - FIN 46(R) to ASU 2015-02 ---
    http://www.ey.com/UL/en/AccountingLink/Current-topics-Consolidation


    "EY and Microsoft join forces," Economia, April 23, 2015 ---
    http://economia.icaew.com/news/april-2015/ey-and-microsoft-join-forces 


    From the CPA Newsletter on May 28, 2015

    USA Retirement savings, pensions lacking among workers
    http://www.reuters.com/article/2015/05/27/usa-economy-retirement-idUSL1N0YI1E420150527
    Nearly one-third of U.S. workers have no pension or retirement savings, according to a Federal Reserve survey. Of more than 5,800 respondents, 38% intend to work as long as possible or do not plan to retire. Reuters (5/27)


    From the CPA Newsletter on May 23, 2015

    Does your internship program follow the law?
    There are six criteria that the Department of Labor uses to determine whether interns count as employees or volunteers with respect to wage and hour laws. Companies need to adhere to all six guidelines if they wish to offer unpaid internships. American City Business Journals (5/20)
    http://www.bizjournals.com/bizjournals/how-to/human-resources/2015/05/what-to-know-about-unpaid-internships.html


    IRS has updated the rules that apply to all accounting method changes

    From the CPA Newsletter on May 21, 2015

    For the first time in many years, the IRS has updated the rules that apply to all accounting method changes. This article examines these new procedures, including different rules that now apply to method changes for taxpayers under IRS examination. The Tax Adviser (5/20
    http://www.aicpa.org/Publications/TaxAdviser/2015/may/Pages/Tax_Clinic_10.aspx 15)


    From the CPA Newsletter on May 1, 2015

    FASB proposes breakage guidance for certain prepaid cards
    http://www.journalofaccountancy.com/news/2015/apr/gift-card-revenue-breakage-201512251.html
    The Financial Accounting Standards Board issued a proposal Thursday addressing diversity in practice related to derecognizing liabilities related to certain unredeemed prepaid cards. Journal of Accountancy online (4/30)


    From the CPA Newsletter on April 25, 2015

    Rethinking the 4% rule
    http://www.cnbc.com/id/102605878
    Financial advisers once told retirees that they could use 4% of their savings a year. But lower interest rates have affected investment returns, and life expectancy is climbing. "Retirement readiness is too complex to be codified by a simple rule of thumb," a recent PwC study found. CNBC (4/22)

    From the CPA Newsletter on April 25, 2015

    The high cost of using credit cards
    http://www.theatlantic.com/business/archive/2015/04/against-credit-cards/390846/
    Research has found that people are willing to spend up to double amount for the same item when using a credit card as opposed to cash. Credit card debt climbed 1,500% per capita from 1980 to 2010. The Atlantic online (4/23

    From the CPA Newsletter on April 25, 2015

    IRS commissioner responds to report about customer service
    http://blogs.wsj.com/washwire/2015/04/22/gop-report-irs-budget-move-plagued-tax-filing-season/
    The Internal Revenue Service diverted $134 million away from its customer-service activities this year, causing trouble for taxpayers, according to a report by House Republicans. IRS Commissioner John Koskinen said the cutbacks were necessary to pay for other activities at the agency, which had its funding reduced by $346 million this year.
    The Wall Street Journal (tiered subscription model)/Washington Wire
    (4/22)

    From the CPA Newsletter on April 25, 2015

    Seeking a solution to the IRS service problem
     http://blog.aicpa.org/2015/04/help-us-improve-the-service-in-the-internal-revenue-service-.html#sthash.D6PQsg1C.68jmeAMM.dpbs
    Long hold times, delayed responses and other frustrations with the IRS have mounted as a result of declining resources. The AICPA is asking members to weigh in to bolster advocacy efforts to address the problem. AICPA Insights (4/23)

    From the CPA Newsletter on April 25, 2015
    Diversity is truly about seeing everyone’s uniqueness as a beautiful gift to be nurtured and developed, not changed to conform to some arbitrary standard.
    ---
    Mary-Frances Winters, president and founder of The Winters Group


    "Chinese Anti-Corruption Campaign Targets M.B.A. Programs," by Laura Farrar, Chronicle of Higher Education, April 27, 2015 ---
    http://chronicle.com/article/Chinese-Anti-Corruption/229677/?cid=at

    A recent decision by the Chinese government to limit who can enroll in executive M.B.A. courses threatens a lucrative set of partnerships operated by top American business schools here.

    The new rules bar government officials and managers of state-owned enterprises, known as SOEs, from attending expensive courses "or other training programs, which seemingly for study, are actually for networking and making friends." The rules explicitly mention executive M.B.A. programs.

    The ban is part of a sweeping campaign by Xi Jinping, China’s president, to stamp out corruption and extravagant spending by government officials. While the anti-graft effort has previously focused on a handful of Chinese university officials, education experts say the new ban represents the first time Western university programs have been affected, if indirectly.

    The ban affects only certain American programs, but the sweep and unexpected nature of the edict show the risks foreign universities face operating in China, where regulations can change quickly for unclear reasons.

    "The education sector is not immune from all of the roller-coaster rides of cultural differences and government interventions and regulatory issues that don’t make sense from a Western perspective," says Ira Cohen, executive vice president of Universal Ideas, an education consulting company in China, and former executive director of Rutgers’s executive-education programs there.

    During the last 10 years or so, there has been an explosion of executive-education and management programs in China, some run by business schools of prestigious American universities, including Harvard, Northwestern, Duke, and the University of Maryland. The schools have been trying to take advantage of a huge market where an affiliation with a top-notch global university is highly coveted.

    So far, China’s own programs have been hit the hardest by the rule; The Wall Street Journal reports that enrollment is down 15 to 30 percent for programs at some of China’s top business schools.

    Continued in article

    Bob Jensen's Fraud Updates --- http://faculty.trinity.edu/rjensen/FraudUpdates.htm


    Jensen Comment
    Given the explosion in identity theft IRS frauds, taxpayers like me will probably never file electronically in the future. Here's some advice on how to file paper IRS forms.

    Form the CPA Newsletter on May 8, 2015

    IRS updates list of private designated delivery services
    http://www.journalofaccountancy.com/news/2015/may/private-delivery-service-irs-designation-201512287.html
    For the first time since 2004, the Internal Revenue Service has updated the list of private delivery services (PDSs) that qualify under the mailbox rule of Sec. 7502. Returns are treated as timely filed if they are timely sent via a designated PDS. The notice also revises the rules for determining the postmark date for documents delivered by a designated PDS. Journal of Accountancy online (5/7)

    . . .

    Seven United Parcel Service (UPS) delivery services are designated PDSs on the list. They are UPS Next Day Air Early A.M. (new), UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

    The notice states that only the 15 delivery services on the list are designated PDSs and that taxpayers should be aware that using any other FedEx or UPS service will not satisfy the mailbox rule. The list is effective May 6, and the IRS will not update it unless a PDS is removed from or added to the list or if the process to apply to be a PDS is changed. (Presently, applicants must apply by June 30 to be approved for the next filing season, and the notice contains a new address to send applications.)

    Continued in article

    Jensen Comment
    I think I will still rely upon certified U.S. mail to verify that my tax returns were received by the IRS.

    No more electronic filing for me --- ever!

    EFPTS:  Electronic Federal Tax Payment System® tax payment service is provided free by the U.S. Department of the Treasury ---
    https://www.eftps.gov/eftps/


    PwC Comperio is now called Inform ---
    http://www.pwc.com/gx/en/comperio/index.jhtml

    Our Comperio accounting and auditing research library is merging with another PwC-developed accounting and auditing research library named Inform to form a single global platform. The combined tool will be named ‘Inform’ and can be found at inform.pwc.com. Inform is just as intuitive as Comperio, and includes features to make it faster and easier than ever to get the content you need. These features include:

     

    Jensen Comment
    I hate it when companies change the long-accustomed names of services. My grandfather used to say:  "I yust learn't to say yam when they started calling it yelly."


    Nate Silver Has Egg on His Face (again)
    Nate Silver --- http://en.wikipedia.org/wiki/Nate_Silver

    How to Mislead With Statistics
    Nate Silver fared terribly in Thursday's UK election: In his pre-election forecast, he gave 278 seats to Conservatives and 267 to Labour. Shortly after midnight, he was forecasting 272 seats for Conservatives and 271 for Labour. But when the sun rose in London on Friday, Conservatives had an expected 329 seats, against Labour's 233.
    http://www.politico.com/blogs/media/2015/05/nate-silver-polls-are-failing-us-206799.html

    GIGO --- http://en.wikipedia.org/wiki/Garbage_in,_garbage_out

    What We Got Wrong In Our 2015 U.K. General Election Model ---
    http://fivethirtyeight.com/datalab/what-we-got-wrong-in-our-2015-uk-general-election-model/

    No calculations are necessary to see that we missed badly in our forecast of the U.K. election.

    Our final forecast was for the Conservatives to win an expected 278 seats (or somewhere in the range of 252-305 seats), Labour to win 267 (240-293), the Scottish National Party 53 (47-57), and the Liberal Democrats 27 (21-33). The actual final results are 330 seats for the Conservatives, 232 for Labour, 56 for the SNP and just eight for the Lib Dems. Even though we took (or at least tried to take) into account the scale of historical poll misses in the U.K., our prediction intervals fell short of including the result for all of these parties except the SNP.

    The only thing we can say on our behalf is that in comparative terms, our forecast was middle of the pack, as no one had a good pre-election forecast. Of course the national exit poll, while not as close to the target as in 2010, was far better than any pre-election forecast.

    Continued in article

    Jensen Comment
    Although the Nate Silver team this time mostly blames bad polling data, in previous election failures (such as when Scott Brown soared in late voting decisions of the public when winning the Senate seat vacated by Ted Kennedy) to nonstationarity of voting preferences as the election gets under way. 

    Accountics scientists similarly assume stationarity in questionable circumstances. This point was recently driven home very forcefully by former AAA Presidents Tom Dyckman and Steve Zeff ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm


    "Daft on graft," The Economist, May 8, 2015 ---
    http://www.economist.com/news/leaders/21650547-hard-line-commercial-bribery-right-system-becoming-ridiculous-daft-graft

    A hard line on commercial bribery is right. But the system is becoming ridiculous.

    IN 2008 Siemens, a German conglomerate, was fingered for handing out bribes in emerging markets. It has since spent a staggering $3 billion on fines and internal investigations to atone for its sins. Half of that has gone to advisers of one sort or another. Walmart, an American retailer, will soon have spent $800m on fees and compliance stemming from a bribery investigation in Mexico. The most complex bribery probes used to take three years. Now they last an average of seven.

    In recent years lots of big economies, from Britain to Brazil, have followed America’s lead in tightening anti-bribery enforcement (see article). Offences that once drew a slap on the wrist now attract fines in the hundreds of millions of dollars as well as prison terms for palm-greasing managers. It is right that bribery should be punished. The economic effects of graft are insidious. Bribery distorts competition and diverts national resources into crooked officials’ offshore accounts. But the cost and complexity of investigations are spiralling beyond what is reasonable, fed by a ravenous “compliance industry” of lawyers and forensic accountants who have never seen a local bribery issue that did not call for an exhaustive global review; and by competing prosecutors, who increasingly run overlapping probes in different countries. In this section

    The dawn of artificial intelligence Jokowi’s to-do list Fixing America’s inner cities The fintech revolution Daft on graft

    To stop a descent into investigative madness, enforcement needs to be reformed in four ways. First, regulators should rein in the excesses of the compliance industry and take into account the cost to firms of sprawling investigations. When firms admit to having uncovered bribery among their managers, regulators expect them to investigate themselves. The authorities should tell them what level of investigation they want so that companies are not overzealous out of fear of seeming evasive. This is slowly starting to happen, with officials telling firms they should not. “aimlessly boil the ocean”.

    . . .

    As corrosive as bribery is, the response must be proportionate. Investigations that drag on are a waste of management and public resources. The starting-point for up to half of all cases is a firm’s voluntary disclosure, but if costs continue to rise then firms may be more tempted to bury their bad news. Anti-corruption campaigners would have nothing to cheer if the cure ended up being more harmful than the disease.

    Bob Jensen's Fraud Updates --- http://faculty.trinity.edu/rjensen/FraudUpdates.htm


    Junk (High Yield) Bond --- http://en.wikipedia.org/wiki/High-yield_debt

    "Why Chicago’s Bonds Are Junk." The Wall Street Journal, May 13, 2015 ---
    http://www.wsj.com/articles/why-chicagos-bonds-are-junk-1431559103?tesla=y

    Illinois’s domination by public unions has the state dancing on the edge of fiscal freefall. The state Supreme Court ruled last week that Springfield can’t alter pension benefits, prompting Moody’s this week to downgrade the debt of the city, its public schools and park district all to junk status. Now the Chicago Teachers Union wants to make another contribution to the collapse.

    In May the union filed an unfair labor practice complaint with the Illinois Educational Labor Relations Board, accusing the school district of failing to bargain in good faith and rejecting mediation to reach a new contract. The union’s complaint? The school district wants teachers to chip in more for their pensions. The horror.

    The dispute goes back to 1981, when in lieu of larger pay raises the district agreed to pick up seven percentage points of the teachers’ contribution of 9% of their salaries to their pensions. This is on top of the district’s own contribution. Teachers have since become accustomed to paying only 2% of their salaries for pensions, about $1,496 a year on average.

    Many current teachers weren’t in the school system in 1981, but they like the perk of paying a fraction of their pension cost. Who wouldn’t? The 2% contribution is far less than the 9% contributions made by many other public employees in Illinois, let alone the 6.2% payroll tax for Social Security or what private workers pay into 401(k)s.

    Continued in article

    Jensen Comment
    One reason the bonds are in junk status is that Chicago itself is on the verge of Detroit-like bankruptcy. What hurt Chicago's bond market is the precedent set in Detroit that pensions take priority over bond payments such that Chicago's bond investors face high risks of losing all or most of their investments.


    From the From the CFO Journal's Morning Ledger on May 20, 2015

    Management accounting skills found lacking in entry-level talent
    http://blogs.wsj.com/cfo/2015/05/19/management-accounting-skills-found-lacking-in-entry-level-talent/?mod=djemCFO_h
    Accounting and finance majors need a broader range of skills to get a foot in the door, particularly if they aspire to be finance chiefs, Ms. Johnson reports. The Institute of Management Accounts considers the situation dire, calling it acompetency crisis,” because many college graduates are ill-equipped to tackle modern-day corporate challenges.

    Jensen Comment
    This article is a bit misleading in that there are so few entry-level jobs for managerial accounting graduates. For decades employers seeking managerial accountants require experience that most newly-minted college graduates lack. There are low-level accounting jobs such as when small firms are seeking employees with skills in Quickbooks or other accounting software. But these are not managerial accountants from major universities who usually have zero training skills in Quickbooks.

    Most managerial accounting jobs are filled by employees who have experience, including public accounting employees who have 1-10 years of experience in public accounting firms. Other managerial accounting jobs are filled by employees who have been working in AIS  and are moving up to advanced levels of managerial accounting.

    Bob Jensen's threads on how to save managerial accounting courses in the Academy ---
    http://faculty.trinity.edu/rjensen/Theory02.htm#ManagementAccounting


    "Better Than Raising the Minimum Wage Help Americans who need it with a major, carefully crafted expansion of the Earned Income Tax Credit," by Warren Buffet, The Wall Street Journal, May 21, 2015 ---
    http://www.wsj.com/articles/better-than-raising-the-minimum-wage-1432249927

    . . .

    In my mind, the country’s economic policies should have two main objectives. First, we should wish, in our rich society, for every person who is willing to work to receive income that will provide him or her a decent lifestyle. Second, any plan to do that should not distort our market system, the key element required for growth and prosperity.

    That second goal crumbles in the face of any plan to sizably increase the minimum wage. I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.

    The better answer is a major and carefully crafted expansion of the Earned Income Tax Credit (EICC), which currently goes to millions of low-income workers. Payments to eligible workers diminish as their earnings increase. But there is no disincentive effect: A gain in wages always produces a gain in overall income. The process is simple: You file a tax return, and the government sends you a check.

    In essence, the EICC rewards work and provides an incentive for workers to improve their skills. Equally important, it does not distort market forces, thereby maximizing employment.

    The existing EICC needs much improvement. Fraud is a big problem; penalties for it should be stiffened. There should be widespread publicity that workers can receive free and convenient filing help. An annual payment is now the rule; monthly installments would make more sense, since they would discourage people from taking out loans while waiting for their refunds to come through. Dollar amounts should be increased, particularly for those earning the least.

    There is no perfect system, and some people, of course, are unable or unwilling to work. But the goal of the EICC—a livable income for everyone who works—is both appropriate and achievable for a great and prosperous nation. Let’s replace the American Nightmare with an American Promise: America will deliver a decent life for anyone willing to work.

    Jensen Comment
    The famous conservative economist Milton Friedman was an advocate replacing welfare with a "negative income tax" that guaranteed a minimum level of income ---
    http://en.wikipedia.org/wiki/Negative_income_tax

    A common criticism is that the NIT might reduce the incentive to work, since recipients of the NIT would receive a guaranteed minimum wage equal to the government payment in the absence of employment. A series of studies in the United States beginning in 1968 attempted to test for effects on work incentives. Jodie Allen summarizes the key studies:

    The Stanford Research Institute (SRI), which analyzed the SIME/DIME findings, found stronger work disincentive effects, ranging from an average 9 percent work reduction for husbands to an average 18 percent reduction for wives. This was not as scary as some NIT opponents had predicted. But it was large enough to suggest that as much as 50 to 60 percent of the transfers paid to two-parent families under a NIT might go to replace lost earnings. They also found an unexpected result: instead of promoting family stability (the presumed result of extending benefits to two-parent working families on an equal basis), the NITs seemed to increase family breakup.

    Continued in article

    Earned income (tax) credit (EIC) --- 
    http://en.wikipedia.org/wiki/Earned_income_tax_credit 

    Since over half of the USA taxpayers pay no income tax, the EIC is not a tax-reducing policy for a taxpayer. Instead the EIC acts more like a negative income tax in which eligible taxpayers get cash from the IRS

    The basic premise is that the EIC is preferable to a negative income tax in that it gives more incentives to be employed.
    Also the basic premise is that there is more incentive to be legitimately employed rather than being employed in the $2 trillion underground economy where many persons are now getting paid unreported cash for labor plus collecting welfare and other government benefits.

    There is also a basic premise that to the extent that the EIC keeps wages lower there is less incentive for employers to turn to the underground economy for lower wage, non-union workers --- also workers who do not require employer taxes such as contributions to Social Security and Medicare. There's also the issue of slowing down use of robots to replace low-skilled workers. In comparison, each serious increase in the minimum wage greatly increases incentives to replace workers with robots. Low skilled workers are usually the easiest to replace with machines in general.

    The enormous problem with the EIC to date is that it's a major, I mean really major,  source of fraud, especially IRS payments to millions of persons not eligible for the EIC funds or over payments to fraudsters who file multiple income tax returns for the main purpose of getting multiple EIC payments to which they are not entitled.

    Aside from the enormous problem of EIC fraud, there's an added problem of restrictions on who is eligible for the EIC to date. Whereas there almost no restrictions on who is eligible for minimum wage, the EIC is only available to parents of qualifying children. Warren Buffett envisions expanding the scope of eligibility for the EIC.

    Still an added problem of the EIC to date is that it usually is not as profitable as being employed in the underground economy while collecting welfare such as when a person on welfare also works as a house cleaner or child care worker in the underground economy.

    Still another problem of the EIC for those who do not work in the underground economy there are not enough low-skilled jobs for full-time workers. The EIC creates more demand for the jobs that are available giving rise to an increased gap between workers seeking low-skilled employment relative to the number of such jobs available.

    So when Warren Buffet says "carefully crafted" he's leaving out a lot about how carefully crafted the EIC must become to overcome it's major problems to date. Some things would help a great deal. A carefully-crafted child care credit would help to overcome the problem that many parents cannot work full time because of responsibilities in caring for their children.


    From the From the CFO Journal's Morning Ledger on May 20, 2015
    SOX Up Boss

    Fees rise as internal controls draw auditor focus
    http://blogs.wsj.com/cfo/2015/05/19/fees-rise-as-internal-controls-draw-auditor-focus/?mod=djemCFO_h
    Companies spent more money for outside audits this year, amid an increased focus on internal controls, which act as a first line of defense against financial fraud, CFO Journal’s Emily Chasan reports. Nearly three out of four companies in a poll of 460 firms this year are reporting an increase in external audit fees. Midsize companies reported the largest jump in fees, with 38% of companies saying their audit fees increased by between 16% and 19%.


    From the From the CFO Journal's Morning Ledger on May 20, 2015

    Theft of debit-card data from ATMs soars
    From the From the CFO Journal's Morning Ledger on May 20, 2015
    Criminals are stealing card data from U.S. automated teller machines at the highest rate in two decades, preying on ATMs while merchants crack down on fraud at the checkout counter. The incidents come as banks are racing to issue new credit and debit cards with computer chips that make it more difficult for thieves to create counterfeits. However, most ATMs don’t yet accept the new technology.


    From the From the CFO Journal's Morning Ledger on May 19, 2015

    Technology Innovations and Trends for the CFO’s Toolkit

    http://deloitte.wsj.com/cfo/2015/05/19/technology-innovations-and-trends-for-the-cfos-toolkit/
    Technological innovations, including mobile computing, big data platforms, business analytics and social collaboration tools, are changing the way finance operates today and will likely change how finance operates tomorrow. CFOs can use the innovations to offer finance new capabilities to deliver insight, support company strategy and collaborate with the business, as discussed by Matt Schwenderman, leader of Deloitte Consulting LLP’s Performance Management Technology practice
    . Continue »

    Read more Deloitte Insights »


    From the From the CFO Journal's Morning Ledger on May 18, 2015

    Hertz accounting fix keeps CFO in financial no-man’s land
    http://blogs.wsj.com/cfo/2015/05/15/hertz-accounting-fix-keeps-cfo-in-financial-no-mans-land/?mod=djemCFO_h
    Thomas Kennedy’s move from hotels to rental cars in December 2013 came with an unexpected twist, CFO Journal’s Maxwell Murphy reports. The finance chief came aboard Hertz Global Holdings Inc. barely five months before it announced a restatement.


    From the From the CFO Journal's Morning Ledger on May 18, 2015

    Airlines expect record passengers this summer
    http://www.wsj.com/articles/u-s-airlines-expect-to-carry-record-number-of-passengers-this-summer-1431921661?mod=djemCFO_h
     U.S. airlines are expecting record passenger loads this summer, a 4.5% increase over last year’s June 1 to Aug. 31 period. Year over year, airlines are adding the most seats on routes between the U.S. and Mexico, the U.K., and China.


    From the From the CFO Journal's Morning Ledger on May 15, 2015

    FASB Issues Update on Cloud Computing Rule
    http://deloitte.wsj.com/cfo/2015/05/15/fasb-issues-update-on-cloud-computing-rule/

    New guidance from the FASB may affect certain software-as-a-service arrangements, as well as other cloud computing contracts, as the standard-setter seeks to clarify rules related to how a customer accounts for fees linked to software license elements. However, the new guidance does not prescribe how to account for cloud computing arrangements deemed to be service contracts. Continue »

    Read more Deloitte Insights »


    From the From the CFO Journal's Morning Ledger on May 14, 2015

    Politics of Tax Reform in the 114th Congress
    http://deloitte.wsj.com/cfo/2015/05/14/politics-of-tax-reform-in-the-114th-congress/

    Despite numerous obstacles in getting tax reform legislation enacted into law in the near-term, tax reform is likely to stay on Congress’s agenda, regardless of how long that takes to address. As the debate on tax reform moves forward, businesses and individuals would be well served by analyzing and understanding developments as part of their efforts to prepare for a transition to a revised tax code. Continue »

    Read more Deloitte Insights »

     


    Deloitte University Press --- http://dupress.com/

    From the From the CFO Journal's Morning Ledger on May 12, 2015

    The Journey to Exceptional Performance

    When it comes to corporate financial performance, executives often think in absolute terms, measuring ROA in percentage points; they are less accustomed to thinking of corporate performance in relative terms. Knowing a company’s relative performance, however, is essential to setting and achieving performance improvement targets and, eventually, exceptional performance, as discussed in new research from Deloitte University Press, "The Journey to Exceptional Performance." Continue »

    Read more Deloitte Insights »


    The hire shows that public accounting firms continue to be a major talent source for corporate financial departments. But it also highlights a gray area in auditor-independence rules, accounting and legal experts say.
    From the From the CFO Journal's Morning Ledger on May 12, 2015

    Troubled hardwood flooring retailer Lumber Liquidators Holdings Inc. has sourced its new CFO from an unusual but familiar quarter – the company’s external auditor. As CFO Journal’s Emily Chasan and John Kester report, Gregory Whirley Jr. will join the company in June as interim CFO and senior vice president of finance.

    As a senior manager at Ernst & Young LLP, Mr. Whirley worked directly on Lumber Liquidators’ audits as recently as September 2013. His appointment comes as the firm faces a federal safety probe of Chinese-made laminate flooring that the retail chain was forced to withdraw last week.

    The hire shows that public accounting firms continue to be a major talent source for corporate financial departments. But it also highlights a gray area in auditor-independence rules, accounting and legal experts say.

     


    Is there moral hazard in picking when to report IFRS supplemental outcomes?
    From the CFO Journal's Morning Ledger on May 1, 2015

    Closing the Gap on International Financial Reporting Standards  ---
    http://blogs.wsj.com/cfo/2015/05/07/u-s-companies-may-gain-ability-to-reconcile-to-ifrs-accounting-2/?mod=djemCFO_h

    The Securities and Exchange Commission plans to recommend a proposal that would allow U.S. companies to voluntarily produce supplemental financial results under International Financial Reporting Standards. This would be in addition to any required reports prepared under U.S. accounting rules.  CFO Journal’s Emily Chasan writes that the SEC has stalled for years on the question of whether U.S. companies could use international rules, despite a failed 2008 road map to move companies to IFRS. The proposal could lead to U.S. companies having the option to join more than 100 countries using international accounting rules.

    Jensen Comment
    When it's costly to produce this supplemental material, I see only misleading incentives for firms to provide these added financial results. However, it may be useful to researchers seeking comparisons of the too GAAP outcomes.

    There's a bit of moral hazard here. For example, if firms show significantly higher earnings under IFRS due to lower standards for bifurcating embedded derivatives and lower standards for hedge effectiveness testing then I think the supplemental financial results are more misleading.

    My point is that when firms take advantage of the IFRS-based principles standards as opposed to bright lines only when it favors earnings reporting I think there is moral hazard in dual reporting.

    I don't like the idea of cherry picking when to provide dual reports.

    May 8, 2015 reply from Tom Selling

    I can’t wait for start-up companies to report what their net income would have been under IFRS, had they capitalized instead of expensed product development costs.

    Tom

    Update
    EC Chief Accountant Backs Away from IFRS Proposal ---
    http://www.accountingtoday.com/news/audit-accounting/sec-chief-accountant-backs-away-from-ifrs-proposal-74553-1.html

    Securities and Exchange Commission chief accountant James Schnurr is rethinking a proposal he made last December that the SEC allow U.S. companies the option of providing some information, such as revenues, using International Financial Reporting Standards as a supplement to U.S. GAAP without requiring reconciliation.

    Schnurr had made the proposal last December at an American Institute of CPAs’ Conference on Current SEC and PCAOB Developments in Washington, D.C. (see SEC Considers Supplemental Use of IFRS by U.S. Companies). However, at a Financial Reporting Conference in New York on Thursday at Baruch College’s Robert Zicklin Center for Corporate Integrity, Schnurr said he had reconsidered the proposal.

    Continued in article


    "Finance Departments Are Being Replaced by Robots," by James Willhite, CFO Journal's Morning Ledger , May 5, 2015 ---
    http://blogs.wsj.com/cfo/2015/05/05/the-new-bookkeeper-is-a-robot/?mod=djemCFO_h

    Good morning. No, they’re not physical robots, and they certainly don’t resemble Arnold Schwarzenegger. But finance-department staffers still have reason to be afraid. Software is taking a bigger share of the corporate-finance workload. And along with the expected reductions in headcount, many companies are finding that automating the finance function also brings dramatic efficiency gains, CFO Journal’s Vipal Monga reports. Big companies such as Verizon Communications Inc. and GameStop Corp. are among those using software to automate many corporate bookkeeping and accounting tasks.

    Continued in article


    From the CFO Journal's Morning Ledger on May 1, 2015

    Big banks use loophole to avoid ban
    http://www.wsj.com/articles/big-banks-use-loophole-to-avoid-ban-1430436535?mod=djemCFO_h
    Big banks are using a little-known loophole to avoid triggering a Securities and Exchange Commission ban on selling certain lucrative products to clients in the wake of enforcement actions.


    From the CFO Journal's Morning Ledger on May 1, 2015

    FASB Finalizing Credit Impairment Guidance

    The FASB is finalizing amendments to its guidance on the impairment of financial instruments, which would introduce a new impairment model based on expected losses rather than incurred losses. The proposed model aims to provide more timely recognition of credit losses and reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models used. Deloitte’s “Heads Up” newsletter discusses the new proposed amendments and provides related comparisons and illustrative examples. Continue »

    Read more Deloitte Insights »

    FASB Finalizing Credit Impairment Guidance ---
    http://deloitte.wsj.com/cfo/2015/05/01/fasb-finalizing-credit-impairment-guidance/

    Deloitte’s Heads Up newsletter provides a comprehensive summary of the FASB’s proposed changes to the credit impairment guidance under current U.S. GAAP, which are reflected in the Board’s December 2012 proposed ASU³ and subsequent tentative decisions.⁴ In addition, the full newsletter contains several appendixes. Appendix A compares the impairment models under current U.S. GAAP, the FASB’s tentative approach, and the IASB’s recently amended IFRS 9, respectively. Appendix B, in the full Heads Up newsletter, gives an overview of the existing impairment models under U.S. GAAP for loans and debt securities. Appendix C and Appendix D provide illustrative examples of how an entity might apply the CECL model to purchased credit-impaired (PCI) assets and trade receivables, respectively.

    The CECL Model

    Scope

    The CECL model would apply to most⁵ debt instruments (other than those measured at fair value through net income (FVTNI)), trade receivables, lease receivables, reinsurance receivables that result from insurance transactions, financial guarantee contracts,⁶ and loan commitments. However, available-for-sale (AFS) debt securities would be excluded from the model’s scope and would continue to be assessed for impairment under ASC 320⁷ (the FASB has proposed limited changes to the impairment model for AFS debt securities).

    Recognition of Expected Credit Losses

    Unlike the incurred loss models in existing U.S. GAAP, the CECL model does not specify a threshold for the recognition of an impairment allowance. Rather, an entity would recognize an impairment allowance equal to the current estimate of expected credit losses (i.e., all contractual cash flows that the entity does not expect to collect) for financial assets as of the end of the reporting period. Credit impairment would be recognized as an allowance—or contra-asset—rather than as a direct write-down of the amortized cost basis of a financial asset. However, the carrying amount of a financial asset that is deemed uncollectible would be written off in a manner consistent with existing U.S. GAAP.

    Measurement of Expected Credit Losses

    Under the proposed amendments, an entity’s estimate of expected credit losses represents all contractual cash flows that the entity does not expect to collect over the contractual life of the financial asset. When determining the contractual life of a financial asset, the entity would consider expected prepayments but would not be allowed to consider expected extensions unless it “reasonably expects that it will execute a troubled debt restructuring with the borrower.”⁸

    The entity would consider all available relevant information in making the estimate, including information about past events, current conditions, and reasonable and supportable forecasts and their implications for expected credit losses. That is, while the entity would be able to use historical charge-off rates as a starting point in determining expected credit losses, it would have to evaluate how conditions that existed during the historical charge-off period differ from its current expectations and accordingly revise its estimate of expected credit losses. However, the entity would not be required to forecast conditions over the contractual life of the asset. Rather, for the period beyond the period for which the entity can make reasonable and supportable forecasts, the entity would revert to an unadjusted historical credit loss experience.

    Unit of Account

    The CECL model would not prescribe a unit of account (e.g., an individual asset or a group of financial assets) in the measurement of expected credit losses. However, an entity would be required to evaluate financial assets within the scope of the model on a collective (i.e., pool) basis when similar risk characteristics are shared. If a financial asset does not share similar risk characteristics with the entity’s other financial assets, the entity would evaluate the financial asset individually. If the financial asset is individually evaluated for expected credit losses, the entity would not be allowed to ignore available external information such as credit ratings and other credit loss statistics.

    Continued in article

    New Rules for CDOs
    "Statement at Open Meeting: Asset-Backed Securities Disclosure and Registration," by Commissioner Kara M. Stein, SEC, August 27, 2014 ---
    http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370542772431#.VBgvYBZS7rx

    Bob Jensen's threads on bad debt accounting ---
    http://faculty.trinity.edu/rjensen/Theory02.htm#LoanLosses

     


    GE seems to be an exception rather than a rule
    From the CFO Journal's Morning Ledger on April 27, 2015

    Companies leaving trillions in cash overseas
    http://blogs.wsj.com/cfo/2015/04/24/companies-leaving-trillions-in-cash-overseas/?mod=djemCFO_h
    The amount of money being generated and retained abroad by the top publicly traded U.S multinationals has more than doubled since the global financial crisis, reports CFO Journal’s John Kester. Foreign earnings earmarked for overseas investment reached $2.3 trillion dollars in fiscal 2014, according to a report by data tracking firm Audit Analytics.


    From the CFO Journal's Morning Ledger on April 27, 2015

    Pharmaceutical companies buy rivals’ drugs, then jack up the prices
    http://www.wsj.com/articles/pharmaceutical-companies-buy-rivals-drugs-then-jack-up-the-prices-1430096431?mod=djemCFO_h
    More pharmaceutical companies are buying up drugs they see as undervalued, and then raising their prices. The WSJ’s Jonathan D Rockoff and Ed Silverman report that the trend is one of a number of tactics being employed by pharmaceutical firms. Companies also regularly raise prices of their own older medicines while demanding high fees for new treatments, driving up the cost of drugs in the process. Since 2008, branded-drug prices have increased 127%, compared with an 11% rise in the consumer price index, according to drug-benefits manager Express Scripts Holding Co.


    From the CFO Journal's Morning Ledger on April 24, 2015

    Justice Department sues Quicken Loans
    http://www.wsj.com/articles/u-s-department-of-justice-sues-quicken-loans-1429816481?mod=djemCFO_h
    The U.S. Justice Department is suing mortgage lender Quicken Loans Inc., alleging the company lied to the government when making loans backed by the Federal Housing Administration. The Justice Department said that between September 2007 and December 2011, Detroit-based Quicken originated hundreds of FHA-insured loans that shouldn’t have been eligible for federal backing.

    Bob Jensen's Fraud Updates --- http://faculty.trinity.edu/rjensen/FraudUpdates.htm


    From the CFO Journal's Morning Ledger on April 23, 2015

    Real Housewives’ whistleblower scores millions in payout
    http://www.wsj.com/articles/whistleblower-jim-marchese-scores-millions-in-payoutagain-1429695001?mod=djemCFO_h
    Bank of America Corp
    .’s multibillion-dollar settlement last year brought Jim Marchese, of “Real Housewives of New Jersey” fame, a rare second seven-digit award. In 2007, he received $1.6 million after reporting his former employer for allegedly defrauding Medicare.

    From the CFO Journal's Morning Ledger on December 18, 2014

    BofA whistleblower to get nearly $58 million
    http://www.wsj.com/articles/bofa-whistleblower-to-get-nearly-58-million-filing-1418858087
    Edward O’Donnell, the former Countrywide Financial Corp. executive who filed a whistleblower lawsuit against his former firm, will collect nearly $58 million. The U.S. Attorney’s Office in Manhattan used Mr. O’Donnell’s allegations as the basis of its $16.65 billion lawsuit against Bank of America Corp., which acquired Countrywide.

    SEC gives internal auditor $300,000 whistleblower award
    The Securities and Exchange Commission is giving a $300,000 whistleblower award to a corporate internal auditor who provided information that directly resulted in an enforcement action. The auditor had reported the wrongdoing internally, but when no action was taken within 120 days, the auditor turned to the SEC. Awards to whistleblowers range from 10% to 30% of the money collected from an enforcement action. CFO.com (8/29)

    Bob Jensen's threads on whistle blowing ---
    http://faculty.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing


    From the CPA Newsletter on April 23, 2015

    New FASB proposal would create big changes for not-for-profit reporting
    http://www.journalofaccountancy.com/news/2015/apr/fasb-not-for-profit-standard-201512189.html
    The Financial Accounting Standards Board issued a proposal Wednesday that would lead to significant changes in practice for not-for-profit financial statement preparers. Launching soon, the AICPA's new Not-for-Profit Section will provide critical learning, resources and timely news updates for those in the not-for-profit sector. Journal of Accountancy online (4/22)


    From the CPA Newsletter on April 23, 2015

    AICPA first-quarter disciplinary actions are now available
    http://www2.smartbrief.com/redirect.action?link=http%3A%2F%2Fwww.aicpa.org%2FForThePublic%2FDisciplinaryActions%2F2014%2FPages%2Fdefault.aspx&encoded=gExRBYbWhBCOgBmqCidKtxCicNoXkY
    The Professional Ethics Division released the results of case investigations that resulted in disciplinary actions against AICPA members during the first quarter of 2015. This information was published in The Wall Street Journal on April 13, 2015, as required by the AICPA's bylaws and as prescribed by its governing Counci

    Jensen Comment
    These are not very helpful modules because they don't provide enough detail about the reasons for the actions.


    Hi Barbara,
    I don't know of a decent textbook on accounting for derivatives and hedging activities.
     
    When I was teaching this material I assigned the original FAS 133 and FAS 138 standards. Bot were tremendous sources of illustrations. Later came the FASB summary books (one with a green cover).
     
    Of course all of this material is dated somewhat but not entirely since FAS 133 and its early amendments did not change much in recent years.
     
    I recommend looking at some of my Excel helpers.
     
    The best Excel workbook that I created to introduce students to derivatives is at
    http://www.cs.trinity.edu/~rjensen/Calgary/CD/Graphing.xls 
     
    The CD I distributed for my FAS 133 dog and pony shows is at
    http://www.cs.trinity.edu/~rjensen/Calgary/CD/ 
     
    You may find parts of my PowerPoint files useful ---
    http://www.cs.trinity.edu/~rjensen/Calgary/CD/JensenPowerPoint/ 
     
    For reference you might link your students to my glossary at
    http://faculty.trinity.edu/rjensen/acct5341/speakers/133glosf.htm 
     
    Examples of great FAS 133 illustrations are as follows:
                  
    [   ] 133ex01a.xls                     12-Jun-2008 03:50  345K  
    [   ] 133ex02.doc                      17-Feb-2004 06:00  2.1M  
    [   ] 133ex02a.xls                     12-Jun-2008 03:48  279K  
    [   ] 133ex03a.xls                     04-Apr-2001 06:45   92K  
    [   ] 133ex04a.xls                     12-Jun-2008 03:50  345K  
    [TXT] 133ex05.htm                      04-Apr-2001 06:45  371K  
    [   ] 133ex05a.xls                     12-Jun-2008 03:49  1.5M  
    [TXT] 133ex05aSupplement.htm           26-Mar-2005 13:59   57K  
    [   ] 133ex05aSupplement.xls           26-Mar-2005 13:50   32K  
    [TXT] 133ex05d.htm                     26-Mar-2005 13:59   56K  
    [   ] 133ex06a.xls                     29-Sep-2001 11:43  123K  
    [   ] 133ex07a.xls                     08-Mar-2004 16:26  1.2M  
    [   ] 133ex08a.xls                     29-Sep-2001 11:43  216K  
    [   ] 133ex09a.xls                     12-Jun-2008 03:49   99K  
    [   ] 133ex10.doc                      17-Feb-2004 16:37   80K  
    [   ] 133ex10a.xls 
    [TXT] 133summ.htm                      13-Feb-2004 10:50  121K  
    [TXT] 138EXAMPLES.htm                  30-Apr-2004 08:39  355K  
    [TXT] 138bench.htm                     07-Dec-2007 05:37  139K  
    [   ] 138ex01a.xls                     09-Mar-2001 13:20  1.7M  
    [TXT] 138exh01.htm                     09-Mar-2001 13:20   31K  
    [TXT] 138exh02.htm                     09-Mar-2001 13:20   65K  
    [TXT] 138exh03.htm                     09-Mar-2001 13:20   42K  
    [TXT] 138exh04.htm                     09-Mar-2001 13:20  108K  
    [TXT] 138exh04a.htm                    09-Mar-2001 13:20  8.2K  
    [   ] 138intro.doc                     09-Mar-2001 13:20   95K  
    [TXT] 138intro.htm                     09-M

    Others --- http://www.cs.trinity.edu/~rjensen/

     
    My tutorials on FAS 133  and IAS 39 are summarized at
    http://faculty.trinity.edu/rjensen/caseans/000index.htm 
     

    This Is the Worst Retirement Solution Ever ---
    http://www.bloomberg.com/news/articles/2015-04-21/this-is-the-worst-retirement-solution-ever?cmpid=BBD042115

    Bob Jensen's threads on personal finance ---
    http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers


    "Keeping it on the company campus:  As more firms have set up their own “corporate universities”, they have become less willing to pay for their managers to go to business school," The Economist, May 16, 2015 ---
    http://www.economist.com/news/business/21651217-more-firms-have-set-up-their-own-corporate-universities-they-have-become-less-willing-pay

    “DON’T ask the barber if you need a haircut—and don’t ask an academic if what he does is relevant.” So wrote Nassim Nicholas Taleb in his 2007 book, “The Black Swan”. The trouble for academics, particularly those who teach business, is that companies seem to be posing that awkward question more and more; and then coming up with an even more discomfiting answer.

    Firms looking to put their managers through development programmes are increasingly creating their own, rather than relying on business schools, consulting firms and the like. Companies are not only spending more of their training budgets in-house but are setting up their own “corporate universities”.

    The idea is not new. General Electric is considered to have opened the first corporate university, in 1956. Perhaps the most famous is McDonald’s “Hamburger University”. Since 1961 around 275,000 people have passed through one of its seven campuses worldwide. However, such in-house academies have become a lot more common in recent years. A survey by the Boston Consulting Group (BCG) found that the number of formal corporate universities in America doubled between 1997 and 2007, to around 2,000. Since then, it reckons, they have continued to spread, and now more than 4,000 companies around the world have them.

    The numbers are vague because the definition of what qualifies as a corporate university is slippery. Unlike conventional universities, they tend to focus more on practice than theory, and they rarely hand out degrees. But they are about more than just slapping a grand title on companies’ hotch-potch of ad hoc training courses. Corporate universities have two distinguishing features: the first is a dedicated facility, whether built of bricks or housed online; the second is a curriculum tailored to the company’s overarching strategy.

    Continued in article

    Jensen Comment
    Companies would not send their CPAs and CMAs to universities for advanced accounitng training because in virtually all instances universities have zero to offer in accountancy beyond studying for the CPA and CMA examinations. Companies  might send accounting employees  to universities for advanced training in computer science, information technology, and information systems.

    Thus it is not surprising that there is a Deloitte University and other comparable advanced training courses given by firms to provide more technical and leadership skills to CPAs and CMAs.

    Some accounting firms have set up their own assurance services programs for employees inside selected universities like Georgia and Notre Dame, but these programs are mostly for non-accountants like engineering  and computer science graduates who were not accounting or business majors.

    Corporate MBA programs are more problematic.
    Firstly, these programs cannot get AACSB accreditation --- mostly because business school deans running the AACSB protect their own turfs. Secondly, what prestigious universities do best is run MBA programs that are much better than most anything corporations can run for MBA students. MBA programs generally provide companies with what they want the most --- filters that separate the wheat from the chaff in identifying the stop MBA graduates. Read that as meaning that what prestigious MBA programs do is attract top talent that companies are seeking after the universities find that top talent.


    AACC: 21st Century Center (community college helpers, including practice examinations) --- http://www.aacc21stcenturycenter.org/
    For example search on the term "accounting"


    "Gray Matters: Detecting Accounting Student Use of Publisher Test Banks and the Implications for Academic and Professional Organizations," by Christine Cheng, and D. Larry Crumbley, SSRN, April 16, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2595987


    Abstract:     
    Academic and professional organizations face challenges when some students operate in a gray area of ethical decision making and use publisher test banks to prepare for in-class exams. We develop a forensic technique and find that approximately one-third of graduate accounting students at a major university use the publisher test bank, improving their exam grades on average by 30 percent. We discuss the potential detrimental professional impact that can occur when students, who are willing to operate in a gray area of ethical decision making, enter the accounting profession. In doing so, we introduce into the accounting literature the notion that individuals may continually seek out increasing levels of unethical behavior because they experience positive affect, or a "cheater's high", when engaging in unethical behavior in the presence of non-salient victims. Professional organizations can be used to develop a secure test bank which can be used by professors to remove the bias in learning assessment that results from student use of publisher test banks.

    Bob Jensen's threads on students who cheat ---
    http://faculty.trinity.edu/rjensen/Plagiarism.htm


    Benford's Law --- http://en.wikipedia.org/wiki/Benford%27s_law

    "I've Got Your Number How a mathematical phenomenon can help CPAs uncover fraud and other irregularities," 
    Journal of Accountancy, May 1999, --- 
    http://www.journalofaccountancy.com/Issues/1999/May/nigrini.htm 
    EXECUTIVE SUMMARY

    BENFORD'S LAW PROVIDES A DATA analysis method that can help alert CPAs to possible errors, potential fraud, manipulative biases, costly processing inefficiencies or other irregularities.

    A PHYSICIST AT GE RESEARCH LABORATORIES in the 1920s, Frank Benford found that numbers with low first digits occurred more frequently in the world and calculated the expected frequencies of the digits in tabulated data.

    CPAs CAN USE BENFORD'S DISCOVERY in business applications ranging from accounts payable to Y2K problems. In addition, subset tests identify small lists of serious anomalies in large data sets, making an analysis more manageable.

    DIGITAL ANALYSIS IS WELL SUITED to finding errors and irregularities in large data sets when auditors need computer assisted technologies to direct their attention to anomalies.

     

    "How Benford's Law Reveals Suspicious Activity on Twitter," MIT's Technology Review, April 21, 2015 ---
    http://www.technologyreview.com/view/536906/how-benfords-law-reveals-suspicious-activity-on-twitter/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20150422


    "FASB Proposal May Foreshadow Changes to Cash Flow Rules," by Tammy Whitehouse, Compliance Week, April 24, 2015 ---
    https://www.complianceweek.com/blogs/accounting-auditing-update/fasb-proposal-may-foreshadow-changes-to-cash-flow-rules#.VUFSoJNkZLf

    Jensen Comment
    In this era of computers and advanced software I wonder why the indirect method survived this long?


    Potential Cost Accounting Project

    Rooftop Solar Panels Only Save Homeowners Money Due to Government Subsidies:  It's a Dysfunctional Government Give Away Program
    The Hole in the Rooftop Solar-Panel Craze ---

    http://www.wsj.com/articles/the-hole-in-the-rooftop-solar-panel-craze-1431899563?tesla=y

    Jensen Comment
    Validation of the conclusions of this article would be a great cost accounting project.
    To what extent do rooftop solar panels save money without government subsidies?
    Do the analysis for at least three cities (Sonny Phoenix, Moderate Memphis, and Cloudy Ithaca, NY)

    My friend who studied the alternative for Franconia, NH concluded that solar panels did not save money without the subsidies.

    Have students then debate the general conclusion of the above article:

    1. Large-scale plants make sense, but panels for houses simply transfer wealth from average electric customers.

       
    2. The primary reason these small solar systems are cost-effective, however, is that they’re heavily subsidized. Utilities are forced by law to purchase solar power generated from the rooftops of homeowners and businesses at two to three times more than it would cost to buy solar power from large, independently run solar plants. Without subsidies, rooftop solar isn’t close to cost-effective.

       
    3. Large-scale solar power generally doesn’t get these same hidden-rate subsidies. When utilities build or buy output from large solar facilities, they spread the costs out evenly to customers. Every dollar spent on rooftop solar is a dollar not spent on other, more productive renewable sources.

       
    4. It is time to stop encouraging people to pick a losing technology merely because it makes them feel good. There are greener, more cost-effective solutions.

     




    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on April 24, 2015

    PwC to Pay $65 Million to Settle Lawsuit Over MF Global
    by: Michael Rapoport
    Apr 18, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Auditing

    SUMMARY: PricewaterhouseCoopers LLP agreed to pay $65 million to settle class-action litigation over failed brokerage MF Global Holdings Ltd., a case in which investors claimed PwC botched its audits of the firm before it collapsed into bankruptcy in 2011. The lawsuit had said MF Global used customer funds to meet the increased liquidity demands of the firm's bets on European sovereign debt. MF Global didn't have sufficient internal controls to deal with that, a deficiency that PwC ignored.

    CLASSROOM APPLICATION: This is a good article to use in an auditing class to show how costly audit errors or omissions can be.

    QUESTIONS: 
    1. (Introductory) What are the facts of the lawsuit discussed in the article? Who are the plaintiffs and who is the defendant?

    2. (Advanced) What did the plaintiffs allege in the lawsuit? What was PwC's involvement in MF Global Holdings' business or bankruptcy? Why would PwC have any liability exposure in this situation?

    3. (Advanced) What were the terms of the settlement? Why did PwC settle the case? Was this a good decision?

    4. (Advanced) What could accounting firms do to prevent or to reduce the chances of these situations occurring?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast
     

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    by Patrick Fitzgerald
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    "PwC to Pay $65 Million to Settle Lawsuit Over MF Global," by Michael Rapoport, The Wall Street Journal, April 18, 2015 ---
    http://www.wsj.com/articles/pwc-to-pay-65-million-to-settle-lawsuit-over-mf-global-1429302372?mod=djem_jiewr_AC_domainid

    PricewaterhouseCoopers LLP agreed Friday to pay $65 million to settle class-action litigation over failed brokerage MF Global Holdings Ltd., a case in which investors claimed PwC botched its audits of the firm before it collapsed into bankruptcy in 2011.

    MF Global shareholders had contended that PwC’s audits gave MF Global a clean bill of health even though the accounting firm knew or should have known that the firm’s financial statements were erroneous and its internal controls weren’t effective.

    PwC denied any wrongdoing. In a statement Friday, the firm said it is “pleased to resolve this matter and avoid the cost and distraction of prolonged securities litigation.” The firm “stands behind its audit work and its opinions on MF Global’s financial statements,” PwC said.

    The settlement, which is subject to court approval, was reached after the two sides went through a mediation process presided over by a former federal judge, according to court documents. The proceeds will be distributed among investors in MF Global securities.

    MF Global filed for bankruptcy in October 2011 after customers balked at the firm’s big, risky bets on European sovereign debt. About $1.6 billion in customer funds were found to be missing, though customers have been reimbursed. The firm has agreed to pay $200 million in civil fines. Jon S. Corzine, MF Global’s former chairman and chief executive and a former New Jersey governor, still faces civil charges from the Commodity Futures Trading Commission for failure to supervise.

    The lawsuit had said MF Global used customer funds to meet the increased liquidity demands of the firm’s bets on European sovereign debt. MF Global didn’t have sufficient internal controls to deal with that, a deficiency that PwC ignored, according to the lawsuit.

    Continued in article

    Bob Jensen's threads on the MF Global Scandal
    Search for MF Global at
    http://faculty.trinity.edu/rjensen/Fraud001.htm


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on April 24, 2015

    Restatements Affect Bottom Line Less Often
    by: Maxwell Murphy
    Apr 21, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Internal Controls, Restatements

    SUMMARY: The proportion of corporate financial restatements that had no impact on the bottom line was 59% in 2014. That brought the increase over the past four years to 22 percentage points, which suggests that the Sarbanes-Oxley corporate-governance law has succeeded in bolstering companies' internal controls over financial reporting. Effective internal controls help companies detect accounting errors and fraud before they report results to investors and the Securities and Exchange Commission, and allow them to more quickly identify and fix any problems that slip through.

    CLASSROOM APPLICATION: This is a good update regarding the number of financial restatements and the impact of those restatements in recent years.

    QUESTIONS: 
    1. (Introductory) What are the trends regarding the number of financial restatements? What are the trend regarding the impact of those restatements in recent years?

    2. (Advanced) What are internal controls? How are internal controls helping to improve financial reporting and reduce restatements?

    3. (Advanced) What is section 404 of Sarbanes-Oxley? What part has it played in the changes in financial restatements?

    4. (Advanced) Why do restatements occur? Are there ways to reduce the restatements further? Could restatements be reduced to very few or none? Why or why not?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Restatements Affect Bottom Line Less Often," by Maxwell Murphy, The Wall Street Journal, April 21, 2015 ---
    http://blogs.wsj.com/cfo/2015/04/21/restatements-affect-bottom-line-less-often/?mod=djem_jiewr_AC_domainid

    The proportion of corporate financial restatements that had no impact on the bottom line was 59% in 2014. That brought the increase over the past four years to 22 percentage points, which suggests that the Sarbanes-Oxley corporate-governance law has succeeded in bolstering companies’ internal controls over financial reporting.

    Effective internal controls help companies detect accounting errors and fraud before they report results to investors and the Securities and Exchange Commission, and allow them to more quickly identify and fix any problems that slip through.

    Among companies listed on major stock exchanges, there were 460 restatements last year that had no effect on income statements, up slightly from a year earlier, according to data and research firm Audit Analytics.

    “What you’re seeing here is the benefits” of section 404 of the Sarbanes-Oxley Act of 2002, said Don Whalen, director of research for Audit Analytics. “Everything gets better after [section] 404,” Mr. Whalen said.

    The Sarbanes-Oxley rules, which were hotly debated, required larger companies and their accountants to attest to adequate internal controls, beginning with fiscal years ended after mid-November 2004. Their smaller and foreign counterparts adopted the measures over the next three years.

    Continued in article


    Teaching Case
    From The Wall Street Journal Accounting Review on May 1, 2015

    Higher Prices Fail to Salvage Profits
    by: Theor Francis and Serena Ng
    Apr 24, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Cost Accounting, Cost-Volume-Profit Analysis, Managerial Accounting

    SUMMARY: The strong dollar is a given. The question now is whether American companies can raise prices enough to offset the damage without hurting sales. So far, the answer isn't good. Companies have other levers to pull as the dollar value of their overseas earnings falls. P&G is planning more cost cuts, including slashing its spending on marketing agencies. PepsiCo said it is seeking to cut costs as well as to move more production costs to overseas markets as currency effects are poised to reduce profit in Europe. The company says it generally tries to recover 75% of currency effects through price increases and make up the rest with cost cuts.

    CLASSROOM APPLICATION: This article offers good examples to use for cost-volume-profit analysis.

    QUESTIONS: 
    1. (Introductory) What challenges are companies in the article facing? What are the reasons for some of those challenges?

    2. (Advanced) What is cost-volume-profit (CVP) analysis? What information does it utilize? What valuable information does this analysis tool provide?

    3. (Advanced) What special challenges do U.S. companies face when engaging in international business? How can CVP analysis help companies address these challenges?

    4. (Advanced) What strategies are companies using to maintain profitability in the current economic climate?

    5. (Advanced) How is CVP analysis limited? What assumptions must users make? Do these limitations hurt the value of the analysis for the companies' issues reported in the article? How can CVP analysis be used by these companies despite the limitations?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast
     

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    Apr 23, 2015
    Online Exclusive

    "Higher Prices Fail to Salvage Profits," by Theor Francis and Serena Ng, The Wall Street Journal, April 24, 2015 ---
    http://www.wsj.com/articles/higher-prices-fail-to-salvage-profits-1429836439?mod=djem_jiewr_AC_domainid

    The strong dollar is a given. The question now is whether American companies can raise prices enough to offset the damage without hurting sales.

    So far, the answer isn’t good.

    Consumer-goods giant Procter & Gamble Co. said Thursday that price increases to offset currency issues in developing countries had contributed to a 2% drop in sales volume in the quarter ended in March.

    Mead Johnson Nutrition Co. , maker of Enfamil formula, said declines in Latin American currencies outpaced the company’s price increases, contributing to a 2% drop in overall sales from a year ago.

    For McDonald’s Corp. , a 2% price increase in both the U.S. and in Europe outside Russia wasn’t enough to keep the dollar’s rise from cutting revenue by $700 million and earnings by 9 cents a share in the first quarter. Executives forecast more pain from the currency fluctuations for the rest of the year.

    The stronger dollar reduces the value of sales earned in foreign currencies such as the euro or the Brazilian real when those revenues are converted back into dollars. That dynamic has stung a range of companies—from General Motors Co. and General Electric Co. to Facebook Inc. and PepsiCo Inc. Since the beginning of the year, the euro has dropped more than 10% against the dollar, while the pound has fallen more than 3%, following sharp declines late last year.

    P&G said sales in the first three months were down 8% from a year earlier. If it hadn’t been for currency issues, they would have been flat. At Coca-Cola Co., a 7% rise in sales shrank to a 1% gain after the impact of the stronger dollar was accounted for. 3M Co. lowered its earnings forecast for the year after a stronger dollar reduced first-quarter sales by 6.5%, leaving them down 3.2% overall.

    The dollar’s impact comes amid improving earnings and sales for big companies that aren’t in the oil-and-gas business. With about a third of the S&P 500 reporting results, earnings are forecast to rise 6.9% excluding energy companies, according to Thomson Reuters. Revenues, meanwhile, are forecast to rise 2.5% on that basis.

    Continued in article


    Teaching Case
    From The Wall Street Journal Accounting Review on May 1, 2015

    Amazon Swings to Loss Despite Jump in Sales
    by: Greg Bensinger
    Apr 24, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Financial Accounting, Managerial Accounting

    SUMMARY: Amazon reported a loss despite rapidly rising sales, as it continued to spend heavily to fund a variety of projects such as drone delivery and streaming-video deals, as well as warehouse construction. And while some investors fret that Amazon is spreading itself thin, such as with the unpopular Fire smartphone, the company reaffirmed it is investing for an ever-distant future. Amazon again spent nearly all the money it took in. Operating expenses for Amazon, which include the costs of handling the millions of packages it ships as well as technology development, rose 15% to $22.46 billion, while sales were up the same amount to $22.72 billion. Amazon swung to a loss of $57 million.

    CLASSROOM APPLICATION: This is an interesting example to use when discussing how business strategies impact and are impacted by the financial statements. It is a good article to use because many students use Amazon on a regular basis.

    QUESTIONS: 
    1. (Introductory) What are the details of Amazon's current financial situation? What is unusual about the company's situation?

    2. (Advanced) According to the article, Amazon's sales have increased, but the company has a loss. What are the reasons for this? Is this a result of solid business strategies and investments, or is it caused by poor management?

    3. (Advanced) What can management do to continue to increase revenues, while also increasing profitability? What areas of the financial statements show room for improvement?

    4. (Advanced) What is AWS? How is that segment of the business performing? How important is that segment to the company? How should Amazon use segment analysis to make strategic decisions?

    5. (Advanced) What threats and opportunities does Amazon face? How should management handle these? How can accounting information help management make decisions?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast
     

    RELATED ARTICLES: 
    Amazon to Offer Window Into Web Services Business
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    Amazon Slashes Price of Fire Phone
    by Greg Bensinger
    Sep 08, 2014
    Online Exclusive

    "Amazon Swings to Loss Despite Jump in Sales," by Greg Bensinger, The Wall Street Journal, April 24. 2015 ---
    http://www.wsj.com/articles/amazon-swings-to-loss-despite-jump-in-sales-1429819649?mod=djem_jiewr_AC_domainid

    Amazon.com Inc. finally revealed financial details about its secretive cloud computing division, but it was otherwise business as usual in the first quarter for the e-commerce giant.

    The Seattle company reported a loss despite rapidly rising sales, as it continued to spend heavily to fund a variety of projects such as drone delivery and streaming-video deals, as well as warehouse construction. And while some investors fret that Amazon is spreading itself thin, such as with the unpopular Fire smartphone, the company reaffirmed it is investing for an ever-distant future.

    Amazon again spent nearly all the money it took in. Operating expenses for Amazon, which include the costs of handling the millions of packages it ships as well as technology development, rose 15% to $22.46 billion, while sales were up the same amount to $22.72 billion. Amazon swung to a loss of $57 million.

    “There’s no reason they couldn’t tighten the screws just a little bit on their spending to improve their profits,” said Colin Gillis, a BGC Partners analyst.

    The big disclosure Thursday was a first-time look at the financial performance of Amazon Web Services, which was created in 2006 and provides computing power to startups and other companies such as Netflix Inc.

    Continued in article


    Teaching Case
    From The Wall Street Journal Accounting Review on May 1, 2015

    Why Companies' Results May Vary
    by: Jo Carven McGinty
    Apr 25, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Earn-Outs, Earnings, Earnings Per Share, Financial Statement Analysis

    SUMMARY: Publicly traded companies are in the midst of reporting quarterly earnings, and the results will delight, pacify or rattle investors - and with good reason: Earnings per share are an important measure of corporate performance, one that sways stock prices and helps forecast growth. But there are multiple definitions of earnings that include, or omit, different kinds of information. Companies must report GAAP earnings, but as a matter of practice, they also will report non-GAAP earnings intended to represent performance of the core business operations by subtracting things like depreciation, marketing and administrative costs.

    CLASSROOM APPLICATION: This is a good discussion of the various calculations of earnings with practical examples.

    QUESTIONS: 
    1. (Introductory) What is earnings per share? How is it calculated? How is it used by investors and other parties?

    2. (Advanced) What are the various ways "earnings" are calculated? The article mentions "GAAP" and "non-GAAP" numbers. What are those and how do they differ? Are both valid for financial reporting? Are they valid for financial statement analysis?

    3. (Advanced) What is the value or benefit of removing some amounts or adjustments from the earnings number?

    4. (Advanced) Must the company disclose how the earnings number was calculated? Why or why not? Should this be required? How does this impact the users of the financial statements?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Why Companies' Results May Vary," by Jo Carven McGinty, The Wall Street Journal, April 25, 2015 ---
    http://www.wsj.com/articles/why-companies-results-may-vary-1429867803?mod=djem_jiewr_AC_domainid

    Publicly traded companies are in the midst of reporting quarterly earnings, and the results will delight, pacify or rattle investors—and with good reason: Earnings per share are an important measure of corporate performance, one that sways stock prices and helps forecast growth.

    But there are multiple definitions of earnings that include, or omit, different kinds of information.

    Street earnings, the most coveted figures produced by Wall Street analysts and data providers, are regarded by investors as the best indicator of a company’s future growth. They also are unregulated numbers that often paint a substantially different picture than earnings prepared according to generally accepted accounting principles, known as GAAP—rules drafted to ensure companies report earnings uniformly.

    GAAP earnings are recorded in financial statements to the U.S. Securities and Exchange Commission, but because they include so-called one-time items that may obscure day-to-day performance, companies and analysts also generate alternative, non-GAAP figures intended to better capture earning power.

    Financial jokers refer to the non-GAAP numbers as “earnings before the bad stuff happens” because they exclude expenses GAAP requires, such as restructuring charges and asset write-downs.

    Continued in article

    Jensen Comment
    One of the real embarrassments of the IASB and FASB is that they are unable to define an operational concept of net income in their conceptual frameworks. The main problem is the co-mingling of unrealized fair value changes with legally recognized earned revenues.

    Net earnings and EBITDA cannot be defined since the FASB and IASB elected to give the balance sheet priority over the income statement in financial reporting ---
    "The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield, FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---
    http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/


    Teaching Case
    From The Wall Street Journal Accounting Review on May 15, 2015

    Outside Auditors Get Asked In
    by: Emily Chasen and John Kester
    May 12, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Auditing, Auditor Independence, CFO, Sarbanes-Oxley

    SUMMARY: External auditors - brought in to assess whether a company's financial statements are accurate and fair - are supposed to act as watchdogs for investors. The Sarbanes-Oxley corporate-governance law, passed in 2002, bars companies from hiring a CFO or other senior accounting official who worked on their audit in the past year. Some legal scholars say Sarbanes-Oxley doesn't go far enough to ensure auditors' impartiality.

    CLASSROOM APPLICATION: This is an excellent article to use in an auditing class when covering auditor independence issues and Sarbanes-Oxley.

    QUESTIONS: 
    1. (Introductory) What is a CFO? How are the CFO position and duties related to accounting and the accounting function of a business?

    2. (Advanced) What is auditor independence? What are the relevant rules? What is Sarbanes-Oxley and how is it related to auditor independence?

    3. (Advanced) What are external auditors? How do they differ from internal auditors?

    4. (Advanced) How does Sarbanes-Oxley affect the hiring of CFOs? What is the purpose of this rule? Should the hiring of CFOs be regulated? Why or why not?

    5. (Advanced) Why is auditor independence important? What value does it offer? What problems could result from a lack of auditor independence? How do auditor independence rules cause business challenges and problems for auditors and for their clients?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Outside Auditors Get Asked In," by Emily Chasen and John Kester, The Wall Street Journal, May 12, 2015 ---
    http://www.wsj.com/articles/outside-auditors-get-asked-in-1431390916?mod=djem_jiewr_AC_domainid

    When an embattled flooring retailer selected an interim finance chief, its top brass chose someone deeply familiar with the company.

    In fact, he had reviewed its books—as an outside auditor.

    As a senior manager at Ernst & Young LLP, Gregory Whirley Jr., who will become interim CFO and senior vice president of finance at Lumber Liquidators Holdings Inc. in June, worked directly on the company’s audits as recently as September 2013.

    His appointment, which came amid a federal safety probe of Chinese-made laminate flooring that the chain pulled from its shelves last week, shows that public accounting firms continue to be a major talent source for corporate financial departments. It also highlights a gray area in auditor-independence rules, accounting and legal experts say.

    For auditors, investors, lawyers, companies, and even regulators, “independence issues are often highly judgmental,” said Michael Young, a securities attorney at Willkie Farr & Gallagher LLP in New York who focuses on accounting issues.

    Some 40% of current CFOs at the 500 largest public and private companies have accounting-firm backgrounds, says executive recruiter Korn/Ferry International. An employee of a company’s audit firm “is somebody you know,” said Peter Bible, former chief accounting officer for General Motors Co. “You know their strengths and weaknesses, and they know your company.” Former auditors are already familiar with the company’s business model and generally work at a location near a company’s home office, he added.

    Still, it is unusual for a troubled company like Lumber Liquidators to appoint a former auditor to such a high post, say accounting-industry veterans.

    Lumber Liquidators said Mr. Whirley “last worked on the company’s audit more than 18 months ago,” well past the one-year waiting period required by federal securities rules.

    Continued in article


    Teaching Case
    From The Wall Street Journal Accounting Review on May 15, 2015

    The Big Number - Auditor-independence queries the SEC gets each year
    by: John Kester and Emily Chasen
    May 12, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Auditing, Auditor Independence, SEC

    SUMMARY: Auditor independence is a hot-button issue for the Securities and Exchange Commission's enforcement unit. Outside of enforcement, the SEC gets about 400 auditor-independence questions a year, or about one a day. In 2015, the SEC settled two cases against auditors over alleged violations. Ernst & Young paid more than $4 million to settle allegations that it lobbied on behalf of audit clients. KPMG paid $8.2 million to settle allegations that it provided prohibited extra services to audit clients. In their settlements, the firms neither admitted or denied the allegations.

    CLASSROOM APPLICATION: This article can be used to show the authority the SEC has over accounting firms' auditor independence.

    QUESTIONS: 
    1. (Introductory) What is the SEC? What is its area of authority?

    2. (Advanced) What is auditor independence? Why is it important? How is the SEC involved with auditor independence? Why is the SEC involved? What other organizations or governmental bodies are involved with rule-making and enforcement of auditor independence?

    3. (Advanced) Why does the SEC receive auditor-independence questions? Why would parties be interested in handing those issues correctly?

    4. (Advanced) What were the extent of the examples of fines assessed by the SEC last year? Why were the activities in those situations prohibited?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "The Big Number - Auditor-independence queries the SEC gets each year," by John Kester and Emily Chasen, The Wall Street Journal, May 12, 2015 ---
    http://www.wsj.com/articles/the-big-number-1431387734?mod=djem_jiewr_AC_domainid

    400

    Auditor-independence queries the SEC gets each year

    Auditor independence is a hot-button issue for the Securities and Exchange Commission’s enforcement unit.

    “Independence is an issue that we are very focused on, and will continue to stay focused on,” Michael Maloney, chief accountant at the SEC’s Division of Enforcement said at a Baruch College conference in New York last week.

    Outside of enforcement, the SEC gets about 400 auditor-independence questions a year, or about one a day, says the agency’s chief accountant, James Schnurr.

    Last year, the SEC settled two cases against auditors over alleged violations. Ernst & Young LLP paid more than $4 million to settle allegations that it lobbied on behalf of audit clients. KPMG LLP paid $8.2 million to settle allegations that it provided prohibited extra services to audit clients. In their settlements, the firms neither admitted or denied the allegations.

    At the time, Ernst & Young said it had ceased performing any lobbying work for audit clients that were required to report to the SEC.

    “EY takes auditor-independence requirements very seriously,” the firm said Monday, adding that the events concerned “took place many years ago.” It said it is “continuously investing in a wide range of leading practices” to ensure complies with SEC and Public Company Accounting Oversight Board auditor-independence rules.

    In the years since the allegations against it, KPMG has made internal changes “designed to ensure its ability to comply with restrictions on providing nonaudit services to SEC audit clients,” a KPMG spokesman said. The firm “is fully committed to ensuring our independence” from audit clients, he said.

    Bob Jensen's threads on audit firm independence and professionalism ---
    http://faculty.trinity.edu/rjensen/Fraud001c.htm


    Teaching Case
    From The Wall Street Journal Accounting Review on May 15, 2015

    Tesla Loss Widens as Spending Jumps
    by: Mike Ramsey and Anne Steele
    May 07, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Financial Reporting, Financial Statement Analysis

    SUMMARY: Tesla Motors Inc. was stung by rising costs in its first quarter, reporting a wider net loss compared with a year ago even as the sale of regulatory credits and Model S sedans increased sharply. The Palo Alto, Calif., luxury electric car maker said its loss widened to $154 million, compared with $49.8 million in the same period a year ago. Revenue climbed 51% over a year earlier to $939 million in part as deliveries of its $75,000-and-up Model S rose 55% to a record 10,045 vehicles.

    CLASSROOM APPLICATION: This article is filled with financial information to use in class. What makes this article particularly appealing for students is the company, Tesla, is interesting to many students and is involved with new technology.

    QUESTIONS: 
    1. (Introductory) What is Tesla? What is its product and how does its business differ from most other businesses?

    2. (Advanced) The headline of the article indicates that Tesla is experiencing increasing losses, even as it sells more cars. What was the change in revenues? What was the change in net income or net loss? How could it be that a company can experience these results? What is the reason for this?

    3. (Advanced) What does "cash and equivalents" mean? What is Tesla's current status? What is causing this trend? Is this a positive or negative trend, given Tesla's plans?

    4. (Advanced) What is gross margin? Why is gross margin important? The article stated two different gross margin percentages. How do those percentages differ? Why are they different? Why would Tesla report two different percentages?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Tesla Loss Widens as Spending Jumps," by Mike Ramsey and Anne Steele, The Wall Street Journal, May 7, 2015 ---
    http://www.wsj.com/articles/tesla-loss-widens-as-spending-jumps-1430946301?mod=djem_jiewr_AC_domainid

    Tesla Loss Widens as Spending Jumps Luxury electric-car maker posts $154 million loss even as quarterly shipments top 10,000 cars Tesla said its coming Model X sport-utility vehicle remains on track for initial deliveries later this year. ENLARGE Tesla said its coming Model X sport-utility vehicle remains on track for initial deliveries later this year. Photo: Fang Zhe/Xinhua/Zuma Press By Mike Ramsey and Anne Steele Updated May 6, 2015 6:24 p.m. ET 72 COMMENTS

    Tesla Motors Inc. was stung by rising costs in its first quarter, reporting a wider net loss compared with a year ago even as the sale of regulatory credits and Model S sedans increased sharply.

    The Palo Alto, Calif., luxury electric car maker said on Wednesday its loss widened to $154 million, compared with $49.8 million in the same period a year ago. Revenue climbed 51% over a year earlier to $939 million in part as deliveries of its $75,000-and-up Model S rose 55% to a record 10,045 vehicles.

    Its adjusted operating loss of 36 cents a share was better than analyst forecasts of 50-cents a share operating loss. The company said it met its automotive gross operating margin target despite currency exchange challenges and greater research, development, operations and capital expenditures.

    Its shares rose 2.3% in after-hours trading on Wednesday to $235.75. It released first quarter results after the 4 p.m. halt of regular trading.

    The results underscore the challenge facing one of the auto industry’s most scrutinized companies. Tesla is posting record volume and says it is on track to deliver 55,000 vehicles this year, but investments in its network of fast-charging stations, and the development of its forthcoming Model X sport-utility vehicle and other future products widened losses and reduced its liquidity.

    Its cash and equivalents fell to $1.5 billion on March 31, from $1.9 billion three months earlier and $2.4 billion a year ago. Chief Executive Officer Elon Musk has said the company can fund its growth plan without share sales or convertible bond offerings.

    Continued in article


    Teaching Case
    From The Wall Street Journal Accounting Review on May 8, 2015

    The New Bookkeeper Is a Robot
    by: Vipal Monga
    May 05, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Accounting, Staffing

    SUMMARY: Robots are taking over corporate finance departments, performing work that often required whole teams of people. Big companies are using software to automate many corporate bookkeeping and accounting tasks to save time and staffing costs. Automation is threatening to replace swaths of white-collar workers, much as mechanical robots have displaced blue-collar workers on assembly lines.

    CLASSROOM APPLICATION: This is a great article to show students trends in accounting staffing, as they graduate and eventually move into management positions. It will also encourage students to prepare themselves for management and decision-type positions that are in high demand, as entry-level or lower-level positions disappear.

    QUESTIONS: 
    1. (Introductory) What staffing changes are happening as a result of increased use of accounting software? How is this impacting compensation expenses?

    2. (Advanced) What types of positions are becoming less common? What types of positions continue to be in demand? How do the job qualifications and preparation for these types of positions differ for job applicants?

    3. (Advanced) What are the benefits of using software instead of employees for mundane tasks? What problems could arise from this practice?

    4. (Advanced) What is outsourcing? How does it benefit businesses? What are the drawbacks of outsourcing? How is outsourcing affected by increased use of software?

    5. (Advanced) How should management decide which tasks or jobs to automate, which to outsource, and which to continue to manage with employees?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "The New Bookkeeper Is a Robot," by Vipal Monga, The Wall Street Journal, May 5, 2015 ---
    http://www.wsj.com/articles/the-new-bookkeeper-is-a-robot-1430776272?mod=djem_jiewr_AC_domainid

    Five years ago, 80 clerks and salespeople at Pilot Travel Centers LLC spent a combined 3,200 hours a week tracking and paying for orders for thousands of goods, ranging from candy bars to diesel fuel.

    They typed the orders into an accounts-payable database, and printed out thousands of checks to pay suppliers. After slipping them into envelopes and adding postage, they put the checks in the mail.

    “It was just awful,” said David Clothier, treasurer of the Knoxville, Tenn., company, which operates more than 500 Pilot Flying J truck stops nationwide. “There were humans everywhere.”

    Today, a computer “robot”—basically software—automates these tasks. Suppliers send their invoices to Pilot Travel electronically. Its software sends out payments and records every transaction. As a result, the company needs just 10 clerks working a weekly total of 400 hours to pay suppliers.

    Robots are taking over corporate finance departments, performing work that often required whole teams of people. Big companies such as Pilot Travel, New York-based Verizon Communications Inc. and GameStop Corp. , of Grapevine, Texas, are among those using software to automate many corporate bookkeeping and accounting tasks.

    Businesses use these programs to save time and staffing costs. Since 2004, the median number of full-time employees in the finance department at big companies has declined 40% to about 71 people for every $1 billion of revenue, down from 119, according to Hackett Group, a consulting firm.

    The telecom giant Verizon has reduced its finance-department costs by 21% over the past three years, partially through job cuts. It closed more than half of its 200 back-office locations across the country, built a new hub for finance operations in Lake Mary, Fla., and renovated an existing one in Tulsa, Okla. “The automation is a big factor” in the savings, said Fran Shammo, Verizon’s CFO.


    Teaching Case
    From The Wall Street Journal Accounting Review on May 8, 2015

    Brightcove CFO: How to Balance Investment vs. Turning a Profit
    by: John Kester
    May 01, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Chief Financial Officer

    SUMMARY: Kevin Rhodes, CFO of cloud-services firm Brightcove Inc., speaks to what makes a good CFO, what a finance team should do, and how to keep in synch with the CEO.

    CLASSROOM APPLICATION: This is a good article to share with students regarding what a CFO is and does. Many of our students will be working with CFOs and some students should aspire to be CFOs one day.

    QUESTIONS: 
    1. (Introductory) What is a Chief Financial Officer (CFO)? What are his/her duties?

    2. (Advanced) What does Mr. Rhodes say makes a good CFO? Did you find any of these features or work unusual?

    3. (Advanced) What type of non-financial work does a CFO do? Why would a CFO be involved in these kind of work or tasks?

    4. (Advanced) How can a business's financial team help the business? Please give some examples other than those included in the article.

    5. (Advanced) What is a CEO? What are the responsibilities of the CEO? How should the CFO work with the CEO?

    6. (Advanced) Would you be interested in being a CEO in the future? What should aspiring CFOs do to achieve that goal?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Brightcove CFO: How to Balance Investment vs. Turning a Profit," by John Kester, The Wall Street Journal, May 1, 2015 ---
    http://blogs.wsj.com/cfo/2015/05/01/brightcove-cfo-how-to-balance-investment-vs-turning-a-profit/?mod=djem_jiewr_AC_domainid

    Kevin Rhodes joined cloud-services firm Brightcove Inc. as its chief financial officer in December. The Boston-based company with more than 400 employees helps businesses such as Ford Motor Co.F +1.38% tailor marketing to customers by tracking online video viewers’ activity. On Thursday, Brightcove reported a $2.8 million net loss and revenue of $32.9 million for the first quarter of 2015.

    Mr. Rhodes, 46, was previously finance chief at PlumChoice Inc., and before that was CFO at Edgewater Technology Inc.EDGW +0.85% He spoke with CFO Journal’s John Kester about the roles of a finance chief and the finance team, and when to focus on immediate profit. Here is an edited excerpt:

    Are you under pressure to be profitable?

    We’ve guided to be profitable in the fourth quarter of this year. We’re making investments on the products side. We’re making investments on the sales and marketing side. We have actually guided for the street that we will be back at a double-digit growth rate by the end of the year, with accelerating revenue growth throughout the year.

    It is a delicate balance of looking at the opportunities, the product sets that you have, the needs of the marketplace, and where you invest in the company, being mindful as well [that] shareholders would like a company at our size to at some point start to deliver some profitability.

    But for the next couple quarters we’re going to make the right investments for the business that [are] going to generate enough revenue flow to get us to profitability in the fourth quarter and then go from there. If we wanted to be profitable tomorrow, we could be profitable tomorrow. We could stop making these investments.

    What makes a good CFO?

    There’s nothing more important for a CFO than credibility. And they need the ability to be thoughtful but independent and try and make the best decisions for the business and focus on how do we drive the company forward towards its strategy.

    You have to balance risk and reward as a CFO.

    The CFO’s role, especially at a technology company, is being able to create an environment where the engineers feel like they’ve got enough ability to be creative.

    As a public company CFO, I want to make sure that there’s enough controls on the company to ensure that people are not going wild in the streets. There’s a balance there between enabling these highly creative, highly intelligent people to go and create really cool products that the market needs and wants, but at the exact same time ensuring that we’ve got the discipline in place as an organization to stay within the rails and to really deliver.

    Continued in article


    Teaching Case
    From The Wall Street Journal Accounting Review on May 8, 2015

    Ohio High Court Strikes Down Cleveland's 'Jock Tax'
    by: Jacon Gershman
    Apr 30, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Individual Taxation, Local Income Taxes

    SUMMARY: Ohio's highest court on Thursday struck down Cleveland's so-called "jock tax," ruling that the city was excessively taxing visiting professional athletes using an illegal method to calculate their bills. Retired NFL football players Hunter Hillenmeyer and Jeff Saturday have spent years battling Cleveland in court over claims that the city was subjecting athletes playing for visiting teams to disproportionately high municipal income taxes. The city's unusual tax rule calculates a professional athlete's taxable income based on how many games an athlete plays in Cleveland. Other cities use a method based on how much time players spend in the city.

    CLASSROOM APPLICATION: This is a great article to use in an individual taxation class because it deals with a optic interesting to some many students - pro sports. While that topic will grab the students' attention, the case raises the issue of state and local governments taxing the income of nonresident workers.

    QUESTIONS: 
    1. (Introductory) What are the facts of the cases presented in the article? What did the court decide? What was the reasoning behind the court's decision?

    2. (Advanced) In general, what are state and local rules for taxing non-resident workers? What was the rule in Cleveland? How does Cleveland's rule differ from other state or municipalities?

    3. (Advanced) Why do state or local municipalities tax nonresidents? Should they be able to do this? Why or why not?

    4. (Advanced) Does Cleveland's rule apply to all nonresident workers or just to pro athletes? Does that make a difference in the outcome? Should it?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Ohio High Court Strikes Down Cleveland's 'Jock Tax'," Jacon Gershman, The Wall Street Journal, April 30, 2015 ---
    http://blogs.wsj.com/law/2015/04/30/ohio-high-court-strikes-down-clevelands-jock-tax/?mod=djem_jiewr_AC_domainid

    Ohio’s highest court on Thursday struck down Cleveland’s so-called “jock tax,” ruling that the city was excessively taxing visiting professional athletes using an illegal method to calculate their bills.

    Retired NFL football players Hunter Hillenmeyer and Jeff Saturday have spent years battling Cleveland in court over claims that the city was subjecting athletes playing for visiting teams to disproportionately high municipal income taxes.

    The city’s unusual tax rule calculates a professional athlete’s taxable income based on how many games an athlete plays in Cleveland. Other cities use a method based on how much time players spend in the city.

    Mr. Hillenmeyer, a former Chicago Bears linebacker who retired in 2010, played one game a year in Cleveland — over a 20-game season — between 2004 and 2006. Cleveland applied its income tax to 5% (1/20) of his earnings.

    The city taxed Mr. Saturday, a former center for the Indianapolis Colts, for a single game in Cleveland in 2008. In his case, he never stepped foot in the city but missed that game due to an injury. He owed money anyway because the city’s regulation applied the tax to any game in Cleveland “in which the athlete was excused from playing because of injury or illness.”

    The Ohio Supreme Court, overturning decisions by the state’s tax appeals board, ruled that Cleveland’s taxing method was illegal. The court said the two players were entitled to partial refunds totaling thousands of dollars, plus interest.

    Continued in article

    Also see
    "States saying 'no' to cities seeking to regulate businesses," by David A. Lieb, Associated Press, May 17, 2015 ---
    http://hosted.ap.org/dynamic/stories/U/US_STATEHOUSES_BAN_ON_BANS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2015-05-17-10-01-56 

    JEFFERSON CITY, Mo. (AP) -- Alarmed about cities trying to outlaw plastic bags, the director of the Missouri Grocers Association decided to do something about it. So Dan Shaul turned to his state legislator- himself - and guided a bill to passage barring local governments from banning the bags.

    Shaul's dual role in state government and business may be a bit out of the norm. Yet his actions are not. In capitols across the country, businesses are increasingly using their clout to back laws prohibiting cities and counties from doing things that might affect their ability to make money.

    In the past five years, roughly a dozen states have enacted laws barring local governments from requiring businesses to provide paid sick leave to employees. The number of states banning local minimum wages has grown to 15. And while oil-rich states such as Texas and Oklahoma are pursuing bills banning local restrictions on drilling, other states where agriculture is big business have been banning local limitations on the types of seeds sown for crops.

    Continued in article



     

     




    Humor May 1-31, 2015

    I have something that rhymes with "bucket list."
    Barack Obama --- http://www.businessinsider.com/white-house-correspondents-association-dinner-2015-2015-4

    Forwarded by Paula
    Dad Jokes That Are So Bad They’re Actually Good --- http://www.buzzfeed.com/mikespohr/29-dad-jokes-that-are-so-bad-their-actually-good

    Watch the Funniest Jokes From the White House Correspondents’ Dinner ---
    http://time.com/3835776/white-house-correspondents-dinner-president-obama-cecily-strong-whcd/?xid=newsletter-brief

    23 Things That David Letterman Invented --- http://mentalfloss.com/us/go/63979

    If dogs could talk --- https://www.youtube-nocookie.com/embed/xU7FdD1SpHc?rel=0

    Many educators have a tough time imagining a world where academic issues are more important than athletic ones at institutions with big-time programs. "Saturday Night Live" this weekend created such a world (slow loading) ---
    https://www.insidehighered.com/quicktakes/2015/04/06/snl-imagines-academic-primacy-over-athletics

    SNL's Cecily Strong delivered some brutal zingers at the White House ---
    http://www.businessinsider.com/white-house-correspondents-association-dinner
    http://www.businessinsider.com/snls-cecily-strong-delivered-some-brutal-zingers-at-the-white-house-correspondents-dinner-2015-4#ixzz3YPgAPdcF

    Tina Fey gave David Letterman an incredible send-off ---
    http://www.businessinsider.com/tina-fey-undressed-on-david-letterman-send-off-2015-5#ixzz3ZaOWA6MD

    The US Secret Service is  the only law enforcement agency that will get in trouble if a black man gets shot
    http://www.businessinsider.com/white-house-correspondents-association-dinner
    http://www.businessinsider.com/snls-cecily-strong-delivered-some-brutal-zingers-at-the-white-house-correspondents-dinner-2015-4#ixzz3YPgAPdcF

     

    MIT researchers have discovered the ultimate tongue twister ---
    http://modernnotion.com/worlds-hardest-tongue-twisters/#ixzz3WLYfNlrW

    She's Ready (Hillary Dances) --- Click here: 2008


    EY's Comment Letter Sent to the FASB Regarding Proposed Revisions to FAS 133, April 28, 2015 ---
    Derivatives and Hedging — Disclosures about Hybrid Financial Instruments with Bifurcated Embedded Derivatives ---
    http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB2976_HybridFinancialInstruments_28April2015/$FILE/CommentLetter_BB2976_HybridFinancialInstruments_28April2015.pdf


    Forwarded by Paula

    A joke that’s going around Ukraine:

    Vladimir Putin, wanting to get on the good side of voters, goes to visit a school in Moscow to have a chat with the kids. He talks to them about how Russia is a powerful nation and how he wants the best for the people. At the end of the talk, there is a section for questions.

    Little Sasha puts her hand up and says "I have two questions. Why did the Russians take Crimea? And why are we sending troops to Ukraine?"

    Putin says "Good questions..." But just as he is about to answer, the bell rings, and the kids go to lunch.

    When they come back, they sit back down and there is room for some more questions.

    Another girl, Misha, puts her hand up and says "I have four questions. My Questions are - Why did the Russians invade Crimea? Why are we sending troops to Ukraine? Why did the bell go 20 minutes early? And Where is Sasha?"


    From LISnews on May 5, 2015

    -A Hearty Laugh for Work Weary Librarians
    http://lisnews.org/node/43436/
    After a long day of answering questions and serving up information to the public (students, etc), a librarian could use a laugh. So pick up a copy of Roz Warren's OUR BODIES, OUR SHELVES: A COLLECTION OF LIBRARY HUMOR (HOPress, 2015) and see what might be between the covers that tickles your funnybone. Here's an excerpt from one story: Freeze! It's the Library Police [a librarian's fantasy of recovering stolen books] "Open up bitch! It's LIBRARY SQUAD! Library Squad! A group of enraged middle-aged librarians. We're brainy, we're relentless. We'll hunt you down. We'll never give up. We know the Dewey Decimal Sysytem and we're not afraid to use it. And we always get our book. And if you resist? We'll shush you. Permanently." In addition to her library duties at the Bala Cynwyd Library right outside Philadelphia, Roz Warren writes forThe New York Times, The Funny Times, The Christian Science Monitor, The Jewish Forward and The Huffington Post. And she‘s been featured on the Today Show. Our Bodies, Our Shelves is her thirteenth humor book. Years ago, Roz left the practice of law to take a job at her local public library “because I was tired of making so damn much money.” She doesn't regret it. Our Bodies, Our Shelves, ISBN 9780692406465


     




    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

    Humor December 1-31, 2014 --- http://faculty.trinity.edu/rjensen/book14q4.htm#Humor123114

    Humor November 1-30, 2014 --- http://faculty.trinity.edu/rjensen/book14q4.htm#Humor113014

    Humor October 1-31, 2014 --- http://faculty.trinity.edu/rjensen/book14q4.htm#Humor103114

    Humor September 1-30, 2014 --- http://faculty.trinity.edu/rjensen/book14q3.htm#Humor093014

    Humor August 1-31, 2014 --- http://faculty.trinity.edu/rjensen/book14q3.htm#Humor083114

    Humor July 1-31, 2014--- http://faculty.trinity.edu/rjensen/book14q3.htm#Humor073114

     




    And that's the way it was on May 31, 2015 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


     

    For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://faculty.trinity.edu/rjensen/ListServRoles.htm

    AECM (Accounting Educators)  http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
    The AECM is an email Listserv list which started out as an accounting education technology Listserv. It has mushroomed into the largest global Listserv of accounting education topics of all types, including accounting theory, learning, assessment, cheating, and education topics in general. At the same time it provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc

    Roles of a ListServ --- http://faculty.trinity.edu/rjensen/ListServRoles.htm
     

    CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/  (closed down)
    CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.

    Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk
    This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

    AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1 
    This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

    Business Valuation Group BusValGroup-subscribe@topica.com 
    This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM

     


     

    Concerns That Academic Accounting Research is Out of Touch With Reality

    I think leading academic researchers avoid applied research for the profession because making seminal and creative discoveries that practitioners have not already discovered is enormously difficult. Accounting academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic)
    From http://faculty.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
     

    “Knowledge and competence increasingly developed out of the internal dynamics of esoteric disciplines rather than within the context of shared perceptions of public needs,” writes Bender. “This is not to say that professionalized disciplines or the modern service professions that imitated them became socially irresponsible. But their contributions to society began to flow from their own self-definitions rather than from a reciprocal engagement with general public discourse.”

     

    Now, there is a definite note of sadness in Bender’s narrative – as there always tends to be in accounts of the shift from Gemeinschaft to Gesellschaft. Yet it is also clear that the transformation from civic to disciplinary professionalism was necessary.

     

    “The new disciplines offered relatively precise subject matter and procedures,” Bender concedes, “at a time when both were greatly confused. The new professionalism also promised guarantees of competence — certification — in an era when criteria of intellectual authority were vague and professional performance was unreliable.”

    But in the epilogue to Intellect and Public Life, Bender suggests that the process eventually went too far. “The risk now is precisely the opposite,” he writes. “Academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic). The agenda for the next decade, at least as I see it, ought to be the opening up of the disciplines, the ventilating of professional communities that have come to share too much and that have become too self-referential.”

     

    What went wrong in accounting/accountics research? 
    How did academic accounting research become a pseudo science?
    http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong

    Avoiding applied research for practitioners and failure to attract practitioner interest in academic research journals ---
    "Why business ignores the business schools," by Michael Skapinker
    Some ideas for applied research ---
    http://faculty.trinity.edu/rjensen/theory01.htm#AcademicsVersusProfession

     

    Clinging to Myths in Academe and Failure to Replicate and Authenticate Research Findings
    http://faculty.trinity.edu/rjensen/theory01.htm#Myths

     

    Poorly designed and executed experiments that are rarely, I mean very, very rarely, authenticated
    http://faculty.trinity.edu/rjensen/theory01.htm#PoorDesigns
     

    Discouragement of case method research by leading journals (TAR, JAR, JAE, etc.) by turning back most submitted cases --- http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Cases
     

    Economic Theory Errors
    Where analytical mathematics in accountics research made a huge mistake relying on flawed economic theory and interval/ratio scaling

    http://faculty.trinity.edu/rjensen/theory01.htm#EconomicTheoryErrors

     

    Accentuate the Obvious and Avoid the Tough Problems (like fraud) for Which Data and Models are Lacking
    http://faculty.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious

     

    Financial Theory Errors
    Where capital market research in accounting made a huge mistake by relying on CAPM

    http://faculty.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious

     

    Philosophy of Science is a Dying Discipline
    Most scientific papers are probably wrong
    http://faculty.trinity.edu/rjensen/theory01.htm#PhilosophyScienceDying

     

    Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites  --- http://faculty.trinity.edu/rjensen/AccountingNews.htm

    Accounting Professors Who Blog --- http://faculty.trinity.edu/rjensen/ListservRoles.htm

    Cool Search Engines That Are Not Google --- http://www.wired.com/epicenter/2009/06/coolsearchengines

    Free (updated) Basic Accounting Textbook --- search for Hoyle at
    http://faculty.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

    CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination
    Free CPA Examination Review Course Courtesy of Joe Hoyle --- http://cpareviewforfree.com/
     


    Bob Jensen's Pictures and Stories
    http://faculty.trinity.edu/rjensen/Pictures.htm

     

    Bob Jensen's Homepage ---