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 3: July 1 - September 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
September 30
August 31
July 31
September 30, 2015
Bob
Jensen's New Bookmarks for September 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
PwC: Download:
IFRS and US GAAP: similarities and differences - 2015 edition
---
http://www.pwc.com/us/en/cfodirect/assets/pdf/accounting-guides/pwc-ifrs-us-gaap-similarities-and-differences-2015.pdf
Bob Jensen's Threads on Controversies in Accounting Standard Setting ---
http://faculty.trinity.edu/rjensen/theory01.htm#MethodsForSetting
Similarities and Differences - A comparison of IFRS for SMEs and 'full IFRS'
---
http://www.pwc.com/en_GX/gx/ifrs-reporting/pdf/Sims_diffs_IFRS_SMEs.pdf
Comments on Web homepage design: Things I do not like about the new
American Accounting Association (AAA) homepage ---
http://faculty.trinity.edu/rjensen/WebsiteDesign.htm
From the Chronicle of Higher Education
Search for Job Openings in Higher Education ---
https://chroniclevitae.com/job_search/new
U.S. News College Compass Details of 1,800 Colleges and
Universities ($29.95 Annual Database Subscription Fee) ---
http://www.usnews.com/usnews/store/college_compass.htm
Jensen Comment
Much of this data is available for free at each Website, but it's harder to find
and match with a student's profile that is this U.S. News consolidated
database. The database appears to be of limited use for comparing academic
discipline, although U.S. News has other sites (most of them free) for such
purposes. For example if you want comparisons (rankings) on selected disciplines
go to
http://www.usnews.com/education
College and University Rankings (free)
---
https://en.wikipedia.org/wiki/College_and_university_rankings
For distance education program
information go to
http://faculty.trinity.edu/rjensen/Crossborder.htm
Two MIT students lay out the facts about why the Mars One mission is bogus
---
http://www.businessinsider.com/mars-one-mit-students-mission-not-feasible-debate-2015-8
If Senator Proxmire were alive the Mars One absurdity would probably get a
Golden Fleece Award ---
Golden Fleece Awards ---
https://en.wikipedia.org/wiki/Golden_Fleece_Award
Introductory Dilbert Cartoon ---
http://dilbert.com/strip/2015-09-11
"Peter Thiel Explains Biotech Investing
Rationale: Get Rid of Randomness," by Antonio Regalado, MIT's Technology
Review, September 12, 2015 ---
http://www.technologyreview.com/news/541226/peter-thiel-explains-biotech-investing-rationale-get-rid-of-randomness/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20150914
. . .
How do you know what an
early stage biotech company is actually worth?
There is disturbingly little
intuition into what biotech companies are worth. If you are able to produce
a drug that cures some sizeable disease for which there is no cure at all,
that is worth billions, or tens of billions of dollars. And if you don’t
succeed it’s worth nothing.
You have to get through
basic research, preclinical, Phase I, II, and III, and then marketing. So
approaching it analytically, the question is how do you discount [the risk
of failure at each step]. If you do half on each step, and there are six
steps, that’s 2 to the 6th, or 64. So something worth a billion at the end
means you start at [a value of] $16 million.
The thing I don’t
like about this as an investor is that the numbers are totally arbitrary.
They are just made-up numbers.
And our feeling with many biotechs is that people understate these
probabilities. They say it’s half, but maybe it’s just one in 10. And if
even if just one of these steps is one in 10, you are really screwed. I
would be very nervous to invest in a company where it gets pitched as a
series of contingencies that “this has to work, and this has to work, and
this has to work.”
So is Stemcentrx doing it
differently?
The question is, can you
change those probabilities into different numbers? The reason we invested in
Stemcentrx at a valuation that would have been higher than many other
biotechs we looked at is that we felt the whole company was designed to get
these probabilities as close to one as possible at every step, to get rid of
as much of this randomness or contingency as possible. That is something
that we found deeply reassuring.
. . .
Bob Jensen's Threads on Return on Business
Valuation, Business Combinations, Investment (ROI), and Pro Forma Financial
Reporting ---
http://faculty.trinity.edu/rjensen/roi.htm
Jonathan Karpoff,
a professor of finance at the University of Washington Foster School of
Business, has received this year’s Outstanding Contributions to Research in
Corporate Governance award from the influential Drexel University Center for
Corporate Governance ---
http://depts.washington.edu/foster/karpoff-receives-prestigious-award-for-research-in-corporate-governance/
Concerns That Academic Accounting Research is Out of Touch With Reality
September
17, 2015 message from Sudipta Basu
Dear Bob:
Don't know if you have come across this paper by
Gow, Larcker and Reiss, but given your interest in methodological issues,
you will probably find this interesting.
http://research.chicagobooth.edu/~/media/90CF65A6E20D44C6A70C579937A9778C.pdf
Best wishes,
Sudipta
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
|
"A
Scrapbook on What's Wrong with the Past, Present and Future of Accountics
Science"
Bob Jensen
http://faculty.trinity.edu/rjensen/AccounticsWorkingPaper450.pdf
Theory is Not Practice: Do the majority of downtown library patrons
mainly play video games,seek shelter, hang out, have sex, and use the toilets?
"Police officials say downtown library branch is draining resources,
'culture change' needed," by Roseann Moring, World Herald, September
17. 2015---
http://www.omaha.com/news/metro/police-officials-say-downtown-library-branch-is-draining-resources-culture/article_5e9424d8-5cdb-11e5-a6c3-87784c9c1c52.html
Frequent disturbances, rowdy behavior and even
reports of sex in the stairwell spurred Omaha police to ask library
officials Wednesday to clean up the downtown library.
Police Chief Todd Schmaderer and Capt. Katherine
Belcastro-Gonzalez told the Omaha Public Library Board that the branch is
draining police resources.
Several board members agreed that there is a
problem at the W. Dale Clark Library and two said they have felt intimidated
by people at the location.
The board took no formal action but asked staffers
to work with police to make a plan to fix the problems.
In the past year or so, Belcastro-Gonzalez said,
the Police Department has received about 200 calls to the main branch at 215
S. 15th St.
If every business did that, she said, “our police
resources would be exhausted.”
Police officials said the problem appears to be
groups of people — some of them homeless — who congregate in and around the
library and cause frequent disturbances.
The officials said much of the problem would be
solved if library staff better enforced the institution’s policies and
rules.
“I believe there needs to be a culture change,”
Belcastro-Gonzalez said.
Belcastro-Gonzalez cited two instances in which she
said someone caused a disruption but was allowed back into the library. One
was a sex offender who made an inappropriate comment about a child. The
other was a person accused of theft.
She asked the board to enact a policy that would
allow library officials to turn over footage from security cameras to police
without requiring a subpoena. She also suggested searching patrons’ bags to
make sure they don’t have weapons or open containers of alcohol.
The board also discussed the possibility of
installing metal detectors.
Library staffers said they’ve been working with
other entities to make the library less of a congregation point for
disruptive people. Library staff would like to see a nearby bus stop moved
down the block, and for the Open Door Mission stop dropping people off
across the street at the Gene Leahy Mall.
Continued in article
What tax software do the pros prefer in 2015?
"2015 tax software survey: CPAs rate the technical merits of one
of their most critical tools for surviving tax season," by Paul Bonner,
Journal of Accountancy, September 1, 2015
http://www.journalofaccountancy.com/issues/2015/sep/2015-tax-software-survey.html#sthash.Vp5a0Hyb.dpuf
Jensen Comment
I now despise TurboTax for two reasons.
Firstly, in 2015 TurboTax unethically removed some features from the package
I use every year and then belatedly made me pay $30 extra for those features.
Public outrage made them refund $25 of that extra fee, but there was all sorts
of confusion and time wasted on the part of us taxpayers using TurboTax.
Secondly, I think TurboTax handled its security data breach badly in the
aftermath of losing Social Security numbers and IRS Pin numbers for those of us
who filed electronically in 2014. They should have been more helpful to
customers that they harmed.
Two things have changed in my personal tax life.
One is that I will never buy TurboTax again (my way of protesting the bad ethics
of TurboTax). And secondly I will probably never file electronically until the
IRS finally figures out a way of not letting ID thieves file tax returns using
my name, my Social Security Number, and my IRS Pin number. It's true that the
IRS takes the loss instead of me, but I had to be smart enough to figure out
that my ID was stolen from TurboTax and that somebody (probably in Russia) filed
a tax return in my name. It's a good thing I figured it out and filed a second
return using the U.S, Post Office.
Bob Jensen's tax helpers ---
http://faculty.trinity.edu/rjensen/bookbob1.htm#010304Taxation
"Shining a Light on Effective Teaching Best
Practices: Survey Findings from Award-Winning Accounting Educators," by
Donald E. Wygal and David E. Stout, Issues in Accounting Education,
Article Volume 30, Issue 3 (August 2015) ---
http://aaajournals.org/doi/full/10.2308/iace-51038
This is not a free download.
Abstract
This paper provides best practices evidence from a sample of accounting
educators in the U.S. recognized formally for their teaching excellence.
These teaching exemplars were surveyed and asked to list, in their own words
and in ranked order of importance, “a minimum of three and up to five
factors or qualities of your teaching that you believe have helped
distinguish you as an effective teacher.” We received 453 responses to this
question from our sample of 105 award-winning accounting educators. A
content analysis of these responses suggests the following major
characteristics of teaching effectiveness in accounting (in decreasing order
of perceived importance): class session learning environment, student focus,
preparation and organization, importance of the practice environment,
passion and commitment to teaching (as a profession), and the design of the
course learning environment. Response breakdowns suggest the existence of
contextual effects: differences in importance ratings for selected
characteristics of teaching effectiveness were observed with respect to
respondent professorial rank, years of full-time teaching experience, and
gender. Results shine a light on teaching effectiveness in accounting
education providing, for the first time, both evidence of the perceived
relative importance of specific characteristics, as well as insights on
pedagogical knowledge to guide educator classroom pursuits.
Jensen Comment
Most of the findings in this study are motherhood and apple pie, but I found it
interesting to read the respondents' remarks about such things as passion,
delivery skills, classroom management, active learning, empathy, preparation,
etc. Very little reference is given to humor, grading, and easiness
although these seem to be of importance to respondents on RateMyProfessors.com.
It's very hard to be an award-winning teacher with a median class grade below a
B+ at the undergraduate level. Times have changed over the years.
There's nothing in this study about
effectiveness of technology and multimedia other than email. For example, how
does use of videos outside of flipped classes affect teaching evaluations and
learning?
The study is not much help in comparing pedagogy
such as lecturing versus Socratic method and case method teaching.
There's nothing regarding online teaching versus
onsite teaching except an appeal for future research into this topic.
My conclusion is that the study leaves out too
much to be of great interest to me. I get more insights from scanning
RateMyProfessors.com for award-winning treachers ---
http://www.ratemyprofessors.com/
USA ACCOUNTING ENROLLMENTS CONTINUE UPWARD TREND, REACH ALL-TIME HIGH
"2015 Trends in the Supply of Accounting Graduates and the Demand for Public
Accounting Recruits," AICPA, 2015
The 2015 edition of Trends in the Supply
of Accounting Graduates and the Demand for Public Accounting Recruits is a
publication of the results of a long-standing American Institute of CPAs
survey.
The survey, published since 1971,
identifies key trends in accounting enrollment, as well as graduation and
hiring. This report, covering the 2013–14 academic year, provides estimated
information and forecasting regarding the supply of and demand for new
accounting graduates within the public accounting sector to various
stakeholders and interested parties.
In the 2013–14 academic year, enrollment
in accounting programs reached an all-time high after a year of rapid growth
— a 19% increase for master’s degree enrollments and a 3% increase in
bachelor’s degree enrollments. Master of Accounting programs of both public
and private universities saw major growth in enrollment — with 23% and 50%
increases in enrollments this period, respectively — while there was a
smaller increase (12%) of enrollments in Bachelor of Accounting programs at
private universities and a 22% decrease in bachelor’s degree enrollments at
public universities.
Total bachelor’s and master’s degrees in
accounting awarded in the 2013–14 academic year remained steady with a less
than 1% decline after reaching an all-time high in the 2011–12 academic
year. Master’s degrees awarded increased by 31%, while bachelor’s degrees
awarded decreased by 11%.
Hiring also reached record levels after 7%
growth in all new hires. Master’s degree hires saw the largest growth, with
an 11% increase since 2012. Over the same time period, bachelor’s degree
hires increased 5%. As a percentage of total hires in 2014, however, new
hires with bachelor’s degrees increased 3 percentage points, new hires with
master’s degrees decreased 6 percentage points, and total nonaccounting
hires increased 2 percentage points since the previous reporting period. As
a percentage of new hires, those assigned to accounting/auditing decreased 4
percentage points while assignment to taxation increased by the same amount.
Universities and firms are both optimistic
about the growth of the profession — 97% of bachelor’s programs and 70% of
master’s programs expect their enrollment to be the same or higher than the
previous year. Additionally, 91% of firms expect their hiring of new
accounting graduates to be higher than or the same as the previous year.
Larger firms are especially optimistic about future hiring with all large
firms employing over 200 CPAs forecasting the same or more new hires in
every area next year.
The gender distribution of professional
staff at all firms is now 52% male and 48% female. The reported
race/ethnicity distribution changed with the White race/ethnicity category
increasing 10 percentage points, the Asian/Pacific Islander race/ethnicity
category decreasing 9 percentage points, and the Black/AfricanAmerican
race/ethnicity category decreasing 2 percentage points. The gender
distribution of partners also showed a significant shift, with a 5
percentage point increase in female partners between 2012 and 2014.
The AICPA is very appreciative of the
universities and firms who took the time to participate in this year’s
survey. Please contact us at trends@aicpa.org with any questions or feedback
as we strive to make the information in these surveys relevant to your
needs.
Bob Jensen's threads on careers ---
http://faculty.trinity.edu/rjensen/bookbob1.htm#careers
"Meet Retraction Watch, the Blog That Points
Out the Human Stains on the Scientific Record," by Steve Kolowich,
Chronicle of Higher Education, September 25, 2015 ---
http://chronicle.com/article/Meet-Retraction-Watch-the/233373/?cid=at&utm_source=at&utm_medium=en
Most
people would not have been interested in the sins of
Ariel Fernández.
In 2013 someone suggested that Mr. Fernández, an
Argentine scientist, had contributed bad data to a
genomics paper. Two of the
institutions affiliated with Mr. Fernández had
investigated; one had found his data credible, the
other had not. "Interpret the data with due
caution," wrote the editors of BMC Genomics,
the journal that had published the paper two years
earlier, in a note to readers.
The implications of the
note were hard to parse.
What exactly had gone wrong? Could the paper be
trusted, or not? What did "due caution" mean?
Retraction Watch was set
up to answer questions like those. By that time the
thorny little blog had already planted itself in the
side of journal editors and researchers who
preferred that errors in the scientific record be
dealt with discreetly. Its founders, a pair of
veteran science writers, were not just interested in
big-ticket fraud cases; they were determined to
apply scrutiny to scientific screwups of all kinds,
including the obscure ones that tended to slip
through the cracks.
So when BMC Genomics
posted its note, Retraction Watch wanted answers.
"One of Fernández’s three institutions, we don’t
know which, found cause for concern with his
results," wrote Adam Marcus, one of the blog’s
founders, in a
post about the journal’s
note. "Another did not (why only two are referenced
here is a mystery). What, we wonder, did Fernández
have to say about all this?"
He
soon got a response: Take down the post, or I will
sue you.
Retraction Watch later quoted
several emails that its editors said Mr. Fernández
had sent to Mr. Marcus and to editors at BMC
Genomics. The messages
threatened legal action
against the blog and asked the journal to help stop
Retraction Watch from damaging Mr. Fernández’s
reputation. (In an email to The Chronicle,
Mr. Fernández denied writing the messages. "Someone
is using my email address," he said, adding, "I
don’t read blogs.")
In
the messages, Mr. Fernández argued that his paper
should not have been written about on a blog called
Retraction Watch because technically the journal had
issued an "expression of concern," not a retraction.
When Mr. Marcus explained that he had made the
distinction clearly in his post, he received a
reply, in all caps, insisting that his post amounted
to libel.
It
was not the first time a scientist had threatened to
sue Retraction Watch, and it wouldn’t be the last.
Over the last five years, Mr. Marcus and his
partner, Ivan Oransky, have gotten under the skin of
plenty of researchers and journal editors by turning
retraction-spotting into a spectator sport. In the
process they have earned a few enemies — along with
many fans, including a few powerful grantmakers.
Unexpected Influence
Armed now with a bona fide
reputation and $700,000 in foundation funding,
Retraction Watch finds itself in a position of
unexpected influence at a time when scientific
researchers are struggling to maintain their
credibility in the public eye. The past decade has
seen an boom in research-fraud cases, some of which
have made national headlines. A
recent meta-study of 100
psychology papers found that less than half of the
published findings could be replicated. People
looking for excuses to distrust scientists no longer
need to look very hard.
Continued in article
New TAR (The Accounting Review) Retractions Listed in the July 2015 Edition of The Accounting
Review ---
http://aaajournals.org/toc/accr/current
RETRACTIONS
1707 |
|
Partial Retraction: Section IV: Survey in R&D
Capitalization and Reputation-Driven Real Earnings Management
Nicholas
Seybert
Citation |
Full Text |
PDF (437 KB) |
Supplemental Material |
|
1709 |
|
Retraction: Potential Functional and
Dysfunctional Effects of Continuous Monitoring
James E.
Hunton,
Elaine G. Mauldin and
Patrick R. Wheeler
Citation |
Full Text |
PDF (377 KB) |
Supplemental Material |
|
1711 |
|
Retraction: Financial Reporting Transparency and
Earnings Management
James E.
Hunton,
Robert Libby and
CheriL. Mazza
Citation |
Full Text |
PDF (358 KB) |
Supplemental Material |
|
1713 |
|
Retraction: Does the Form of Management’s
Earnings Guidance Affect Analysts’ Earnings Forecasts?
Robert Libby,
Hun-Tong Tan and
James E. Hunton
Citation |
Full Text |
PDF (384 KB) |
Supplemental Material |
|
1715 |
|
Retraction: Capital Market Pressure, Disclosure
Frequency-Induced Earnings/Cash Flow Conflict, and Managerial
Myopia
Sanjeev
Bhojraj and
Robert Libby
Citation |
Full Text |
PDF (297 KB) |
Supplemental Material |
|
1717 |
|
Retraction: An Assessment of the Relation Between
Analysts' Earnings Forecast Accuracy, Motivational Incentives
and Cognitive Information Search Strategy
James E.
Hunton and
Ruth Ann McEwen
Citation |
Full Text |
PDF (458 KB) |
Supplemental Material |
New AH (Accounting Horizons) Retractions Listed in the September 2015 Edition of Accounting
Horizons ---
http://aaajournals.org/toc/acch/current
RETRACTIONS
743 |
|
Retraction: The Impact of
Client and Auditor Gender on Auditors' Judgments
Anna Gold,
James E. Hunton and
Mohamed I. Gomaa
Citation |
Full Text |
PDF (363 KB) |
Supplemental Material |
|
745 |
|
Retraction: Does Graduate
Business Education Contribute to Professional Accounting
Success?
Benson Wier,
Dan N. Stone and
James E. Hunton
Citation |
Full Text |
PDF (364 KB) |
Supplemental Material |
|
747 |
|
Retraction: Sampling
Practices of Auditors in Public Accounting, Industy, and
Government
Thomas W. Hall,
James E. Hunton and
Bethane Jo Pierce
Citation |
Full Text |
PDF (368 KB) |
Supplemental Material |
|
749 |
|
Retraction: Is Analyst
Forecast Accuracy Associated With Accounting Information Use?
Ruth Ann McEwen and
James E. Hunton
Citation |
Full Text |
PDF (347 KB) |
Supplemental Material |
|
751 |
|
Retraction: Performance of
Accountants in Private Industry: A Survival Analysis
James E. Hunton and
Benson Weir
Citation |
Full Text |
PDF (397 KB) |
Supplemental Material |
|
753 |
|
Retraction: Hierarchical
and Gender Differences in Private Accounting Practice
James E. Hunton,
Presha E. Neidermeyer and
Benson Wier
Citation |
Full Text |
PDF (408 KB) |
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Retraction Watch (cheating in research) ---
http://retractionwatch.com
Bob Jensen's threads on professors who cheat ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
Never should used H&R Block instead of TurboTax
The IRS says Coke owes $3.3 billion Plus Interest ---
http://www.businessinsider.com/irs-coca-cola-tax-bill-2015-9
"What Keynes Would Think of
‘Neo-Keynesians," by Richard Hurowitz, The Wall Street Journal,
September 20, 2015 ---
http://www.wsj.com/articles/what-keynes-would-think-of-neo-keynesians-1442788636?mod=djemMER
’
Unlike his acolytes,
he understood the value of gold and the dangers of currency debasement.
As the Federal
Reserve continues to struggle with when to place its foot ever so slightly
on the brakes of a historic monetary expansion, I’m reminded of Richard
Nixon’s words in 1971 when closing the gold window in the face of a run on
the dollar. Of this dramatic repudiation of gold as a monetary metal Nixon
famously declared, “I am now a Keynesian,” more often misquoted as “We are
all Keynesians now.”
British economist
John Maynard Keynes probably would have been horrified by this attribution.
Nixon’s announcement was, after all, a coup de grâce delivered to Bretton
Woods, the international monetary system of which Keynes was a principal
architect. More important, he would never have thought desirable a world
where currencies are backed by nothing more than a governmental promise to
pay while the printing presses whirled unchecked.
Policy makers today
wrap themselves in the legitimizing mantle of Keynes in much the way many
politicians claim the legacy of Ronald Reagan. But while the idea of
increased government spending to counteract the business cycle hails
directly from Keynes, he would have considered quantitative easing’s
frenzied asset buying beyond the pale and been puzzled that his theories are
associated with aggressive currency debasement and a rabid hostility to
gold.
Keynes’s supposed
antagonism toward bullion arises from a misunderstanding of his famous
statement in 1924 that the “gold standard is already a barbarous relic.”
Many take this pithy remark to mean Keynes wanted to discard gold entirely
from the international monetary framework. However, Keynes was actually
against the economic pain often caused by the strict gold-standard system
that had governed international monetary exchange for two centuries leading
up to World War I. That regime did an excellent job of maintaining price
stability, but its automatic mechanism for correcting economic imbalances
through domestic deflation and unemployment spikes flew in the face of
Keynes’s vision for smoothing out booms and busts.
But for Keynes,
gold itself—and the importance of sound money—was a different story. So was
exchange-rate stability, which went out the window between the world wars as
the major powers used competitive “beggar-thy-neighbor” devaluations that
wreaked havoc on global trade and prosperity. Germany and France suffered
currency collapses, Britain catastrophically overvalued sterling, and
Franklin Roosevelt set the gold price of the dollar each morning from his
bed, on at least one occasion based on his lucky number. The result was
disastrous.
Continued in article
"Deloitte Resigns as Tianhe Chemicals Auditor," by Julie Steinberg,
The Wall Street Journal, September 18, 2015 ---
http://www.wsj.com/articles/deloitte-resigns-as-tianhe-chemicals-auditor-1442575112
HONG KONG—Deloitte Touche Tohmatsu Ltd., the
auditor of Tianhe Chemicals Group Ltd., has resigned from auditing the
embattled Chinese chemicals firm.
Tianhe, which went public in Hong Kong in June of
last year in a US$748 million initial public offering, faced criticism a few
months later from the group Anonymous Analytics, which calls itself an
advocate for corporate transparency but doesn’t disclose who its members
are.
In September of last year, Anonymous Analytics
released a report alleging that Tianhe had kept two sets of financial books
-- one for investors and one for Chinese authorities -- and that the company
overstated sales of a chemical agent called anti-mar used in products such
as smartphones.
The activist group said it wouldn’t profit from the
report, although a disclaimer noted that, while it holds “no direct or
indirect interest” in Tianhe, its consultants, affiliates or clients may
have a short position in the stock.
Tianhe, the Hong Kong-listed company which counts
Morgan Stanley ’s private-equity arm among its investors, has repeatedly
denied the Anonymous allegations, calling them false and groundless. Morgan
Stanley was one of the lead banks on Tianhe’s IPO.
Spokespeople for Tianhe, Deloitte and Morgan
Stanley declined to comment.
Tianhe said late Thursday its board had on Tuesday
informed Deloitte it wouldn’t accept a draft report the auditor had
prepared, in which the auditor refrained from expressing an opinion on
Tianhe’s financials.
“In these circumstances, Deloitte is of the view
that, for all practical purposes, the audit has come to an end,” Tianhe
said, adding that Deloitte gave a formal notice of its resignation as
auditor to the board and the audit committee on Wednesday. Tianhe said it
will try to find a new auditor.
Trading in Tianhe’s shares has been halted at the
company’s request since March. Tianhe at the time said it needed more time
to provide further information to its auditors concerning its 2014 annual
results, which haven’t been released.
In August, Tianhe said in a filing to the Hong Kong
stock exchange that “there are three areas where the Auditor considers that
its concerns have not been fully addressed” and which were delaying the
publication of the 2014 results. Tianhe said in the filing its audit
committee had conducted an investigation into the issues cited by Deloitte.
Continued in article
Bob Jensen's threads on Deloitte ---
http://faculty.trinity.edu/rjensen/Fraud001.htm
If you—or your folks—are anywhere near retirement, you should be asking
these questions now ---
http://www.bloomberg.com/news/articles/2015-09-18/don-t-fall-into-the-social-security-trap?cmpid=BBD091815_BIZ
Jensen Comment
Don't be misled by averages. Just because early retirees die younger on average
has little if anything to do with you in particular (not that I'm recommending
early retirement for you). But if you are getting anxious, many employers,
including universities, have early retirement deals such as a year or two of
salary that delays when you have to tap retirement funds.
Retirement decisions should probably not be made before consulting experts on
retirement financing and timing. Employers often make competent and unbiased
experts available free of charge.
The sad news about retirement now is that interest rates have plunged so low
such that you may have to take some financial risks with your retirement
savings.
And don't look for retirement deals to soar just because the Fed eventually
raises interest rates by a microscopic epsilon.
And don't rely on Medicare to cover your retirement needs. Medicare is not
free to you in retirement and has coverage limitations you should know about.
Supplemental plans are increasingly expensive. And to sustain Medicare as an
entitlement cost to retirees will go up and coverage will decline substantially.
And most of all remember that Medicare does not cover nursing home costs. And
if you are over 55 nursing home insurance is not usually a good deal unless you
know something about your future that you're keeping secret. It may be better to
have a strict savings plan for nursing home and other health contingencies. This
is something to talk over with your retirement counseling expert.
ACCA AND IMA EXPLORE FUTURE CHALLENGES FACING THE ACCOUNTING PROFESSION
---
by Bob Schneider
AccountingEducation.com, September 18, 2015
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=153571
September 4, 2015 Message from Gerald Trites in Canada
Hi Bob,
Is there any material in our website on
the Future of the Profession? In particular I am researching possible
initiatives that could be taken that are new and not presently being done
that will be needed to adapt to our changing world. I have found numerous
articles on the future of the profession but there is not much real
innovation out there.
Jerry
Jensen Comment
There are predictions all over the place, many of which vary with parts of what
we call accountancy. For example, technology will increasingly replace
bookkeepers in capturing transactions, journalizing, posting, closing the books,
and preparing financial statements --- all without human beings. Technology will
also increasingly replace human auditors, although this happening is further
down the road.
But the "future of accounting" can be viewed even without
focusing on human accountants. Even if robots determine what data is captured
and eventually put on financial statements those robots will have to be guided
by accounting policies, standards, and operational rules. Here futurists are
widely divided by traditional and historic differences such as preferences for
historical cost (price-level adjusted), entry values, exit values, economic
values, etc. Robots are no better than humans in measuring and disclosing
intangibles than human accountants. What we really would like is a robot that
can measure "value in use," but that robot if it exists at all still resides in
other galaxies.
In terms of financial accounting standards most of us thought
that it would soon be a done deal to give the IASB a monopoly on setting the
standards and principles that guide operational decisions. But it looks like,
gratefully in my opinion, that the IASB is going to have to wait decades for
monopoly powers.
The future of accounting is conditioned upon the future of
world economics. Most advances in accounting have assumed some form of
capitalism with heavy financial and managerial accounting advances for business
enterprises. The state of accountancy for socialism and governmental accounting
in general is still in the dark ages. We only have to compare Soviet accounting
advances in the 20th Century with accounting advances in the West to appreciate
that as imperfect as accounting is in the West it is well ahead of Soviet
accounting that amounted to writing of fiction.
You might take a look at the following article in Forbes.
The Future Of The Accounting Industry In 2015 ---
http://www.forbes.com/sites/russalanprince/2015/01/21/the-future-of-the-accounting-industry-in-2015/
I would download this immediately before Forbes takes it off the Web
"Should students learn IFRS? Faculty
recommend best practices for teaching the standards." by Cheryl Meyer, AICPA,
Seotenber 8, 2015 ---
http://www.aicpa.org/InterestAreas/AccountingEducation/NewsAndPublications/Pages/should-students-learn-ifrs.aspx
Jensen Comment
The AICPA is a vocal, and not financially unbiased, advocate of replacing FASB
with IFRS standards. Colleges and universities in the USA were preparing to
transition to IFRS when it appeared the USA would make the switch. However, now
that the SEC is clinging to FASB standards the movement toward IFRS sputtered in
the USA. Aside from teaching some of the key differences between FASB versus
IFRS standards (such as LIFO) the teaching of both standards is a heavy burden
on an already overloaded curriculum. Students in the USA obviously have less
interest in in IFRS rules that will not be on the CPA examination.
The are some advantages for USA
students to learn IFRS given that the largest USA CPA firms encounter IFRS in
audits. However, the benefits of learning a little bit of IFRS in intermediate
and advanced accounting courses are marginal at best for remotely-possible job
tasks in the future.
The saga between FASB versus IFRS
standards in the USA is summarized at
http://faculty.trinity.edu/rjensen/theory01.htm#MethodsForSetting
"Compilation of Articles on Teaching
Ethics," Inside Higher Ed, September 16, 2015 ---
https://www.insidehighered.com/quicktakes/2015/09/16/compilation-articles-teaching-ethics
Inside Higher Ed is pleased to release
today "Teaching Ethics: A Key Role for Educators," our latest
print-on-demand compilation of articles. The booklet features articles about
a range of institutions and approaches. This compilation is free and you may
download a copy here. And you may
sign up here for a free webinar on Thursday, Oct.
15, at 2 p.m. Eastern about the themes of the booklet
Encyclopedia Size Comparisons
---
https://en.wikipedia.org/wiki/Wikipedia:Size_comparisons
Jensen Comment
Open source encyclopedias that let the people of the world write and edit
modules are more likely to have errors if for no reason other than they have so
many more modules. Allowing the world to make edits is both an advantage and a
disadvantage in terms or error and bias. It's a disadvantage in that the paid
and volunteer editors of these encyclopedias cannot possible find and correct
all errors and egregious bias. They do their best on controversial topics like
hot political topics and biographies.
The advantage of open sharing and
editing is that errors on popular topics (those topics having the most hits) are
likely to be corrected quickly by experts. The disadvantage is that the least
popular topics (those having almost no hits) are may go uncorrected for decades
such as in the biography of John Doe who is only of interest to his two friends
in life. Fortunately millions of experts are willing to examine and correct
popular topics very quickly.
"Is Wikipedia More Biased Than
Encyclopædia Britannica?" by Michael Blanding, Harvard Business School,
August 31, 2015 ---
http://hbswk.hbs.edu/item/7689?item=7689.html
Jensen Comment
The finding that Wikipedia is more "left leaning" is hardly surprising.
Professors and students worldwide are overwhelmingly left leaning and they tend
to write a lot of the modules in Wikipedia and edit modules in that enormous
encyclopedia.
Liberal Bias in Academe ---
http://faculty.trinity.edu/rjensen/HigherEdControversies.htm#LiberalBias
However, academe also saves Wikipedia
in many respects. For example, the above article does not mention that some
medical schools deem it a public service to to have professors and students
update and correct Wikipedia modules on diseases, treatments, medications, etc.
This makes Wikipedia more likely rather than less likely to be of great service
to users.
September 4, 2015 message from Scott
Bonacker
The Wikimedia Foundation, the non-profit organization that sponsors but does not operate Wikipedia, announced Monday that at least 381 accounts
have been suspended for “black hat” editing, in which editors charge and accept money for “to promote external interests.”
Continued --- https://blog.wikimedia.org/2015/08/31/wikipedia-accounts-blocked-paid-advocacy/
Comments on Web homepage design: Things I do not like about the new
American Accounting Association (AAA) homepage ---
http://faculty.trinity.edu/rjensen/WebsiteDesign.htm
2015 as Reported by the Tax Foundation:
Ten Worst States for
Property Taxes ---
http://www.cheatsheet.com/business/the-10-worst-states-for-property-taxes.html/?a=viewall
- New Jersey
Taxes as percentage of home value: 1.89%
•Median home value: $348,300
•Rank based on percentage of income: 1
- New Hampshire
Taxes as percentage of home value: 1.86%
•Median home value: $249,700
•Rank based on percentage of income: 2
- Texas
Taxes as percentage of home value: 1.86%
•Median home value: $249,700
•Rank based on percentage of income: 2
- Wisconsin
Taxes as percentage of home value: 1.76%
•Median home value: $170,800
•Rank based on percentage of income: 8
- Nebraska
Taxes as percentage of home value: 1.70%
•Median home value: $123,300
•Rank based on percentage of income: 14
- Illinois
Taxes as percentage of home value:
1.73% •Median home value: $202,200
•Rank based on percentage of income: 5
- Connecticut
Taxes as percentage of home value: 1.63%
•Median home value: $291,200
•Rank based on percentage of income: 4
- Michigan
Taxes as percentage of home value: 1.62%
•Median home value: $132,200
•Rank based on percentage of income: 10
- Vermont
Taxes as percentage of home value: 1.62%
•Median home value: $132,200
•Rank based on percentage of income: 10
- North Dakota
Taxes as percentage of home value: 1.42%
•Median home value: $116,800
•Rank based on percentage of income:
Jensen Comment
This is partly an illustration of how to mislead with statistics, because the
property taxes are not comparable in all respects among the 50 states. For
example, all states do not have the same homestead exemptions. And not all
states have the same conditions. The big exception is California that has
Proposition 13 that is fully applicable to California and partly applicable to
some other states in terms of property tax relief in setting limitations on tax
valuations of property ---
https://en.wikipedia.org/wiki/California_Proposition_13_(1978)
Some states provide relief to senior citizens
that is partly an attempt to keep them from leaving the state in retirement. For
example, in Texas senior citizens have a something like Proposition 13 for the
school district portion of property tax bills but not the same tax valuation
freeze for other items in the property tax billings.
Some states are react more quickly to changes in
property tax values. For example, when I owned a home in Bexar County, Texas the
property tax valuations were almost continuously updated. Now that I live in New
Hampshire it seems like changes in valuation are almost rare events that lead to
a lot of tax valuation unfairness. Two homeowners living side by side with
virtually identical homes may have different tax valuations based upon how long
they owned their homes. For example, a home owner living in a home for 30 years
may have a much lower tax valuation than an owner who recently purchased the
home.
Probably the most misleading aspect of the above
state comparisons is the failure to also include other items of state taxation
that also clobber home owners such as state income taxes and sales ttaxes. For
example, home owners in most of the above states also get clobbered with those
other state taxes but not New Hampshire and North Dakota. Texas has a wicked
sales tax but not a state income tax.
2015 as Reported by the Tax Foundation:
Top 10 States With the Highest
Total State Taxes Per Capita ---
http://www.cheatsheet.com/business/top-10-states-with-the-highest-taxes.html/
- New York
•Average Annual State and Local Taxes:
$9,718
•Difference from National Average: 39 percent
•Adjusted Rank by Cost of Living: 51
- California
•Average Annual State and Local Taxes: $9,509
•Difference from National Average: 36 percent
•Adjusted Rank by Cost of Living: 50
- Nebraska
•Average Annual State and Local Taxes: $9,450
•Difference from National Average: 36 percent
Adjusted Rank by Cost of Living: 37
- Connecticut
•Average Annual State and Local Taxes: $9,099
•Difference from National Average: 31 percent
•Adjusted Rank by Cost of Living: 49
- Illinois
•Average Annual State and Local Taxes: $9,006
•Difference from National Average: 29 percent
•Adjusted Rank by Cost of Living: 38
- Wisconsin
•Average Annual State and Local Taxes: $8,975
•Difference from National Average: 29 percent
•Adjusted Rank by Cost of Living: 39
- Vermont
•Average Annual State and Local Taxes: $8,838
•Difference from National Average: 27 percent
•Adjusted Rank by Cost of Living: 45
- New Jersey
•Average Annual State and Local Taxes: $8,830
•Difference from National Average: 27 percent
•Adjusted Rank by Cost of Living: 47
- Iowa
•Average Annual State and Local Taxes: $8,788
•Difference from National Average: 26 percent
•Adjusted Rank by Cost of Living: 33
- Maine
•Average Annual State and Local Taxes: $8,622
•Difference from National Average: 24 percent
•Adjusted Rank by Cost of Living: 43
Jensen Comment
Perhaps some credit should be given for trends. For example, Maine and New
Jersey used to be in the top 3 and are now in slightly lower positions in the
Top 10. California and Nebraska recently chose to clobber taxpayers much harder.
Perhaps the word "clobber" is a bit too strong since differences between the
above high-taxation states are relatively small.
Once again the statistics on total taxation are
somewhat misleading. This is partly revealed in the cost of living rankings
shown above where the people in Iowa get quite a lot of relief compared to those
in New York, California, and Connecticut relative to states with lower housing
costs.
There are also many other differences in some of
the state taxes that make it difficult to rely too much on the above
comparisons. There are also huge differences in the benefits received from the
state taxes. The states with the highest taxes have some of the worst public
schools in the USA such as those in Chicago, NYC, Los Angeles, Milwaukee, Omaha
and the larger cities in New Jersey. Some high tax states have nearly all good
schools throughout each state such as Iowa, Vermont, and Maine.
"Auditors accuse the Feds of mismanaging $600
million in Obamacare contracts," by Jacqueline Leo,
The FiscalTimes via Business Insider, September 1, 2015
http://www.businessinsider.com/feds-accused-of-mismanaging-600-million-in-obamacare-contracts-2015-9
Last July, as the price tag for the Obamacare
enrollment system climbed
to $2.1 billion, a scathing report by the
Government Accountability Office accused the Centers for Medicare and
Medicaid Services (CMS) of negligent management practices and lack of
oversight of contractors hired to create and fix
Healthcare.gov—the primary portal to
enroll Americans in Obamacare.
Today, the Inspector General for the Department of
Health and Human Services went further. They reviewed 20 of the 62 contracts
that were awarded to create the federal marketplace for Obamacare—worth a
cool $600 million—and found that CMS failed to manage each contract
properly.
The audit accuses the public employees responsible
for these contracts of flaunting federal oversight procedures, not
indicating when contract deliverables were met, and not keeping accurate
records of each project.
As a result, the
IG report concludes:
-
Contractor delays and performance
issues were not always identified.
-
A contractor incurred unauthorized
costs that increased the cost of the contract.
-
Contracting officers in all Government
agencies did not have access to contractor past performance evaluations
when making contract awards.
-
Critical deliverables and management
decisions were not properly documented.
Last year’s GAO report put
the original cost overruns at $150 million but then added $175 million to
that number to include the cost of fixing the original website, which was a
disaster. That disaster cost President Obama a major failure, the head of
HHS lost her job and taxpayers got soaked.
Continued in article
"EX-NYSE CEO: The stock market is not fair,"
by Matt Turner, Business Insider, September 13, 2015 ---
http://www.businessinsider.com/ex-nyse-chief-dick-grasso-says-stock-market-is-unfair-2015-9
"Today’s Markets Aren’t Fair," by Bradley
Hope, The Wall Street Journal, September 11, 2015 ---
http://www.wsj.com/articles/fast-market-not-necessarily-a-fair-market-former-nyse-chief-says-1441992084
The former head of the New
York Stock Exchange says modern markets have sacrificed fairness for speed.
Richard Grasso, chairman and
chief executive of the NYSE from 1995 to 2003, said in an interview to be
broadcast Sunday for the television show “Wall Street Week” that the market
swings last month were a sign something was awry with the capital markets.
“A fast market is not
necessarily a fair market, as evidenced by that Monday open,” he said in a
clip of the interview viewed by The Wall Street Journal, referring to the
tumultuous early trading on Aug. 24.
The action that day has
drawn scrutiny from regulators, exchanges, institutions and everyday
investors—and sparked discussions about how to tweak the market to prevent
similar problems. There were nearly 1,300 trading halts, most of them in the
first part of the day, and some stocks dropped rapidly before recouping
losses in a matter of minutes.
“Frankly, some of the things
that went on that day need very close scrutiny,” Mr. Grasso said in an
interview Friday with the Journal. “A day like that, where Facebook ’s
shares go from $86 to $72 to $84 in a matter of minutes will cause the
public to lose confidence in the markets.”
Mr. Grasso stepped down from
the NYSE in 2003 after a controversy over the nearly $140 million he
received in retirement pay, deferred compensation and benefits that year.
He led the NYSE at a time
when it was the dominant venue for trading stocks, handling roughly 80% of
all transactions. Members of the NYSE earned high salaries, and the exchange
reflected their wealth, featuring a high-end Luncheon Club where traders
dined on steak and oysters amid artwork and wild game mounted on the wall.
For the most part, Mr.
Grasso is no longer involved in the securities market. He serves as a member
of the advisory board of the Delaware Board of Trade Holdings Inc., which is
aiming to build a stock exchange for startups.
Some market observers said
Mr. Grasso’s views were out of date. David Weisberger, managing director at
the market-analytics firm RegOne Solutions, said it cost investors much more
to trade stock during Mr. Grasso’s era, because specialists on the floor of
the exchange had more control over trading.
“The market now is far more
egalitarian than it’s ever been,” he said.
Mr. Grasso also criticized
how exchanges sold proprietary feeds of stock-trading data to some clients,
while many in the market relied on a slower feed.
“Creating an advantage to an
institutional user or a particular type of trader that disadvantages the
retail investor is bad for the country, bad for the markets and bad for your
business,” he said in the television interview.
Continued in article
"Changes proposed for CPA exam would enhance higher-order skills testing,"
by Ken Tysiac, Journal of Accountancy, September 1, 2015 ---
http://www.journalofaccountancy.com/news/2015/sep/cpa-exam-proposed-changes-201512929.html
The AICPA has proposed changes to the Uniform CPA
Examination that are designed to enhance testing of higher-order skills that
newly licensed CPAs need to possess in the wake of changes in the profession
that have altered job responsibilities.
The proposed changes to the exam have been crafted
to reflect the profession’s evolution and keep the exam in step with the
profession. In an exposure draft issued Tuesday, Maintaining the Relevance
of the Uniform CPA Examination, the AICPA seeks comment on proposed changes,
which would take effect during 2017. The ED is available on the AICPA
website. Comments are due Nov. 30, and final decisions on the exam’s content
and format are expected to be announced in the spring of 2016.
Under the proposal, the exam would retain its four
existing sections—Auditing and Attestation (AUD), Business Environment and
Concepts (BEC), Financial Accounting and Reporting (FAR), and Regulation (REG).
But many other changes would be associated with the exam, including:
Enhanced testing of higher-order cognitive
skills that include critical thinking, problem-solving, analytical
ability, and professional skepticism. A blueprint for each section of
the exam illustrating the knowledge and skills that will be tested,
which are linked directly to tasks that are representative of the work
of a newly licensed CPA. The blueprints would replace the current
Content Specification Outline and Skill Specification Outline and would
contain more information for candidates, academics, regulators, and
others. A plan for more task-based simulations for the exam. These would
test a combination of content knowledge and higher-order skills.
Task-based simulations would be added to the BEC section for the first
time. There would be eight or nine task-based simulations each in the
AUD, FAR, and REG sections, and four or five of these simulations in the
BEC section. An increase in total testing time from 14 to 16 hours. Each
section would be allotted four hours. This represents an hour added to
the BEC section to accommodate the addition of task-based simulations,
and an hour added to the REG section, partly because of an increase in
task-based simulations. The cost of the exam is expected to increase as
a result of the time expansion. It is anticipated that the scoring
weight of multiple-choice questions and task-based simulations will be
about 50% each in the AUD, FAR, and REG sections. The BEC section is
likely to have an approximate score weighting of 50% multiple choice,
15% written communication, and 35% task-based simulation. Currently,
multiple-choice questions are weighted 60% and task-based simulations
40% in the scoring of the AUD, FAR, and REG sections. The BEC section’s
current scoring weight is 85% multiple choice and 15% written
communication.
Along with regular exam content reviews, the AICPA
periodically conducts a comprehensive practice analysis to ensure that the
exam continues to assess the technical knowledge and skills necessary for
initial licensure to protect the public interest. At a minimum, a practice
analysis must be completed every seven years. - See more at:
http://www.journalofaccountancy.com/news/2015/sep/cpa-exam-proposed-changes-201512929.html#sthash.JNIsus9y.dpuf
Continued in article
September 3 reply from Tom Selling
The writers of the
CPA exam face a number of constraints, some of which are well known, and
others, I believe are not well-recognized by academics.
The well-known
constraint is that the exam is automatically graded. This limits the kinds
of questions that can be asked.
The first less
known constraint are psychometric. Basically, the result is that a question
cannot be too hard, for if it is, it doesn’t make it past the trial phase.
The result is that the exam gets dumbed down. Certain areas, like
stock-based compensation, derivatives and hedge accounting, are barely
tested, because not enough candidates are capable of answering correctly.
The second lesser
known constraint is that each question has to be consistent with the AICPA’s
analysis of what practitioners say a new CPA needs to know in the first two
years of practice only. The current changes are a response to the new
emphasis that practitioners are placing on the ability of new hires to solve
realistic problems based on real (and somewhat messy) sources of information
(invoices, emails, ledgers, etc.) that need to be reviewed, evaluated and
integrated. But, this constraint also limits the sophistication of questions
that can be asked; and more important to me, is the competency control
question for more seasoned CPAs. Basically, we have a high stakes
certification exam for the newbies, but the requirements for professional
development via continuing education are a joke. IMHO, if we are concerned
with raising the quality of professionals, we should be focusing on more
demanding CPE requirements. I feel that this is an area where accounting
professors could contribute.
Best,
Tom
September 3, 2015 reply from John
Briggs
I guess, to better
explain my position, I wonder if it is necessary to capture "critical
thinking"
on the CPA exam.
This is not to say that critical thinking is not important, but instead that
maybe
a content-based screening exam is not the worst thing in the world. If you
treat it as a screening exam.
And FAR,REG, and AUD all have 40% weight in simulations as it is.
But perhaps the exam should be more than JUST a screening exam, and I won't
fight that argument.
Since you can take every part every 3 months, over and over again, at some
point most people will pass.
Will this change at all, even if we go higher on Bloom's taxonomy? It makes
me wonder if changing
the format of the exam will really accomplish anything as far as who gets
through and who doesn't.
So, if you read the above carefully, I'm only making a logic argument, a
"why bother" argument.
I think the idea to change the exam (yet again) is okay, I'm not an
opponent.
Bob Jensen's threads on the CPA/CMA Examinations ---
http://faculty.trinity.edu/rjensen/bookbob1.htm#010303CPAExam
Better understand and implement FASB standard on disclosing open tax years
The AICPA's
Center for Plain English Accounting conducted an investigation into the
applicability of the disclosure requirement of open tax years associated with
the Financial Accounting Standards Board's Interpretation No. 48, Accounting
for Uncertainty in Income Taxes.
AICPA Insights,
September 9, 2015---
http://blog.aicpa.org/2015/09/deflategate-binkygate-disclosing-open-tax-years.html#sthash.yHcLO6TY.4D54OKdW.dpbs
ASB releases proposed 2016 GAAP taxonomy ---
http://www.journalofaccountancy.com/news/2015/sep/2016-gaap-taxonomy-201512945.html
This brilliant world map shows countries scaled to the size of their stock
markets ---
http://www.businessinsider.com/map-countries-scaled-to-equity-market-capitalization-2015-8
Jensen Comment
No stock market is free of corruption and insider trading. But trust to a point
is a condition for investor participation in stock bond and stock markets. Trust
is relative, but the USA seems to be doing pretty well on a relative scale. But
all stock markets and bond markets could do a lot better in fighting corruption.
"Lawyers Are Just As Likely To Lose Their Jobs To Robots As Truck Drivers
And Factory Workers," by Paul Caron, TaxProf Blog, August 30, 2015
---
http://taxprof.typepad.com/taxprof_blog/2015/08/lawyers-are-just-as-likely-to-lose-their-jobs-to-robots-as-truck-drivers-and-factory-workers.html
Jensen Comment
The same is true for accountants. Just think of how intimidating it will be when
those eight-foot tall auditors wearing green eyeshades and sleeve garters file
into the client's office.
Credit Rating Firms ---
http://en.wikipedia.org/wiki/Credit_rating_firms
Credit Rating Firms are rotten to the core ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm#CreditRatingAgencies
"Ending the Credit Ratings Racket: Seven years after the financial
crisis, the SEC enacts a critical reform," The Wall Street Journal,
September 18, 2015 ---
http://www.wsj.com/articles/ending-the-ratings-racket-1442615384?mod=djemMER
America’s financial system is sturdier today thanks
to some rare good news from a Washington regulator. Seven years after the
financial crisis, the Securities and Exchange Commission has taken a big
step toward ending a policy that helped cause the mess.
For decades before the crisis, SEC staff had
recognized a small group of private credit-rating agencies—including
Standard & Poor’s, Moody’s and Fitch—as official judges of risk. Federal
regulators referred to these favored companies in their rules and even
forced financial institutions to invest in paper rated highly by this
anointed cartel.
When the members of the cartel turned out to be
wrong about the risks in mortgage-backed securities, the result was
catastrophic because the government had forced so many other firms to follow
their advice.
The new rule enacted by the commission this week
says that instead of simply holding assets rated highly by the cartel, the
operators of money-market mutual funds must instead rely on their own
analysis to select securities presenting minimal credit risk. Investors
probably assume that’s what mutual fund companies do already, and many of
them do. All of them should.
Kudos to SEC Commissioner Daniel Gallagher, who has
the welcome habit of breaking Beltway decorum. In various public fora, Mr.
Gallagher kept reminding his colleagues that this needed reform was being
ignored while they went about drafting rules that had nothing to do with
addressing the causes of the last crisis or preventing the next one.
This week’s reform leaves one SEC rule that still
carries an endorsement of the ratings cartel—so-called Regulation M for
securities offerings. SEC Chair Mary Jo White should now get her agency all
the way out of the business of deciding whose opinions about credit risk
ought to be followed. Let markets decide whose opinions have value. It will
make financial crises less likely.
There’s also need for reform outside Washington.
Too many state pension systems still show too much deference to the cartel.
A rating expresses a point of view, not a guarantee.
Continued in article
Credit Rating Firms Were Rotten
to the Core: At last the DOJ is
taking some action (Bailout,
Credit Rating Agendies,
Agencies, Banks, CDO, Bond
Ratings, CDO. Auditing, Fraud)
citation:
"DOJ vs. Rating Firms,"
by David Hall, CFO.com
Morning Ledger, February 5,
2013
journal/magazine/etc.:
CFO.com Morning Ledger
publication date:
Februry 5, 2013
article text:
There are two superpowers in
the world today in my opinion.
There’s the United States and
there’s Moody’s Bond Rating
Service. The United States can
destroy you by dropping bombs,
and Moody’s can destroy you by
down grading your bonds. And
believe me, it’s not clear
sometimes who’s more powerful.
The most that we can safely
assert about the evolutionary
process underlying market
equilibrium is that harmful
heuristics, like harmful
mutations in nature, will die
out.
Martin Miller, Debt and Taxes as
quoted by Frank Partnoy, "The
Siskel and Ebert of Financial
Matters: Two Thumbs Down for
Credit Reporting Agencies,"
Washington University Law
Quarterly, Volume 77, No.
3, 1999 ---
http://faculty.trinity.edu/rjensen/FraudCongressPartnoyWULawReview.htm
Credit rating agencies gave AAA
ratings to mortgage-backed
securities that didn't deserve
them. "These ratings not only
gave false comfort to investors,
but also skewed the computer
risk models and regulatory
capital computations," Cox said
in written testimony.
SEC Chairman Christopher Cox
as quoted on October 23, 2008 at
http://www.nytimes.com/external/idg/2008/10/23/23idg-Greenspan-Bad.html
"CREDIT RATING AGENCIES:
USELESS TO INVESTORS," by
Anthony H. Catanch Jr. and J.
Edward Ketz, Grumpy Old
Accountants Blog, June 6,
2011 ---
http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/113
In 2008 it became evident
that credit rating firms were
giving AAA ratings to bonds that
they knew were worthless,
especially CDO bonds of their
big Wall Street clients like
Bear Stearns, Merrill Lynch,
Lehman Bros., JP Morgan,
Goldman, etc. ---
http://faculty.trinity.edu/rjensen/2008Bailout.htm#Sleaze
Bob Jensen's threads on the fraudulent credit rating agencies ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm#CreditRatingAgencies
"Journal of Management
Accounting Research Update 2015," by Jim Martin, MAAW's Blog,
September 1, 2015 ---
http://maaw.blogspot.com/2015/09/journal-of-management-accounting.html
"Thoughts on Competency Integration in Accounting Education,"
Issues in Accounting Education, Volume 30, Issue 3 (August 2015)
Authors
- Raef A. Lawson,
- Edward J. Blocher,
- Peter C. Brewer,
- Jan Taylor Morris,
- Kevin D. Stocks,
- James E. Sorensen,
- David E. Stout
- Marc J. F. Wouters
Abstract
The paper follows up on Lawson et al.
(2014), which reported on the work of a joint task
force sponsored by the Management Accounting Section (MAS) of the American
Accounting Association (AAA) and the Institute of Management Accountants (IMA)
charged with the responsibility of developing curricular recommendations for
accounting education. The current paper extends the discussion by examining
possibilities for integrating foundational competencies and broad management
competencies into the accounting curriculum, and for integrating across
various accounting competencies. The paper provides a detailed example to
illustrate its recommendations. The paper also discusses two implementation
challenges related to curriculum integration and offers some thoughts for
productively responding to them. Finally, the paper includes three
appendices that contain an additional example and list additional resources
for instructors to support curricular-integration initiatives in accounting.
Jensen Comment
I know most of these authors and they are leaders in accounting education. But
did this particular article really need eight authors?
Four Mistakes That Could Ruin Your
Retirement ---
http://www.cnbc.com/2015/09/03/4-mistakes-that-could-ruin-your-retirement.html
Jensen Comments
Mistake: Boosting bond
allocations at retirement
It used to be a good ideal to shift from CREF to TIAA before retirement.
Thanks to the Fed's virtually zero interest rate policies this may no longer
be a good idea. Times change, however, so everything should be reconsidered
if you won't be retiring soon.
Mistake: Counting on Medicare to cover
all health care costs
Medicare is being torn apart by fraud and explosion of medical costs.
Drastic revisions in the future almost certainly will entail making middle
and upper income retirees bear much more of their medical costs than they
currently are paying out when on Medicare.
Mistake: Moving to a state for the low
income taxes
There are usually more important variables for choosing where to live in
retirement than state income taxes. However, if plans include moving to
another state both income and inheritance taxes should be considered. We
have two grown children living in California and Maine. Taxes were a
consideration when we chose New Hampshire with good tax deals relative to
Maine and California, and New Hampshire is very close to Maine.
Mistake: Not saving enough for
retirement.
This is a bigger problem since the Fed's zero interest rate policy destroyed
most safe investment alternatives like certificates of deposit and low-risk
bonds. Now investments for retirement must take on more risk like choosing
all CREF versus having some TIAA. Of course taking on more financial risk
entails taking more chances. Dah! Some investors take chances in real
estate, but the real estate in my portfolio was only in the house I lived in
and the land surrounding this house. I do not generally like rental property
because of the headaches of being a landlord (including owning a farm). I do
not like idle land investments because of the annual property taxes and
insurance cash going out and no cash coming in.
More of Bob Jensen's personal finance helpers
---
http://faculty.trinity.edu/rjensen/bookbob1.htm#InvestmentHelpers
This is the research you should do before picking a credit card ---
http://www.businessinsider.com/sc/pick-the-right-credit-card-2015-8
AICPA: Back-to-School: How to Pay for College
---
http://blog.aicpa.org/2015/08/back-to-school-how-to-pay-for-college.html#sthash.gcYpuxSm.PSkI9cqt.dpbs
The Upshot: Is It Better to Rent or Buy? (real estate calculator) ---
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
Jensen Comment
My general advice for new faculty is not to buy a home until tenure is achieved
except in hot markets where fast turnover profits are probable provided too much
is paid initially. After tenure achievement the above calculator can be helpful.
My priors were to invest as much as possible in long-term ownership of a
house and the least possible in the long-term ownership of a very reliable car.
However, be careful where you buy real estate. Up in the White Mountains I
advise mountain or lake views even though New Hampshire has a view tax.
There really aren't any gated neighborhoods up here, and nothing would be gained
by having gated neighborhoods. In San Antonio I would not put big money into a
house that's not in a gated neighborhood. Even if you're opposed philosophically
to that concept, the fact is that expensive homes do not sell very well in San
Antonio unless they are in gated neighborhoods with armed guards at the gates. I
would have had much more capital gain on my big San Antonio house if it had been
in a gated neighborhood. Sigh!
The Upshot: Is It better to Lease or Buy a Car? ---
http://money.howstuffworks.com/business/getting-a-job/buy-vs-lease-car.htm
Jensen Comment
Leasing became much more attractive when the Federal Reserve drove commercial
interest rates toward zero. But that does not mean "more attractive" than buying
in all instances. Much depends on the amount you drive and the terms of the
lease in the context of the amount you drive. It also depends a lot upon
your willingness to drive older cars. When I worked in San Antonio where newish
cars are stolen in unbelievable numbers daily my wife's car was a newish tiny
Honda Civic, and I drove a very reliable battered up ancient Ford station wagon
that had a newish engine and transmission under the hood. This ghetto-like car
looked so bad that nobody would think of stealing it and driving it across the
border to Mexico.
In general, even in retirement, my wife and I do not mind driving
well-maintained older cars. Our main car in the White Mountains (where car theft
would be headline news) is a very reliable Subaru Forrester that we will
probably drive until it is at least 20 years old (it's now five years old) or
has over 100,000 miles. The Subaru will probably be the last car we ever
own. After that its car leasing for us unless we're in a nursing home. I also
keep an unreliable old Jeep Cherokee in the barn that's used mostly for hauling
brush to the dump. That will be in our barn on the day I die.
My point is that leasing would probably not be the best choice for us until
we're very old. However, leasing is the best choice for most of our children
except for one son who puts a lot of miles on a car commuting a long distance to
work in California.
Bob Jensen's personal finance helpers ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
Monetary Liability for Breach of the Duty of Care?
SSRN, September 1, 2015
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2657231
Author
Holger Spamann Harvard Law School
Abstract
This paper clarifies
why optimal corporate governance generally excludes monetary
liability for breach of directors' and managers' fiduciary duty of care.
In principle, payments predicated on judicial evaluations of directors' and
managers' business decisions could usefully supplement payments predicated
on stock prices or accounting figures in the provision of performance
incentives. In particular, the optimally adjusted combination of standard
performance pay and tailored partial liability could impose less risk on
directors and managers, and provide better risk-taking incentives, than
standard performance pay alone. This paper shows this in a formal model
summarizing well-known results.
Consequently, the reason not to use liability
incentives is not absolute but a cost-benefit trade-off. Litigation is
expensive, while the benefits from refining incentives are limited, at least
in public firms. Equity pay already provides fairly good incentives, courts
have difficulties evaluating business decisions, and the agency conflict in
standard business decisions is limited. The analysis rationalizes many
existing exceptions from non-liability but also leads to novel
recommendations, particularly for entities other than public corporations.
State Contract Law and the Use of Accounting Information in Debt Contracts
SSRN, September 8, 2015
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2658420
Authors
Colleen Honigsberg Columbia University - Columbia Business School
Sharon P. Katz Columbia Business School - Accounting, Business Law & Taxation
Sunay Mutlu Kennesaw State University - Michael J. Coles College of Business
Gil Sadka University of Texas at Dallas
Abstract
We study the relation between state contract law
and the use of balance-sheet and income-statement based covenants in debt
contracts. Balance-sheet based covenants are argued to ex ante resolve
debtholder-shareholder conflicts, whereas income-statement based covenants
are considered to serve as trip wires that trigger the switch of control
rights ex post. Importantly, it is more difficult for lenders to exert their
control rights ex post if the contract law is more favorable to debtors
(i.e., the law is pro-debtor). We therefore ask whether lenders using
pro-debtor law are more likely to rely on balance-sheet based covenants, and
our evidence provides an affirmative answer to this question. Pro-debtor
(pro-lender) state contract law is negatively associated with the
probability that the contract includes an income-statement based covenant (a
balance-sheet based covenant). Moreover, we extend our inquiry beyond
financial covenants and find additional evidence that lenders using the law
of pro-debtor states are more likely to rely on contractual features that do
not require enforcement of control rights. In particular, we document that
borrowing base restrictions, which limit the amount a lender provides to the
borrower based on the borrower’s working capital assets, are more common in
contracts that are governed by pro-debtor state contract law.
Adoption and Implementation of IFRS in India: A Corporate Experience
SSRN, September 9, 2015
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2657940
The IUP Journal of Accounting Research & Audit Practices, Vol. XIII, No. 4,
October 2014, pp. 7-24
Authors
Anubha Srivastava and Priyanka Gupta Amity, Business School and Amity University
Abstract
IFRS adoption in India has been a burning issue
since the announcement made by the Ministry of Corporate Affairs. IFRS has
its own pros and cons, and leaving local standards and adopting
international standards requires knowledge and expertise. Therefore, this
paper tries to find out, both with the help of primary and secondary data
analyses, what a corporate report will look like after adoption and what
will be the impact of IFRS on key ratio. And to support these analyses, a
questionnaire survey was also been conducted. Synchronizing accounting
standards across the globe is an ongoing process in the international
accounting community. The aim is to understand the implications of applying
IFRS in India and how it is accepted by the corporate in India.
Modelling the Joint Distribution of Income and Wealth
SSRN, August 2015
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2655139
IZA Discussion Paper No. 9190
Authors
Markus Jantti Abo Akademi University
Eva Sierminska LISER ; DIW Berlin - German Socio-Economic Panel Study (SOEP) ;
Institute for the Study of Labor (IZA)
Philippe Van Kerm CEPS/INSTEAD ; University of Essex - Institute for Social and
Economic Research (ISER)
Abstract
This paper considers a parametric model for the
joint distribution of income and wealth. The model is used to analyze income
and wealth inequality in five OECD countries using comparable
household-level survey data. We focus on the dependence parameter between
the two variables and study whether accounting for wealth and income jointly
reveals a different pattern of social inequality than the traditional
'income only' approach. We find that cross-country variations in the
dependence parameter effectively accounts only for a small fraction of
cross-country differences in a bivariate measure of inequality. The index
appears primarily driven by differences in inequality in the wealth
distribution.
Public Audit Oversight and Reporting Credibility: Evidence
from the PCAOB Inspection Regime
SSRN, September 2015
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2656933
Authors
Brandon Gipper University of Chicago - Booth School of Business
Christian Leuz University of Chicago - Booth School of Business ;
National Bureau of Economic Research (NBER) ; European Corporate Governance
Institute (ECGI) ; Center for Financial Studies (CFS) ; University of
Pennsylvania - Wharton Financial Institutions Center ; CESifo Research
Network
Mark G. Maffett University of Chicago - Booth School of Business
Abstract
This paper examines how audit oversight by
a public-sector regulator affects investors’ assessments of reporting
credibility. We analyze whether the introduction of the Public Company
Accounting Oversight Board (PCAOB) and its inspection regime have
strengthened capital-market responses to unexpected earnings releases, as
theory predicts when reporting credibility increases. To identify the
effects, we use a difference-in-differences design that exploits the
staggered introduction of the inspection regime, which affects firms at
different points in time depending on their fiscal year-ends, auditors, and
the timing of PCAOB inspections. We find that capital-market responses to
unexpected earnings increase significantly following the introduction of the
PCAOB inspection regime. Corroborating these findings, we also find an
increase in abnormal volume responses to firms’ 10-K filings after the new
regime.
Overall, our results are consistent with
public audit oversight increasing the credibility of financial reporting.
"Accounting Architecture: The New Face of AIS,"
SSRN, September 16, 2015
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2658257
Authors
Joshua G. Coyne University of Memphis - School of Accountancy
Emily M. Coyne San Jose State University - School of Library & Information
Science
Kenton B. Walker University of Wyoming
Abstract and Added Quotation
Unlike Financial Accounting, Managerial Accounting,
Tax Accounting and Auditing, Accounting Information Systems as an academic
discipline is not currently focused on training students to enter a discrete
professional field. This lack of focus is not demand-driven as an
increasingly dire need exists for IT auditors, as well as systems developers
with accounting knowledge. One hurdle preventing expansion of AIS curriculum
to prepare accounting students to serve as IT auditors and IT architects is
the need for a unifying framework that circumscribes relevant professional
competencies. This article introduces such a framework and proposes a
corresponding academic discipline that combines accounting and auditing with
systems design and control: Accounting Architecture.
. . .
IV. CURRICULUM REVISIONS
The preceding section introduced the proposed Accounting Architecture model,
described the blocks in the model’s arch and explained consequent modifications
to the curriculum. This section presents two proposals for implementing
these revisions into accounting education by identifying specific courses to
teach the requisite skills. The first proposal addresses upper-level and
graduate courses only, whereas the second proposal builds on the first by
suggesting changes to lower-level accounting courses.
Upper-level Courses
The two key components of the revision to upper-level courses are a
restructured undergraduate course in AIS and a new master’s track. Because
other disciplines have expertise in certain components of the AA framework,
accounting departments will not need to create new courses to address every
topic, but rather simply identify existing courses in other departments and
incorporate them into the course plan.
Introduction to Accounting Architecture
The first curriculum change involves replacing the current AIS course with an
introduction to the AA framework. This course should present the AA model,
and expound upon each of its building blocks. Because one course is not sufficient
to provide students with expertise in any of the constructs in the model,
the goal of this course must be to instill interest in and familiarity with
each of the topics. Additionally, the course should provide practical
experience with the components of the technology section by encouraging
students to build a computer, install an operating system, create a virtual
machine, administrate and query a database, format a partition, host a
website, use MapReduce on unstructured data, manage a private cloud,
implement a firewall and set up a local-area network. Not all of these
experiences have equal value, but each exposes the students to technological
components of most enterprise-grade information systems.
Additionally, with respect to relational databases,
the curriculum should discontinue its explanation of database modeling using
the Resource-Entity-Agent (REA) framework for two reasons. First, the
Entity-Relationship (E-R) model is the accepted standard for relational
databases to such an extreme that many professionals in the information
systems, IT and computer science disciplines are not aware of the REA model.
Second, the REA model is not a conceptual view of a database and requires an
E-R diagram as an intermediate step to transition from REA model to database
schema. The REA model is a static representation of a business transaction
similar to a flowchart or a data-flow diagram. As such, it may be a useful
tool for visualizing business transactions, but flowcharts and data-flow
diagrams are more widely accepted alternatives for this. Because the REA
model cannot represent databases or transactions better than the accepted
tools,
Continued in article
Stewardship Accounting History ---
https://en.wikipedia.org/wiki/History_of_accounting
On the Relationship of Stewardship and Valuation — An
Analytical Viewpoint
SSRN, September 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2655177
Abacus, Vol. 51, Issue 3, pp. 379-411, 2015
Authors
Christoph Kuhner University of Cologne
Christoph Pelger University of Cologne
Abstract
Agency theoretical literature in accounting has
frequently stressed possible difficulties in pursuing stewardship and
valuation usefulness simultaneously. However, recent empirical evidence has
revealed a significantly positive correlation between the two objectives.
These empirical findings provide support for the IASB/FASB's decision to
encompass stewardship in valuation usefulness in their revised conceptual
framework. The objective of our paper is to identify factors influencing the
stewardship/valuation relationship by using an analytical model. In a Linear
Exponential Normal (LEN) setting we focus on the characteristics of an
accounting system, in particular relevance, freedom from error and freedom
from bias, the latter two according to IASB/FASB being components of
representational faithfulness.
We show that accounting quality, comprising
relevance and freedom from error, has similar effects on valuation and
stewardship usefulness. However, we identify conditions under which there is
no perfect mapping from stewardship to valuation. Moreover, discretion in
the accounting system has different consequences for both objectives as it
does not affect valuation usefulness while it entails potentially negative
effects on stewardship.
Thus, we raise doubts in relation to the
standard‐setters' view that stewardship is automatically met by a focus on
valuation usefulness.
Jensen Comment
Stewardship accounting does not pretend to be valuation accounting and serves
another purpose. Exit values of balance sheet components are of use of those
components are going to be sold in "garage sales." Entry value (replacement
cost) accounting may be useful from the standpoint of capital maintenance
theory, but there are enormous problems estimating replacement costs when newer
replacement assets are quite unlike the older replacement assets such as when
new technologies are quite different. Used-asset markets are quite unreliable
since used assets are often highly unique relative to similar assets traded on
in used-asset markets, often very thin markets ---
http://faculty.trinity.edu/rjensen/theory02.htm#BasesAccounting
The big problem for valuation
accounting is that it's usually impossible to reliably measure value in use. My
analogy here is trying to value a professor by summing up the exit values or
entry (replacement) values of that person's body parts. The markets for parts
are disconnected to the values in use in a particular professor. My wife has had
15 spine surgeries. I tease her that she's worth more dead than alive since
replacing the titanium in her spine would cost hundreds of thousands of dollars
---
http://faculty.trinity.edu/rjensen/theory02.htm#FairValue
"The Center Cannot Hold: The AICPA and Accounting Professional Leadership
1997–2013,"
Accounting Horizons, Volume 29, Issue 3 (September 2015)
http://aaajournals.org/doi/abs/10.2308/acch-51087
Authors
R. Drew Sellers, Timothy J. Fogarty, and Larry M. Parker
Abstract
Trade associations should play an integral role in
defining and defending the legitimacy and jurisdiction of a profession. In
addition, they should provide a field upon which individuals can rise above
the confines of their organizations and grow their professional leadership
capacities. Evidence in the literature suggests that U.S. accounting
conformed to this pattern under the auspices of the American Institute for
Certified Public Accountants (AICPA). However, various recent events have
transpired that reduce the confidence that this continues to be the case.
Using network analysis on longitudinal data from 1997 to 2013, this paper
documents an increasingly fragmented and isolated leadership structure. This
finding suggests the reduced influence of the AICPA. Surprisingly, this
decline has not been offset by the stronger influences of the large
international firms. Implications for the profession are discussed.
Psychopathy ---
https://en.wikipedia.org/wiki/Psychopathy
"Psychopathy, Academic Accountants' Attitudes toward Unethical Research
Practices, and Publication Success," by Charles D. Bailey, The
Accounting Review, Volume 90, Issue 4 (July 2015 ---
http://aaajournals.org/doi/abs/10.2308/accr-50970
TAR articles are not open sharing free
Abstract
Psychopathy is characterized by deficits of conscience and empathy, and is
measurable in nonclinical populations. It is one of the “Dark Triad” of
personality variables, but has received minimal attention in accounting
literature, despite obvious implications for fraud. In the practice of
empirical research, two sides of the “Fraud Triangle,” motive and
opportunity, are in place, awaiting only rationalization. For one high on
the psychopathy scale, rationalization of fraud is easy or moot. Widespread
fraud exists in scientific research, and studies indicate that accounting is
not exempt. I hypothesize and find a positive effect of psychopathy on
article publication count in leading accounting journals, mediated by
individuals' greater acceptance of unethical acts in research and
publication. Participants are 546 North American accounting faculty who have
published in accounting research journals, who are lower on the psychopathy
scale than previous samples from other populations. Policy and research
implications are discussed.
"The US Air Force made a $25 billion
accounting error," by Blake Stilwell, Business Insider, August 31,
2015 ---
http://www.businessinsider.com/the-us-air-force-made-a-25-billion-accounting-error-2015-8
In a report to Congress last year, the Air
Force estimated the cost of the new Long Range Strike Bomber (LRSB) to be
$33.1 billion for the next 10 years. This year, that price
ballooned to $58.2 billion.
The amount of the gap is so large that it
caught the attention of Rep. Jackie Speier (D-California), who demanded
answers from Secretary of the Air Force Deborah Lee James and Gen. Mark
Welsh, the Air Force chief of staff. How does the Air Force explain the $25
billion error? It says the cost should have actually been $41.7 billion, but
human error was the explanation for the discrepancy.
Welsh insists he was caught off guard as
well. It was just a multibillion-dollar oopsie, people.
"We were surprised by the number when we
saw it as well once it had been pointed out to us that it looked like the
number had grown, because we've been using the same number," Welsh said.
The Air Force has a history of
bait-and-switch budgeting when it comes to developing new aircraft. The Air
Force's F-35 Joint Strike Fighter program is notoriously over budget (it's
the most expensive weapons program ever) and underperforming.
The Air Force's most recent fighter
program, the dogfighting-optimized F-22 Raptor, produced 187 units between
1996 and 2011 at the cost of $157 million each. The Raptor wasn't used in
combat until 2014.
Read more:
http://www.businessinsider.com/the-us-air-force-made-a-25-billion-accounting-error-2015-8#ixzz3ky6C0SIi
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
"Earnings Management and Derivative Hedging with Fair Valuation: Evidence
from the Effects of FAS 133," by Jongmoo Jay Choi and Connie X. Mao,
The Accounting Review, Volume 90, Issue 4 (July 2015) ---
http://aaajournals.org/doi/abs/10.2308/accr-50972
Abstract
Barton (2001) and Pincus and Rajgopal (2002) show that earnings management
through discretionary accruals and derivative hedging are partial
substitutes in smoothing earnings before 1999. In this study, we investigate
whether Financial Accounting Standard (FAS) 133 regarding hedge accounting
in 2000 has influenced the relative merit of the two earnings-smoothing
methods. Based on a sample of S&P 500 nonfinancial firms during 1996–2006,
we find that the substitution relation between derivative hedging and
discretionary accrual is significantly attenuated after FAS 133
implementation. We also document a significant increase in earnings
volatility associated with derivative hedging post-FAS 133. These results
are robust to the use of various model and method specifications, as well as
controlling for contemporaneous macroeconomic and regulatory shocks.
Overall, our results suggest that a material change in an accounting rule
regarding derivatives can influence the level and volatility of reported
earnings, as well as the method of income smoothing.
Bob Jensen's threads on creative accounting and earnings management ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Manipulation
"Ex-Arkansas treasurer gets 2 ½ years in prison," by Claudia Lauer,
Yahoo News, August 28, 2015 ---
http://news.yahoo.com/ex-arkansas-treasurer-gets-2-years-prison-171447506.html
Former Arkansas Treasurer Martha Shoffner was
sentenced to 2 ½ years in prison on Friday following her conviction last
year on federal bribery and extortion charges.
The Democrat was accused of steering state
investments to a broker who gave her $36,000 in cash, some of which was
delivered in a pie box. The 71-year-old resigned in 2013, days after she was
arrested by FBI agents in a sting operation.
"It was wrong, it was unethical and it was a
violation of the public's trust," Shoffner told U.S. District Judge Leon
Holmes, as she read a statement apologizing for her actions.
Continued in article
FASB writes two exposure drafts on
materiality concept ---
http://www.journalofaccountancy.com/news/2015/sep/fasb-proposal-what-materiality-means-201513079.html
Jensen Comment
A locust just does not eat enough to destroy a crop. She's not material enough.
Yeah right!
How to Mislead With Statistics: Surely the
government does not lie about it's own performance
"Study by law professor says U.S. SEC pads enforcement statistics," by
Sarah N. Lynch, Reuters, September 24, 2015 ---
http://www.reuters.com/article/2015/09/24/us-sec-enforcement-study-idUSKCN0RO2EH20150924
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
EY: 2015 Financial
Reporting Briefs in September 2015 ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingBriefs_BB3049_24September2015/%24FILE/FinancialReportingBriefs_BB3049_24September2015.pdf
EY: EITF Update September 2015 ---
http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB3048_18September2015/$FILE/EITFUpdate_BB3048_18September2015.pdf
PwC: PwC's synopsis of the September 17th
EITF meeting ---
http://www.pwc.com/us/en/cfodirect/publications/eitf-observer/september-2015.html
PwC: Cash Flow Statements: Can Yours Be More Useful? ---
https://www.linkedin.com/pulse/cash-flow-statementscan-yours-more-useful-elizabeth-beth-paul
Question
Do graduates carrying student loans get a better deal from PwC than those who
burdened their parents with more college fees?
"PwC to Offer Perk: Student Loan Aid:
Accounting firm’s hires can get up to $7,200 to reduce college debt burden,"
by Rachel Emma Silverman, The Wall Street Journal, September 22, 2015 ---
http://www.wsj.com/articles/pwc-to-offer-perk-student-loan-aid-1442894583
Clawback ---
https://en.wikipedia.org/wiki/Clawback
EY: Comment Letter on SEC proposed clawback rule ---
http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_CC0418_Clawback_15September2015/$FILE/CommentLetter_CC0418_Clawback_15September2015.pdf
From PwC on September 17, 2015
Our
Regulatory and standard setting developments
publication provides a summary of activities of the PCAOB, SEC, and FASB,
and related international developments that are of interest to audit
committees and companies. The September 2015 issue includes the following
topics:
·
The FASB
section highlights new proposed and final amendments to the revenue
standard.
·
An update
from the SEC includes the status of certain Dodd-Frank Act mandates, a
concept release on Audit Committee Disclosure, and discussion on recent SEC
commissioner resignations.
·
Developments
at the PCAOB include the issuance of the concept release on potential audit
quality indicators, request for comments on the 2013 transparency
re-proposal, an update on inspections in China and a personnel change.
·
Internationally, India became the first country to make Secretarial audits
(i.e., non-financial audits) mandatory.
Read the September 2015 issue of
Regulatory and standard setting developments.
From PwC on September 15, 2015
This Q3 edition of
The quarter close
brings you
the latest accounting,
regulatory, and governance topics. This quarter we discuss:
·
Applying the new cloud
computing guidance is proving challenging for some companies
view
·
Accounting for some new
types of taxes isn't always straightforward
view
·
Scammers that attack
companies using a wire fraud scam are finding surprisingly high rates of
success
view
·
The FASB's forthcoming
proposal to simplify debt classification may change companies' current/noncurrent
conclusions
view
·
Regulators issue proposals
aimed at auditor oversight and transparency, along with the CEO pay ratio
rule
view
And more
view
"SEC Frets Over Split (FASB versus IASB) in Revenue Recognition Adoption
Efforts," by Tammy Whitehouse, Compliance Week, September 22, 2015
---
https://www.complianceweek.com/blogs/accounting-auditing-update/sec-frets-over-split-in-revenue-recognition-adoption-efforts#.VgF05jZREUC
The entire article is available to full subscribers who pay a heavy price
for this journal
"BDO USA Settles Audit Charges With
SEC," by Lisa Beilfuss, The Wall Street Journal, September 9, 2015
---
http://www.wsj.com/articles/bdo-usa-settles-audit-charges-with-sec-1441812970?mod=djemCFO_h
Audit firm BDO USA was charged Wednesday by the
Securities and Exchange Commission with issuing false and misleading audit
opinions about staffing services company General Employment Enterprises.
The SEC also charged five BDO partners for their
roles in allegedly deficient audits, and the regulator brought fraud charges
against the client company’s then-chairman and majority shareholder, Stephen
Pence. Mr. Pence is also a former U.S. attorney and a former lieutenant
governor of Kentucky.
According to the SEC, BDO was informed by the
company during a 2009 audit that $2.3 million invested in a 90-day
certificate of deposit wasn’t repaid by the bank upon its maturity date. A
bank employee, meanwhile, informed BDO that there was no record of a CD
being purchased from the bank, the SEC said. The $2.3 million represented
about half of the company’s assets and most of its cash, the SEC said.
The SEC charged that General Employment then
received a series of deposits totaling $2.3 million from three entities not
affiliated with the bank—one of which allegedly was owned by Mr. Pence.
BDO didn’t receive reasonable and coherent
explanations for why the sum went missing and later was received, the SEC
said, and though BDO issued a letter to the company about the conflict and
called for an independent investigation, BDO days later withdrew its demand
and issued what the SEC deemed unqualified opinions on the financial
statements included in General Employment’s 2009 and 2010 annual reports.
Continued in article
Bob Jensen's threads on BDO ---
http://faculty.trinity.edu/rjensen/Fraud001.htm
From the CFO Journal's Morning
Ledger on September 22, 2015
The economic slowdown in China has grabbed its share
of headlines, but chief financial officers of multinational firms are
increasingly directing their gaze toward a different trouble spot: Brazil.
The South American nation and eighth-largest economy globally is delivering
some of the weakest results for companies in over a decade amid a worsening
economic and political crisis,
CFO Journal’s Maxwell Murphy and Emily Chasan
report.
http://blogs.wsj.com/cfo/2015/09/22/for-multinational-firms-brazil-becomes-a-pain-in-the-wallet/?mod=djemCFO_h
Brazil’s credit, which had carried an
investment-grade rating for seven years, is freshly back in junk territory;
the country’s currency, the real, is historically weak; the economy is in
recession; and inflation is high. In many cases, that means the cash
companies recently invested in the once-hot emerging market is no longer
paying off. The pressure on all fronts is causing businesses to rethink
their operations.
Brazil’s 2016 budget, which was announced this month and needs congressional
approval, calls for the resurrection of a controversial
financial-transaction tax. The levy is intended to narrow Brazil’s budget
deficit by placing a 0.2% tax on such transactions as currency exchanges and
transfers. The tax is intended to raise about $8.4 billion a year, and comes
alongside the removal of a number of corporate tax incentives.
Jensen Comment
The so-called BRIC nations (Brazil, Russia, India, and China) are predicted to
dominate world economies of the future due to land mass, natural resources,
gigantic markets, and relative lack of unfunded entitlements that will bring
down economies of the West, especially the USA. Thus far the BRICs are not doing
well at all and are inhibited by endemic corruption that persists larger than
ever to block economic and social progress.
From the CFO Journal's Morning Ledger on September 14,
2015
Write-downs abound for oil producers
http://www.wsj.com/articles/write-downs-abound-for-oil-producers-1442184600?mod=djemCFO_h
U.S. oil-and-gas producers have written down the value
of their drilling fields by more in 2015 than any full year in history, as
the rout in commodity prices makes properties across the country not worth
drilling.
From the CFO Journal's Morning Ledger on September 10,
2015
Barnes & Noble stock sinks on wider loss
http://www.wsj.com/articles/barnes-noble-loss-deepens-1441805395?mod=djemCFO_h
Barnes & Noble Inc. reported a wider quarter loss on further
deterioration of its Nook digital business. Meanwhile, CEO Ronald Boire said
that the struggling bookstore chain is mulling over a new store prototype.
Jensen Comment
Although the FASB and IASB have no operational concept of earnings and undefined
earnings measures provided in financial statements are rarely comparable between
firms or even the same firm over time, investors still are heavily influenced by
the elusive concept of bottom-line earnings.
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/
"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
From the CFO Journal's Morning Ledger on September 10,
2015
Internal auditors press SEC to require their job
http://blogs.wsj.com/cfo/2015/09/09/internal-auditors-press-sec-to-require-their-job/?mod=djemCFO_h
All companies need an
internal audit function, at least according to the Institute of Internal
Auditors, which made that argument to regulators this week. The
Florida-based professional group asked the Securities and Exchange
Commission to require all public companies maintain an internal audit
function, or explain why they don’t.
From the CFO Journal's Morning Ledger on September 9,
2055
Macy’s to close dozens of stores
http://www.wsj.com/articles/consumer-electronics-returns-to-macys-stores-under-best-buy-partnership-1441731349?mod=djemCFO_h
Macy’s Inc.
plans to close 35 to 40 stores, or about 5% of its existing fleet, as it
reacts to changing shopper habits (read that Amazon) and fends off an
activist investor who has pressured it to unlock value from its real estate.
Starboard Value LP said in July that it
had accumulated a stake in the retailer and was
pushing it to spin off key properties.
Cadillac Tax ---
https://en.wikipedia.org/wiki/Cadillac_insurance_plan
From the CFO Journal's Morning Ledger on September 9,
2055
“Cadillac” health-tax fight heats up
http://www.wsj.com/articles/cadillac-health-tax-fight-heats-up-1441755692?mod=djemCFO_h
A looming tax on generous employer health plans could
imperil flexible spending accounts, a popular benefit that lets employees
set aside tax-free money for certain medical expenses. The tax threshold
takes into account not just the value of premiums, but also other benefits
offered by employers—including money put in flexible spending accounts.
From the CFO Journal's Morning Ledger on September 2, 2015
Employers
across the U.S are rushing to calculate just how hard they will be hit by
the forthcoming “Cadillac tax” on generous employee health plans. The
Affordable Care Act levy starts in 2018. As
CFO Journal’s Maxwell Murphy and Emily Chasan
report, both public and private
employers will have to pay a tax of 40% on the amount by which the cost of
their health-care plans exceed $10,200 for individuals and $27,500 for
families.
The Congressional Budget Office predicts a Cadillac tax bill in excess of $3
billion in its first year. But, with health-care costs likely to grow faster
than inflation, it expects the burden on employers to rise, doubling to $6
billion in 2019. Such predictions have set finance chiefs to work on
reducing employee health-care costs below government-set thresholds.
Boston’s tax bill would be around $6 million in 2018, if no changes to its
health plans were made. The city of Washington’s total payments could be at
or below $10 million through 2021. In San Antonio, the Cadillac tax will
cost $71 million between 2018 and 2024 unless the city makes changes.
More than a quarter
of U.S. companies are likely to face the Cadillac tax on at least one of
their health plans if they don’t make sweeping benefits changes, and 42%
will be hit by the tax a decade later, according to a report last week from
the Kaiser Family Foundation, a nonprofit health-policy think tank.
Bob Jensen's threads on health care ---
http://faculty.trinity.edu/rjensen/Health.htm
From the CFO Journal's Morning Ledger on September 9,
2055
Caesars fined $9.5 million over lax money-laundering controls
http://www.wsj.com/articles/u-s-fines-caesars-8-million-over-money-laundering-controls-1441721034?mod=djemCFO_h
U.S. and Nevada regulators have fined Caesars
Entertainment Corp.’s bankrupt unit a total of $9.5 million for
“severely deficient” anti-money-laundering controls at its Caesars Palace
VIP rooms, where high-rollers were able to gamble anonymously.
From the CFO Journal's Morning Ledger on September 5, 2015
There’s more
than one way to get pension liabilities off the books, but a recent
tax-policy decision has increased interest in one particular tactic. In
recent years, some firms have opted to offload their pension plans to
insurance companies, but now, a decision by the Internal Revenue Service to
stick with its current life-expectancy calculations has companies including
Newell Rubbermaid Inc. and E.W. Scripps Co. aiming for a
different target for the plans: the pensioners themselves, via a lump-sum
buyout, CFO Journal’s
Emily Chasan and Kristin Lin report.
The IRS helped to fuel the trend toward lump-sum offers when it said in July
that it would put off using new mortality-rate calculations based on longer
lifespans until 2017. That suddenly made it cheaper for companies to offer
pension buyouts now than in the future. The new assumptions that people will
live longer will make lump-sum offers more expensive to companies. “We’re
warning clients that if you want to shed this liability, do it now or by the
end of 2016, because it is just going to be a different ballgame in 2017,”
said Amy Gentile, senior actuarial consultant at Findley Davies, who advises
corporations on pension benefits.
From the CFO Journal's Morning Ledger on September 5, 2015
Toshiba slashes earnings for past
seven years.
http://www.wsj.com/articles/toshiba-slashes-earnings-for-past-7-years-1441589473?mod=djemCFO_h
Toshiba Corp.,
hoping to close the books on one of Japan’s biggest accounting scandals,
said it had overstated its earnings by $1.9 billion over seven years, more
than four times the initial estimate. The company said
Monday
that it was taking steps to avoid a repeat of the scandal, which an
independent panel said was caused by managers setting aggressive profit
targets that subordinates couldn’t meet without inflating divisional
results.
Ernst & Young trying to figure out how
it's auditors missed a multi-year $1+ billion accounting fraud in
Toshiba's financial statements
"E&Y Japan arm launches internal probe of Toshiba audit," Reuters
Technology, July 31, 2015 ---
http://www.reuters.com/article/2015/08/01/us-toshiba-accounting-e-y-idUSKCN0Q62UD20150801
The Japanese affiliate of Ernst & Young LLC has
launched an in-house investigation (using over 150 investigators) into its
audit of Toshiba Corp in the wake of the electronics maker's $1.2 billion
accounting scandal, a person with knowledge of the matter said.
Ernst & Young ShinNihon LLC has established a team
of about 20 executives to investigate whether there were any problems with
how it conducted its audits of Toshiba, the person said.
The person spoke on condition of anonymity. No one
could be reached at the company's offices in Tokyo on Saturday.
Continued in article
Jensen Comment
Audit firms traditionally defend themselves that they're not hired to be fraud
detectors unless the frauds materially affect financial statements. The Toshiba
accounting fraud had a monumental impact on financial statements.
From the CFO Journal's Morning Ledger on July 15, 2015
Toshiba executives likely to step down over accounting scandal
http://www.wsj.com/articles/toshiba-executives-expected-to-step-down-over-accounting-scandal-1436870307?mod=djemCFO_h
Toshiba Corp.
President Hisao Tanaka and several other executives are likely to step down
soon over an accounting scandal at the Japanese company involving profit
inflated by more than $1 billion. The other executives that people familiar
with the situation expect to leave Toshiba include Norio Sasaki, a former
president who is currently vice chairman. The board is also likely to
undergo significant membership changes.
. . .
Toshiba has detailed a number of cases in which
business units failed to book adequate costs for executing contracts,
causing the company to overstate profit. Toshiba said in June that it
would need to
reduce operating profit for the 2009 through
2013 fiscal years by a total of ¥54.8 billion. People familiar with the
matter said the figure has now ballooned to at least ¥150 billion ($1.2
billion). Toshiba declined to comment.
During those years, the company’s combined
operating profit totaled ¥1.05 trillion, so even at the higher level,
the reduction would amount to less than 15% of the company’s operating
profit over the five years.
Continued in WSJ article
Hi
Tom,
I've never seen a comparison made between the WorldCom versus Toshiba accounting
frauds. But one thing I read made me suspicious. It's possible that both
companies capitalized over a billion dollars worth of transactions that should
have been expensed under accounting standards.
My
point Tom, and I'm certain you concur, is that the auditor's duties in such
instances is to sample transaction details to verify whether the transactions
were journalized properly under accounting standards. Once journalized the
degree of aggregation of the journal entries themselves will not disclose the
errors or frauds in interpreting the transactions in the first place.
We
may never know whether the AA auditors of WorldCom or the EY auditors of Toshiba
were part of their clients' accounting frauds. The AA audit of WorldCom in
general was so negligent I'm inclined to believe AA's auditors never knew about
the fraud only because they conducted a negligent audit of everything at
WorldCom. Perhaps the EY audit also was simply deficient and not a part of
Toshiba's fraudulent conspiracy.
My point is that disaggregated reporting of account balance changes between the
beginning and end of the year all the way down to individual journal entries
will not uncover this type of earnings management fraud unless details about the
transactions being journalized are disclosed. That would be difficult to do for
thousands or millions of transactions. We rely upon the auditors to investigate
details of the contracts, invoices, and other supporting documentation of
the transactions.
EY
has to be terribly embarrassed by the Toshiba frauds because the frauds
materially impacted the financial statements. The WorldCom bad audit was one of
the nails in AA's coffin.
Bob Jensen's threads on the horrible WorldCom audit are at
http://faculty.trinity.edu/rjensen/FraudEnron.htm#WorldcomFraud
Technically KPMG took over the WorldCom audit midstream but continued to
use AA's audit team.
The following message from Denny Beresford inspired me to watch the video from
Baylor that's apparently no longer online.
June
15, 2009 message from Dennis Beresford
[dberesfo@TERRY.UGA.EDU]
I apologize if this is something that has already been mentioned but I just
became aware of a very interesting video of former Worldcom Controller David
Meyers at Baylor University last March -
http://www.baylortv.com/streaming/001496/300kbps_str.asx (link
now broken)
The first 20 minutes is his presentation, which is pretty good - but the
last 45 minutes or so of Q&A is the best part. It is something that would be
very worthwhile to show to almost any auditing or similar class as a warning
to those about to enter the accounting profession.
Denny Beresford
Jensen Comment on Some Things You Can Learn from the Video
David Meyers became a convicted felon largely because he did not say no when his
supervisor (Scott Sullivan, CFO) asked him to commit illegal and fraudulent
accounting entries that he, Meyers, knew was wrong. Interestingly, Andersen
actually lost the audit midstream to KPMG, but KPMG hired the same audit team
that had been working on the audit while employed by Andersen. David Myers still
feels great guilt over how much he hurt investors. The implication is that these
auditors were careless in a very sloppy audit but were duped by Worldcom
executives rather than be an actual part of the fraud. In my opinion, however,
that the carelessness was beyond the pale --- this was really, really, really
bad auditing and accounting.
At the time he did wrong, he rationalized that he was doing good by shielding
Worldcom from bankruptcy and protecting employees, shareholders, and creditors.
However, what he and other criminals at Worldcom did was eventually make matters
worse. He did not anticipate this, however, when he was covering up the
accounting fraud. He could've spent 65 years in prison, but eventually only
served ten months in prison because he cooperated in convicting his bosses. In
fact, all he did after the fact is tell the truth to prosecutors. His CEO,
Bernard Ebbers, got 25 years and is still in prison ---
https://en.wikipedia.org/wiki/Bernard_Ebbers
The audit team while with Andersen and KPMG relied too much on analytical review
and too little on substantive testing and did not detect basic accounting errors
from Auditing 101 (largely regarding capitalization of over $1 billion expenses
that under any reasonable test should have been expensed).
Meyers feels that if
Sarbanes-Oxley had been in place it may
have deterred the fraud. It also would've greatly increased the audit revenues
so that Andersen/KPMG could've done a better job. Auditors probably would have
then discovered and cared more about the lousy Worldcom internal controls.
To Meyers credit, he did not exercise his $17 million in stock options because
he felt that he should not personally benefit from the fraud that he was a part
of while it was taking place. However, he did participate in the fraud to keep
his job (and salary). He also felt compelled to follow orders the CFO that he
knew was wrong.
The hero is detecting the fraud was internal auditor Cynthia Cooper who
subsequently wrote the book:
Extraordinary Circumstances: The Journey of a Corporate Whistleblower
(Hoboken, New Jersey: John Wiley & Sons, Inc.. ISBN 978-0-470-12429)
http://www.amazon.com/gp/reader/0470124296/ref=sib_dp_pt#
Bob Jensen's threads on Worldcom ---
http://faculty.trinity.edu/rjensen/FraudEnron.htm#WorldcomFraud
Bob Jensen's threads oncreative accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Manipulation
Bob Jensen's threads on EY ---
http://faculty.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
From EY on September 17, 2015
Our new publication, Pro forma financial information — A
guide for applying Article 11 of Regulation S-X , summarizes the
requirements for pro forma financial information and illustrates how
registrants may apply the guidance to different transactions and pro forma
adjustments. It is the latest addition to our SEC Financial Reporting
Series.
Hard copies will be available
soon and can be
ordered
on EY AccountingLink.---
http://www.ey.com/content/vwWFPreview/UL/en/Order_a_Printed_Copy?OpenDocument
For further
information on related topics, see our
AccountingLink site.
http://www.ey.com/UL/en/AccountingLink/Accounting-Link-Home
Bob Jensen's threads on pro forma reporting ---
http://faculty.trinity.edu/rjensen/theory02.htm#ProForma
From the CFO Journal's Morning Ledger on September 5, 2015
Credit-card fraudsters pump gas stations for profit
http://www.wsj.com/articles/credit-card-fraudsters-pump-gas-stations-for-profit-1441253132?mod=djemCFO_h
The long time frame in which U.S gas stations must
accept new fraud-resistant credit cards and anti-fraud guidelines may be
leaving the forecourts more vulnerable to theft than ever. While many big
merchants will have equipment in place by
Oct. 1
to accept the new chip-based cards, tougher guidelines set by Visa Inc. and
MasterCard Inc. don’t apply to gas stations until 2017. The delay could
intensify a recent surge in fraud at the pump. Gas-station owners are
deploying everything from sophisticated software to heavy-duty padlocks to
combat an epidemic of fuel-related theft and fraud.
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Note to Accounting Professors
The article below is a great illustration of what CPV and demand elasticity
analysis teaches our students.
"E-Book Sales Fall After New Amazon Contracts: Prices
rise, but revenue takes a hit," by Jeffrey A. Trachtenberg , The Wall
Street Journal, September 3, 2015 ---
http://www.wsj.com/articles/e-book-sales-weaken-amid-higher-prices-1441307826
When the world’s largest publishers struck
e-book distribution deals with Amazon.com Inc. over the past several months,
they seemed to get what they wanted: the right to set the prices of their
titles and avoid the steep discounts the online retail giant often applies.
But in the early going, that strategy
doesn’t appear to be paying off. Three big publishers that signed new pacts
with Amazon— Lagardere SCA’s Hachette Book Group, News Corp ’s HarperCollins
Publishers and CBS Corp. ’s Simon & Schuster—reported declining e-book
revenue in their latest reporting periods.
“The new business model for e-books is
having a significant impact on what [the big] publishers report,” said one
publishing executive. “There’s no question that publishers’ net receipts
have gone down.”
A recent snapshot of e-book prices found
that titles in the Kindle bookstore from the five biggest publishers cost,
on average, $10.81, while all other 2015 e-books on the site had an average
price of $4.95, according to industry researcher Codex Group LLC.
“Since book buyers expect the price of a
Kindle e-book to be well under $9, once you get to over $10 consumers start
to say, ‘Let me think about that,’” said Codex CEO Peter Hildick-Smith.
Continued in article
Bob Jensen's threads on CPV analysis and managerial accounting
in general ---
http://faculty.trinity.edu/rjensen/theory02.htm#ManagementAccounting
Social Security Strategies for Spouses: Do You Know Your Options?
http://finance.townhall.com/columnists/carrieschwabpomerantz/2015/09/23/social-security-strategies-for-spouses-do-you-know-your-options-n2055519?utm_source=thdaily&utm_medium=email&utm_campaign=nl
Dear Carrie:
My wife and I are both turning 66, and I understand that this is "full
retirement age" according to the Social Security Administration. Should we
both file on our birthdays, or is it better to wait? And could a spousal
benefit help us collect more? --
A Reader
Carrie's Answer ---
Click Here
If you—or your folks—are anywhere near retirement, you should be asking
these questions now ---
http://www.bloomberg.com/news/articles/2015-09-18/don-t-fall-into-the-social-security-trap?cmpid=BBD091815_BIZ
Jensen Comment
Don't be misled by averages. Just because early retirees die younger on average
has little if anything to do with you in particular (not that I'm recommending
early retirement for you). But if you are getting anxious, many employers,
including universities, have early retirement deals such as a year or two of
salary that delays when you have to tap retirement funds.
Retirement decisions should probably not be made before consulting experts on
retirement financing and timing. Employers often make competent and unbiased
experts available free of charge.
The sad news about retirement now is that interest rates have plunged so low
such that you may have to take some financial risks with your retirement
savings.
And don't look for retirement deals to soar just because the Fed eventually
raises interest rates by a microscopic epsilon.
And don't rely on Medicare to cover your retirement needs. Medicare is not
free to you in retirement and has coverage limitations you should know about.
Supplemental plans are increasingly expensive. And to sustain Medicare as an
entitlement cost to retirees will go up and coverage will decline substantially.
And most of all remember that Medicare does not cover nursing home costs. And
if you are over 55 nursing home insurance is not usually a good deal unless you
know something about your future that you're keeping secret. It may be better to
have a strict savings plan for nursing home and other health contingencies. This
is something to talk over with your retirement counseling expert.
Bob Jensen's helpers on personal finance ---
http://faculty.trinity.edu/rjensen/bookbob1.htm#InvestmentHelpers
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on August 28,
2015
Another Reason Not to Get Married
by: Laura Saunders
Aug 22, 2015
Click here to view the full article
on WSJ.com
TOPICS: Individual
Taxation, Marriage Penalty, Tax Planning
SUMMARY: Couples
who choose not to marry just got another big tax break. A major decision by
the Ninth Circuit Court of Appeals in California allowed two men who jointly
owned two pricey homes, one in Beverly Hills and another in Rancho Mirage,
each to deduct the interest on $1 million of mortgage debt plus $100,000 of
home-equity debt on their individual tax returns. The men were registered
domestic partners during the period covered by the case but weren't married.
As a result of the decision, the couple's debt limit for interest deductions
on their two homes was $2.2 million, or twice the $1.1 million limit for
married couples with two homes. The federal court's ruling overturned a Tax
Court decision in favor of the Internal Revenue Service that limited the
taxpayers to interest deductions on $1.1 million of debt.
CLASSROOM
APPLICATION: This
is a great article discussing the marriage penalty. It includes some tax
planning ideas for that topic.
QUESTIONS:
1. (Introductory) What is the marriage penalty? What are the details
of the example the article offers of taxpayers being hit with the marriage
penalty?
2. (Advanced) What recent court decision makes not being married
attractive from a tax perspective? What outcome did the IRS desire? Why?
What would have been the "penalty" had the two taxpayers been married?
3. (Advanced) Why does tax law include marriage penalty rules? Why
hasn't Congress removed it? How could tax law be structured so taxes are
more evenly imposed?
4. (Advanced) Are all married people penalized under the tax code? In
what situations does being married result in lower tax liability? What are
the reasons for this?
5. (Advanced) What are some tax planning strategies married people
can use to reduce the impact of the marriage penalty?
6. (Advanced) How does being married affect gift and estate taxation?
To what married couples do these advantages apply? Is that a majority of
married people?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Another Reason Not to Get Married," by Laura Saunders, The Wall Street
Journal, August 22, 2015 ---
http://www.wsj.com/articles/another-reason-not-to-get-married-1440180307?mod=djem_jiewr_AC_domainid
Couples who choose not to marry just got another
big tax break.
A recent major decision by the Ninth Circuit Court
of Appeals in California allowed two men who jointly owned two pricey homes,
one in Beverly Hills and another in Rancho Mirage, each to deduct the
interest on $1 million of mortgage debt plus $100,000 of home-equity debt on
their individual tax returns.
The men, noted psychiatrist Charles Sophy and
investor-relations executive Bruce Voss, were registered domestic partners
during the period covered by the case but weren’t married.
As a result of the decision, the couple’s debt
limit for interest deductions on their two homes was $2.2 million, or twice
the $1.1 million limit for married couples with two homes. The federal
court’s ruling overturned a Tax Court decision in favor of the Internal
Revenue Service that limited the taxpayers to interest deductions on $1.1
million of debt.
All parties in the case agreed that the law’s
language wasn’t clear. Judge Jay Bybee acknowledged that allowing the double
deduction to the two men could create a marriage penalty but said he was
“not particularly troubled” by that outcome. The decision leaves further
clarification up to Congress.
The IRS declined to comment on the case.
Other Marriage Penalties
Emily Kingston, the lawyer at Sideman & Bancroft in
San Francisco who argued for the taxpayers, lauded the decision. “Otherwise,
unmarried parties who own a home together—such as two sisters, or several
unrelated individuals—could have their mortgage interest deductions
limited,” she says.
While many taxpayers don’t have mortgages large
enough to benefit from this decision, experts say it is a reminder of a
long-standing issue. “Marriage penalties have permeated the tax law for
nearly half a century,” says Michael Graetz, a professor at Columbia
University’s Law School and former top Treasury Department official.
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on August 28,
2015
Time
to End Quarterly Reports, Law Firm Says
by: David Benoit
Aug 20, 2015
Click here to view the full article
on WSJ.com
TOPICS: Activist
Investor, Financial Reporting, Quarterly Reporting
SUMMARY: An
influential law firm called on the Securities and Exchange Commission to
consider allowing U.S. companies to do away with the obligatory updates, one
of the most important rituals on Wall Street and in corporate America,
suggesting that they distract executives from long-term goals. It is the
latest idea put forward by the firm to combat what it and some others see as
an excessive focus on short-term performance that they say has been
encouraged by activist shareholders. Critics have cited mounting evidence
that companies are cutting back on spending on equipment and other
investment projects to instead plow record sums into stock repurchases,
which shareholder activists often advocate.
CLASSROOM
APPLICATION: This
is an interesting article regarding the pros and cons of quarterly
reporting.
QUESTIONS:
1. (Introductory) What are quarterly reports and what is their
purpose? Are companies required to report quarterly?
2. (Advanced) What parties are critical of quarterly reports? What
reasons have critics offered for speaking out against quarterly reports?
3. (Advanced) What are the benefits of quarterly reports? What
problems could occur if they were eliminated? What are some ideas for
eliminating or reducing the problems associated with frequent reporting?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Time to End Quarterly Reports, Law Firm Says," by David Benoit, The Wall
Street Journal, August 20, 2015 ---
http://www.wsj.com/articles/time-to-end-quarterly-reports-law-firm-says-1440025715?mod=djem_jiewr_AC_domainid
Influential law firm Wachtell, Lipton, Rosen & Katz
has an idea that may be music to the ears of its big corporate clients and a
nightmare for some investors and analysts: end quarterly earnings reports.
Wachtell on Tuesday called on the Securities and
Exchange Commission to consider allowing U.S. companies to do away with the
obligatory updates, one of the most important rituals on Wall Street and in
corporate America, suggesting that they distract executives from long-term
goals.
It is the latest idea put forward by Wachtell to
combat what it and some others see as an excessive focus on short-term
performance that they say has been encouraged by activist shareholders. The
investors have widened their influence in recent years and drawn criticism
from those—including Laurence Fink of investing giant BlackRock Inc. and
presidential hopeful Hillary Clinton—who say they encourage companies to
focus on gimmicks that provide short-term stock gains at the expense of
long-term health.
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on August 28,
2015
States Eye Taxes on Streaming Video and Cloud Computing
by: Mark Peters and Greg Bensinger
Aug 20, 2015
Click here to view the full article on WSJ.com
TOPICS: Sales Taxes, State and Local Taxes
SUMMARY: With sales of DVDs, videogames and traditional
packaged software slumping for years, more state and local governments are
eyeing technologies, such as streaming video subscriptions and cloud
computing, to help make up for hundreds of millions of dollars or more in
lost revenue. Applying age-old sales taxes to the era of new media hasn't
been simple. States have long taxed tangible goods, but the broad array of
new digital products often don't fit the category. Some states are trying to
use existing laws, while others are taking on the politically thorny task of
rewriting tax rules.
CLASSROOM APPLICATION: This is a rare sales tax article.
If offers an example of how taxes can be change in response to changes in
technology and consumer habits.
QUESTIONS:
1. (Introductory) What are sales taxes? On what are they assessed? Why are
they assessed?
2. (Advanced) How do new technologies fit in with current
and old sales tax laws? How is the current applicable? What are the
limitations?
3. (Advanced) How do sales taxes differ among state and
local jurisdictions? Why do they differ?
4. (Advanced) Why have some states decided not to tax
certain technologies and products? Should other states make this same
decision? Why or why not?
Reviewed By: Linda Christiansen, Indiana University
Southeast
"States Eye Taxes on Streaming Video and Cloud Computing," by Mark Peters and
Greg Bensinger, The Wall Street Journal, August 20, 2015
http://www.wsj.com/articles/states-eye-taxes-on-streaming-video-and-cloud-computing-1440095146?mod=djem_jiewr_AC_domainid
Decline in DVD and CD sales has taken a bite out of
revenue in recent years.
State tax officials are trying to catch up with
fans of “Orange Is the New Black” and One Direction.
With sales of DVDs, videogames and traditional
packaged software slumping for years, more state and local governments are
eyeing technologies, such as streaming video subscriptions and cloud
computing, to help make up for hundreds of millions of dollars or more in
lost revenue.
Applying age-old sales taxes to the era of new
media hasn’t been simple. States have long taxed tangible goods, but the
broad array of new digital products often don’t fit the category. Some
states are trying to use existing laws, while others are taking on the
politically thorny task of rewriting tax rules.
The result is a patchwork of tax policies—and some
new laws—for fast-growing slices of consumer and business sales. While taxes
on digital entertainment and software represent only a sliver of the $271
billion that states collected in sales taxes last year, the issue highlights
the challenge states and localities face as technologies rapidly shift.
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on August 28,
2015
Grip
on Non-Audit Fees Grows Tighter
by: Maxwell Murphy
Aug 25, 2015
Click here to view the full article
on WSJ.com
TOPICS: Auditing,
Consulting
SUMMARY: Large
companies continue to shut the spigot on the fees they pay accountants. The
amount companies spent on fees unrelated to auditing last year hit their
lowest level, relative to what they spent on auditing-related fees, since
2002. The more money clients pay their auditors for fees that don't relate
to ensuring fudge-free books, the thinking goes, the more pressure outside
accountants may face from above to look the other way on questionable
practices.
CLASSROOM
APPLICATION: The
information regarding consulting engagements would add value to an auditing
class.
QUESTIONS:
1. (Introductory) What are the statistics related to consulting
engagements for large companies'? What are the trends?
2. (Advanced) Why might companies be changing their hiring of
accountants? What were the reasons for changes in 2002? What are the changes
and reasons for changes in recent years?
3. (Advanced) Why can company auditors be a good resource for
consulting services? Why should that practice be avoided in some cases? What
problems could result?
4. (Advanced) Should consulting fees be capped by regulators or
should the individual companies monitor and decide what is appropriate?
Please offer reasons for your answer.
Reviewed By: Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Most U.S. Companies Could Pass New EU Auditor-Fees
Sniff Test
by Maxwell Murphy
Aug 18, 2015
Online Exclusive
"Grip on Non-Audit Fees Grows Tighter," by Maxwell Murphy, The Wall Street
Journal, August 25, 2015 ---
http://blogs.wsj.com/cfo/2015/08/25/grip-on-non-audit-fees-grows-tighter/?mod=djem_jiewr_AC_domainid
Large companies continue to shut the spigot on the
fees they pay accountants.
The amount companies spent on fees unrelated to
auditing last year hit their lowest level, relative to what they spent on
auditing-related fees, since 2002.
That year, regulations designed to ensure
accounting-firm independence took effect.
The 2001 fraud and bankruptcy that ended Enron, and
took venerable auditor Arthur Andersen down with it, helped spur new
measures to keep auditors from getting too chummy with their clients. The
more money clients pay their auditors for fees that don’t relate to ensuring
fudge-free books, the thinking goes, the more pressure outside accountants
may face from above to look the other way on questionable practices.
In 2014, just over 80% of accounting spending among
2,300 U.S. public companies went directly to audit services, according to a
forthcoming study by data and research firm Audit Analytics.
That approached 91% when audit-related fees, such
as benefits-plan audits, merger evaluations and internal-control reviews,
are included in that bucket, it said.
In 2002, before the new fees rules took full
effect, big companies overall for the most part evenly split what they pay
accountants between auditing fees, and fees unrelated to auditing. The 2002
rules raised the bar on what constitutes arms’ length, and banned
independent auditors from several practices, like bookkeeping, management
functions and actuarial services.
Europe recently capped the amount companies can
spend on non-audit services at 70% of audit fees.
Fewer than 200 companies in the Russell 3000 index
spent more than that, Audit Analytics said last week.
Continued un article
Bob Jensen's threads on audit firm professionalism and independence ---
http://faculty.trinity.edu/rjensen/Fraud001c.htm
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on August 28,
2015
As
Regulatory Costs Grow, the Accounting Chief's Duties Add Up
by:
Kimberly S. Johnson
Aug 25, 2015
Click here to view the full article on WSJ.com
TOPICS: Accounting
Careers, Chief Accounting Officer
SUMMARY: There's
a new VIP in the corporate finance department: the chief accounting officer.
These senior-level accountants have long been a fixture at large
multinational companies. But, thanks to the cost and intricacies of today's
regulatory and accounting requirements, their numbers have multiplied and
their duties have expanded beyond managing their company's books and
preparing financial statements. Since 2009, there's been nearly a 40% rise
in the number of chief accounting officer titles.
CLASSROOM
APPLICATION: This
article would be good for use in any accounting class to show students the
development of new career opportunities.
QUESTIONS:
1. (Introductory) What is a chief accounting officer (CAO)? What are
the details of the position? Why have those kinds of positions increased in
recent years?
2. (Advanced) What is a CFO? How do CFOs and CAOs work together? How
are the jobs similar? How do the jobs differ?
3. (Advanced) What does a controller do? How does that job differ
from the CAO position?
4. (Advanced) What are internal controls? Why are they important?
What are the trends regarding internal controls? How can a CAO help in this
area?
Reviewed By: Linda Christiansen, Indiana University Southeast
"As Regulatory Costs Grow, the Accounting Chief's Duties Add Up," by Kimberly
S. Johnson, The Wall Street Journal, August 25, 2015 ---
http://blogs.wsj.com/cfo/2015/08/25/grip-on-non-audit-fees-grows-tighter/?mod=djem_jiewr_AC_domainid
Large companies continue to shut
the spigot on the fees they pay accountants.
The amount companies spent on fees
unrelated to auditing last year hit their lowest level,
relative to what they spent on auditing-related fees,
since 2002.
That year, regulations designed
to ensure accounting-firm independence took effect.
The 2001 fraud and bankruptcy
that ended Enron, and took venerable auditor Arthur
Andersen down with it, helped spur new measures to keep
auditors from getting too chummy with their clients. The
more money clients pay their auditors for fees that
don’t relate to ensuring fudge-free books, the thinking
goes, the more pressure outside accountants may face
from above to look the other way on questionable
practices.
In 2014, just over 80% of
accounting spending among 2,300 U.S. public companies
went directly to audit services, according to a
forthcoming study by data and research firm Audit
Analytics.
That approached 91% when
audit-related fees, such as benefits-plan audits, merger
evaluations and internal-control reviews, are included
in that bucket, it said.
In 2002, before the new fees
rules took full effect, big companies overall for the
most part evenly split what they pay accountants between
auditing fees, and fees unrelated to auditing. The 2002
rules raised the bar on what constitutes arms’ length,
and banned independent auditors from several practices,
like bookkeeping, management functions and actuarial
services.
Europe recently
capped the amount companies can spend on non-audit
services at 70% of audit fees.
Fewer than 200 companies in the Russell 3000 index spent
more than that, Audit Analytics said last week.
Continued in article
Bob Jensen's threads on audit firm professionalism and independence ---
http://faculty.trinity.edu/rjensen/Fraud001c.htm
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on September 4,
2015
Got
Losses? A Tax Break Could Soothe the Pain
by:
Laura Saunders
Aug 27, 2015
Click here to view the full article
on WSJ.com
TOPICS: Capital
Gains Tax, Capital Losses, Individual Taxation, Tax Planning
SUMMARY: Uncle
Sam's tax rules on deducting investment losses can ease the sting of market
declines. Some investors cope with the turmoil by selling poor-performing
positions and using the losses to offset taxes on any capital gains. Up to
$3,000 of losses that exceed total investment profits can be deducted
against wages and other ordinary income each year. Unused losses carry over
to future years and don't expire. But this strategy contains traps for the
unwary.
CLASSROOM
APPLICATION: This
is an excellent tax planning article to use when covering capital gains and
losses.
QUESTIONS:
1. (Introductory) What are capital gains and losses? How do they
differ from ordinary income?
2. (Advanced) What are the tax rules regarding capital games and
losses? How are capital gains treated differently than ordinary income for
tax purposes?
3. (Advanced) What does tax law allow a taxpayer to do when capital
losses exceed capital gains? What are the advantages of being allowed to do
that?
4. (Advanced) What is tax-loss harvesting? What benefits does it
offer? What are potential problems of this activity?
5. (Advanced) How could the tax planning ideas mentioned in the
article actually raise capital gains taxes? What taxpayers could be most
affected by this?
6. (Advanced) What are the rules regarding a repurchase of a similar
security? Why are these rules in place? How can a taxpayer avoid the
penalties associated with this rule?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Got Losses? A Tax Break Could Soothe the Pain," by: Laura
Saunders, The Wall Street Journal, August 27, 2015 ---
http://www.wsj.com/articles/got-losses-a-tax-break-could-soothe-the-pain-1440615934?mod=djem_jiewr_AC_domainid
Uncle Sam’s tax rules on deducting investment
losses can ease the sting of market declines.
But they contain traps for the unwary.
Some investors cope with the turmoil by selling
poor-performing positions and using the losses
to offset taxes on any capital gains. Up to
$3,000 of losses that exceed total investment
profits can be deducted against wages and other
ordinary income each year. Unused losses carry
over to future years and don’t expire.
Another strategy, “tax-loss harvesting,” often
involves the sale of a losing position and the
purchase of a similar security as a way of
maintaining the bet and reaping future gains.
Ideally, these moves produce a tax-deductible
loss and tax-deferred profits in the years
ahead.
“You have to take advantage of what the market
gives you, and harvesting losses can improve your tax situation,” said Joel
Dickson, a tax specialist with Vanguard Group who said he did so in his own
portfolio Monday as the market closed down nearly 600 points after dropping
more than 1,000 points during the day.
But tax specialists caution that for some
investors, the costs of this approach can outweigh the benefits. Here are
some potential pitfalls:
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on September 4,
2015
Volatile Market Could Throw Some Corporate Pensions
by:
Emily Chasan
Aug 26, 2015
Click here to view the full article
on WSJ.com
TOPICS: Financial
Statement Analysis, Fiscal Year, Pension Accounting
SUMMARY: Companies
can get thrown a pension curve ball, thanks to stock market volatility.
Stocks struggle to regain their footing following a sharp selloff that
pushed the Dow Jones Industrial Average down over 1,000 points, amid global
growth worries. If the market doesn't recover by the end of a month, then
companies whose fiscal years end then could finish the year with a
worse-than-expected rate of return on assets.
CLASSROOM
APPLICATION: This
is a good article to use in financial accounting classes for study of the
ramifications of the stock market on a company's pension accounting and
year-end financial statement analysis.
QUESTIONS:
1. (Introductory) What is a fiscal year end? What is the alternative
to a fiscal year end? Why do some companies choose to have a fiscal year
end?
2. (Advanced) How can stock market volatility affect a company's
financial statements, financial situation, and the results of financial
statement analysis?
3. (Advanced) How can a company's pension accounting be affected by
the stock market? Why is it affected?
4. (Advanced) What is return on assets? What is the value of this
figure? How do investors, creditors, or analysts use it to assess the
performance and value of a company? Should they take stock market volatility
into account when doing this analysis?
5. (Advanced) Please review the related articles. How do interest
rates affect pension accounting? What is the current status of interest
rates? What is the outlook for interest rates, both short-term and
long-term? How will that affect the financial statements and financial
conditions of companies with pensions? How are cash flows affected?
Reviewed By: Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
The Big Number
by Emily Chasan
Aug 31, 2015
Online Exclusive
Why the Corporate Pension Gap Is Soaring
by Vipal Monga
Feb 27, 2015
Online Exclusive
Pension Math Overwhelmed by Discount Rate
by Vipal Monga
Mar 19, 2015
Online Exclusive
Interest-Rate Hike Could Help Pensions: Verizon CFO
by Vipal Monga
Sep 01, 2015
Online Exclusive
"Volatile Market Could Throw Some Corporate Pensions," by
Emily Chasan, The Wall Street Journal, August 26, 2015 ---
http://blogs.wsj.com/cfo/2015/08/26/market-tumble-could-throw-some-corporate-pension-plans/?mod=djem_jiewr_AC_domainid
Companies with fiscal years that end later
this month may get thrown a pension curve ball, thanks to the stock market’s
recent volatility.
Stocks are struggling to regain their
footing following a sharp selloff on Monday that pushed the Dow Jones
Industrial Average down over 1,000 points, amid global growth worries.
If the market doesn’t recover by the end
of the month, then companies whose fiscal years end in August, such as
agricultural firm Monsanto Co. and auto-parts retailer AutoZone Inc., could
finish the year with a worse-than-expected rate of return on assets.
“There’s been some high volatility, and
for companies that have fiscal years that end in August, it’s going to hurt
their funded status,” said Zorast Wadia, a principal at actuarial consulting
firm Milliman Inc.
“All that really matters is the last day
of the year for accounting purposes,” said Alan Glickstein , a senior
retirement consultant at Towers Watson, noting companies only have to
explain their pension obligations to investors in their year-end annual
reports. “If you are at the end of August, you’d be sweating it out,” he
said.
Companies facing this predicament might
choose to contribute more at the current fiscal year end, or opt make
larger-than-expected cash contributions to their pension plans to shore up
their funding status.
At seed manufacturer Monsanto, the fiscal
year ends Aug. 31.
Monsanto reported a $2.2 billion pension
obligation at the end of August a year ago, and it forecast the long-term
rate of return on its assets would be 7.5% this year. It has about 55% of
its pension assets in equities, according to its annual report.
Monsanto declined to comment. The company
said last year it planned to make $30 million in contributions to its
pension plan this year, compared to $32 million last year.
AutoZone has frozen its pension plan for
new participants, but still carries a pension obligation of $301 million for
workers and retirees. The company made $16.9 million in contributions to
support the underfunded plan in each of the last two years, but only
expected to contribute $2.6 million to its plan this year.
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on September 4,
2015
Investors, Audit Committees Want Auditors to Expand Scope of Assurance:
Deloitte Survey
by: Deloitte CFO Journal Editor
Sep 01, 2015
Click here to view the full article
on WSJ.com
TOPICS: Assurance
Services, Audit Committees, Auditing
SUMMARY: More
than half (59%) of financial statement users seek more from the audit
profession to address growing demands of the capital markets, according to
Audit of the Future, a survey from Deloitte & Touche LLP representing the
opinions of 250 financial statement users including investors, audit
committee members and financial statement preparers. This article shares
some interesting survey results.
CLASSROOM
APPLICATION: This
article would be good to use for an auditing class or for coverage of the
accounting profession.
QUESTIONS:
1. (Introductory) What is auditing? What are auditor
responsibilities? What is assurance services?
2. (Advanced) Why is this survey information valuable and important?
Who answered the survey? What types of questions were asked? Who should be
interested in the results?
3. (Advanced) What did the survey results report regarding what
investors want from financial statements and want from auditors? What are
their concerns?
4. (Advanced) What is an audit committee? What are its
responsibilities? How did audit committee members respond to this survey?
5. (Advanced) As a future business professional, what did you learn
from this article? How important are auditing and financial statements in
the business world?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Investors, Audit Committees Want Auditors to Expand Scope of Assurance:
Deloitte Survey," by Deloitte CFO Journal Editor, The Wall
Street Journal, September 1, 2015 ---
http://deloitte.wsj.com/cfo/2015/09/01/investors-audit-committees-want-auditors-to-expand-scope-of-assurance-deloitte-survey/?mod=djem_jiewr_AC_domainid
More than half (59%) of financial statement users seek
more from the audit profession to address growing demands of the capital
markets, according to Audit of the Future, a survey from Deloitte & Touche
LLP representing the opinions of 250 financial statement users including
investors, audit committee members and financial statement preparers.
“Many investors are looking for broader and
deeper insights that can help them make smarter,
more informed decisions,” notes Joe Ucuzoglu,
chairman and CEO of Deloitte & Touche LLP, and
leader of Deloitte’s audit practice. “The audit
profession as a whole will be looked at to
expand outside the domain of the historical
financial statements.”
More than two-thirds of all survey respondents
agree that the audit profession is fundamental
to maintaining confidence in capital markets by
providing assurance that financial statements
are free of material misstatements and
companies’ systems of internal control over
financial reporting operate effectively.
“The investing public is
looking to a trusted source in an increasingly
complex and challenging global business
environment. This survey clearly indicates
traditional audits must evolve to meet the needs
of the capital markets and today’s investors,”
Mr. Ucuzoglu adds.
The survey results also
highlight that financial statement users have
limited ways to fully understand the audit
results and what auditors do in fulfilling their
professional responsibilities, other than what
is written in the auditors’ reports.
Further, 46% of audit
committee members would like the audit
profession to be more proactive in addressing
evolving demands. All respondent groups strongly
agree that auditors should provide assurance on
information beyond traditional financial
statements, such as earnings releases, investor
presentations and risk factors, with at least
two-thirds of each survey respondent group
feeling that way. In addition, investors view
audited information sources as more important
than unaudited sources, such as social and
traditional media, according to the survey.
“More direct engagement
between the audit profession and financial
statement users can allow for a better
understanding of user needs,” observes Mr.
Ucuzoglu.
Specifically, Mr. Ucuzoglu
says that auditors need to be open to reporting
on the most important business metrics that move
markets, such as key performance indicators,
industry metrics and non-GAAP measures, all of
which are becoming increasingly relevant to
investment decisions.
Technology-driven
Innovation
More than three-quarters of
audit committee members (76%) and financial
statement preparers (84%) surveyed believe there
are significant benefits to auditors using
advanced technologies. In addition, virtually
all survey respondents strongly agree that more
advanced technologies should be used in the
execution of an audit. However, while 70% of
audit committee members and financial statement
preparers say that the audit profession’s
adoption of innovative technology and process
improvements keeps pace with their industry,
other financial statement users are less
convinced, with only 45% of those respondents
agreeing.
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on September 4,
2015,
P&G
Cuts CEO Lafley's Bonus After Earnings Shortfall
by:
Seren Ng
Aug 29, 2015
Click here to view the full article
on WSJ.com
TOPICS: Compensation,
Financial Accounting, Proxy Statement
SUMMARY: Procter
& Gamble Co. cut Chief Executive A.G. Lafley's bonus by $1.1 million in the
company's recently ended financial year, after the consumer-goods company's
sales and profit growth came up short of its targets. Mr. Lafley received
total compensation of $18.3 million in the year ended in June, a 6.2%
decrease from his $19.5 million compensation package the previous year. P&G
reported net income of $7 billion for the year through
June 30, down 40% from a year ago. Sales
fell 5% to $76.3 billion, weighed down by the weakening of many foreign
currencies against the U.S. dollar.
CLASSROOM
APPLICATION: This
article can be used in financial accounting classes for discussions of proxy
statements and compensation.
QUESTIONS:
1. (Introductory) Who is A.G. Lafley? What are the details of Mr.
Lafley's compensation? How is it calculated?
2. (Advanced) What is a proxy statement? What is it purpose? Access
online the proxy statement referenced in the article and find the
information regarding Lafley's compensation. What additional information is
provided in the proxy statement?
3. (Advanced) Why is the CEO's compensation tied to performance
goals? What goals were set and how did the company choose to calculate them?
How should those goals be determined?
4. (Advanced) Why is the CEO's compensation reported in such detail?
Is the compensation of all employees reported to the public? Why or why not?
Reviewed By: Linda Christiansen, Indiana University Southeast
"P&G Cuts CEO Lafley's Bonus After Earnings Shortfall," by
Seren Ng, The Wall Street Journal, August 29, 2015 ---
http://www.wsj.com/articles/p-g-cuts-ceo-lafleys-bonus-after-earnings-shortfall-1440801587?mod=djem_jiewr_AC_domainid
Procter & Gamble Co. cut Chief Executive
A.G. Lafley’s bonus by $1.1 million in the company’s recently ended
financial year, after the consumer-goods company’s sales and profit growth
came up short of its targets.
Mr. Lafley, who came out of retirement in
May 2013 to run P&G a second time, received total compensation of $18.3
million in the year ended in June, a 6.2% decrease from his $19.5 million
compensation package the previous year, according to a proxy statement the
company filed on Friday.
The decline was mainly due to a smaller
bonus of $3.29 million, which was down from $4.4 million a year earlier. P&G
said it paid Mr. Lafley 66% of his target bonus because the company didn’t
reach its profit and sales goals.
P&G reported net income of $7 billion for
the year through June 30, down 40% from a year ago. Sales fell 5% to $76.3
billion, weighed down by the weakening of many foreign currencies against
the U.S. dollar. The company’s organic sales growth, a measure that excludes
currency swings and the effect of acquisitions and divestments, grew 1%, as
a result of weakness in P&G’s beauty division and challenges the company
faced in China and other markets.
At the start of P&G’s last fiscal year,
the compensation committee of P&G’s board had set a 3% organic sales growth
target and a 5% target for growth in so-called core earnings per share,
which excludes certain items like restructuring costs. The company ended up
not meeting the earnings target, reporting a 2% decline in core earnings per
share growth mainly because of currency swings.
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on September 4,
2015
Writers Union Seeks 'Cadillac Tax' Exemption
by:
Emily Chasen
Aug 28, 2015
Click here to view the full article
on WSJ.com
TOPICS: ACA,
Corporate Taxation
SUMMARY: The
union representing thousands of film, television and digital media writers
is seeking an exemption for all unions from the Affordable Care Act's
"Cadillac tax" on high cost health plans. Under the Affordable Care Act,
employers will be subject to a 40% excise tax, or "Cadillac tax" on employee
plans that exceed government thresholds, starting at $10,200 for individuals
in 2018. The union argued that plans negotiated under collective bargaining
agreements have historically been exempted from other benefit plan
regulations. The tax is meant to help fund insurance for
previously-uncovered Americans, and to help control the cost of healthcare
plans.
CLASSROOM
APPLICATION: This
is a good article for a corporate taxation class. The ACA Cadillac tax is
another tax a business must manage.
QUESTIONS:
1. (Introductory) What is the Cadillac tax? On what is the tax paid?
Why did the ACA include it? For what is that money used?
2. (Advanced) For what exemption is Writers Guild of America asking?
What is the basis for that request? Why does the union want that exemption?
Should this union be granted an exemption? Why or why not?
3. (Advanced) How would a company subject to this tax record it? How
should the company budget for it? How should this cost be classified for
cost accounting purposes?
4. (Advanced) What can companies do to manage this additional cost?
What options does a business have?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Writers Union Seeks 'Cadillac Tax' Exemption," by Emily
Chasen, The Wall Street Journal, August 29, 2015 ---
http://blogs.wsj.com/cfo/2015/08/28/writers-union-seeks-cadillac-tax-exemption/?mod=djem_jiewr_AC_domainid
The union representing thousands of film,
television and digital media writers is seeking an exemption for all unions
from the Affordable Care Act’s “Cadillac tax” on high cost health plans.
In a letter to the Department of Treasury
and Internal Revenue Service on Thursday, the Writers Guild of America East
argued that health care plans negotiated under collective bargaining
agreements should be exempted from the tax on high cost plans, which takes
effect in 2018.
Under the Affordable Care Act, employers
will be subject to a 40% excise tax, or “Cadillac tax” on employee plans
that exceed government thresholds, starting at $10,200 for individuals in
2018.
“The Cadillac tax would strip away
benefits from the basic package of compensation Guild members have struggled
for decades to win for themselves and their families,” the Writers Guild
said in a statement.
The union argued that plans negotiated
under collective bargaining agreements have historically been exempted from
other benefit plan regulations.
The tax is meant to help fund insurance
for previously-uncovered Americans, and to help control the cost of
healthcare plans.
Employers already receive deductions for
providing health benefits to workers. Thus, the Cadillac tax would
essentially end that tax break for the highest cost plans. But unions have
some of the highest cost plans, after years of collective bargaining with
employers for better benefits.
About 26% of employers, and particularly
large employers, will have at least one health plan at risk of triggering
the excise tax when it takes effect in 2018, according to an analysis this
week by the Kaiser Family Foundation.
Continued in article
Teaching Case
"A Gain by Any Other Name: Accounting for a Bargain Purchase Gain," by Mark
J. Kohlbeck and Thomas J. Smith, Issues in Accounting Education, Article
Volume 30, Issue 3 (August 2015 ---
http://aaajournals.org/doi/full/10.2308/iace-51084
Articles in this journal are not free
Abstract
Students gain insight into a unique accounting treatment in acquisition
accounting by completing this case—that of a bargain purchase gain (BPG). In
December 2007, the Financial Accounting Standards Board (FASB) revised
accounting for business combinations when they promulgated Statement of
Financial Accounting Standard No. 141R, Business Combinations. Under the
revised standard, acquirers record net assets of the acquiree at their
respective fair market values at the time of acquisition and recognize the
excess of net assets over the consideration paid as a BPG included in income
from continuing operations. This case takes place after the acquisition is
negotiated and the consideration is agreed upon. Students are required to
estimate fair values of acquired net assets based on the information
provided, determine whether goodwill or a bargain purchase gain exists, and
evaluate the impact of this transaction on the financial statements. The
case also requires students to consider subjectivity within the analysis, as
well as to identify potential incentives that may influence certain
estimates and judgments that managers make. The case is appropriate for
accounting courses where business combinations, goodwill, and fair value
estimation are discussed.
INTRODUCTION
In 2014, Longhorn Corporation (Longhorn) is
interested in growing its business. Consistent with this strategy, Jeremy
Williams, Longhorn's CEO, identifies Noles Company (Noles) as a potential
acquisition target. Noles operates in the same industry as Longhorn, and
currently manufactures complementary products. A purchase agreement has been
reached between the companies where Longhorn acquires Noles effective as of
July 1, 2014. In the following paragraphs, the operations of Longhorn are
first described followed by the operations of Noles.1 Details associated
with the acquisition are then described. Finally, Noles's assets and
liabilities that are acquired by Longhorn are discussed.
LONGHORN INC., THE ACQUIRER
Longhorn became a publicly traded entity ten years
ago, and its shares trade on NASDAQ. Jeremy became the CEO prior to the IPO.
The company manufactures basic electronic circuitry for a multitude of
products ranging from home appliances and home electronics, to vehicles and
heavy-duty equipment. Since its initial public offering, the company has
issued shares to the public through three separate seasoned equity offerings
to fund its expansion initiatives. The company has expanded capacity to meet
growing demand by building additional manufacturing facilities and has
increased sales further by acquiring three smaller competitors.
Longhorn has maintained annual revenue growth of 10
percent over the past decade, in spite of operating in a very competitive
market. While the company has been able to achieve excellent growth in
revenue, it has come at a cost. Over time, market pressures have driven down
the average sales price. With costs remaining constant, profit margins have
decreased. While the company remains profitable and net income has risen
each year, margins—both gross and net—have declined. Financial statements
for the past two years are included in Exhibit 1.
Longhorn has an executive bonus plan that rewards
executives for achieving minimum EPS targets. In 2013, Longhorn was not able
to meet its EPS target for the first time in its history, and thus the
executives were unable to receive additional compensation. The board of
directors recently approved a current EPS-based bonus target of $0.88 per
share. The bonus pool starts at $250,000 if the target is reached and
increases by $50,000 for each cent the target is exceeded up to a maximum of
$1 million. Jeremy's share of any bonus pool is 40 percent. However, the
company's current forecast for the year (see Exhibit 3) projects net income
of $40 million or only $0.78 per share. Through June 30, 2014, the company
is on target to meet the company's forecast of $0.78 per share. Jeremy and
other members of management are currently examining what can be done to
enable the company to increase EPS.
NOLES COMPANY, THE ACQUIREE
Noles is a privately held company owned by three
sisters. The three sisters recently inherited the company when their father
unexpectedly died. Their father controlled all of the operations and made
all of the decisions. The sisters were never involved in the business, nor
did the father train anyone to succeed him. Therefore, the sisters are under
immediate pressure to sell the company before the business deteriorates and
the value declines.
Noles is a technology-oriented company supporting
the cellular phone industry. The company manufactures three products at two
facilities. The first product is a phone case that is specific to a
particular phone model and is sold to wholesalers (approximately 20 percent
of total sales). The cases are ultimately sold in big box electronic stores.
The second product is a mass-produced AC adapter that is sold to cell phone
manufacturers for inclusion when the cell phone is purchased (approximately
30 percent of total sales). Both of these products have narrow margins (5
percent to 10 percent) and the company does not possess any strategic
advantages with respect to manufacturing these products.
The third product is a revolutionary interface that
is used in cell phones manufactured by the leading providers in the
industry. The interface connects the display, the processor, and the 4G
connection in such a way that battery usage is reduced by 40 percent. The
interface was the brainchild of their father and is protected by a number of
related patents. The company continues to have high demand for the
interface. Due to the patents, the company has also been able to maintain
high margins on this product (45 percent to 50 percent).
The first of two facilities is located in Hamilton,
Ohio, which is also the location of corporate headquarters. Existing
management currently lives in the Hamilton area. The company has been an
important part of the community for the past 30 years. All three products
are produced at this facility; however, the assembly lines are somewhat
outdated and inefficient. Approximately 40 percent of total output is
produced at this facility, which is operating near full capacity.
Continued in article
Jensen Comment
Students should compare how accounting differs when there's a bargain purchase
of an entire company versus a bundle of assets and liabilities (e.g.,
mortgages), or a single asset (possibly with a mortgage). For example, what if a
company gets a bargain purchase on a train car load of inventory in good
condition? How is this inventory acquisition accounted for when the inventory
price is significantly below wholesale cost?
Students should know the bargain purchase accounting difference when
acquiring a financial asset (e.g. a portfolio of securities) versus inventory or
operating assets.
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on September 18,
2015
SEC
Looking at Outside Candidates to Lead Audit Regulator PCAOB
by:
Michael Rapoport and Andrew Ackerman
Sep 10, 2015
Click here to view the full article on WSJ.com
TOPICS: Auditing,
PCAOB, SEC
SUMMARY: The
SEC is "identifying interested and qualified candidates" to chair the Public
Company Accounting Oversight Board. A change at the top could signify a
change in priorities for the PCAOB, the government watchdog responsible for
making sure auditors conduct rigorous, impartial audits of publicly held
companies. As chairman, James Doty has emphasized efforts to require
auditors to disclose more information to investors, but he has faced
pushback from the accounting industry and, sometimes, questioning from SEC
officials about the audit panel's approach.
CLASSROOM
APPLICATION: This
article can be used in an auditing class for a discussion of the PCAOB, its
responsibilities, and its authority.
QUESTIONS:
1. (Introductory) What is the SEC? What is its purpose? What is its
area of authority?
2. (Introductory) What is the PCAOB? What is its purpose and area of
authority? How does its work relate to and affect the audit industry?
3. (Advanced) How are the SEC and the PCAOB related? What actions is
the SEC taking in the article that affects the PCAOB? Why is the SEC in this
position to do this?
4. (Advanced) What has the current chair of the PCAOB been
emphasizing in his position? How has the industry and SEC reacted? How could
the PCAOB's emphasis change?
"SEC Looking at Outside Candidates to Lead Audit Regulator PCAOB," by Michael
Rapoport and Andrew Ackerman, The Wall Street Journal, September 10, 2015 ---
http://www.wsj.com/articles/sec-looking-at-outside-candidates-to-lead-audit-regulator-pcaob-1441826964?mod=djem_jiewr_AC_domainid
The Securities and Exchange Commission is looking
at candidates to lead the government’s audit regulator other than current
Chairman James Doty, even though Mr. Doty has indicated he wants to be
reappointed to another term.
The SEC is “identifying interested and qualified
candidates” to chair the Public Company Accounting Oversight Board, SEC
Chairman Mary Jo White told reporters Wednesday at a meeting of a PCAOB
investor advisory group. That raises the possibility that the SEC, which
oversees the auditing panel and appoints its members, could select someone
other than Mr. Doty to serve as chairman after his current term expires in
October.
A change at the top could signify a change in
priorities for the PCAOB, the government watchdog responsible for making
sure auditors conduct rigorous, impartial audits of publicly held companies.
As chairman, Mr. Doty has emphasized efforts to require auditors to disclose
more information to investors, but he has faced pushback from the accounting
industry and, sometimes, questioning from SEC officials about the audit
panel’s approach.
Ms. White said the decision will be made by the
five-member commission, but declined to discuss timing. Ms. White said the
agency is following a “protocol” which includes looking at outside
candidates.
Mr. Doty, who has chaired the PCAOB since 2011,
told reporters at the same meeting that he would like to remain as PCAOB
chairman if the SEC wishes to keep him in the post. “I’ve made it clear that
if the SEC thinks I should be there, I want to be there,” he said, adding
there is ”more work we need to do.” A PCAOB spokeswoman declined further
comment.
During his tenure, Mr. Doty, 72 years old, has
focused on initiatives such as requiring audit firms to name the partner in
charge of each client’s audit and expanding the audit report to have
auditors tell investors more about what they discover. He contends those
disclosures will improve audit quality and make auditors more accountable.
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on September 18,
2015
Senate Panel Introduces Bill to Combat Tax Refund Fraud
by: John D. McKinnon
Sep 12, 2015
Click here to view the full article on WSJ.com
TOPICS: Fraud,
Legislation, Tax Refunds
SUMMARY: Leaders
of the Senate Finance Committee rolled out a bipartisan plan to beef up the
government's ability to fight tax refund fraud by identity thieves. But the
impact on the worrisome problem could be relatively modest. The measure's
central provision would tighten the deadline for employers to file W-2 forms
to the Internal Revenue Service. Another provision in the bill would clarify
that the IRS has the ability to regulate paid tax preparers, whom lawmakers
say are another big source of problems, including identity-theft-related
refund fraud. In recent years, the IRS has been estimated to pay $5 billion
or more annually in phony tax refunds. The estimate for the bill's impact is
$286 million over 10 years - a fraction of the amount the government
currently is losing.
CLASSROOM
APPLICATION: This
article discusses an important issue for taxpayers, tax return preparers,
and corporations issuing W-2s. Use the article to discuss if Congress and
the IRS is doing enough and what more they could do to reduce this type of
fraud.
QUESTIONS:
1. (Introductory) What are the details of the legislation proposed in
Congress? What issues does the legislation address?
2. (Advanced) What effects are these changes predicted to have on tax
fraud? Why?
3. (Advanced) What impact could the new W-2 rules have on employers?
What benefit does Congress think this requirement will provide?
4. (Advanced) Why does Congress want to regulate tax return
preparers? How will that regulation impact the industry? Who will benefit?
Who will it harm? How would individual preparers and their customers be
affected? How could consumers be affected?
5. (Advanced) What has the IRS done and neglected that has
exacerbated this problem? What changes should IRS management make to prevent
or reduce this type of fraud?
6. (Advanced) What do you think the government should do to reduce
this kind of fraud? What ideas are not being considered, but should be?
Reviewed By: Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
IRS Says Cyberattacks More Extensive Than
Previously Reported
by John D. McKinnon and Laura Saunders
Aug 17, 2015
Online Exclusive
A New Joint Effort to Combat Tax Identity Theft
by Laura Saunders
Jun 20, 2020
Online Exclusive
"Senate Panel Introduces Bill to Combat Tax Refund Fraud," by John D.
McKinnon, The Wall Street Journal, September 12. 2015 ---
http://www.wsj.com/articles/senate-panel-introduces-bill-to-combat-tax-refund-fraud-1442001438?mod=djem_jiewr_AC_domainid
Leaders of the Senate Finance Committee rolled out
a bipartisan plan Friday to beef up the government’s ability to fight tax
refund fraud by identity thieves. But the impact on the worrisome problem
could be relatively modest.
The measure’s central provision would tighten the
deadline for employers to file W-2 forms to the Internal Revenue Service.
Businesses currently must provide W-2 forms to
employees by Jan. 31, but the forms aren’t due to the government until the
end of February at the earliest, and businesses that file electronically
have until the end of March. The bill generally would move the deadline up
to mid-February.
That would give the IRS more ability to compare
information on returns to the information reported by employers—and to weed
out the phony claims by identity thieves.
Another provision in the bill would clarify that
the IRS has the ability to regulate paid tax preparers, whom lawmakers say
are another big source of problems, including identity-theft-related refund
fraud. A bill summary cites “substantial evidence indicating that
incompetent and unethical tax return preparers are harming both their
clients and the government.”
The changes could have little impact on the recent
epidemic of identity-theft-related refund fraud, however, in part because
during the tax-filing season, the IRS is so busy processing returns and
distributing refunds, it might have few resources available to curb fraud.
In recent years, the IRS has been estimated to pay
$5 billion or more annually in phony tax refunds. The estimate for the
bill’s impact is $286 million over 10 years—a fraction of the amount the
government currently is losing.
The bill would tackle cases in which identity
thieves use stolen identity information such as taxpayers’ Social Security
numbers to file phony returns in their names seeking tax refunds. The IRS is
successful in blocking many of these phony returns, but a significant number
are still getting through. Many of the crooks are American, but some portion
of the problem is emanating from overseas, officials say.
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on September 18,
2015
Lululemon Sales Rise, Gross Margin Declines
by:
Lisa Beilfuss
Sep 11, 2015
Click here to view the full article on WSJ.com
TOPICS: Financial
Accounting, Financial Statement Analysis, Forecasting, Gross Margin
SUMMARY: Lululemon
Athletica Inc. released quarterly results, posting a 16% increase in
second-quarter sales, but the gain came at the expense of a gross margin
that declined sharply from a year earlier. Shares in the company tumbled
16%, erasing the stock's year-to-date gain. Still, the shares are up 39%
over the past 12 months.
CLASSROOM
APPLICATION: This
article can be used for financial reporting and financial statement
analysis. It also would be valuable to show how management's decisions can
improve one area, while decreasing in another - sales vs. gross margin in
this case. It also offers an example of financial reporting can have an
effect on stock prices.
QUESTIONS:
1. (Introductory) What is Lululemon and what is its business model?
How have its products evolved over time?
2. (Advanced) What increase did the company report? The article
states the gain was at the expense of gross margin. What is gross margin?
Why did the company's gain affect gross margin? Is gross margin important?
What decision did the company make? What priorities did management choose
over gross margin?
3. (Advanced) How can a company's financial results affect the market
price of its stock? What other factors affect stock prices? How did
Lululemon's financial report affect its stock price? Why?
4. (Advanced) What had Lululemon forecasted for this quarter? How did
the results compare with the forecast? What is the company forecasting for
the full year? Is it reasonable and possible?
Reviewed By: Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Lululemon Still Has Room to Run
by Spencer Jakab
Sep 10, 2015
Online Exclusive
Investor Wary Over Lululemon's Shrinking Profit
Margins
by Maureen Farrell
Sep 10, 2015
Online Exclusive
Lululemon Boosts its Guidance as Sales Top
Expectations
by Chelsey Dulaney
Jun 10, 2015
Online Exclusive
"Lululemon Sales Rise, Gross Margin Declines," by Lisa Beilfuss, The Wall
Street Journal, September 11, 2015 ---
http://www.wsj.com/articles/lululemon-quarterly-profit-slips-but-retailer-raises-full-year-guidance-1441882373?mod=djem_jiewr_AC_domainid
Lululemon Athletica Inc. posted a 16% increase in
second-quarter sales on Thursday, but the gain came at the expense of a
gross margin that declined sharply from a year earlier.
While the company beat its own guidance and lifted
its full-year outlook, Lululemon also disappointed investors with a tepid
forecast for the current quarter.
Shares in the company tumbled 16% on Thursday,
erasing the stock’s year-to-date gain. Still, the shares are up 39% over the
past 12 months.
The Vancouver company, known for its yoga apparel,
has been working to retool its image after it had to recall some yoga pants
in 2013 for being too sheer and as shoppers’ preference has shifted from
basics to more elaborate designs. Lululemon has revamped its product line to
include more patterned items, and it has worked to grow its men’s and
children’s businesses.
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on September 18,
2015
IRS
Raises Red Flag on Real-Estate Spinoffs
by:
Liz Hoffman
Sep 16, 2015
Click here to view the full article on WSJ.com
TOPICS: Financial
Accounting, Corporate Tax Planning, Corporate Taxation, Spinoffs
SUMMARY: In
new guidance, the Internal Revenue Service signaled its discomfort with a
range of corporate spinoffs, specifically calling out deals in which
companies split their real estate and other physical assets from their
mainstream operations. The agency said it was concerned that some of these
transactions may violate rules meant to ensure that companies don't disguise
dividends and other taxable transactions as spinoffs to avoid paying taxes.
Separating real-estate assets has become a popular move over the past few
years among retailers, restaurant chains, casino operators and
telecommunications companies. The idea is that markets often don't give full
credit for land and buildings when they are embedded in an operating company
and that companies can get a higher valuation by putting the assets into a
separate structure like a real-estate investment trust, or REIT.
CLASSROOM
APPLICATION: This
is an excellent article to use in corporate taxation courses for the topic
of tax treatment of spinoffs. It is also excellent for use in financial
accounting classes to show how tax treatment could affect the accounting for
a spinoff. Additionally, it shows how tax rules impact the strategic
planning for a company in general.
QUESTIONS:
1. (Introductory) What is a spinoff? What are some examples of
spinoffs mentioned in the article?
2. (Advanced) How are spinoffs recorded for financial accounting
purposes? How do they affect a company's financial statements?
3. (Advanced) Why is the IRS concerned about spinoffs? What is the
IRS doing in response to these concerns?
4. (Advanced) What kind of effect can uncertainties about tax rules
have on corporate planning? Why isn't the IRS more helpful in setting rules
and offering guidance for transactions?
Reviewed By: Linda Christiansen, Indiana University Southeast
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Yahoo's Tax Options: Bad or Worse
by Miriam Gottfried
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by Aaron Back
Jul 21, 2015
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A Taxing Time for Yahoo's Mayer and Alibaba
by Miriam Gottfried
Sep 08, 2015
Online Exclusive
Yahoo Warns Alibaba Spin Off May Have Tax Issues
by Douglas MacMillan
Jul 18, 2015
Online Exclusive
Macy's and Other Retailers Are Pressured to Sell
the Land Beneath Them
by Suzanne Kapner
Jul 18, 2015
Online Exclusive
Activist Knocks on Macy's Door
by David Benoit and Suzanne Kapner
Jul 16, 2015
Online Exclusive
Darden Restaurants to Separate Some Real Estate
Assets
by Julie Jargon and David Benoit
Jun 24, 2015
Online Exclusive
"IRS Raises Red Flag on Real-Estate Spinoffs," by Liz Hoffman, The Wall
Street Journal, September 16, 2015 ---
http://www.wsj.com/articles/irs-raises-red-flag-on-real-estate-spinoffs-1442359003?mod=djem_jiewr_AC_domainid
Activist investors have been clamoring for
companies to spin off real estate and unlock the value hidden in their
headquarters, stores and land. This week, U.S. tax authorities weighed in
with a message of their own: Not so fast.
In new guidance, the Internal Revenue Service
signaled its discomfort with a range of corporate spinoffs, specifically
calling out deals in which companies split their real estate and other
physical assets from their mainstream operations. The agency said it was
concerned that some of these transactions may violate rules meant to ensure
that companies don’t disguise dividends and other taxable transactions as
spinoffs to avoid paying taxes.
These spinoffs “involve significant concerns,” the
IRS said, adding it will largely stop giving preapproval for such deals
while it examines the issue more closely.
The increased scrutiny could apply to pending deals
including Darden Restaurant Inc.’s plan to spin off most of its restaurant
properties, a move championed by activist investor Starboard Value LP, which
controls the company. It also could give pause to companies including Macy’s
Inc. and McDonald’s Corp. , which are under shareholder pressure to make
similar moves.
“The message is, proceed with caution,” said David
Burton a tax partner at law firm Akin, Gump, Strauss, Hauer & Feld LLP.
The IRS doesn’t comment on specific transactions,
but occasionally issues new rules or informal guidance to reflect its
thinking.
Separating real-estate assets has become a popular
move over the past few years among retailers, restaurant chains, casino
operators and telecommunications companies. The idea is that markets often
don’t give full credit for land and buildings when they are embedded in an
operating company and that companies can get a higher valuation by putting
the assets into a separate structure like a real-estate investment trust, or
REIT.
Activist investors have latched onto the idea.
Since the start of 2013, they have launched 21 campaigns aimed at pressing
companies to separate their real estate, up from 11 in the previous six
years combined, according to FactSet.
Low interest rates have spurred the trend. REITs
pay out most of their income in dividends, making them similar to debt
investments but with higher returns than many bonds offer today.
These deals are generally tax-free, subject to a
few IRS rules. One is that the spun-off company must include an “active
trade or business.” Simply collecting rent, as many REITs do, doesn’t
qualify. Companies typically include a small business alongside the
properties to meet the test.
Continued in article
Teaching Case
From The Wall Street Journal's Accounting Weekly Review on September 18,
2015
Ernst & Young's Global Revenue Increases in Fiscal Year
by:
Michael Rapoport
Sep 15, 2015
Click here to view the full article on WSJ.com
TOPICS: Auditing,
Big Four Accounting Firms
SUMMARY: Ernst
& Young and the other major accounting firms are international networks of
private partnerships, and they disclose only their annual revenues, not
their earnings. The article details EY's recent report regarding its
financial information.
CLASSROOM
APPLICATION: This
article features one of a Big Four accounting firms and offers a glimpse
into the business of those firms.
QUESTIONS:
1. (Introductory) What are the Big Four accounting firms? What do
they do? Why are they called big?
2. (Advanced) What are the various service areas of work accounting
firms do? What is the largest area? Why? How are things changing?
3. (Advanced) What are the details regarding Ernst & Young's domestic
and international business? Where are the areas of growth for the firm and
others in the industry?
4. (Advanced) Research past financial reports of the Big Four firms
and compare the sizes of those firms. Search for financial reporting for
regional firms as well. How do the Big Four differ from the next tier of
firms? What different types of clients do they serve? Compare the various
business lines of the big and regional firms. How could this impact where
you might choose to work?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Ernst & Young's Global Revenue Increases in Fiscal Year," by Michael
Rapoport, The Wall Street Journal, September 15, 2015 ---
http://www.wsj.com/articles/ernst-youngs-global-revenue-increases-in-fiscal-year-1442271660?mod=djem_jiewr_AC_domainid
Ernst & Young’s global revenue rose to $28.7
billion in its latest fiscal year, up 4.7% in U.S. dollar terms from the
previous year, the Big Four accounting firm said Monday.
Revenue for fiscal 2015, which ended June 30, rose
11.6% in local-currency terms, the way that Ernst & Young prefers to measure
its growth. The two growth figures were significantly different this year
because of the strength of the U.S. dollar, said Ernst & Young, also known
as EY.
The 11.6% local-currency growth was the firm’s
fastest growth since 2008, Ernst & Young said, though the 4.7% U.S.-dollar
growth was slower than the 6% growth the firm posted in fiscal 2014.
Mark Weinberger, the firm’s global chairman and
chief executive, said Ernst & Young had done well in a still-struggling
world-wide economy. “We feel good that this is solid growth,” Mr. Weinberger
said in an interview with The Wall Street Journal. It “shows we hope that
we’ve made the right investments in our people and our technologies.”
Ernst & Young and the other major accounting firms
are international networks of private partnerships, and they disclose only
their annual revenues, not their earnings.
Continued in article
Humor for September 1-30, 2015
Steve Martin & Robin Williams Riff on Math,
Physics, Einstein & Picasso in a Heady Comedy Routine (2002) ---
http://www.openculture.com/2015/09/steve-martin-robin-williams-do-intellectual-comedy.html
Here are the oddest and most interesting feats
from Guinness World Records' 2016 edition ---
http://www.businessinsider.com/2016-guinness-book-world-records-interest-odd-feats-edition-2015-9
Jeremy Corbyn has only ever favourited 24 tweets
on Twitter — and some of them are hilarious ---
http://www.businessinsider.com/jeremy-corbyn-favourite-tweets-on-twitter-2015-9
I don't think they're so hilarious. Am I missing something?
Philosophy Explained With Donuts ---
http://www.openculture.com/2015/08/philosophy-explained-with-donuts.html
Newspaper Headline Forwarded by Paula
"Missippi's Literacy Program Shows Improvment"
Man Thinks He's Texting His Drug Dealer,
Accidentally Messages Police Captain Instead ---
http://news.yahoo.com/man-thinks-hes-texting-drug-134007127.html
Ignoble Prize Winners of 2015: These
academic studies won this year’s most absurd awards ---
http://www.improbable.com/
Jensen Comments
I really miss Senator Proxmire's infamous Golden Fleece Awards ---
https://en.wikipedia.org/wiki/Golden_Fleece_Award
Yogi Berra ---
https://en.wikipedia.org/wiki/Yogi_Berra
Yogi Berra Quotations ---
http://www.goodreads.com/author/quotes/79014.Yogi_Berra
Woody Allen Tells a Classic Joke About
Hemingway, Fitzgerald & Gertrude Stein in 1965: A Precursor to Midnight in Paris
---
http://www.openculture.com/2015/09/woody-allen-tells-a-classic-joke-about-hemingway-fitzgerald-gertrude-stein.html
Gene Autry's Cowboy Code
1. The Cowboy must never shoot first, hit a smaller man, or take unfair
advantage.
2. He must never go back on his word, or a trust confided in him.
3. He must always tell the truth.
4. He must be gentle with children, the elderly, and animals.
5. He must not advocate or possess racially or religiously intolerant ideas.
6. He must help people in distress.
7. He must be a good worker.
8. He must keep himself clean in thought, speech, action, and personal
habits.
9. He must respect women, parents, and his nations laws.
10. The Cowboy is a patriot.
http://courses.cs.vt.edu/professionalism/WorldCodes/Cowboy.Code.html
From the Washington Star-News
Friday, President Obama visited Mason Crest elementary school in Annandale,
Virginia to announce major progress on his ConnectED initiative. Before his
remarks, however, he stopped by one of the school’s 2nd Grade classes to chat
with students.
In his informal meeting with the young students the President asked them to
“Define the word “tragedy”.
One unidentified girl replied, “If my mommy ran over my dog, Bailey, that
would be a tragedy!”
The President smiled at the little girl and said, “No, sweetie. That would be
an accident! Would anyone else like to give it a try?”
A little boy sitting across the room raised his hand and said, “I know! I
know! If our bus driver ran off of a cliff and killed everyone!”
The President shook his head and said, “No son, that would be a great loss!
Doesn’t anyone know of a good example of a tragedy?”
Then 7 year old Francine Upton, raised her hand and said, “Well, Mr.
President, if you and Michelle were in Air Force One and it was hit by a missile
and blown to smithereens, most people would think that that was a tragedy!”
“Very good” he said, “And what was your reason for that answer?”
“Well” she answered, “It would not be an accident and it sure would be no
great loss!” - See more at: http://www.washingtonstarnews.com/satire/7-year-old-just-put-obama-in-his-place-with-this-answer-to-his-question/#sthash.vuHDDNvL.dpuf
Forwarded by Paula
John was sitting
outside his local pub one day, enjoying a quiet pint and generally feeling
good about himself, when a nun suddenly appears at his table and starts
decrying the evils of drink.
"You should be
ashamed of yourself young man! Drinking is a Sin! Alcohol is the blood of
the devil!"
Now John gets
pretty annoyed about this, and goes on the offensive.
"How do you know
this, Sister?"
"My Mother
Superior told me so."
"But have you ever
had a drink yourself? How can you be sure that what you are saying is
right?"
"Don't be
ridiculous--of course I have never taken alcohol myself"
"Then let me buy
you a drink - if you still believe afterwards that it is evil I will give up
drink for life"
"How could I, a
Nun, sit outside this public house drinking?!"
"I'll get the
barman to put it in a teacup for you, then no one will ever know."
The Nun
reluctantly agrees, so John goes inside to the bar.
"Another pint for
me, and a triple vodka on the rocks", then he lowers his voice and says to
the barman "and could you put the vodka in a teacup?"
"Oh no! It's not
that Nun again is it?"
Forwarded by Paula
Dorothy and Edna, two "senior" widows, are
talking.
Dorothy: "That nice George Johnson asked me out
for a date. I know you went out with him last week, and I wanted to talk with
you about him before I give him my answer."
Edna: "Well, I'll tell you. He shows up at my
apartment punctually at 7 pm, dressed like such a gentleman in a fine suit, and
he brings me such beautiful flowers! Then he takes me downstairs. And what's
there; a limousine, uniformed chauffeur and all. Then he takes me out for
dinner; a marvelous dinner, lobster, champagne, dessert, and after-dinner
drinks. Then we go see a show. Let me tell you Dorothy, I enjoyed it so much I
could have just died from pleasure! So then we are coming back to my apartment
and he turns into an ANIMAL. Completely crazy, he tears off my expensive new
dress and has his way with me three times!"
Dorothy: "Goodness gracious!... so you are
telling me I shouldn't go?"
Edna: "No, no, no... I'm just saying, wear an
old dress."
Humor September 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor093015
Humor August 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor083115
Humor July 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor073115
Humor June 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor May 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor April 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor March 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor033115
Humor February 1-28, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor022815
Humor January 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor013115
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 September 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 ---
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Jensen's Resume ---
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Jensen's Homepage ---
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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
|
September
17, 2015 message from Sudipta Basu
Dear Bob:
Don't know if you have come across this paper by
Gow, Larcker and Reiss, but given your interest in methodological issues,
you will probably find this interesting.
http://research.chicagobooth.edu/~/media/90CF65A6E20D44C6A70C579937A9778C.pdf
Best wishes,
Sudipta
Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites
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Accounting
Professors Who Blog ---
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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 ---
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Bob Jensen's Pictures and Stories
http://faculty.trinity.edu/rjensen/Pictures.htm
Bob
Jensen's Homepage ---
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August 31, 2015
Bob
Jensen's New Bookmarks for August 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
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Current and past editions of my newsletter called
New Bookmarks ---
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Fraud Updates ---
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Bob Jensen's
Pictures and Stories
http://faculty.trinity.edu/rjensen/Pictures.htm
All
my online pictures ---
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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
Jean Louise's second impulse was to blame it on the
minister. He was a young man, a Mr. Stone by name, with what Dr. Finch called
the greatest talent for dullness he had ever seen in a man on the near side of
fifty. There was nothing whatsoever wrong with Mr Stone, except that he
possessed all the necessary qualifications for a
certified public accountant: he did not like people, he was quick with numbers,
he had no sense of humor, and he was butt-headed.
Harper Lee, author of To Kill a Mockingbird, in her newly released book,
Go Set a Watchman, Chapter 7 ---
https://mail.google.com/mail/u/1/#inbox/14f370e95e1cd3ab
Thank you Denny Beresford for the heads up. When you employ or marry Mr. Stone
you've hit rock bottom.
From the Chronicle of Higher Education
Search for Job Openings in Higher Education ---
https://chroniclevitae.com/job_search/new
"The Economic Guide To Picking A College Major," by Ben Casselman,
Nate Silver's 5:38 Blog, September 12, 2014 (slightly dated) ---
http://fivethirtyeight.com/features/the-economic-guide-to-picking-a-college-major/
Jensen Comment
This is a better-than-most article article on this topic, although virtually all
such articles are misleading in terms of long-term versus short term reasons for
choosing a major. For example, some of the highest paying careers at the point
of graduation are not great careers in terms of long-term opportunities for
professional growth or lifetime income. Accounting and finance, for example, are
typically ranked low in terms of average starting salaries but rank high in
terms of economic opportunities. In part this is because accounting and finance
graduates are neophytes who have minimal expertise that comes with experience
and post-graduate learning (usually on the job). They have a lot of learning to
do before they can earn their keep.
One strong point of the article is that it lists number of majors in each
discipline broken down into quartiles. This is important because numbers reflect
the fact that there are both opportunities and job competition due to high
versus few numbers of majors. For example, there are over 200,000 nursing majors
and nearly 200,000 accounting majors. This suggests that demand for these majors
must be relatively widespread with considerable choices of location both
in urban and rural settings across the USA. Those disciplines having less than
1,000 majors perhaps have much less choice with respect to number of employers
and geographic locations.
The article is weak in terms of showing the incremental advantages of getting
advanced degrees. For example, the physical sciences are not usually great
undergraduate majors without going into some type of graduate study. Some majors
require at least masters degrees for taking the licensing examinations for a
career. Thus comparing these majors with majors that only require undergraduate
degrees is a little like comparing apples and oranges.
Also some majors that used to be great in terms of income and opportunity
have fallen onto hard times. Law schools, for example, are now graduating twice
and many majors relative to career opportunities in law.
Also some majors are much less specific in terms of job skills. For example,
graduates in business management have wide ranging skills (or lack thereof)
relative to accounting, pharmacy, and engineering majors that require many more
specialized courses in a curriculum --- partly due to the way certification
examinations dominate curricula for some majors like accounting, pharmacy, and
engineering but not business management. My point is that the subset of business
management majors is such a heterogeneous subset I'm not certain what starting
salary averages really mean in this diverse population.
My main recommendation is that starting salaries should be given much less
consideration than other factors going into a career. For example, I personally
would never have considered physical therapy as a major, because I think
physical therapy over the course of 50 years on the job must be terribly boring
and generally lacks growth opportunity. Some careers like K-12 teaching lack
growth opportunities buy offer considerable independence in terms of free time
with summer vacations and holidays that add up to a lot of free time in a
lifetime career. free time for example to raise children.
For me, being a professor in a university turned into what I think has to be
the best of all careers as long as becoming wealthy is not a priority in life.
The main advantage is independence choosing how to spend your time on and off
the job. There are of course other types of non-monetary rewards in helping
students learn and develop their own lives. My research and scholarship had
great variety over the years and was not nearly as dull as you might think when
the word "accountancy" is mentioned as an academic discipline.
The 10 Best and Worst Undergraduate Majors for Getting Jobs (without
getting additional credentials) ---
http://www.businessinsider.com/worst-college-majors-2014-6
Top students in the "worst majors" in the past often went on to law
school. They are still doing so but in fewer numbers and greatly
dampened prospects for working in law firms after law school graduation.
Law school losses of students are often MBA program gains. Options in
accounting, engineering, nursing, pharmacy are not so great due to all
the undergraduate prerequisites that must be satisfied before going to
graduate school in those specialties.
Because there are so many graduates in business, neither an
undergraduate degree nor an MBA degree is a very good path to a career
without extremely high grades or specialties in demand like accounting.
Sometimes a combination of degrees greatly improves job prospects such
as an undergraduate engineering or computer science degree topped off
with an MBA from a top school.
Students planning to get MD or science Ph.D. degrees need to
carefully plan their undergraduate studies in advance of going to
graduate school. Unfortunately, graduate studies in those fields,
especially medicine, can be quite long and expensive. For example, most
MD or science Ph.D. graduates must also plan for low-paying
post-graduate residency or post-doc years before they can make
significant progress in paying down their student loans.
From the Chronicle of Higher Education
Search for the Latest Job Openings in any Discipline of Interest
---
https://chroniclevitae.com/job_search/new?cid=VTECHNJOBSL1
Jensen Comment
When I search for "Accounting" and "Faculty & Research" today there are 256 jobs
posted in the past 30 days. However, not all of these jobs seem property
classified as both "Accounting" and "Faculty & Research." Also I know of some
job openings for accounting professors that are not listed for major
universities.
For persons seeking jobs as accounting faculty in the USA perhaps a better
place to look might be the American Accounting Association Career Center ---
http://aaahq.org/Career-Center
Job seekers may also post their resumes at this center.
Since there are so many faculty vacancies in accountancy, job seekers with
Ph.D. degrees from AACSB-accredited universities are advised to contact colleges
and universities where they would most like to be employed.
Bob Jensen's threads on careers ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#careers
Bob Jensen's threads on the higher education faculty job
market ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#AccountingFaculty
Researchers at Harvard University and the Massachusetts Institute of
Technology have discovered a new form of cheating for MOOC credits
"Multiple Personalities, Disorder," by Carl Straumsheim, Inside Higher Ed,
August 26, 2015 ---
https://www.insidehighered.com/news/2015/08/26/harvard-mit-researchers-find-mooc-learners-using-multiple-accounts-cheat?utm_source=Inside+Higher+Ed&utm_campaign=e257aae0b9-DNU20150826&utm_medium=email&utm_term=0_1fcbc04421-e257aae0b9-197565045
Bob Jensen's threads on MOOCs, SMOCS, Future Learn, iversity, and OKI Free
Learning Alternatives Around the World ---
http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI
"How internal audit can make better use of technology," by Ken Tysiac,
Journal of Accountancy, August 18, 2015 ---
http://www.journalofaccountancy.com/news/2015/aug/internal-audit-technology-201512855.html
From the CPA Newsletter on August 26, 2015
Flipping the Classroom ---
https://en.wikipedia.org/wiki/Flipped_classroom
"Flipping the Managerial Accounting Principles Course: Effects on Student
Performance, Evaluation, and Attendance," by Tom Downen and Becky Hyde, SSRN,
July 29, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2637609
Abstract:
Considerable research and attention has been focused lately on the concept
of “flipping the classroom.” Much of the focus has been on secondary
education. However, opportunities to flip the classroom also exist in
university education, and certain business disciplines (such as accounting)
are particularly appealing targets given the practical/applied nature of
many of the topics covered. This study examines a simplified flipping
approach (without videos), using a within-participants experimental design,
in a managerial accounting principles course. The results of the study show
significant improvement in student performance under a flipped approach (as
compared to a traditional approach), controlling for individual student
differences. Quantile regression suggests that those performance
improvements were most substantial for lower-performing students. No effect
on student evaluations of the course/instructor is found. Student
attendance, at least on the initial class days when the instructional format
was manipulated, was better for the flipped approach. These results suggest
a need to consider further the increased use of a flipped classroom in
business and accounting education; in application-oriented courses like
managerial accounting principles, and in particular for more remedial course
sections, the flipped classroom could be especially effective.
Bob Jensen's threads on flipped classrooms ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Ideas
Bob Jensen's threads on managerial accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
"Hiring and enrollments reached record highs last year," by Courtney
L. Vien, Journal of Accountancy, August 10, 2015 ---
http://www.journalofaccountancy.com/news/2015/aug/public-accounting-firm-jobs-hiring-201512792.html#sthash.0OtpJ7X4.dpuf
Unlike many in their Millennial cohort who face continued
underemployment, accounting graduates find themselves in high demand
from employers. Top students are often recruited, offered jobs during or
after their internships, and enticed with signing bonuses.
According
to the AICPA report Trends in the Supply of Accounting Graduates and
the Demand for Public Accounting Recruits, hiring at public
accounting firms jumped 7% to reach record levels in 2013–14. Ninety-one
percent of all firms said they expect to hire accounting graduates at
the same or higher levels in 2015.
- See more at: http://www.journalofaccountancy.com/news/2015/aug/public-accounting-firm-jobs-hiring-201512792.html#sthash.0OtpJ7X4.dpuf
Unlike many in their Millennial cohort who face
continued underemployment, accounting graduates find themselves in high
demand from employers. Top students are often recruited, offered jobs during
or after their internships, and enticed with signing bonuses.
According to the AICPA report Trends in the Supply
of Accounting Graduates and the Demand for Public Accounting Recruits,
hiring at public accounting firms jumped 7% to reach record levels in
2013–14. Ninety-one percent of all firms said they expect to hire accounting
graduates at the same or higher levels in 2015.
Continued in article
America’s Best Companies to Work For ---
http://247wallst.com/special-report/2015/08/10/the-best-companies-to-work-for/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=AUG102015A&utm_campaign=DailyNewsletter
The best companies to work for were concentrated in particular industries.
For example, technology companies are well represented among the
highest-rated
employers, as are consulting firms. Of the 54 best
companies, only nine received an average rating of 4.0 or higher on a scale
of 1.0 to 5.0. Of these, five are in the technology space — Facebook
(NASDAQ: FB), Google (NASDAQ: GOOG), LinkedIn (NYSE: LNKD), Adobe (NASDAQ:
ADBE), and Apple (NASDAQ: AAPL). Several consulting firms also made the
list. Seven out of the 54 best companies provided consulting services,
including the Big Four auditing firms — EY,
Deloitte, PwC, and KPMG.
Bob Jensen's threads on careers ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#careers
Alice Goffman ---
https://en.wikipedia.org/wiki/Alice_Goffman
Controversy About Alice's Academic Integrity ---
https://en.wikipedia.org/wiki/Alice_Goffman#Controversy
But again, to focus exclusively on
Goffman’s individual conduct misses the larger point. Alice Goffman is a product
of system that uncritically rewards the kind of things she was doing, even when
those things may have included engaging in serious crimes, or serious academic
misconduct.
"Alice Goffman's Implausible Ethnography," by Paul Campos, Chronicle
of Higher Education, August 21, 2015 ---
http://chronicle.com/article/Alice-Goffmans-Implausible-/232491/?cid=at
'On the Run’ reveals the flaws in how
sociology is sometimes produced, evaluated, and rewarded.
. . .
Those words make a moving statement, spoken as they
are by a man who has worked hard all his life to overcome the racism that
blights American society, and who has seen his daughter and his
grandchildren fall victim to drug addiction, chronic unemployment, and a
criminal-justice system that imprisons an astonishingly high percentage of
African-American men.
Unfortunately, it’s difficult to know if George
Taylor actually said those things. Indeed, Taylor’s speech raises the
possibility that Goffman embellished or conflated some of the most
compelling material in her book.
Attentive readers will have noticed that Taylor’s
remarks appear to have been made after Barack Obama became president. Yet
Goffman dates her interview with Taylor to the fall of 2007, when Obama was
just emerging as a serious candidate for the Democratic nomination, and did
not yet herald the coming of "a new era" to anyone.
Even more inexplicably, readers will discover two
pages later that Chuck, whom Goffman says she has just visited in the county
jail before meeting his grandfather, was no longer alive in the fall of
2007, since, as the book recounts, he was murdered in the summer of that
year. As far as I’ve been able to determine, none of the book’s many
enthusiastic reviewers — not to mention its editors or the academic referees
who vetted the manuscript for the University of Chicago Press — seem to have
noticed this incongruity. (Douglas Mitchell, an executive editor at the
press, declined to answer questions about On the Run.)
Standing alone, this kind of mistake might not be
particularly significant. Perhaps Goffman misread her field notes, and the
interview with Taylor took place in 2008 or 2009. Perhaps the reference to
visiting Chuck several months after his murder can be explained in similar
terms, although that seems improbable; Goffman describes Chuck’s death as a
shattering emotional event for her personally, so it’s hard to imagine how
she could have made such an error.
But this incident is just one of numerous and
significant incongruities, contradictions, inaccuracies, and improbable
incidents scattered throughout On the Run. (Goffman declined interview
requests, and decided not to answer most questions by email. The Chronicle
Review has invited Goffman to respond to this article.).
Continued in a very long article
Bob Jensen's threads on professors who cheat ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
Parkinson's Disease ---
https://en.wikipedia.org/wiki/Parkinson's_disease
Jensen Comment
We all know or knew somebody with Parkinson's disease. For me it was my Uncle
Linus and several faculty colleagues over the years, most notably Roland
Salmonson at Michigan State. It was such a tragedy to watch the vigorous
Professor Salmonson go downhill in baby steps over more than a decade.. It could
have been worse I suppose since there are diseases that cause more suffering and
faster downward spirals.
But the slowness of the deterioration is in many ways a form of torture. Now
of course doctors can do more for Parkinson's disease, especially with deep
brain surgery to ease or eliminate tremors. But I think the steady weakening
continues over the years of affliction. Rolly studied under Boll Paton and
co-authored several accounting textbooks with James Don Edwards and Roger
Hermanson before he passed on.
A few weeks ago I attended the funeral of a close friend in these mountains
who had a long bought with Parkinson's disease. Jack was a retired state
trooper. His form of the disease entailed no tremors. However, he slowly became
weaker and weaker over the years and was eventually bed ridden.
The slowness of the deterioration is in many ways a form of torture. Now of
course doctors can do more for Parkinson's disease, especially with deep brain
surgery to ease or eliminate tremors. But I think the steady weakening continues
over the years of affliction. Rolly Salmonson studied under Boll Paton and
co-authored several accounting textbooks with James Don Edwards and Roger
Hermanson before he passed on.
Up in Canada, our well-known accountics scientist Jerry Feltham has had
lingering Parkinson's for years. Jerry published quite often with Joel Demski.
Both were pioneers of accountics science. I admired both Joel and Jerry because,
unlike some accountics scientists today, they were scholarly accountants
as well as mathematicians ---
https://en.wikipedia.org/wiki/Gerald_A._Feltham
Sergey Brin’s Search for a Parkinson’s Cure ---
http://www.wired.com/2010/06/ff_sergeys_search/
From The Wall Street Journal on August 28, 2015
FASB Issues ASU on Employee Benefit Plan Accounting
http://deloitte.wsj.com/cfo/2015/08/28/fasb-issues-asu-on-employee-benefit-plan-accounting/
The FASB issued
ASU 2015-12,¹ a
three-part standard that provides guidance on certain aspects of the
accounting by employee benefit plans. The ASU, issued on July 31, and
released in response to consensuses reached by the EITF, requires an
employee benefit plan to use contract value as the only measurement amount
for fully benefit-responsive investment contracts (FBRICs); simplifies and
increases the effectiveness of plan investment disclosure requirements for
employee benefit plans; and provides employee benefit plans with a
measurement-date practical expedient similar to the practical expedient
provided to employers in ASU 2015-04.
From EY on August 28, 2015
FASB adds SEC staff guidance on debt issuance costs for lines
of credit
The FASB issued
ASU 2015-15
to add to the Codification SEC
staff guidance that the SEC staff will not object to an entity presenting
the costs of securing line-of-credit arrangements as an asset, regardless of
whether there are any outstanding borrowings. The SEC Observer to the
Emerging Issues Task Force announced the staff guidance in response to
questions that arose after the FASB issued ASU 2015-03, Interest -
Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of
Debt Issuance Costs, in April 2015.
IASB staff introduce proposed Conceptual Framework with series of web
presentations ---
http://www.ifrs.org/Features/Pages/Conceptual-Framework-webcasts.aspx
Thank you Ross Stevenson for the heads up.
"Ashley Madison Faces $578 Million clAss Action Lawsuit," by Tanya Basu,
Time Magazine, August 23, 2015 ---
http://time.com/4007374/ashley-madison-578-million-lawsuit-canada
Two Canadian firms filed the suit on Thursday
Two Canadian law firms filed a $578 million
class-action lawsuit against the companies that run extramarital-affairs
website Ashley Madison over a recent hack that exposed the personal
information of about 39 million users.
Charney Lawyers and Sutts, Strosberg LLP—two
Canadian law firms—filed the suit on Thursday on behalf of Canadians whose
personal information was breached in a company hack. The Toronto-based Avid
Dating Life and Avid Life Media, which run the company, are named in the
suit.
The lawsuit’s class-action status remains to be
certified by the court.
“Numerous former users of AshleyMadison.com have
approached the law firms to inquire about their privacy rights under
Canadian law,” the firms said in a statement. “They are outraged that
AshleyMadison.com failed to protect its users’ information. In many cases,
the users paid an additional fee for the website to remove all of their user
data, only to discover that the information was left intact and exposed.”
The statement went on to say that the class action
lawsuit will not seek damages from the hackers who leaked the information.
Continued in article
This is a list of articles that appeared in the
January-August 2015 issues of the Journal of Accountancy. ---
Jim Martin, MAAW's Blog,
August 15, 2015 ---
http://maaw.blogspot.com/2015/08/journal-of-accountancy-2015-update.html
Update on Francine and the Changed Archive for Her Blog ---
http://retheauditors.com/2015/05/31/re-the-auditors-is-now-at-marketwatch/
May 18, 2015 was my first day on the job as a
reporter for
MarketWatch in
Washington, DC, the sister online
publication to the Wall Street Journal and Barrons that
focuses on retail investors.
Yes, I have taken a full-time journalism job and I
have moved.
I found out about the job via Twitter. (Twitter
has been berry berry good to me!) Steve Goldstein, the DC Bureau Chief
of MarketWatch, and I have been following each other there for a
while and have had some back and forth on the issues. He knows my work. I
saw his tweet for the job— it was a perfect fit—and asked him if I could
apply. He was as excited as I was about the possibilities and within a few
weeks I was signed up and ready to go.
Here’s the job description as it was written:
MarketWatch is seeking a
‘transparency’ reporter to uncover the hurdles being placed on the
individual investor and what, if anything, is being done to resolve
them. The ideal candidate, based in Washington, will not just be on top
of the latest developments at the Securities and Exchange Commission,
Commodity Futures Trading Commission and more from the regulatory
alphabet soup but will be able to explain clearly and concisely how
those issues impact the investor. Topics for examination will include
the fracturing stock market, high frequency trading, insider trading and
corporate accounting.
I’ve already written several stories, long and
short, and I also capture breaking news on my beat and write up a few
sentences to summarize and get it on the scrolling headline thingy across
the top.
3:24 p.m. May 29, 2015 | By
Francine McKenna
2:39 p.m. May 29, 2015 | By
Francine McKenna
5:48 p.m. May 28, 2015 | By
Francine McKenna
4:50 p.m. May 27, 2015 | By
Francine McKenna
2:19 p.m. May 21, 2015 | By
Francine McKenna
2:52 p.m. May 19, 2015 | By
Francine McKenna
I am very excited and so is Rosie my Rottweiler.
She and I are getting used to our new digs, hanging our art and trying out
all the restaurants that allow big black dogs on their patios. (They are
very dog-friendly where I live now!)
I love to write and I am grateful for all of those,
especially the editors, who helped me become a better writer along the way.
- Neil Weinberg of
Bloomberg who brought me in to write at Forbes and
then American Banker
- Janet Novack, my
editor at Forbes online and on the three magazine articles I
wrote for them, my first two which were selected as a Loeb Award
finalist in 2013
- Marc Hochstein,
now Editor in Chief of American Banker and editor of my weekly
columns there, some of which were included in Congressional testimony
and mentioned on the floor of the House by Congressmembers.
- Emily Lambert, my
colleague at Forbes and now Associate Director of the Office of
Intellectual Capital at University of Chicago Booth School of Business
which publishes Capital Ideas magazine where I wrote many
stories about accounting faculty research.
- Evan Hansen
formerly Editor in Chief of Wired and now at Medium.com
where he recruited me at the kickoff of that online site and then again
to write for its Bull Market collection.
- David Johnson who
asked me to write for Boston Review and then for Al Jazeera
when he moved over to be online editor there.
And finally Andrew Baker of Clovis Inc, my friend
of twenty-five years, my first editor and still my best editor.
It was time to join a team, join a newsroom, accept
deadlines other than my own and expand my gaze beyond the accounting/audit
industry.
I will still put longer, focused, more technical
articles here about accounting and audit, especially the litigation. But I’m
expected to devote my time and energy to my new employer so please indulge
me and read what I write there about other subjects, too. I don’t plan to
stray too far from the subject of accountability, even if it’s not just the
Big Four I will be holding accountable now.
Continued in article
Jensen Comment
I've always had mixed feelings about Francine's blog postings. She's more like a
MSNBC left-leaning commentator than an academic writer for The Economist.
Firstly, Francine is not and has never pretended to be an academic accountant.
Her interest has always been in being a media commentator/reporter on the public
accounting profession, especially on the Big Four. Secondly, she admittedly only
posts negative things about the Big Four. She once told me that she figures Big
Four will always blow their own horns about anything positive. She viewed her
job as blowing the sour notes about public accounting. She's not technically
trained in the complexities of accounting and auditing. As a
commentator/reporter she depends upon interviews with those who are technically
trained.
Evaluating the Big Four is always very complicated. For example,
consider my own blog module on the "Two Faces of KPMG" at
http://faculty.trinity.edu/rjensen/Fraud001.htm#KPMG
I make an effort to comment on the positives and well as the negatives.
Francine does write well and tries to make her articles
interesting. She always provides quotations, Web links, and references. Until
she became a reporter she was more of a commentator on what reporters previously
reported.
Now that she's a reporter her duties are changed somewhat. She
must now dig up the news rather than merely make comments on the news that's
been reported.
Personally, I'm on her side in terms of the way she
was allegedly treated as reported in the above article. In this case it appears
she was shamefully treated. This is one of those situations where the accusers
make themselves look bad.
There are times, however, that I
think Francine has been unfair to the Big Four in allegations that she truly did
not adequately support in my opinion.
"Bigger, Stronger, Faster: The PCAOB
After The Supreme Court Ruling," by Francine McKenna, re: TheAuditors,
June 9, 2010 ---
http://retheauditors.com/2010/06/09/bigger-stronger-faster-the-pcaob-after-the-supreme-court-ruling/
Jensen Comment
Although I love the intensity and investigative effort that Francine pours into
her blog, she does have a tendency to make conjectures that are unsupported
hypotheses that she considers "truth." These hardly
satisfy this old academic.
Example of an unsupported conjecture in
the above blog post:
This is not
the way to treat a regulator. Although the inspection process is intense,
time consuming and very expensive for the audit firms to comply with,
they are clearly paying it only lip service.
They view it as a necessary evil rather than a constructive or a deterrent
force. This must change if the PCAOB is ever going to be an effective tool
for protecting the investor public
She has not convinced me that the
inspections are failures to a degree that she repeatedly alleges in her posts.
We need much more intensive research into how the audit firms are reacting to
the inspection process before inspections take place and after inspection
reports are released to the public ---
http://pcaobus.org/Inspections/Pages/default.aspx
From:
Jim Fuehrmeyer [mailto:jfuehrme@nd.edu]
Sent: Tuesday, March 23, 2010 9:21 AM
To: Jensen, Robert
Subject: FW: Deloitte
Bob,
I
was the “Professional Practice Director”, that’s the audit quality control
guy, for Deloitte’s Chicago office for the six years prior to my retirement
in May 2007. I got to experience first-hand everything from the absorption
of AA’s people in Chicago to the advent of the PCAOB and its annual
inspection process the first few years. I don’t think most folks have any
appreciation for the very real impact the PCAOB has had on the profession.
The quality of documentation, the increased amount of partner involvement,
the added quality control processes, the expansion of detail testing – the
PCAOB has had a huge impact. Most folks also don’t have an appreciation for
the impact of 404 not only on the audit process but on corporate cultures as
well. As you pointed out a few messages ago, we do see all the failings in
the press, but what we don’t see is all the positives and all the
improvements.
Hope your wife is doing OK.
Jim
|
JAMES L. FUEHRMEYER, JR.
Associate Professional Specialist
Department of Accountancy |
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . |
MENDOZA COLLEGE OF BUSINESS
UNIVERSITY OF NOTRE DAME
384 Mendoza College of Business
Notre Dame, IN 46556
office: (574) 631-1752 | fax: (574) 631-5255
e:
jfuehrme@nd.edu | w:
http://business.nd.edu |
|
Jensen Comment
Before I retired I lived for 24 years in one of the Top 10 property tax states
(Texas). It also had a relatively high sales tax but no state income tax. After
retirement I live in one of the Top 10 property tax states (New Hampshire). It
does not have an income tax although is does have a cash interest and dividends
tax with a $5,000 exemption. New Hampshire does not have a sales tax with some
exceptions for restaurant tabs, hotel bills, and real estate sales.
Most of the other Top 10 property tax states
also hit residents with income taxes.
The 10 states with the highest property taxes ---
http://www.businessinsider.com/10-states-with-highest-property-taxes-2015-8#ixzz3isbyYdLo
Sadly some of those states squeezing the most everything-possibley tax blood out
of taxpayers also are in the worst shape in terms of unfunded state worker and
school teacher pensions, especially Illinois and New York. California would
probably be near the top in terms of property taxes if
Proposition 13 had not greatly limited the revenues that California can
raise in property taxes. California and Illinois are in the worst shape in terms
of unfunded (in many cases criminal) public worker and teacher pensions.
"IBM seeks to transform image-based diagnostics by combining its cognitive
computing technology with a massive collection of medical images," by Mike
Orcutt, MIT's Technology Review, August 11, 2015 ---
Click Here
http://www.technologyreview.com/news/540141/why-ibm-just-bought-billions-of-medical-images-for-watson-to-look-at/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20150812
Jensen Comment
You might consider asking your students to ponder why medical diagnostics and
prediction is expected, in my opinion, to be more successful in medicine than
finance and investing. My skepticism regarding financial diagnostics of data
mining in finance is the same as my skepticism about statistical analysis in
finance and investing.
It all boils down to when the assumptions of stationary states
fail us.
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
Can the 2008 investment banking failure be traced to a math error?
Recipe for Disaster: The Formula That Killed Wall Street ---
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
Link forwarded by Jim Mahar ---
http://financeprofessorblog.blogspot.com/2009/03/recipe-for-disaster-formula-that-killed.html
Some highlights:
"For five years, Li's formula, known as a
Gaussian copula function, looked like an unambiguously positive
breakthrough, a piece of financial technology that allowed hugely
complex risks to be modeled with more ease and accuracy than ever
before. With his brilliant spark of mathematical legerdemain, Li made it
possible for traders to sell vast quantities of new securities,
expanding financial markets to unimaginable levels.
His method was adopted by everybody from bond
investors and Wall Street banks to ratings agencies and regulators. And
it became so deeply entrenched—and was making people so much money—that
warnings about its limitations were largely ignored.
Then the model fell apart." The article goes on to show that correlations
are at the heart of the problem.
"The reason that ratings agencies and investors
felt so safe with the triple-A tranches was that they believed there was
no way hundreds of homeowners would all default on their loans at the
same time. One person might lose his job, another might fall ill. But
those are individual calamities that don't affect the mortgage pool much
as a whole: Everybody else is still making their payments on time.
But not all calamities are individual, and
tranching still hadn't solved all the problems of mortgage-pool risk.
Some things, like falling house prices, affect a large number of people
at once. If home values in your neighborhood decline and you lose some
of your equity, there's a good chance your neighbors will lose theirs as
well. If, as a result, you default on your mortgage, there's a higher
probability they will default, too. That's called correlation—the degree
to which one variable moves in line with another—and measuring it is an
important part of determining how risky mortgage bonds are."
I would highly recommend reading the entire thing that gets much more
involved with the
actual formula etc.
The
“math error” might truly be have been an error or it might have simply been a
gamble with what was perceived as miniscule odds of total market failure.
Something similar happened in the case of the trillion-dollar disastrous 1993
collapse of Long Term Capital Management formed by Nobel Prize winning
economists and their doctoral students who took similar gambles that ignored the
“miniscule odds” of world market collapse -- -
http://faculty.trinity.edu/rjensen/FraudRotten.htm#LTCM
The rhetorical question is whether the failure is ignorance in model building or
risk taking using the model?
Also see
"In Plato's Cave: Mathematical models are a
powerful way of predicting financial markets. But they are fallible" The
Economist, January 24, 2009, pp. 10-14 ---
http://faculty.trinity.edu/rjensen/2008Bailout.htm#Bailout
Wall Street’s Math Wizards Forgot a Few Variables
What wasn’t recognized was the importance of a
different species of risk — liquidity risk,” Stephen Figlewski, a professor of
finance at the Leonard N. Stern School of Business at New York University, told
The Times. “When trust in counterparties is lost, and markets freeze up so there
are no prices,” he said, it “really showed how different the real world was from
our models.
DealBook, The New York Times, September 14, 2009 ---
http://dealbook.blogs.nytimes.com/2009/09/14/wall-streets-math-wizards-forgot-a-few-variables/
Bob Jensen's threads on CDOs ---
http://faculty.trinity.edu/rjensen/2008Bailout.htm
Bob Jensen's threads on common statistical analysis mistakes in accountics
science ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm
"Greece
has a new bailout, but there's a 'Catch 22' ," by Alastair Macdonald,
Business Insider, August 14, 2015 ---
http://www.businessinsider.com/greece-bailout-imf-still-balking-2015-8
. . .
"There's a bit of a Catch 22
that we need to solve," said Finnish Finance Minister Alexander Stubb, whose
government was among those most ready to favor a Greek exit from the euro
before a last-minute deal struck by EU leaders a month ago.
"The IMF wants to be
involved only if there is debt relief; we want the IMF to be involved but we
don't want debt relief. Some kind of solution will have to be found."
"The IMF is on board
as concerns program conditionality," said Valdis Dombrovskis, the European
Commission's vice president for the euro. "We know that IMF has its own
program, but we do not expect a formal decision on this today."
Read ,more at
http://www.businessinsider.com/greece-bailout-imf-still-balking-2015-8#ixzz3ishC5hZg
"Hoogervorst Hokum Re Historic Cost," by Tom Selling, The
Accounting Onion, August 27, 2015 ---
http://accountingonion.com/2015/08/hoogervorst-hokum-re-historic-cost.html
After years of trying to work with the FASB on a
revised conceptual framework, the IASB finally decided to abandon the goal
of a fully converged framework and to finish a document for its own use. A
draft is imminent, and on June 29th, IASB Chair Hans Hoogervorst’s spoke to
a conference in Paris about his board’s thinking on key decisions — in
particular, the status of historic cost and current value measurements.
Let’s just say for now that I don’t think very much
of Mr. Hoogervorst’s speech. To get started, we should step back and
consider why the IASB and FASB have conceptual frameworks, and projects to
revise them.
. . .
Fair value as straw man — Fair value (i.e., exit
prices) as an accounting concept has many flaws. Three in particular are:
(1) profits on manufactured inventory would be recognized before a sale
actually takes place; (2) costs of acquiring a financial asset* must be
expensed instead of capitalized; and (3) is the problem of illiquid markets.
With respect to (3), some assets (financial and non-financial) have economic
value despite the fact that they are unsellable during economic downturns or
periods of high uncertainty.
Other valuation concepts do not share these
limitations. Yet Mr. Hoogervorst has
declined to explain why fair value is the scapegoat that taints all concepts
of current value. In particular, measuring an asset’s current cost of
replacement (as opposed to its cash value in a hypothetical sale) is free
from the aforementioned flaws.
Continued in article
Jensen Comment
Let me say that there is much in the above posting by Tom with which I agree,
and I selectively cherry picked only one part of the posting with which to
quibble. I think it is very misleading for Tom to suggest that: "Other
valuation concepts do not share these limitations."
The implication is that those "other valuation concepts" are superior to both
exit value and historical cost accounting. That's BS and I'm certain Tom is
aware of this and should have pointed this out. There are advantages and
limitations to the various alternatives of accounting measurement that I
summarize at
http://faculty.trinity.edu/rjensen/Theory02.htm#BasesAccounting
Tom's preferred accounting measurement is replacement cost over both exit
value and historical cost measurement. Tom and I have gone round and round over
this one before such that I will not burden the AECM once again with our debate
that is partly summarized in the following links:
The Controversy Over Fair Value (Mark-to-Market) Financial Reporting
---
http://faculty.trinity.edu/rjensen/Theory02.htm#FairValue
Loan Losses and Bad Debts ---
http://faculty.trinity.edu/rjensen/Theory02.htm#LoanLosses
Multi-Column Earnings and OCI Reporting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#OCIMulticolumn
Where Fair Value Market Accounting Fails: Unique Items Not Traded
(e.g., bank loans, Bad Debts) ---
http://faculty.trinity.edu/rjensen/Theory02.htm#FairValueFails
Underlying Bases of Balance Sheet Valuation ---
http://faculty.trinity.edu/rjensen/Theory02.htm#BasesAccounting
Online Resources for Business Valuations ---
http://faculty.trinity.edu/rjensen/roi.htm
Jensen Comment
I have to note that neither historical cost nor replacement cost accounting are
"valuation" approaches. Both entail the arbitrary non-valuation adjustments for
depreciation and depletion that take out current market settlements as valuation
approaches. True valuation approaches are either equity valuation such as market
capitalization of existing outstanding equity shares (a macro approach) or exit
valuation of asset and liability balance sheet items (a micro approach that
entails aggregation of perhaps a billion items in the case of large companies
like Exxon and Wal-Mart).
Market capitalization valuation essentially does away with the accounting
division of a company for valuation purposes. The main drawback is that marginal
trades of less than one percent of a company's voting shares is highly
misleading if total value is to be based on aggregation of such small marginal
trading prices. Such valuations are also subject to managerial manipulation such
as when a company impacts share trading markets with buybacks and dividend
decisions.
Exit value valuation of a going concern is usually based upon individual
asset and liability liquidation and does not capture synergy valuations of all
the balance sheet components in a going concern. Similar problems arise with
entry value (replacement cost) measurements that do not capture synergies.
But mostly the problem with both historical cost and replacement cost
accounting is that neither of these approaches entails valuation accounting.
Historical cost and replacement cost accounting does not capture all those
valuation items that accountants cannot measure like intangibles and
contingencies that affect valuation of the firm..
We can rehash all of the advantages and limitations of historical cost and
replacement cost accounting, but I will refer you instead to
http://faculty.trinity.edu/rjensen/Theory02.htm#BasesAccounting
The bottom line is that I basically like many parts of Tom's posting but if
he's trying to sneak in another plug for replacement cost accounting I'm leaving
the room. My best analogy for exit value or replacement cost accounting would be
to try to measure the value of Tom Selling by adding up the exit values or the
replacement costs of his body parts (all six feet, six inches of him). Doing so
would be an absurd way to find the value of the man, although I sometimes tease
my wife that to me she's worth more dead than alive. The titanium in her back is
worth more than a Mercedes and would cost hundreds of thousands of dollars to
have "replaced."
My main quibble with the IASB and FASB conceptual frameworks is that they
cannot and probably will never be able to operationally conceptualize the most
important accounting variable used continuously on Wall Street --- net earnings
or ratios derived from net earnings.
However, thanks for the total posting Tom.
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/
"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.
"Should CPAs Consider a PhD?" by Paul Gillis, Going Concern,
August 27, 2015 ---
http://goingconcern.com/post/should-cpas-consider-phd
Some of the comments following the article are stupid efforts to be funny. The
article itself, however, is very interesting.
Jensen Comment
Paul does not mention how old he was when he finished a Ph.D. program. My guess
is that he was somewhere between 53 and 55 depending upon both the rigors of the
program and how full-time he was in the program. I could not find him in my
edition of the Hasselback accounting faculty directory. He also does not point
out whether he obtained a tenure track appointment that typically pays more with
higher benefits such as research funding and travel expenses. However, being a
retired CPA firm partner makes the higher income less important, and tenure does
not mean as much if you obtain it when you are over 60 years of age.
I did find the following on LinkedIn:
https://cn.linkedin.com/in/profgillis
-
Chaoyang District, Beijing, China
-
Education Management
Apparently the Grumpy Old Accountants Blog expired with a whimper rather
than a bang ---
http://grumpyoldaccountants.com/
This was a good blog commenced by accounting Professor Ed Ketz at Penn State
University. I liked this blog because it tended to use financial statement
analysis in a critical style that reminded me of the old Barron's articles by
Accounting Hall of Famer Abe Briloff ---
http://faculty.trinity.edu/rjensen/Theory01.htm#Briloff
In other words Ed, like Abe, created new news in this blog that
usually focused on bad accounting (in his opinion). Ed was later joined by
Professor Tony Catanach (Villanova), and the volume of those wonderfully grumpy
postings increased somewhat after there were two "grumpy old accounting
professors."
Without any explanation Ed stopped blogging (although if I were guessing
there may have been some eye trouble with Ed, which would be ironic in that Abe
Briloff became blind after all those years of pouring over financial
statements). Tony formed a new blog and carried on by himself with a blog called
by the same name --- Grumpy Old Accountants. Tony carried on in the
original Brilloff-Ketz style of critical financial statement analysis.
To my knowledge there is no longer an archive of all those wonderful
Ketz-Catanach blog postings. That's the bad news. The good news is that a lot of
the postings are quoted extensively at the following three sites:
http://faculty.trinity.edu/rjensen/Theory01.htm
http://faculty.trinity.edu/rjensen/Theory02.htm
http://faculty.trinity.edu/rjensen/Fraud001.htm
Simply search under the names Ketz or Catanach. Use Ketz to catch the earlier
Ketz postings. Use Catanach to catch Tony's later postings to this blog
site.
When a Villanova professor visited me last summer he informed me that Tony
Catanach was scheduled for retirement. This surprised me since Tony always
seemed like a young professor to me. He may indeed have retired early at
Villanova. That's just a guess on my part.
I want to pay tribute to the long hours and many postings of Professors Ketz
and Catanach to the wonderful Grumpy Old Accountants Blog. All things come to an
end, and it appears that this great blog is now terminated. It would be nice if
somebody at Penn State or Villanova posted the archives of this blog to a Web
server that could be searched via the Web crawlers like Google and Yahoo. If you
know a professor at those universities please suggest this to your friend. These
were good blog postings about real-world accounting flaws.
Update
Subsequent communications from Ed Ketz reveal that he will soon have the former
Grumpy Old Accountants blogs archived on a Penn State Server.
Scientific Replication Woes of Psychology
Accountics scientists in accountancy avoid such woes by rarely even trying to
replicate behavioral experiements
"The Results of the Reproducibility Project Are In. They’re Not Good,"
by Tom Bartlett, Chronicle of Higher Education, August 28, 2015 ---
http://chronicle.com/article/The-Results-of-the/232695/?cid=at
A decade ago, John P.A. Ioannidis published a
provocative and much-discussed paper arguing that
most published research findings are false. It’s
starting to look like he was right.
The
results
of the
Reproducibility Project are in, and the news is
not good. The goal of the project was to attempt to replicate findings in
100 studies from three leading psychology journals published in the year
2008. The very ambitious endeavor,
led by Brian Nosek, a
professor of psychology at the University of Virginia and executive director
of the
Center for Open Science, brought together more
than 270 researchers who tried to follow the same methods as the original
researchers — in essence, double-checking their work by painstakingly
re-creating it.
Turns out, only 39 percent of the studies withstood
that scrutiny.
Even Mr. Nosek, a self-described congenital
optimist, doesn’t try to put a happy spin on that number. He’s pleased that
the replicators were able to pull off the project, which began in 2011 and
involved innumerable software issues, language differences, logistical
challenges, and other assorted headaches. Now it’s done! That’s the upside.
Continued in article
574 Shields Against Validity Testing in Accounting
Research---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm
A Blast posted to SSRN on August 21, 2015
"Is There Any Scientific Basis for Accounting? Implications for Practice,
Research and Education,"
SSRN, August 21, 2015
Authors
Sudipta Basu, Temple University
- Department of Accounting
Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2649263
Abstract:
This essay is based on a keynote speech at the 2014
Journal of International Accounting Research (JIAR) Conference. That talk
was built upon a 2009 American Accounting Association (AAA) annual meeting
panel presentation titled “Is there any scientific legitimacy to what we
teach in Accounting 101?” I evaluate whether accounting practice,
regulation, research and teaching have a strong underlying scientific basis.
I argue that recent accounting research, regulation and teaching are often
based on unscientific ideology but that evolved accounting practice embeds
scientific laws even if accountants are largely unaware of them. Accounting
researchers have an opportunity to expand scientific inquiry in accounting
by improving their research designs and exploring uses of accounting outside
formal capital markets using field studies and experiments.
Related literature, including an earlier essay by Sudipta Basu ---
Scroll down at
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Essays
"Introduction for Essays on the State of
Accounting Scholarship," Gregory B. Waymire, Accounting Horizons,
December 2012, Vol. 26, No. 4, pp. 817-819 ---
"Framing the Issue of Research Quality in
a Context of Research Diversity," by Christopher S. Chapman,
Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 821-831
"Accounting Craftspeople versus
Accounting Seers: Exploring the Relevance and Innovation Gaps in Academic
Accounting Research," by William E. McCarthy, Accounting Horizons,
December 2012, Vol. 26, No. 4, pp. 833-843
"Is Accounting Research Stagnant?" by
Donald V. Moser, Accounting Horizons, December 2012, Vol. 26, No. 4,
pp. 845-850
"How Can Accounting Researchers Become
More Innovative? by Sudipta Basu,
Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 851-87
A Blast from the Past from 1997
"A Comparison of Dividend, Cash Flow, and Earnings Approaches to Equity
Valuation,"
SSRN, March 31, 1997
Authors
Stephen H. Penman, Columbia Business School - Department of Accounting
Theodore Sougiannis, University of Illinois at Urbana-Champaign - Department
of Accountancy
Abstract:
Standard formulas for valuing the equity of going
concerns require prediction of payoffs "to infinity" but practical analysis
requires that they be predicted over finite horizons. This truncation
inevitably involves (often troublesome) "terminal value" calculations. This
paper contrasts dividend discount techniques, discounted cash flow analysis,
and techniques based on accrual earnings when applied to a finite-horizon
valuation. Valuations based on average ex-post payoffs over various
horizons, with and without terminal value calculations, are compared with
(ex-ante) market prices to give an indication of the error introduced by
each technique in truncating the horizon. Comparisons of these errors show
that accrual earnings techniques dominate free cash flow and dividend
discounting approaches. Further, the relevant accounting features of
techniques that make them less than ideal for finite horizon analysis are
discovered. Conditions where a given technique requires particularly long
forecasting horizons are identified and the performance of the alternative
techniques under those conditions is examined.
Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=15043
Jensen Comment
It's good to teach accounting and finance students at all levels some of the
prize-winning literature (accountics scientists are always giving themselves
awards) in this type of valuation along with the reasons why these accountics
science models deriving equity valuation estimates from financial statements
have very little validity.
The main reason of course is that so many variables contributing to equity
valuation are not quantified in the financial statements, particularly
intangibles and contingencies.
"Don’t Over-Rely on Historical Data to Forecast Future Returns," by
Charles Rotblut and William Sharpe, AAII Journal, October 2014 ---
http://www.aaii.com/journal/article/dont-over-rely-on-historical-data-to-forecast-future-returns?adv=yes
Jensen Comment
The same applies to not over-relying on historical data in valuation. My
favorite case study that I used for this in
teaching is the following:
Questrom vs. Federated Department Stores, Inc.: A Question of Equity Value," by
University of Alabama faculty members by Gary Taylor, William Sampson,
and Benton Gup, May 2001 edition of Issues in Accounting Education ---
http://faculty.trinity.edu/rjensen/roi.htm
Jensen Comment
I want to especially thank David Stout,
Editor of the May 2001 edition of Issues in Accounting Education.
There has been something special in all the editions edited by David, but
the May edition is very special to me. All the articles in that edition are
helpful, but I want to call attention to three articles that I will use
intently in my graduate Accounting Theory course.
- "Questrom vs. Federated Department Stores, Inc.: A Question of
Equity Value," by University of Alabama faculty members Gary Taylor,
William Sampson, and Benton Gup, pp. 223-256.
This is perhaps the best short case that I've ever read. It will
undoubtedly help my students better understand weighted average cost of
capital, free cash flow valuation, and the residual income model. The
three student handouts are outstanding. Bravo to Taylor, Sampson, and
Gup.
- "Using the Residual-Income Stock Price Valuation Model to Teach and
Learn Ratio Analysis," by Robert Halsey, pp. 257-276.
What a follow-up case to the Questrom case mentioned above! I have long
used the Dupont Formula in courses and nearly always use the excellent
paper entitled "Disaggregating the ROE: A
New Approach," by T.I. Selling and C.P. Stickney,
Accounting Horizons, December 1990, pp. 9-17. Halsey's paper guides
students through the swamp of stock price valuation using the residual
income model (which by the way is one of the few academic accounting
models that has had a major impact on accounting practice, especially
consulting practice in equity valuation by CPA firms).
- "Developing Risk Skills: An Investigation of Business Risks and
Controls at Prudential Insurance Company of America," by Paul Walker,
Bill Shenkir, and Stephen Hunn, pp. 291
I will use this case to vividly illustrate the "tone-at-the-top"
importance of business ethics and risk analysis. This is case is easy
to read and highly informative.
"There Are Many Stock Market
Valuation Models, And Most Of Them Stink," by Ed Yardeni, Dr. Ed's Blog
via Business Insider, December 4, 2014 ---
http://www.businessinsider.com/low-rates-high-valuation-2014-12
Does low inflation justify higher valuation
multiples? There are many valuation models for stocks. They mostly don’t
work very well, or at least not consistently well. Over the years, I’ve come
to conclude that valuation, like beauty, is in the eye of the beholder.
For many investors, stocks look increasingly
attractive the lower that inflation and interest rates go. However, when
they go too low, that suggests that the economy is weak, which wouldn’t be
good for profits. Widespread deflation would almost certainly be bad for
profits. It would also pose a risk to corporations with lots of debt, even
if they could refinance it at lower interest rates. Let’s review some of the
current valuation metrics, which we monitor in our Stock
Market Valuation Metrics & Models:
(1) Reversion to the mean. On Tuesday, the
forward P/E of the S&P 500 was 16.1. That’s above its historical average of
13.7 since 1978.
(2) Rule of 20. One rule of thumb is that the forward P/E of the
S&P 500 should be close to 20 minus the y/y CPI inflation rate. On this
basis, the rule’s P/E was 18.3 during October.
(3) Misery Index. There has been an inverse relationship between
the S&P 500’s forward P/E and the Misery Index, which is just the sum of the
inflation rate and the unemployment rate. The index fell to 7.4% during
October. That’s the lowest reading since April 2008, and arguably justifies
the market’s current lofty multiple.
(4) Market-cap ratios. The ratio of the S&P 500 market cap to
revenues rose to 1.7 during Q3, the highest since Q1-2002. That’s identical
to the reading for the ratio of the market cap of all US equities to nominal
GDP.
Today's Morning Briefing: Inflating
Inflation. (1) Dudley expects Fed to hit inflation target next
year. (2) It all depends on resource utilization. (3) What if demand-side
models are flawed? (4) Supply-side models explain persistence of
deflationary pressures. (5) Inflationary expectations falling in TIPS
market. (6) Bond market has gone global. (7) Valuation and beauty contests.
(8) Rule of 20 says stocks still cheap. (9) Other valuation models find no
bargains. (10) Cheaper stocks abroad, but for lots of good reasons. (11) US
economy humming along. (More
for subscribers.)
Accountics Scientists Failing to Communicate on the AAA Commons
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review
I just don't give a damn ."
www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
574 Shields Against Validity Challenges in Plato's Cave
http://faculty.trinity.edu/rjensen/TheoryTAR.htm
"Gender and Accounting in Historical Perspective,"
SSRN, August 31, 2015
Author
Amah Kalu Ogbonnaya. Michael Okpara University of Agriculture
Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2649066
Abstract:
The work looks at Gender and Accounting in
Historical perspective, it to identifies the women that have made impact in
accounting profession in the World such as Jennie M. Palen and Lene E
Mandelnolin and many others. It also talks about the importance of gender in
accounting both in the lower level of management and higher level.
Conclusively, there is evidence that issues of gender may be embedded in the
functions, practices and process of accounting. It would seem that an
organizational practice, accounting could well be impacted by gender effect
and that gender research in accounting has a potential role in identifying
and investigating those gender affect that influence accounting.
Bob Jensen's historical threads about women in accounting ---
http://faculty.trinity.edu/rjensen/bookbob2.htm#Women
Enterprise Resource Planning (ERP) ---
https://en.wikipedia.org/wiki/Enterprise_resource_planning
An ERP MBA Program at the University of Scranton ---
http://elearning.scranton.edu/mba/enterprise-resource-planning-specialization
Jensen Comment
This program surprises me somewhat. Most business schools do not have an ERP
specialist on the faculty and have to scramble for an adjunct when they want to
seriously cover ERP in the curriculum. It is thus surprising that a university
has an entire ERP degree program, especially one that teaches students how to
use the complicated software.
Bob Jensen's sadly neglected threads on ERP in academe are at
http://faculty.trinity.edu/rjensen/245glosap.htm
I'll Put Your Name on Mine if You Put My Name on Yours (and the risks in
doing so)
"More Scientific Papers Have Dozens of Authors," Inside Higher Ed,
August 11, 20158 ---
https://www.insidehighered.com/quicktakes/2015/08/11/more-scientific-papers-have-dozens-authors?utm_source=Inside+Higher+Ed&utm_campaign=0cac71a7a2-DNU20150811&utm_medium=email&utm_term=0_1fcbc04421-0cac71a7a2-197565045
Jensen Comment
Years ago Cooley, Heck, and Jensen noted the rise in co-authoring in accounting
research journals. One of the main reasons is an effort to increase the number
of hits in this era where promotion and tenure committees mainly count the
number of hits in research journals irrespective of the number of authors on a
paper. Also division of labor came about with the popularity of shaking the
piñata of purchased databases with econometric models. Some co-authors of
accounting research papers are experts in data mining who know almost nothing
about accounting. My point is that the rise of computer analysis is one of the
causes of the rise in co-authoring.
"An Analysis of Contributors to Accounting Journals Part II: The
Individual Academic Journals," by Philip Cooley, Louis Heck, and Bob Jensen,
The International Journal of Accounting,
Vol.26, 1991, pp. 1-17.
"An Analysis of Contributors to Accounting Journals. Part I: The
Aggregate Perfformances," by Philip Cooley,
Louis Heck, and Bob Jensen, The International
Journal of Accounting, Vol.25, 1990, pp. 202-217. Released in
1991.
One risk of being a co-author is that if one of your co-authors cheats
(e.g., faked data or plagiarism) your name gets dragged down in the retraction
process. Exhibit A are the 30+ accounting research papers that had Jim Hunton as
a co-author ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
Retraction Watch (cheating in research) ---
http://retractionwatch.com
Bob Jensen's threads on the rise of cheating in academe ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm
"7 incredibly useful lessons I learned from Harvard Business School's new
online course," by Richard Feloni, Business Insider, August 7, 2015
---
http://www.businessinsider.com/lessons-from-harvard-business-school-hbx-core-2015-8#ixzz3iDeO1VK8
Jensen Comment
One thing research teaches you is to beware of absolute declaratives in teaching
and writing. Surely the Harvard professor noted exceptions to what Feloni
apparently accepts as absolutes. For example, the demand curve and variable
costs are critical considerations for setting prices.
Fixed costs can be misleading when making short-term pricing decisions, but
ignoring fixed costs over the long-term can be a disaster. A lot depends upon
the competition. For example, there's a lot of competition among lawn care
service providers up in these mountains, many of whom are young people with
little experience in business management. Suppose Joe borrows heavily to
buy mowing machines and other equipment for a total of $25,000 plus the
$20,000 he pays for a used truck and an equipment-hauling trailer.
Joe estimates his variable costs (e.g., for fuel and his minimum-wage helper)
on a Job 101 to be $$3,000 for next year. His competitors are bidding $5,000 or
more for Job 101 for the year. Joe decides to bid $4,000 for Job 101. If he gets
this and other jobs under the same price-cutting strategy that ignores
recovering his fixed costs he may find that his ignoring of fixed cost recovery
eventually drives him out of business.
You may shake your head at the naïveté of Joe. But I found that owners of a
nearby hotel were totally ignoring depreciation in calculating their prices and
profits. The asked me why their tax preparer said they were actually operating
at a loss By the time they talked to me it was too late. They recently declared
bankruptcy, and their hotel was sold by their bank.
Also in the article, Feloni praises the Central Limit Theorem ---
https://en.wikipedia.org/wiki/Central_limit_theorem
Did his professor overlook a few limitations?
http://www.ma.utexas.edu/users/mks/statmistakes/modelcheckby%20factortheory.html
How to Mislead With Statistics and Visualization
"I'm Business Insider's math reporter, and these 10 everyday things drive
me insane, by Andy Kiersz, Business Insider, August 2, 2015 ---
http://www.businessinsider.com/things-annoying-for-a-quant-reporter-2015-4
Bob Jensen's threads on common statistical analysis and reporting mistakes
---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm
Bob Jensen's threads on multivariate data visualization ---
http://faculty.trinity.edu/rjensen/352wpvisual/000datavisualization.htm
From Econometrics Beat by David Giles on August 4, 2015 ---
http://davegiles.blogspot.com/2015/08/august-reading.html
August reading
Here's my (slightly delayed) August reading list:
-
Ahelegbey, A. F., 2015. The econometrics of networks: A
review. Working Paper 2015/13, Department of Economics,
University of Venice.
-
Clemens,
M. A., 2015. The meaning of failed replications: A review
and proposal. IZA Discussion Paper No.9000.
-
Fair, R. C., 2015. Information limits of aggregate data.
Discussion Paper No. 2011, Cowles Foundation, Yale University.
-
Phillips, P. C. B., 2015. Inference in near singular
regression. Discussion Paper No. 2009, Cowles Foundation, Yale
University.
-
Stock, J. H. and M. W. Watson, 2015. Core inflation and
trend inflation. NBER Working Paper 21282.
-
Ullah, A. and X. Zhang, 2015. Grouped model averaging for
finite sample size. Working paper, Department of Economics,
University of California, Riverside.
"Public Accounting And the Myth of the Public Interest," by Wm. Dennis
Huber Capella University. SSRN, August 5, 2015
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2640375
Also at Journal of Accounting, Ethics and Public Policy, Vol. 16, No. 2,
2015
Abstract:
For decades it has been drummed into the
conscience, the consciousness, and the subconscious of accounting
students, researchers, and practitioners alike that the public interest
is the sine qua non of the public accounting profession. Accounting
researchers have attempted to explore the multi-faceted nature of what
is referred to as the public interest based on the assumption that the
public interest actually exists in the public accounting profession
(including professional accounting organizations, government and
quasi-government regulatory agencies, and auditing and accounting
standard setting bodies). This paper questions that assumption by
conducting an exegesis of the texts of the legislative findings,
statutes, and purposes and missions of professional accounting
organizations, government and quasi-government regulatory agencies, and
auditing and accounting standard-setting bodies. It concludes that the
assumption that the public interest exists in the public accounting
profession is a myth that disguises what interest the public accounting
profession actually serves and blinds the public from understanding what
is meant by serving and protecting the public interest.
Jensen Comment
This strikes me as an illustrative study where the researcher(s) cannot
see the forest due to being lost among the trees. It seems to me that broader
research questions should be asked.
For example, how long before investors will no longer put their savings in
capital markets where the companies do not have "public interest" auditing and
accounting standards?
It only takes a few rotten apples in the barrel before investors will shun
the entire barrel unless the remaining apples are inspected and certified under
accepted testing standards. For example, after Bernie Madoff scammed over a
billion dollars from his hedge fund customers now are insisting that funds be
audited by reputable audit firms.
Auditing firms that thumb their noses a public interest standards will
eventually implode much like Andersen. It was discovered that Andersen's
auditing reputation deteriorated to a point where having Andersen as an auditor
raised a firm's cost of capital.
The day Arthur Andersen loses the
public's trust is the day we are out of business.
Steve Samek, Country Managing Partner, United States, on Andersen's
Independence and Ethical Standards CD-Rom, 1999.
It turns out that Steve Samek was correct beyond his worst nightmares ---
http://faculty.trinity.edu/rjensen/fraudEnron.htm
One might argue that deep pockets auditors do not need accounting and
auditing public interest standards as long as they "insure" investment returns
of public investors. This would be a foolhardy business model that cannot be
sustained since so many factors affecting investment returns and bonds cannot be
measured in actuary science.
I admire your effort, Dennis, to study legislative and regulatory texts ---
the leaves and limbs on the trees. However, I do not buy into your conclusions
about the forests themselves. I also question whether your subjective
conclusions will standup to independent validity tests by replication.
Hi Dennis,
First let me quote an example of your subjective reasoning below:
It is not the public interest that is
protected, but the market interest . It is not that the public interest
is synonymous with the market interest but that t he use of the term
public interest deflects the public’s attention away from understanding
that the purpose of the SEC and the securities laws is to protect the
market interest.
You seem to think that all academics in finance and accounting will agree
with your implication that "market interest" is not and cannot be in the
"public interest." Firstly, you have not defined your terms to a
point where "market interest" always is or is not in the "public
interest."
Certainly if the public is participating in capital markets the public
interest under my perception of public interest is is highly
correlated with market interest in many ways. For one, thing
it's in the market's interest that there are
participants. It's in the public
interest that markets are efficient in the strong form ---
where insiders are most certainly discouraged, usually by regulators, from
using inside information to exploit investors not privileged to the
profitable inside information. If markets are not efficient in the strong
form capital markets are not sustainable since investors will soon grow
weary of being exploited by insiders.
If I were looking for counter arguments to your reasoning I would find
texts in regulations that discourage insider trading. For example, the SEC
now rewards whistleblowers that blow the whistle in insiders exploiting
inside information. That it seems to me is intended to be in the public
interest and the market interest.
Secondly, you make what I think is an absurd statement that you do and
cannot support to the satisfaction of anybody who has ever studied logic:
But t he FASB makes no claim to serve or
protect the public interest.
Academics can counter this by only having to find one example where the
FASB has made a claim to protect the public interest. My first example would
be in the FASB's own statement of its mission as an agent of the SEC in most
respects:
Mission (of the FASB)
The mission of the FASB is to establish and
improve standards of financial accounting and reporting that foster
financial reporting by nongovernmental entities that provides
decision-useful information to investors and other users of financial
reports.
That mission is accomplished through a
comprehensive and independent process that encourages broad
participation, objectively considers all stakeholder views, and is
subject to oversight by the Financial Accounting Foundation’s Board of
Trustees.
My point is that without using the term "public interest" there can be no
other conclusion that the FASB believes it's providing decision-useful
information to public investors who are not insiders, thereby
providing useful information in the public interest. We can dispute the
success of the FASB, but I hardly think it's intent is an absolute
lie.
For other illustrations I recommend that you read the following history
article:
"The
Trueblood Study Group on the Objectives of Financial Statements (1971-73): A
Historical Study," by Stephen A. Zeff, SSRN, August 23, 2014 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2485887
. . .
Reed Parker may have bee n the member who most
championed this objective. He said, ‘As a professional investment
analyst, I am especially proud of this Trueblood Committee finding
because it recognizes the public interest
in broad capital markets and the related
desire to avoid enlarging the inherent advantage of the professional
investor over the non-professional’ (1974: 138). Oscar Gellein also
seemed to be a support ...
You also claim the following:
“And the public interest” is less easily
understood since the public does not use audit reports no matter how
informative, accurate, or independent they may be.
Where is your support?
I can counter this claim by finding one investor who has studied one audit
report. I found one --- me!
Secondly, it's in the public interest even if audit reports are used
indirectly through media disclosures. For example, if the WSJ reports that
Audit Firm A reported a going-concern exception for Client A an
investor who learned of this from the WSJ nevertheless benefitted from the
report of Audit Firm A.
I could go on, but one of the tests of replication is finding a
researcher who will agree with both your implicit assumptions and
logic. I don't think there are many academic researchers in accounting and
finance who would not find exceptions to your implicit assumptions and your
logic throughout this paper.
Just because journal referees agree to recommend publication does not
mean that they agree fully with the methodology or the conclusions.
Sometimes they prefer to publish thought-provoking articles. Your article is
thought-provoking. It is, however, highly vulnerable to academic dispute of
the implicit and subjective assumptions, definitions, logic, and
conclusions.
Bob Jensen
"Criminals are manipulating the stock market and regulators can't seem to
stop it," by Jonathan Marino, Business Insider, August 8, 2015 ---
http://www.businessinsider.com/criminals-are-manipulating-the-stock-market-and-regulators-cant-seem-to-stop-it-2015-8#ixzz3iJf3JLg3
On May 14 a Bulgarian stock schemer is
alleged to have moved the share price of consumer company Avon Products by
making a false filing to the Securities and Exchange Commission.
Three months later, nothing is stopping
someone else from doing the very same thing.
The Securities and Exchange Commission
says it's not making changes to its Edgar filing system.
A spokeswoman for the
SEC told Business Insider: "Filers are responsible for the accuracy of their
filings and as demonstrated face enforcement actions for false filings."
The SEC didn't answer questions about
taking further steps to prevent fraudulent filings.
The false Avon filing,
which was widely disseminated by the Edgar system, is alleged to have been
created by a
Bulgarian man called Nedko Nedev. The
filing said that a fictitious private equity firm called PTG Capital would
submit a bid to buy the very real
and publicly-listed cosmetics company Avon.
Nedev allegedly made
only $5,000, according to the SEC, which also
procured a court order to freeze his assets. But
the company’s market cap exploded by $600 million that day, stunning
traders.
It's a difficult
situation for the SEC, which lacks the resources to have a person visually
monitor every filing it processes before sharing it with the public. The
volume of paperwork the agency otherwise would have to manually confront
would also overwhelm its staff and budget.
Stock Market Quotations
by Sophronia Tibbs
Published by John Day Company
1926
Blogged by Barry Ritholtz on August 6, 2015 ---
http://www.ritholtz.com/blog/2015/08/stock-market-quotations-by-sophronia-tibbs/
The End of Banking
by Jonathon McMillan
ZeroOne Economics ZMBH
2014
http://www.endofbanking.org/the-author/
What is it about? ---
http://www.endofbanking.org/book/
The End of Banking explains why a financial system
without banking is both desirable and possible in the digital age.
- The first part of the book presents the
functions and the mechanics of traditional banking. It discusses how a
delicate balance of government guarantees and banking regulation kept
the flaws of banking under control in the industrial age.
- The second part explains how the digital
revolution unsettled this balance. The rise of shadow banking is
explained, and it is shown how an unsustainable boom in the shadow
banking sector led to a banking panic: the financial crisis of 2007-08.
- The third part shows that the digital
revolution has played a dual role. Information technology not only
undermined the effectiveness of current banking regulation, but it also
rendered banking redundant. An innovative blueprint for a modern
financial system is presented and the implications of the end of banking
are discussed.
Table of contents
List of Illustrations
List of Acronyms
Preface
Introduction
PART ONE – BANKING IN THE INDUSTRIAL AGE
1. The Need for Banking
2. The Mechanics of Traditional Banking
3. The Problems with Banking
PART TWO – BANKING IN THE DIGITAL AGE
4. Banking Is Not Limited to Banks
5. The Mechanics of Shadow Banking
6. The Financial Crisis of 2007–08
7. The Financial System after 2008
PART THREE – A FINANCIAL SYSTEM FOR THE DIGITAL AGE
8. Banking Is No Longer Needed
9. Accounting for the Future: End Banking
10. The Role of the Public Sector
11. The Big Picture
Quotation from
http://www.endofbanking.org/the-author/
. . .
What happened in the financial services industry is
the opposite of what happened in many other service industries, for example,
accommodation, catering, or transportation. Just think of how simple renting
a room, choosing a restaurant or taking a taxi ride have become with
innovative companies such as AirBnB, Yelp or Uber. Innovation has made life
much easier and services much more transparent.
Not so in the financial sector: Innovation made the
financial system much more complex, opaque, inefficient, and fragile.
Continued in article
Bob Jensen's Rotten to the Core threads ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm
The Trouble with Lawyers
by Deborah L. Rhode
Oxford University Press
2015 ---
Click Here
http://www.amazon.com/gp/product/0190217227/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0190217227&linkCode=as2&tag=lawproblo-20&linkId=QMAEC7UH2BRGV4B7
Reviewed by Paul Caron, TaxProf Blog, August 6, 2015 ---
http://taxprof.typepad.com/taxprof_blog/2015/08/rhode-the-trouble-with-lawyersstrong.html
. . .
Deborah Rhode's
The Trouble with Lawyers is a comprehensive
account of the challenges facing the American bar. She examines how the
problems have affected (and originated within) law schools, firms, and
governance institutions like bar associations; the impact on the justice
system and access to lawyers for the poor; and the profession's underlying
difficulties with diversity. She uncovers the structural problems, from the
tyranny of law school rankings and billable hours to the lack of
accountability and innovation built into legal governance-all of which do a
disservice to lawyers, their clients, and the public.
The Trouble with Lawyers is a clear call to fix a
profession that has gone badly off the rails, and a source of innovative
responses.
Brian Leiter (University of Chicago) : American Legal Education: The First
150 Years ---
http://www.huffingtonpost.com/brian-leiter/american-legal-education-_b_4581672.html
"Law Students Sue Their Law Schools for Deceptive Employment Reporting
Practices," by Paul Caron, TaxProf Blog, March 11, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/03/law-students-.html
The Law School Bubble Bursts
"Pop Goes the Law," by Steven J. Harper, Chronicle of Higher Education's
Chronicle Review, March 11, 2013 ---
http://chronicle.com/article/Pop-Goes-the-Law/137717/?cid=cr&utm_source=cr&utm_medium=en
The Law School Admission Council recently reported
that applications were heading toward a 30-year low, reflecting, as a New
York Times article put it, "increased concern over soaring tuition, crushing
student debt, and diminishing prospects of lucrative employment upon
graduation." Since 2004 the number of law-school applicants has dropped from
almost 100,000 to 54,000.
Good thing, too. That loud pop you're hearing is
the bursting of the law bubble—firms, schools, and disillusioned lawyers
paying for decades of greed and grandiosity. The bubble grew from a
combination of U.S. News-driven ranking mania, law schools' insatiable
hunger for growth, and huge law firms' obsession with profit above all else.
Like the dot-com, real-estate, and financial bubbles that preceded it, the
law bubble is bursting painfully. But now is the time to consider the
causes, take steps to soften the impact, and figure out how to keep it from
happening again.
The popular explanation for the recent application
plummet is that information about the profession's darker side, including
the recession's exacerbation of the attorney glut, has finally started
reaching prospective law students. Let's hope so. Marginal candidates and
those choosing law school by default might be opting out, and the law-school
market may finally be heading toward self-correction.
Still, the bubble has been huge, and the correction
will need to be, too. There were 68,000 applicants to the fall of 2012
entering class, while the total number of new, full-time jobs requiring a
law degree is 25,000 a year and falling. The onset of the recession drove
more students to consider law school as a place to wait out the economic
collapse. The number of June 2009 and 2010 admissions tests had surged to
almost 33,000. To put that in historical perspective, the June 1987 testing
session drew just under 19,000 students. The reduction in the number of LSAT
takers in the summer of 2011 to 27,000 merely brought it back to 2008
levels.
Continued in article
Bob Jensen's threads on law schools ---
http://faculty.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools
"Using Sales Revenue as a Performance Measure," by Rong Huang, Carol
A. Marquardt , and Bo Zhang, SSRN, July 28, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2636950
Abstract:
This study provides the first systematic examination of the compensation
contracting relevance of sales revenue. We document an increasing temporal
trend in the explicit use of sales revenue as a performance measure in CEO
annual bonus contracts, which is mirrored by a similar increase in the
relative pay-sensitivity of revenues versus earnings over time. We also
predict and find that sales revenue is more likely to be used as an explicit
performance measure in annual bonus contracts when sales revenue is
relatively more informative about firm value than accounting earnings and
when firms follow a growth-focused organizational strategy. In addition, we
find that the pay-sensitivity of revenue is significantly more positive for
firms that explicitly reward revenue performance, as expected, but also that
earnings pay-sensitivity is not significantly different from zero for these
firms. This paper extends our current understanding of the selection of
performance measures in compensation contract design and raises new
questions about the validity of the traditional implicit tests in examining
questions related to executive pay.
Jensen Comment
In the tech era it has been extremely common for companies to focus revenue
trends when they have nothing to brag about in terms of earnings. This leads to
all sorts of game playing in terms of trying to inflate reported earnings and
standard setter discouragements of some of the games ---
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm
"Goodwill Impairment Test Disclosures Under IAS 36: Disclosure Quality and
its Determinants in Europe," by Marius Gros and Sebastian Koch, SSRN,
Updated July 20, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2636792
Abstract:
The European Securities and Markets Authority (EMSA) criticizes the low
disclosure quality and boilerplate disclosures in the accounting for
goodwill among European listed companies, but it does not identify possible
causes. Prior research also finds generally low compliance with disclosure
requirements but usually does not consider disclosure quality or
systematically examine the drivers of the observed levels of either
compliance or disclosure quality. In this study, we analyze compliance and
disclosure quality among European listed companies. We find low levels of
compliance and disclosure quality and both are positively associated with
firm size, goodwill intensity, enforcement and free float. In addition,
disclosure quality is positively affected by board skills and company growth
but negatively affected by proprietary cost. Our findings are of interest to
regulators and enforcers who intend to increase the quality of disclosures.
Moreover, we direct the attention of capital market participants to large
differences in disclosure quality and the associated firm and governance
characteristics.
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
10 Keys to Evaluating Budgeting Software ---
Click Here
http://ww2.cfo.com/sponsored/10-keys-evaluating-budgeting-software/?utm_source=google&utm_medium=email&utm_campaign=Centage%20Native%20Ad%20on%2010%20Keys%20Budgeting&mkt_tok=3RkMMJWWfF9wsRokv6rOeu%2FhmjTEU5z14uwvX6WxlMI%2F0ER3fOvrPUfGjI4DTsVrN6%2BTFAwTG5toziV8R7XBLM1s0t4QXxPg
Accounting Faculty Blogs on Managerial Accounting
MAAW is a great reference site in general. Jim Martin's blog postings
are infrequent, but many of them are postings about managerial and cost
accounting --- his academic specialty.
http://maaw.blogspot.com/
AccountingEducation.com is covers the waterfront on accounting topics, one of
which is managerial accounting ---
http://www.accountingeducation.com/
This was a pioneer blogging site and is perhaps the best site on international
accounting news.
Martin's Accounting Blog ---
http://martinjquinn.com/
Accounting Coach ---
http://www.accountingcoach.com/blog/what-is-cost-accounting
This does not change much over time.
Bob Jensen's Additions to New Bookmarks arguably has the most postings over
time on managerial and cost accounting, but they are mixed in with tens of
thousands of other postings ---
http://faculty.trinity.edu/rjensen/Bookurl.htm
Many of New Bookmarks blog postings on managerial accounting are archived
at
http://faculty.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
You might also note Bob Jensen's threads that cover various managerial
accounting topics mixed in with other topics ---
http://faculty.trinity.edu/rjensen/Threads.htm
Thank you Jim McKinney for the heads up on August 5, 2015
. . .
Broadcast This Fall on
www.sechistorical.org
All
broadcasts are free and accessible worldwide without prior registration.
September 29th at 5:00 pm ET Morgan Lewis Presents 2015:
Burning Issues at the SEC. Moderated by Professor Jill Fisch,
University of Pennsylvania Law School, with Timothy Burke, Morgan Lewis &
Bockius LLP; Andrew Calamari, Director, SEC New York Regional Office; and
Merri Jo Gillette, Morgan Lewis & Bockius LLP. Made possible through the
generous support of Morgan Lewis & Bockius LLP.
October 22nd at 2:00 pm ET Deloitte Fireside Chat XI:
Disclosure Effectiveness. Moderated by Dr. James McKinney, University
of Maryland, with Jan Hauser, General Electric Company; James Kroeker,
Financial Accounting Standards Board; and Thomas Omberg, Deloitte LLP. Made
possible through the generous support of Deloitte LLP.
November 12 at 2:00 pm ET The Experts Forum: The Impact of
Falling Oil Prices on Financial Reporting. Moderated by Dr. Craig
Lewis, Vanderbilt University; with Christopher Champion, Anadarko Petroleum
Corporation; Gary Goolsby, FTI Consulting; and David Woodcock, Jones Day.
Made possible through the generous support of FTI Consulting and Compass
Lexecon.
RANKED Based On Default Swap Market: The world's national debts, from
safest to most Risky ---
http://uk.businessinsider.com/the-riskiest-sovereign-bonds-ranked-2015-8#ixzz3imnTxc63
PwC: Fair value measurements - 2015 global edition ---
http://www.pwc.com/us/en/cfodirect/publications/accounting-guides/fair-value-measurements-asc-820.jhtml?display=/us/en/cfodirect/issues/accounting-reporting
Business Segment ---
https://en.wikipedia.org/wiki/Multidimensional_organization
PwC 2015 Video: Segment reporting: determining operating segments
---
http://www.pwc.com/us/en/cfodirect/multimedia/videos/segment-reporting-determining-operating-segments.jhtml
EY: A comprehensive guide to Lease accounting,
Revised August 201 5 ---
Click Here
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_BB1793_LeaseAccounting_14August2015/$FILE/FinancialReportingDevelopments_BB1793_LeaseAccounting_14August2015.pdf
Bob Jensen's threads on lease accounting controversies ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Leases
Novation ---
https://en.wikipedia.org/wiki/Novation
EY: FASB proposes allowing hedge accounting relationships to
continue after novations ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB3029_Novations_6August2015/$FILE/TothePoint_BB3029_Novations_6August2015.pdf
What you need to know
• The FASB proposed clarifying that the
novation of a derivative contract in a hedge accounting relationship
does not, in and of itself, require dedesignation of that hedge
accounting relationship.
• The proposal would allow a hedge accounting
relationship to continue uninterrupted as long as all of the other hedge
accounting criteria are met, including the expectation that the hedge
will be highly effective considering the creditworthiness of the new
counterparty to the derivative contract .
• Comments are due by 5 October 2015
From Bob Jensen's Glossary on Hedge Accounting ---
http://faculty.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
Dedesignation
=
a change in status
of a designated hedge such that all or a portion of the hedged amounts
must be taken into current earnings rather being deferred.
Dedesignation for cash flow hedges is discussed in Paragraph 30 on Page
21 of FAS 133. If a cash forecasted transaction becomes a firm
commitment, its corresponding cash flow hedge must be dedesignated.
Controversies between the FASB's distinction between forecasted
transactions versus firm commitments are discussed in Paragraphs 324-325
on Page 157 of FAS 133.
An illustration of
dedesignation. is given in Example 9 in Paragraphs 165-172 on Pages
87-90 of FAS 133. Example 9 illustrates a forward contract cash flow
hedge of a forecasted series of transactions in a foreign currency.
When the forecasted transactions become accounts receivable, a portion
of the value changes in the futures contract must be taken into current
earnings rather than other comprehensive income. Another illustration
of dedesignation. is in Example 7 of FAS 133, pp. 79-80, Paragraphs
144-152. See derecognition and hedge.
Paul Pacter states the following at
http://www.iasc.org.uk/news/cen8_142.htm
IAS 39
A financial asset is derecognised if
-
the transferee has
the right to sell or pledge the asset; and
-
the transferor
does not have the right to reacquire the transferred
assets. (However, such a right does not prevent
derecognition if either the asset is readily obtainable
in the market or the reacquisition price is fair value
at the time of reacquisition.)
|
FAS 133
In addition to those criteria, FASB requires that the
transferred assets be legally isolated from the transferor
even in the event of the transferor’s bankruptcy. |
EY: FASB simplifies financial reporting by employee benefit plans
---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB3026_EBPSimplifications_31July2015/$FILE/TothePoint_BB3026_EBPSimplifications_31July2015.pdf
What you need to know
• T he FASB eliminated requirement s that
employee benefit plan s measure the fair value of fully benefit -
responsive investment contracts and provide the related fair value
disclosures .
• The guidance require s plan s to disaggregate
their investments measured using fair value by general type , either on
the face of the financial statements or in the notes , and self -
directed brokerage accounts are one general type.
• Plans are no longer required to disclose the
net appreciation/depreciation in fair value of investments by general
type or individual investments equal to or greater than 5% of net assets
available for benefits.
• A plan with a fiscal year end that doesn’t
coincide with the end of a calendar month is allowed to measure its
investments and investment - related accounts using the month end
closest to its fiscal year end.
• The guidance is effective for fiscal years
beginning after 15 December 2015. Earlier application is permitted.
Liar Loans: Canadians Taking Cheating Lessons from USA Mortgage
Lenders
"Liar loans' are popping up in Canada's housing bubble," by Wolf Richter,
Business Insider, July 31, 2015 ---
http://www.businessinsider.com/liar-loans-pop-up-canada-housing-bubble-2015-7
For a long time, the conservative mortgage lending
standards in Canada, including a slew of new ones since 2008, have been
touted as one of the reasons why Canada’s magnificent housing bubble, when
it implodes, will not take down the financial system, unlike the US housing
bubble, which terminated in the Financial Crisis.
Canada is different. Regulators are on top of it.
There are strict down payment requirements. Mortgages are full-recourse, so
strung-out borrowers couldn’t just mail in their keys and walk away, as they
did in the US. And yada-yada-yada.
But Wednesday afterhours, Home Capital Group,
Canada’s largest non-bank mortgage lender, threw a monkey wrench into this
theory.
Through its subsidiary, Home Trust, the company
focuses on “alternative” mortgages: high-profit mortgages to risky borrowers
with dented credit or unreliable incomes who don’t qualify for mortgage
insurance and were turned down by the banks. They include subprime
borrowers.
So it disclosed, upon the urging of the Ontario
Securities Commission, the results of an investigation that had been going
on secretly since September: “falsification of income information.” Liar
loans.
Liar loans had been the scourge of the US housing
bust. Lenders were either actively involved or blissfully closed their eyes.
And everyone made a ton of money.
Subprime: Borne of Greed, Sleaze, Bribery, and Lies (including the credit
rating agencies) ---
http://faculty.trinity.edu/rjensen/2008Bailout.htm#Sleaze
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
What good is the study of ethics if it doesn't make us more ethical? It
breaks down strictures and transports us to wild, unpredictable places.
"Cheeseburger Ethics," by Eric Schwitzgebel, AEON, 2015 ---
http://aeon.co/magazine/philosophy/how-often-do-ethics-professors-call-their-mothers/
. . .
What’s more, abstract doctrines lack specific
content if they aren’t tacked down in a range of concrete examples. Consider
the doctrine ‘treat everyone as moral equals who are worthy of respect’.
What counts as adhering to this norm, and what constitutes a violation of
it? Only when we understand how norms play out across examples do we really
understand them. Living our norms, or trying to live them, forces a
maximally concrete confrontation with examples. Does your ethical vision
really require that you free the slaves on which your lifestyle crucially
depends? Does it require giving away your salary and never again enjoying an
expensive dessert? Does it require drinking the hemlock if your fellow
citizens unjustly demand that you do so?
Few professional ethicists really are cheeseburger
ethicists, I think, when they stop to consider it. We do want our ethical
reflections to improve us morally, a little bit. But here’s the catch: we
aim only to become a little morally better. We cut ourselves slack when we
look at others around us. We grade ourselves on a curve and aim for B+
rather than A. And at the same time, we excel at rationalisation and
excuse-making – maybe more so, the more ethical theories we have ready to
hand. So we end, on average, about where we began, behaving more or less the
same as others of our social group.
Continued in article
"Miller Energy executives charged with
accounting fraud," by Jordan Blum, FuelFix, August 6, 2015 ---
http://fuelfix.com/blog/2015/08/06/miller-energy-executives-charged-with-accounting-fraud/#31744101=0&31510103=0
The U.S. Securities and Exchange Commission is
charging a small Houston-based oil company with accounting fraud and falsely
inflating the values of its assets.
The SEC is levying the charges at current Miller
Energy’s Chief Operating Officer David M. Hall and former Chief Financial
Officer Paul W. Boyd, who left the company in 2011. The audit team leader at
the company’s former independent auditor also was charged.
The financially struggling company, which focuses
its exploration and production in Alaska, was delisted from the New York
Stock Exchange after July 30 because its stock was trading under $1 a share
since April 22. Miller Energy relocated from Tennessee to Houston earlier
this year.
The SEC’s Division of Enforcement alleges that,
after acquiring assets in Alaska’s Cook Inlet area in late 2009, Miller
Energy overstated their value by more than $400 million, boosting the
company’s net income and total assets. The allegedly inflated valuation
turned a penny-stock company into one that reached a 2013 high of nearly $9
per share, the SEC stated.
Continued in article
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
A former HP executive assistant charged her $100,000 spa vacation to the
company ... and will go to prison ---
http://www.businessinsider.com/a-former-hp-executive-assistant-charged-her-100000-spa-vacation-and-apple-shopping-spree-to-the-company-and-is-now-going-to-jail-2015-8
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Brazil's President could be brought down by a massive accounting scandal
---
http://www.businessinsider.com/r-fiscal-probe-for-brazils-rousseff-poses-impeachment-threat-2015-8#ixzz3iWwU1D2H
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Nine charged in U.S. insider trading
scheme involving hackers ---
http://www.reuters.com/article/2015/08/11/us-cybercybersecurity-hacking-stocks-arr-idUSKCN0QG1EY20150811
An alliance of U.S.-based stock traders and
computer hackers in Ukraine made as much as $100 million in illegal profits
over five years after stealing confidential corporate press releases, U.S.
authorities said on Tuesday.
The charges mark the first time that U.S.
prosecutors have brought criminal charges for a securities fraud scheme that
involved hacked inside information, in this case 150,000 press releases from
distributors Business Wire, MarketWired and PR Newswire.
"This is the story of a traditional securities
fraud scheme with a twist - one that employed a contemporary approach to a
conventional crime," FBI Assistant Director-in-Charge Diego Rodriguez said
in a statement.
Prosecutors said that hackers based in Ukraine
infiltrated press releases before they were due to be released by the
distributors. They included those that traders had put on "shopping lists"
of releases that they wanted, prosecutors said.
The hackers created a "video tutorial" to help
traders view the stolen releases, and were paid a portion of the profits
from trades based on information contained there, prosecutors said.
Continued in article
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
"Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB
Inspection Regime,"
SSRN
August 7, 2015
Authors
Brandon Gipper University of Chicago - Booth School of Business
Christian Leuz University of Chicago - Booth School of Business ;
National Bureau of Economic Research (NBER) ; European Corporate Governance
Institute (ECGI) ; Center for Financial Studies (CFS) ; University of
Pennsylvania - Wharton Financial Institutions Center ; CESifo Research
Network
Mark G. Maffett University of Chicago - Booth School of Business
Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2641211
Abstract
This paper examines how audit oversight by a
public-sector regulator affects investors’ assessments of reporting
credibility. We analyze whether the introduction of the Public Company
Accounting Oversight Board (PCAOB) and its inspection regime have
strengthened capital-market responses to unexpected earnings releases, as
theory predicts when reporting credibility increases. To identify the
effects, we use a difference-in-differences design that exploits the
staggered introduction of the inspection regime, which affects firms at
different points in time depending on their fiscal year-ends, auditors, and
the timing of PCAOB inspections. We find that capital-market responses to
unexpected earnings increase significantly following the introduction of the
PCAOB inspection regime. Corroborating these findings, we also find an
increase in abnormal volume responses to firms’ 10-K filings after the new
regime. Overall, our results are consistent with public audit oversight
increasing the credibility of financial reporting.
Bob Jensen's threads on audit firm professionalism ---
http://faculty.trinity.edu/rjensen/Fraud001c.htm
"Accounting for Universities’ Impact: Using Augmented Data to Measure
Academic Engagement and Commercialization by Academic Scientists,"
SSRN
August 3, 2015
Authors
Markus Perkmann Imperial College London
Riccardo Fini University of Bologna - Department of Management ; Imperial
College London
Jan-Michael Ross Imperial College London
Ammon Salter University of Bath - School of Management
Cleo Silvestri Imperial College London
Valentina Tartari Copenhagen Business School - Department of Innovation
and Organizational Economics
Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2639125
Abstract
We present an approach that aims to comprehensively
account for scientists’ academic engagement and commercialization
activities. While previous research has pointed to the economic and social
impact of these activities, it has also been hampered by the difficulties of
accurately quantifying them. Our approach complements university
administrative records with data retrieved from external sources and surveys
to quantify academic consulting, patenting and academic entrepreneurship.
This allows us to more accurately account for ‘independent’ activity, i.e.
academic engagement and commercialization outside the formal university
channels and often not recorded by universities. We illustrate this approach
with data for 10,000 scientists at Imperial College London. Results indicate
that conventional approaches systematically underestimate the extent of
academic scientists’ impact-relevant activities by not accounting for
independent activities. We find a larger proportion of scientists to be
externally active, yet with the exception of consulting we find no
significant difference between individuals involved in supported
(university-recorded) and independent activity, respectively. Our study
contributes to work concerned with developing appropriate and accurate
research metrics for demonstrating the public value of science.
Bob Jensen's threads on higher education controversies---
http://faculty.trinity.edu/rjensen/HigherEdControversies.htm
New and Forthcoming Paperback Titles from Routledge Accounting
Coming Soon:
-
Auditor's Talk: An
Oral History of the Profession from the 1920s to the Present Day
By Derek Matthews, Jim
Pirie
-
Accountancy and Empire: The British Legacy of Professional Organization
Edited by Chris Poullaos, Suki Sian
Ernst & Young trying to figure out how
it's auditors missed a multi-year $1+ billion accounting fraud in
Toshiba's financial statements
"E&Y Japan arm launches internal probe of Toshiba audit," Reuters
Technology, July 31, 2015 ---
http://www.reuters.com/article/2015/08/01/us-toshiba-accounting-e-y-idUSKCN0Q62UD20150801
The Japanese affiliate of Ernst & Young LLC has
launched an in-house investigation (using over 150 investigators) into its
audit of Toshiba Corp in the wake of the electronics maker's $1.2 billion
accounting scandal, a person with knowledge of the matter said.
Ernst & Young ShinNihon LLC has established a team
of about 20 executives to investigate whether there were any problems with
how it conducted its audits of Toshiba, the person said.
The person spoke on condition of anonymity. No one
could be reached at the company's offices in Tokyo on Saturday.
Continued in article
Jensen Comment
Audit firms traditionally defend themselves that they're not hired to be fraud
detectors unless the frauds materially affect financial statements. The Toshiba
accounting fraud had a monumental impact on financial statements.
From the CFO Journal's Morning Ledger on July 15, 2015
Toshiba executives likely to step down over accounting scandal
http://www.wsj.com/articles/toshiba-executives-expected-to-step-down-over-accounting-scandal-1436870307?mod=djemCFO_h
Toshiba Corp.
President Hisao Tanaka and several other executives are likely to step down
soon over an accounting scandal at the Japanese company involving profit
inflated by more than $1 billion. The other executives that people familiar
with the situation expect to leave Toshiba include Norio Sasaki, a former
president who is currently vice chairman. The board is also likely to
undergo significant membership changes.
. . .
Toshiba has detailed a number of cases in which
business units failed to book adequate costs for executing contracts,
causing the company to overstate profit. Toshiba said in June that it
would need to
reduce operating profit for the 2009 through
2013 fiscal years by a total of ¥54.8 billion. People familiar with the
matter said the figure has now ballooned to at least ¥150 billion ($1.2
billion). Toshiba declined to comment.
During those years, the company’s combined
operating profit totaled ¥1.05 trillion, so even at the higher level,
the reduction would amount to less than 15% of the company’s operating
profit over the five years.
Continued in WSJ article
Bob Jensen's threads on creative accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Manipulation
Bob Jensen's threads on EY ---
http://faculty.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
"What Law Schools Can Learn From Medical Schools," by Paul Caron,
TaxProf Blog, August 18. 2015 ---
http://taxprof.typepad.com/taxprof_blog/2015/08/what-law-schools-can-learn-from-medical-schools.html
Jensen Comment
What schools of accountancy could learn from both medical and law schools is
that becoming a good starting professional takes more years of graduate study
than what accountancy masters degree students are getting before they graduate
and take the CPA examination. Firstly there are 3-5 years of full-time graduate
study in law and medicine. And then in medicine there are 1-5 years of low-paid
residency when learning specialties like neurosurgery and psychiatry. In the
article above, however, Professor Caron focuses more on studies of ethics rather
than study of professional specialites.
From the CPA Newsletter on August 21, 2015
How the Affordable Care Act changed Medicare taxes
http://www.thetaxadviser.com/issues/2015/aug/navigating-murky-medicare-tax-waters-for-small-business-owners.html
The health care law added an additional Medicare tax on wages above a
certain threshold for high-income taxpayers and the net investment income
tax, which applies to unearned income. This article explains how these new
taxes affect high-income individuals and small-business owners.
The Tax Adviser
(8
Most of the
trillions of fiat dollars the Federal Reserve Bank has pumped into the U.S.
economy as part of its Quantitative Easing (QE) strategy since 2009 have gone
directly into the stock market, inflating the value of stocks to unsustainable
levels.
Greg Lewis ---
http://www.americanthinker.com/articles/2015/08/_the_china_syndrome.html
For the past quarter of a century, China’s economy
has been rising to what many analysts have claimed is a level that will
challenge the U.S. for the title of largest economy in the world. In fact, the
Chinese economy, fueled by state-funded credit and money-printing, has enabled
the size of the Chinese stock market to rise to dangerously overblown levels
more than 50 times higher than they were only two decades ago.
Greg Lewis ---
http://www.americanthinker.com/articles/2015/08/_the_china_syndrome.html
From the CFO Journal's Morning Ledger on August 26, 2015
The late-day selloff in U.S. stock markets
Tuesday
shattered the veneer of stability that had settled
over global markets after
China’s central bank moved to stanch the
stock-market rout. The Dow industrials have now shed 11% after six straight
days of losses, and
Tuesday’s drop underscored that the pain
sparked by China’s surprise devaluation of its currency earlier this month
has yet to come to an end. Wall Street traders are betting that the
adjustment isn’t over with increasing
bets against the yuan.
China is in the midst of a
tectonic shift in its giant economy that is
rattling markets world-wide. The country is transitioning from an era when
smokestack industries, huge exports and massive infrastructure
spending—underpinned by trillions in state-backed debt—powered China’s
seemingly unstoppable rise. Instead of them, China is pushing services,
consumer spending and private entrepreneurship as new drivers of growth that
rely less on debt and more on the stock market for funding.
The market tumult has
exposed flaws in the new architecture of Wall Street,
where stock-linked funds, as much as the shares
themselves, trade en masse. For instance, circuit breakers, which are
designed to pause trading in single stocks and ETFs during big moves, were
triggered nearly 1,300 times
Monday. The circuit breakers were added to
make markets more orderly after the May 2010 “flash crash,” but
Monday, they sometimes exacerbated problems
by preventing prices from returning to normal levels quickly.
Jensen Comment
Shifts from public debt to private equity mean a greater need for
integrity of financial reporting and market regulation/enforcement that underlie
trust of investors in capital markets. This rarely happens in highly corrupt
economies.
From the CFO Journal's Morning Ledger on August 28, 2015
The Silo Effect. Stories about
companies tearing down walls—literally and figuratively—to encourage
accidental collisions between departments and encourage collaboration have
become common enough to be deserve
mockery. Yet even HBO satires can’t compete with Facebook
Inc.’s efforts. In
the book “The Silo Effect,” Gillian Tett looks at
the many ways—from a Bootcamp program for new hires to inspirational posters
to CEO Mark Zuckerberg’s “goldfish bowl” office—the company has tried to
prevent teams from ossifying into competitive silos. A British
anthropologist, who in the 1990s mapped the ideal size of a functioning
social group according to the size of the human brain, gets credit for
Facebook’s philosophy. But there appears to be something deeper driving
management. “We want to be the anti-Sony, the anti-Microsoft—we look at
companies like that and see what we don’t want to become,” says one senior
manager.
From the CFO Journal's Morning Ledger on August 26, 2015
More than a quarter of employers expected to face “Cadillac tax.”
http://blogs.wsj.com/cfo/2015/08/25/more-than-a-quarter-of-employers-expected-to-face-cadillac-tax/?mod=djemCFO_h
One in four companies are likely to be impacted by the
“Cadillac tax” on high-cost health plans when it begins in 2018—and that
could almost double in 10 years, CFO Journal’s Emily Chasan reports.
Finding and Using Health Statistics ---
http://www.nlm.nih.gov/nichsr/usestats/index.htm
Bob
Jensen's universal health care messaging ---
http://faculty.trinity.edu/rjensen/Health.htm
From the CFO Journal's Morning Ledger on August 25, 2015
Rattled by currency shake-ups, more companies turn to hedging
http://blogs.wsj.com/cfo/2015/08/24/rattled-by-currency-shake-ups-more-companies-turn-to-hedging/?mod=djemCFO_h
Global market and political shocks are pushing more
companies to hedge their exposure to volatile currencies, CFO Journal’s
Emily Chasan reports. According to a new survey, about 89% of corporate
executives at small and medium-size companies expect to hedge their currency
risk this year by at least as actively as they did last year, up from 50%
last year.
Jensen Comment
This greatly increases the need for company leaders and our accounting majors to
learn more about the accounting requirements for currency speculation versus
hedging under FAS 33 and IFRS 9. For example, do your students understand why
FAS 138 was issued in part to allow for cross-currency hedging that originally
was not allowed in FAS 133. Scroll down the "C-terms" to "Cross-currency" at
http://faculty.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
From the CFO Journal's Morning Ledger on August 25, 2015
Corporate finance departments are
increasingly tasked with helping to develop business strategy, but at the
same time, the core accounting and compliance responsibilities are only
becoming larger and more complex. Those combined factors are turning chief
accounting officers into the rising stars of corporate finance,
CFO Journal’s Kimberly S. Johnson reports. Since
2009, there’s been nearly a 40% rise in the number of chief accounting
officer titles, according to findings from Russell Reynolds Associates.
These senior-level accountants have long been
a fixture at large multinational companies. But, thanks to the cost and
intricacies of today’s regulatory and accounting requirements, their numbers
have multiplied and their duties have expanded beyond managing their
company’s books and preparing financial statements. At many companies, the
accounting chief’s job has broadened to include multiple types of
accounting. And as the cost of regulatory compliance and the consequences of
a slip-up mount, many companies are willing to pay six to seven figures a
year for a top-notch accountant in exchange for peace of mind.
From the CFO Journal's Morning Ledger on August 21, 2015
Authors group seeks DOJ probe of Amazon
http://www.wsj.com/articles/authors-group-seeks-doj-probe-of-amazon-1440090438?mod=djemCFO_h
Hundreds of authors asked the Justice Department for
an antitrust investigation of Amazon.com Inc. for having
created a “monopoly” with “unprecedented power over America’s market for
books.” The group, Authors United, formed last year in response to Amazon’s
bruising negotiations with publisher Hachette Book Group, primarily over
pricing. Led by author Douglas Preston, the
group sent a letter to the DOJ that said Amazon
has repeatedly blocked or limited the sale of thousands of books on its
website, sold some books below cost to gain market share, and attempted to
compel customers to buy books from its own imprints rather than from other
companies.
August 21, 2015 reply from Gadal Damian
Two sides to every story:
https://davidgaughran.wordpress.com/2014/10/22/whats-next-for-authors-united/
From the CFO Journal's Morning
Ledger on August 20, 2015
Audits of broker-dealers remain troubling to government watchdog
http://blogs.wsj.com/cfo/2015/08/19/audits-of-broker-dealers-remain-troubling-to-government-watchdog/?mod=djemCFO_h
Audits of
broker-dealers continue to have an “unacceptably high” level of deficiencies
and are rife with conflicts of interest, the government’s audit regulator
said in a report late
Tuesday. CFO Journal’s Emily Chasan reports
that inspectors at the PCAOB found deficiencies in 87% of broker-dealer
audits reviewed in 2014.
From the CFO Journal's Morning
Ledger on August 19, 2015
Most U.S. companies could pass new EU auditor-fees sniff test
http://blogs.wsj.com/cfo/2015/08/18/most-u-s-companies-could-pass-new-eu-auditor-fees-sniff-test/?mod=djemCFO_h
The majority of U.S. companies would breeze through
recent European rules limiting the amount of money a company’s auditor can
collect on additional client services, were the policy to be imposed over
here, writes CFO Journal’s Maxwell Murphy. Fewer than 200 companies in the
Russell 3000 Index spent more than 70% of their average audit fee on
additional services with those same firms, according to data and research
provider Audit Analytics.
From the CFO Journal's Morning
Ledger on August 19, 2015
Court decision could affect conflict minerals audits
http://blogs.wsj.com/cfo/2015/08/18/court-decision-could-affect-conflict-minerals-audits/?mod=djemCFO_h
A federal appeals court upheld an earlier
decision Tuesday on part of a Dodd-Frank Act regulation requiring public
companies to disclose whether their products contain conflict minerals. The
court previously said requiring the labeling violates free speech under the
First Amendment, writes CFO Journal’s Emily Chasan. The Securities and
Exchange Commission is reviewing the decision, which could affect how
companies prepare for audits of their conflict mineral reports next year.
Companies are struggling to get results in their efforts to find “conflict
minerals” – tin, tungsten, tantalum and gold– blamed for fueling violence in
the Democratic Republic of the Congo in their supply chain.
From the CFO Journal's Morning
Ledger on August 19, 2015
J.P. Morgan expected to settle with SEC on investment-steering case
http://www.wsj.com/articles/j-p-morgan-expected-to-settle-with-sec-on-investment-steering-case-1439924418?mod=djemCFO_h
J.P. Morgan Chase & Co. is in advanced talks
with the Securities and Exchange Commission to pay more than $150 million to
resolve allegations it inappropriately steered private-banking clients to
its own investment products without proper disclosures. The WSJ’s Emily
Glazer and Jean Eaglesham report that the settlement could be announced
within the next few weeks, according to people familiar with the matter.
From the CFO Journal's Morning
Ledger on August 19, 2015
Citigroup to return $4.5 million more in fee overcharges
http://www.reuters.com/article/2015/08/19/us-citigroup-nyag-fees-idUSKCN0QO04320150819?mod=djemCFO_h
Citigroup Global Markets Inc (CGMI), a unit of
Citigroup Inc. struck an agreement with the New York attorney general to
return $4.5 million in account management fees charged on some 15,000 frozen
accounts,
Reuters reports. More than $20 million will be
refunded to Citi customers for overcharges in an investigation initiated by
New York Attorney General Eric Schneiderman. In October, CGMI agreed return
some $16 million to more than 31,000 customers who paid higher advisory fees
than negotiated.
Bigger Than Enron
"Libor Lies Revealed in Rigging of $300 Trillion Benchmark," by Liam
Vaughan & Gavin Finch, Bloomberg News, January 28, 2013 ---
http://www.bloomberg.com/news/2013-01-28/libor-lies-revealed-in-rigging-of-300-trillion-benchmark.html
"The LIBOR Mess: How Did It Happen -- and
What Lies Ahead?" Knowledge@Wharton, July 18, 2012 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3056
"Lies, Damn Lies and Libor: Call it one more improvisation in 'too
big to fail' crisis management," by Holman W. Jenkins Jr., The Wall
Street Journal, July 6, 2012 ---
http://professional.wsj.com/article/SB10001424052702304141204577510490732163260.html?mod=djemEditorialPage_t&mg=reno64-wsj
Jensen Comment
Crime Pays: The good news for banksters is that they rarely, rarely, rarely get
sent to prison ---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#CrimePays
Paying fines for unethical or illegal acts is now just a cost of doing business
for big banks. Nothing is shocking about bank bad behavior these days.
Bob Jensen's Rotten to the Core threads
---
http://faculty.trinity.edu/rjensen/FraudRotten.htm
From the CFO Journal's Morning
Ledger on August 18, 2015
U.S. Steel to close Alabama blast furnace, cut 1,100 jobs
http://www.wsj.com/articles/u-s-steel-to-close-some-alabama-steel-ops-cut-1-100-jobs-1439825105?mod=djemCFO_h
U.S. Steel Corp. said
Monday it would shut its blast furnace and some steel
finishing operations in Alabama, as it tries to survive a weak market and
competition from inexpensive imports. After losing money in five of the past
six years, U.S. Steel, under Chief Executive Mario Longhi, is trying to
remake itself by downsizing, cutting costs, and becoming more nimble and
responsive to the market.
From the CFO Journal's Morning
Ledger on August 18, 2015
IRS says ID theft more extensive than previously reported.
http://www.wsj.com/articles/irs-says-cyberattacks-more-extensive-than-previously-reported-1439834639?mod=djemCFO_h
The Internal Revenue Service said
Monday that more than twice as many taxpayer accounts were hit
by identity thieves as the agency first reported. Hackers gained access to
as many as 330,000 accounts and attempting to break into an additional
280,000.
The bottom line is that unions want you
to have to join a union to get a minimum-wage job
From the CFO Journal's Morning
Ledger on August 18, 2015
Minimum-wage waivers for union members stir standoff
Unions have been a driving force behind the wave of
municipal minimum-wage increases sweeping the country. But some unions want
their own members exempt from coverage under those laws. More than 20 U.S.
cities and counties, recently including Los Angeles and Kansas City, Mo.,
have set minimum wages above state and federal levels.
From the CFO Journal's Morning
Ledger on August 15, 2015
Broker settles over pricing on muni bonds
http://www.wsj.com/articles/edward-jones-to-pay-20-million-to-settle-sec-muncipal-bond-charges-1439474284?mod=djemCFO_h
Brokerage firm Edward Jones has agreed to pay $20 million
to settle charges that it overcharged clients in new municipal-bond sales,
the SEC said. The agency said the firm’s practice cost customers at least
$4.6 million. It is the SEC’s first pricing-related case against an
underwriter selling new municipal securities.
Jensen Comment
One of the most unethical
things stock brokers and investment advisors can do is to steer naive customers
into mutual funds that pay the brokers kickbacks rather than suitable funds for
the investors. The well known and widespread brokerage firm of Edward Jones &
Co. to pay $75 million to settle
charges that it steered investors to funds without disclosing it received
payments.
The sad part is
that many people who want mutual funds can get straight forward information from
reputable mutual funds like Vanguard and avoid having to pay a financial advisor
anything and avoid the risk of unethical advice from that advisor.
Blast from the Past
"Edward Jones Agrees to Settle Host of Charges,"
by Laura Johannes and John Hechinger, and Deborah Solomon, The Wall Street
Journal, December 21, 2004, Page C1 ---
http://online.wsj.com/article/0,,SB110356207980304862,00.html?mod=home_whats_news_us
Edward D. Jones & Co. agreed
to pay $75 million to settle regulatory charges that it steered investors to
seven "preferred" mutual-fund groups, without telling the investors that the
firm received hundreds of millions of dollars in compensation from those
funds.
The settlement, tentatively
agreed to by the Securities and Exchange Commission, the National
Association of Securities Dealers and the New York Stock Exchange,
represents the largest regulatory settlement to date involving revenue
sharing at a brokerage house, an industry practice in which mutual-fund
companies pay brokerage houses to induce them to push their products.
Even so, California Attorney
General Bill Lockyer called the settlement "inadequate" given payments from
the funds that he said totaled about $300 million since January 2000, and
declined to join it and filed a civil lawsuit against Edward D. Jones
yesterday in Sacramento County Superior Court.
Mr. Lockyer called Edward D.
Jones "the most egregious example we have reviewed so far" of secret
revenue-sharing arrangements. California's suit, if it reaches trial, could
seek repayment of the entire amount the brokerage house received, plus the
"hundreds of millions" lost by investors who were sold inferior funds, Mr.
Lockyer said.
Edward D. Jones, of St.
Louis, has nearly 10,000 sales offices nationally, comprising the largest
network of brokerage outlets in the U.S. Its revenue-sharing practices were
the subject of a
page-one article in The Wall Street Journal in January. In a statement
yesterday, the company said it will "take immediate steps to revise customer
communications and disclosures." Edward D. Jones said it has neither
admitted nor denied the regulators' claims. The company added it "intends to
vigorously defend itself" against the charges brought by the California
attorney general.
Continued in article
Rotten to the Core Frauds ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm
From the CFO Journal's Morning
Ledger on July 15, 2015
PCAOB continues to sharpen focus on internal controls
http://blogs.wsj.com/cfo/2015/08/13/pcaob-continues-to-sharpen-focus-on-internal-controls/?mod=djemCFO_h
Companies with significant accounting problems seem to
have a looser grip on their internal controls over financial reporting, even
after they attest to their adequacy, CFO Journal’s Maxwell Murphy reports.
More than 80% of restatements for 2014 came from companies that said their
controls were effective, up from 74% in 2010.
From the CFO Journal's Morning Ledger on
August 13, 2015
Google’s multi-class stock structure made Alphabet move unique
http://blogs.wsj.com/cfo/2015/08/12/googles-multi-class-stock-structure-made-alphabet-move-unique/?mod=djemCFO_h
Google Inc.’s restructuring into Alphabet Inc.
may be uniquely possible because of the company’s rare stock-holding
structure, where its founders control the direction of the business without
majority economic ownership of the company’s stock, CFO Journal’s Emily
Chasan reports.
Jensen Comment
You may want to have your students dig into how multi-class stock complicates
equity accounting in financial statements.
Tax Inversion ---
https://en.wikipedia.org/wiki/Tax_inversion
From the CFO Journal's Morning Ledger on
August 7, 2015
New Treasury Department rules enacted
last year, intended to slow down the rush of U.S. companies aiming to merge
with foreign firms to gain an overseas residence and a lower tax rate,
appeared to have their intended effect. The new guidelines made it harder
for companies to access overseas cash without having it taxed at U.S. rates,
and they tightened the standards for a merger to qualify as an inversion.
But those rules were hardly air tight, as evidenced by the continuing
trickle of tax inversion deals,
the WSJ reports. Two U.S. companies
Thursday announced plans to move overseas
through inversions, bringing the year’s tally of proposed inversions to six.
CF Industries Holdings Inc., a
Deerfield, Ill.-based fertilizer maker, said it would merge with parts of
Netherlands-based OCI NV in a deal valued at $6 billion as
well as the assumption of $2 billion in debt. Atlanta-based Coca-Cola
Enterprises Inc., meanwhile,
announced a three-way merger of European bottling
operations to create a company with $12 billion in sales.
The Treasury
Department’s assault on inversions last September largely ended a
deal-making wave that featured high-profile U.S. companies such as
pharmaceutical giant Mylan NV and fast-food chain
Burger King Corp. Yet a number of companies have quietly continued
to reach smaller inversion deals in industries less likely to attract
attention from lawmakers or the U.S. public. And even some U.S. corporate
giants haven’t completely abandoned the inversion. Monsanto Co.,
the St. Louis-based agricultural firm, is pursuing
a $45 billion takeover of Swiss rival
Syngenta AG.
Jet.com ---
https://en.wikipedia.org/wiki/Marc_Lore#Jet.com
In 2014, Marc Lore
co-founded an e-commerce company, Jet, with Nate Faust and Mike Hanrahan.
The company raised a total of $80 million in Series A funding, which closed
in November 2014 Investors include
NEA,
Accel Partners, and
Bain Capital Ventures.
In November 2014, Jet launched a campaign offering stock options
to users generating word-of-mouth for the company in advance of launch.[11]
In January 2015, Jet was featured in a cover story in Bloomberg Businessweek,
in which it was revealed that Jet will be a shopping club in which members
will pay an annual fee of $49.99 to access the lowest prices on millions of
items]
In February 2015 Jet raised an additional $140 million in pre-launch funding
from investors including
Bain Capital Ventures,
Accel Partners,
Alibaba Group,
New Enterprise Associates, and others.[13]
Beta testers in May 2015 reported cheaper prices than Amazon but longer, and
more expensive, delivery times.[14]
On 21 July 2015, Jet.com opened to the public.[15]
Jensen Comment
Jet.com hopes to combine the shopping club concept (think Costco and Sam's Club)
with the Amazon business model It's stated goal is to make money on the club
membership fees and not the markups on sales prices. However, to date it is
widely criticized for many reasons, notably lack of selection. It's certainly no
Amazon. I also think it chose a poor name for itself. It should be called
something like Lowest Price Least Selection Online Club.
From the CFO Journal's Morning Ledger on
August 7, 2015
Jet.com runs into turbulence with retailers
http://www.wsj.com/articles/jet-com-runs-into-turbulence-with-retailers-1438899476?mod=djemCFO_h
Dozens of the nation’s largest retailers, including
Macy’s Inc., Amazon.com Inc. and
Home Depot Inc., have quickly moved to disassociate themselves from
new discount retail website Jet.com. The retailers
complained to Jet after discovering it had placed links to their sites
without permission, promising its own members cash back for making purchases
after clicking the links.
New Study: Immersing Yourself in Art, Music & Nature Might Reduce
Inflammation & Increase Life Expectancy ---
http://www.openculture.com/2015/08/new-study-immersing-yourself-in-art-music-nature-might-reduce-inflammation-increase-life-expectancy.html
Jensen Comment
Life expectancy in the small (e.g., one person) is complicated by the many
random factors in life that make it impossible to predict that a given person
will live longer by composing music, painting pictures, or listening to
classical recordings each and every day. For example, Mozart died at age 35.
There are very few absolutes in life. For example, teaching and preaching
ethics in college may increase ethical behavior expectancy but will not
eliminate fraud and unethical behaviors that are impacted in a complicated way
by the tone-at-the-top, follow-the-herd mentality, opportunitird, and dire
financial needs.
From the CFO Journal's Morning Ledger on August
5, 2015
New rule to lift veil on tax breaks
http://www.wsj.com/articles/new-rule-to-lift-veil-on-tax-breaks-1438725046?mod=djemCFO_h
The Governmental Accounting Standards Board will
require government officials to show the value of property, sales and income
taxes that have been waived under agreements with companies or other
taxpayers. It kicks in next year. Cities and states have plied companies
with tax breaks for decades hoping to attract jobs and commerce.
Bob Jensen's threads on the sad state of
governmental accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Delaware no longer so friendly to
corporations in court
From the CFO Journal's Morning Ledger on August 3, 2015
Delaware’s business-friendly
reputation, in part a result of its system of sophisticated business courts,
has long made the state a favorite domicile for U.S. corporations. But a
recent wave of shareholder lawsuits has some companies complaining that
Delaware’s reputation is no longer justified, the
WSJ’s Liz Hoffman reports. Critics contend the
state has failed to do enough to curb the suits, and point to a new
pro-plaintiff measure that bars companies from shifting their legal fees to
shareholders who sue and lose.
Take the case of Dole Food Co.
The purveyor of bananas and pineapples shifted its legal home to Delaware
from Hawaii in 2001, but now it finds itself facing potentially costly
litigation from shareholders who sued after it was sold to its chief
executive, David Murdock, in 2013. The lawsuits, filed in Delaware’s
Chancery Court, argue that the company was sold too cheaply and seek damages
that could stretch into the hundreds of millions of dollars. “We moved to
Delaware because of what we felt was a balanced corporate environment. We’re
now seeing that trending the wrong way,” said Michael Carter, Dole’s former
chief operating officer who retired in April.
Executives of
Dole, DuPont Co., Ancestry.com Inc. and
other Delaware companies have publicly and privately appealed to state
officials to find ways to curb lawsuits. Tensions brewed over a recent bill
that could encourage shareholder suits and limit companies’ ability to weed
out weaker ones. Its passage last month renewed grumbling among some general
counsels, who talk of leaving the state for more management-friendly
pastures. But attorneys on the other side of the fence see things
differently. “Corporate America is playing the boy who cried wolf,” said
Mark Lebovitch, a lawyer who sues companies on behalf of investors. He said
pro-shareholder rulings are still rare in Delaware and that the threat of
lawsuits keeps corporate managers honest.
From the CFO Journal's Morning Ledger on
August 3, 2015
Ruth Porat was right about U.S. banking regulations
http://blogs.wsj.com/cfo/2015/07/31/ruth-porat-was-right-about-u-s-banking-regulations/?mod=djemCFO_h
Ruth Porat, Google Inc.’s finance
chief, made a vociferous defense of U.S. banking regulations during her last
earnings call as Morgan Stanley’s CFO in April, CFO Journal’s Vipal Monga
reports. In light of the most recent bank earnings reports, her spring
remarks seem dead on.
"The Sugar Scandal: Congress
takes a run at an egregious business welfare scheme," The Wall Street
Journal, July 29, 2015 ---
.http://www.wsj.com/articles/the-sugar-scandal-1438212128?tesla=y
Americans pay nearly twice as much per pound as
foreigners do for sugar, thanks to U.S. import restrictions and subsidies.
We’ve tilted at this corporate welfare for decades, but new political forces
are aligning to take another run.
The absurdity of the federal sugar program is
legendary. Every year the government grants sugar processors nonrecourse
loans linked to the amount of sugar the government says they can produce at
a set price per pound: 18.75 cents for raw cane sugar and 24.09 cents for
refined beet sugar. If the market price is below the loan price when it’s
time to sell, the processors simply forfeit their crop to the U.S.
Department of Agriculture in lieu of repaying the loan. They can still make
a profit thanks to the price guaranteed by the loan.
To ensure that imported sugar doesn’t drive down
U.S. prices, provoking a sugar dump on Uncle Sam, there are also import
quotas. Anything above the quotas gets hit with a hefty tariff—16 cents a
pound on refined sugar.
Yet all of this central planning is harder than it
sounds. According to a January 2014 USDA report, for the 2013 crop year the
government’s net cost “to remove” sugar from the marketplace was $258
million. But sometimes there’s not enough sugar, as in 2010, and prices
skyrocket. If the secretary of agriculture decides that shortages will drive
prices too high, he can increase the quota. But he has to make sure that
more imports won’t mean lower prices and thus sugar forfeitures to the feds.
All the risk lies with consumers or taxpayers—not producers.
Continued in article
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
FBI accused San Francisco mayor of taking bribes ---
http://news.yahoo.com/attorney-fbi-accused-san-francisco-mayor-taking-bribes-013415678.html
The EPA is Waving Goodbye to Every Mine
in the USA, not just coal mines
From the CFO Journal's Morning Ledger on August 3, 2015
Coal miner Alpha to seek chapter 11.
http://www.wsj.com/articles/alpha-natural-resources-to-seek-chapter-11-1438557901?mod=djemCFO_h
Alpha Natural Resources Inc. is expected to file for chapter 11
bankruptcy protection early
Monday to cut its more than $3 billion debt load. The Bristol,
Va., company, one of the largest U.S. coal producers, hasn’t completed the
terms of a restructuring plan but will likely sell some of its best mines or
turn them over to creditors and close others during its trip through
bankruptcy court, according to people familiar with the matter.
The EPA is
creating rules that defeat even environmentalists ---
http://reason.com/archives/2015/07/29/zealots-at-the-epa
EPA zealots want to close every mine in the USA, including those essential to
the economy
Texas Tech Is Investigating Business Professor’s Grade-Tampering Claim
---
http://chronicle.com/blogs/ticker/texas-tech-is-investigating-professors-grade-tampering-claim/102621?cid=at&utm_source=at&utm_medium=en
Employee Stock Options (ESOs) ---
https://en.wikipedia.org/wiki/Employee_stock_option
The popularity of ESOs plummeted when FAS 123 was revised to FAS 123R despised
especially by tech industries (see below)
From the CFO Journal's Morning Ledger on August 27, 2015
Companies continue to tilt away from options in comp packages
http://blogs.wsj.com/cfo/2015/08/26/companies-continue-to-tilt-away-from-options-in-comp-packages/?mod=djemCFO_h
Stock options are disappearing from executive
compensation packages, according to a new report. The median number of
restricted stock awards granted by S&P 1500 companies has risen almost 21%
between 2010 and 2014, according to compensation-research firm Equilar Inc.
Some companies are bucking the trend of staying out of ESO compensation
"GM Grants First Executive Stock Options Since Emerging From Bankruptcy:
CEO Mary Barra is awarded 2.6 million options with a $31.32 strike price,"
by Gautham Nagesh, The Wall Street Journal, August 3, 2015 ---
http://www.wsj.com/articles/gm-grants-first-executive-stock-options-since-emerging-from-bankruptcy-1438367710?mod=djemCFO_h
General Motors Co. handed out its first stock
options since emerging from bankruptcy in 2009, awarding grants to about 300
top executives based on their ability to deliver shareholder returns in line
with industry peers and other factors.
Part of the company’s long-term incentive plan, the
options were granted this week. The stock awards are designed to retain top
executives through noncompete clauses and tie compensation to company
performance, a spokesman said, and were awarded as quickly as possible
following shareholder approval last year.
Chief Executive Mary Barra was awarded 2.6 million
options with a $31.32 strike price, gradually vesting over a four-year
period beginning in 2017. She earned $16.4 million in her first year at the
helm, during which she steered the company through a costly ignition-switch
recall crisis and set lofty margin targets for the 107-year-old company.
GM President Dan Ammann received 976,139 options
with the same conditions, according to a regulatory filing. GM’s head of
global product development Mark Reuss received 829,719 options, Chief
Financial Officer Chuck Stevens received 623,645; and GM Europe President
Karl-Thomas Neumann received 585,684.
The size of other awards for GM’s top 300
executives wasn’t disclosed.
The $31.32 price is based on the value of GM’s
shares as of Tuesday, and is in the lower end of the $28.82 to $38.99 range
the stock has set over the past 52 weeks. The company filed bankruptcy in
2009 following a long financial decline, and went public again in 2010 with
shares valued at $33.
Continued in article
Jensen Comment
Until now the death knell was sounded for employee stock options when the FASB
changed FAS 123 to FAS 123R in 2005 ---
http://faculty.trinity.edu/rjensen/theory/sfas123/jensen01.htm
Stock options were the darlings of cash-strapped tech companies since,
before FAS 123R, they were a way of compensating employees without using cash or
lowering reported earnings. FAS 123R forced them to be deducted in earnings
calculations. This virtually put an end to stock option compensation in favor of
other forms of issuing stock to employees.
I do not anticipate employee stock option compensation to soar after
this revival by General Motors. GM is strapped somewhat for cash since tens of
millions of its cars are being recalled for various reasons, especially the
faulty ignition switches. GM does have a lot of cash parked overseas that it
does not want to pay taxes on by returning it to the USA. Presumably GM is now
willing to take an earnings hit from executive stock option awards under FAS
123R accounting.
What amazed me is that under all the corporate lobbying pressure in
favor of not expensing ESOs that Congress did not override FAS 123R and
show the FASB who is really the boss of accounting standard setting. That was
attempted and failed in Congress.
"Denmark’s tax authority has revealed it was the victim of an €800m
(£584m) fraud," Economia, August 27, 2015 ---
http://economia.icaew.com/news/august-2015/denmark-victim-of-800m-euro-tax-fraud
Jensen Comment
€800m is pocket change to tens of billions the USA's IRS loses to ID theft,
fraudulent earned income tax credits, fraudulent health insurance subsidies, and
so many other frauds that make the bungling IRS a giant cash piñata for
criminals.
"IRS Reveals Lois Lerner's Secret Email Account Named For Her Dog," by
Robert W. Wood, Forbes, August 25, 2015 ---
http://www.forbes.com/sites/robertwood/2015/08/25/irs-reveals-lois-lerners-secret-email-account-named-for-her-dog/
The IRS dropped a bombshell in federal court,
admitting that firebrand Lois Lerner also used a personal email
account for IRS business. She used her dog’s name, Toby Miles.
The Washington Times
broke the story from
the Judicial Watch lawsuit that is still seeking IRS targeting emails. It
puts the IRS in another awkward spot. Why wasn’t this revealed by the IRS
sooner, you might ask?
Good question. Since there have been multiple
probes for several years now, one might assume that American taxpayers would
know about this by now.
IRS documents previously revealed a Lois Lerner
email that warned IRS staffers about revealing
too much information to Congress. Forget email, Ms. Lerner had warned.
Instead, use instant messaging that automatically deletes office
communications. House Oversight Committee
documentation
suggested that this ruse was used deliberately by IRS officials to evade
public scrutiny.
Continued in article
Jensen Comment
I'm still looking for revelations that her dog Toby pooped on Tea Party parades.
So far there's only evidence that Lois Lerner pooped on Tea Party parades
while she was an executive with the IRS.
Treasury Stock ---
https://en.wikipedia.org/wiki/Treasury_stock
"Pushback on Buybacks A closer look at the numbers indicates buybacks
aren’t as good for the companies, the market, or investors as previously though,"
by By Ben Levisohn, Barron's, August 22, 2015 ---
http://www.barrons.com/articles/pushback-on-buybacks-1440227496
Lawmakers eager to stem the tide of U.S. corporate intellectual property
flowing to lower-tax shores
From the CFO Journal's Morning Ledger on July 30, 2015
Lawmakers eager to stem the tide of U.S. corporate
intellectual property flowing to lower-tax shores are borrowing a strategy
that has already been employed by European nations to lure valuable patents
into their jurisdictions, the
WSJ’s John D. McKinnon reports. The legislation
would create what is known as a “patent box.” Similar legislation already
has been adopted in several European countries and the trend threatens to
attract even more U.S. intellectual property in coming months.
The proposal for a U.S. patent box was officially
unveiled
on Wednesday by Reps. Charles Boustany (R.,
La.) and Richard Neal (D., Mass.). House Ways and Means Committee Chairman
Rep. Paul Ryan (R., Wis.) has made it clear he is backing the plan and
intends to incorporate a version of it into his own corporate-tax overhaul
proposal. The legislation would give companies an ultralow 10% tax rate on
income they generate from patents and other
intellectual property.
upporters hope the move will halt a trend that has
seen many American multinational firms locate more of their valuable
intellectual property in lower-tax countries, even when it is developed in
the U.S. That has allowed them to avoid the relatively high U.S. corporate
tax on the resulting profits, which often accumulate offshore. Prior
measures to limit the practice have been ineffective. Would this new
proposal lead you to keep your company’s IP in the U.S.?
"Financial Reporting Implications: Greece, Puerto Rico and Other Regions
Facing Economic Concerns," Deloitte, CFO Journal, July 2015 ---
http://deloitte.wsj.com/cfo/2015/07/31/financial-reporting-implications-greece-puerto-rico-and-other-regions-facing-economic-concerns/
Economic conditions, particularly in Europe and
Puerto Rico, continue to be volatile. A vote by Greece’s parliament on July
15 to accept new austerity measures, as well as other recent actions by
eurozone leaders, may have allayed some fears and reduced the risk that
Greece will exit from the eurozone (i.e., discontinue using the euro* as the
country’s currency). However, the situation remains uncertain for the time
being.
Outside the eurozone, Puerto Rico, a commonwealth
of the United States, is also suffering from a combination of a large debt
burden, weak economic growth and population declines. On July 15, the Public
Finance Corporation of Puerto Rico advised investors that the commonwealth
has failed to transfer cash to the trustee of certain of its bond
obligations within the period required to cover an August 1 debt payment
because its legislature did not appropriate funds with which to do so. In
addition, the Puerto Rican government has requested that the U.S. Congress
pass a law allowing Puerto Rico to seek bankruptcy protection from
creditors. This measure is meant to avoid a disruptive default process.
Deloitte’s
Financial Reporting Alert discusses certain
key accounting and financial reporting considerations related to the current
economic conditions in the eurozone and Puerto Rico. It is divided into four
sections:
broad financial reporting considerations;
financial instruments;
SEC reporting and disclosure considerations;
income tax considerations.
Continued in article
Financial Reporting Alert ---
http://www.iasplus.com/en-us/publications/us/financial-reporting-alerts/2015/15-2/file
Teaching Case
From The Wall Street Journal Accounting Weekly Review on July 31, 2015
Three Mergers, But One Isn't Tax Free
by: Laura Saunders
Jul 25, 2015
Click here to view the full article on WSJ.com
TOPICS: Corporate
Taxation, Tax Deferrals
SUMMARY: This is a
tale of three similar mergers with very different tax consequences for
shareholders. The three deals are Cigna Corp. purchase by Anthem Inc., the
combination of two health-care giants, Aetna Inc. and Humana Inc., and the
merger of ACE Ltd. and Chubb Corp. Humana and Cigna shareholders won't owe
tax on their receipt of Aetna and Anthem shares, while Chubb shareholders
will owe tax on their receipt of ACE shares. Why? The big difference between
the deals is the Humana and Cigna deals contain an extra provision that
allows the exchange of shares to be a tax-free swap.
CLASSROOM APPLICATION: This
is a great article to show the value of tax planning and use of tax
professionals in planning all transactions. IT also offers an illustration
of tax deferral.
QUESTIONS:
1. (Introductory) What insurance companies are currently involved
in deals? What are the details of each of those deals?
2. (Advanced) What are the different tax results among the three
deals? What is the cause of the difference?
3. (Advanced) What are the difference in the tax liabilities for
investors in each of these deals? What burdens or opportunities does each of
the outcomes present to investors?
4. (Advanced) Why did the drafters of the Chubb deal structure it
so that it results in a different tax treatment? Do you think it was
intentional? Which outcome is better for investors?
5. (Advanced) What are the tax rules for stock owned at death? What
would be the difference in tax treatment among these deals if an investor
keeps the stock until death?
6. (Advanced) How can investors avoid taxes triggered by these
deals? How could an investor reduce the tax liability in each deal?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"Three Mergers, But One Isn't Tax Free," by Laura Saunders, The
Wall Street Journal, July 25, 2015 ---
http://www.wsj.com/articles/two-mergers-one-tax-free-swap-1437741274?mod=djem_jiewr_AC_domainid
In Cigna and Humana deals, a small detail makes all
the difference for shareholders.
This is a tale of three similar mergers with very
different tax consequences for shareholders.
One is the $48.4 billion
Cigna
Corp.
purchase by
Anthem
Inc.
announced Friday. Another is the $34.1
billion combination of two health-care giants,
Aetna
Inc.
and
Humana
Inc.,
announced July 3. And the final deal is the $28.3
billion merger of two insurance giants,
ACE
Ltd.
and
Chubb
Corp.
, announced July 1.
At first glance, the deals look alike—and like
several other mergers this year. In all three, the shareholders of the
acquired firms, Cigna, Humana and Chubb, will turn in their current holdings
in exchange for about half cash and half shares, assuming regulators approve
the deals. The cash payments will generally be taxable as capital gains if
the investor’s holdings are in taxable accounts, rather than in
tax-sheltered retirement plans such as IRAs or 401(k)s.
There is a big difference between the deals,
however. Humana and Cigna shareholders won’t owe tax on their receipt of
Aetna and Anthem shares, while Chubb shareholders will owe tax on their
receipt of ACE shares.
Why is this? According to Robert Willens, an
independent tax expert in New York, the two deals contain an extra provision
that allows the exchange of shares to be a tax-free swap. “This small detail
makes all the difference,” he says.
Here’s what could happen in practice, says Mr.
Willens:
Say an investor bought a share of Chubb for $45 in
2005 (adjusted for a 2006 split). In the merger, this investor is slated to
receive about $64 worth of ACE stock (at recent prices) and $63 of cash in
return for each share of Chubb. He or she will have a taxable long-term
capital gain of $82—the difference between the investor’s starting point of
$45 and the total value of $127 a share offered by ACE.
Continued in article
Jensen Comment
I don't think the government will object to lack of competition resulting from
mergers of health insurance giants. I think the government will find it easy to
take over the merged giants when the time comes to nationalize health insurance
in the USA.
Teaching Case on Companies Whose Share Values Are Below Book Value
From The Wall Street Journal Accounting Weekly Review on July 31, 2015
A Book BofA and Citi Can't Pick Up
by: David Reilly
Jul 26, 2015
Click here to view the full article on WSJ.com
TOPICS: Book Value,
Financial Accounting, Financial Statement Analysis
SUMMARY: It has
been almost seven years since Bank of America and Citigroup shares traded
above book value. That neither banks' shares have traded above book value -
or net worth - is a stunning verdict from markets. In short, it means
investors believe assets on their books aren't worth their stated values, or
liabilities are greater than stated, or that the firms will destroy value.
There may also be something simpler in the mix: that investors don't believe
the value of intangible assets on the banks' balance sheets, namely goodwill
that arose from deals mostly struck before the crisis.
CLASSROOM APPLICATION: This
is an interesting discussion of financial reporting vs. market value that
could used for a financial accounting class or for coverage of financial
statement analysis.
QUESTIONS:
1. (Introductory) What is book value? How is it calculated? What
does it show? What is the value of calculating book value?
2. (Advanced) How is the market value of a stock determined by
investors? Is market value related to book value? Why or why not?
3. (Advanced) What is that status of Bank of America's and
Citigroup's market value and book value? What are some possible reasons for
this status?
4. (Advanced) What is goodwill? What type of asset is it? How could
goodwill have affected the situation with Bank of America and Citigroup?
5. (Advanced) What are tax-deferred assets? How do they influence
the book values and market values of these companies?
6. (Advanced) What can each of these companies do to achieve higher
stock prices?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Unlocking Citi's Trapped Tax Asset
by David Reilly
Mar 14, 2012
Online Exclusive
"A Book BofA and Citi Can't Pick Up," by David Reilly, The Wall Street
Journal, July 26, 2015 ---
http://www.wsj.com/articles/a-book-bofa-and-citi-cant-pick-up-1437934709?mod=djem_jiewr_AC_domainid
It has been nearly seven years since shares of Bank
of America or Citigroup traded above book value.
Bank of America and Citigroup should be getting the
seven-year itch.
In about two months, the two banks will face a
dubious milestone: It will have been seven years since shares in either
traded above book value. That is something for BofA’s newly named finance
chief, Paul Donofrio, to contemplate as he takes the reins from Bruce
Thompson , who the bank just said would depart after four years in the role.
That neither banks’ shares have traded above book
value—or net worth—is a stunning verdict from markets. In short, it means
investors believe assets on their books aren’t worth their stated values, or
liabilities are greater than stated, or that the firms will destroy value.
It could, of course, reflect a combination of all
three, given the trials and tribulations that big banks have faced since the
financial crisis. These have ranged from supersize legal charges to stricter
regulatory and capital requirements to superlow interest rates and questions
about the viability of universal-bank business models.
There may also be something simpler in the mix:
that investors don’t believe the value of intangible assets on the banks’
balance sheets, namely goodwill that arose from deals mostly struck before
the crisis.
Back then, banks were bulking up. But many of those
deals proved to be of dubious value, and the mantra today from regulators
and investors is for the banks to slim down.
BofA, for example, had $69.7 billion of goodwill at
the end of the second quarter, equal to 30% of common equity, and Citi had
$23 billion, equal to 11%. Goodwill represents the difference between the
fair market value of an acquired asset and what a company paid for it.
Companies are required to test regularly the value
of goodwill to see if expected future cash flows justify values on the
books. But this is in many ways a subjective exercise.
At some point, though, the banks, and their
auditors, should face up to reality. And today, the reality is that
investors have effectively been saying for nearly seven years that they
don’t think the banks are worth what they say they are.
Of course, it is impossible to say how much of this
is linked to goodwill versus other factors. There is the fact, for example,
that both BofA and Citi, especially the latter, have large deferred-tax
assets. Given uncertainty over the ability of the firms to realize these,
this too may weigh on share prices in relation to book value. And the banks
would be hesitant anyway to impair the value of goodwill since this would
result in big hits to profit and some capital measures.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on July 31, 2015
What Would Clinton's (Proposed) Capital Gains Tax Mean for
You?
by: Laura Saunders
Jul 25, 2015
Click here to view the full article on WSJ.com
TOPICS: Capital
Gains Tax, Individual Taxation
SUMMARY: Hillary
Clinton has proposed major changes to current capital-gains tax rates and
holding periods. The proposal calls for taxes on gains from investments held
for less than two years to nearly double to the standard income-tax rate of
39.6%. The rate would gradually drop, reaching 20% for investments held at
least six years. Under current law, the 20% rate is available for top
earners if they hold investments for at least one year. These figures don't
count an extra 3.8% tax on net investment income for upper-income earners
included as part of the health-care law. Experts say most investors wouldn't
be affected, for two reasons. One is that Mrs. Clinton's proposed changes
would affect only people in the top income-tax bracket, which in 2015 begins
above $464,850 of taxable income for married couples filing jointly and
$411,500 for single filers. Taxpayers with lower incomes would continue to
pay a top rate of zero or 15% on their capital gains, plus in some cases a
3.8% surtax. In addition, many investors have most or all of their holdings
within tax-sheltered retirement plans such as IRAs or 401(k) plans. Assets
within these accounts typically grow tax-free until withdrawal. At that
point, the payouts are often taxable as ordinary income so they aren't
eligible for favorable capital-gains rates.
CLASSROOM APPLICATION: This
is a good article to use when discussing current capital gains law. It is
also important to share with students to show that tax law can change at any
time, making tax planning more challenging.
QUESTIONS:
1. (Introductory) What tax law changes has Hillary Clinton
proposed? What reasons does she give for this proposal?
2. (Advanced) What is the current law regarding capital gains
taxes? How does Mrs. Clinton's proposal differ from current law?
3. (Advanced) Who will be impacted by these changes if enacted? Who
would not be affected?
4. (Advanced) What could be some potential ripple effects of this
proposal if it becomes law? How might different types of investors react?
How could companies change? Which of these possible ripple effects are
positive and which could negative?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Hillary Clinton Proposes Sharp Rise in Some Capital-Gains Tax Rates
by Laura Meckler
Jul 25, 2015
Online Exclusive
"What Would Clinton's Capital Gains Tax Mean for You?" by Laura
Saunders, The Wall Street Journal, July 25, 2015 ---
http://www.wsj.com/articles/what-would-clintons-capital-gains-tax-mean-for-you-1437761670?mod=djem_jiewr_AC_domainid
Experts say most investors wouldn’t be affected.
Hillary Clinton has proposed major changes to
current capital-gains tax rates and holding periods in hopes of encouraging
corporate managers to focus on long-term growth.
But what exactly would the changes mean for
individual investors?
Experts say most investors wouldn’t be affected,
for two reasons. One is that Mrs. Clinton’s proposed changes would affect
only people in the top income-tax bracket, which in 2015 begins above
$464,850 of taxable income for married couples filing jointly and $411,500
for single filers. Taxpayers with lower incomes would continue to pay a top
rate of zero or 15% on their capital gains, plus in some cases a 3.8%
surtax.
In addition, many investors have most or all of
their holdings within tax-sheltered retirement plans such as IRAs or 401(k)
plans. Assets within these accounts typically grow tax-free until
withdrawal. At that point, the payouts are often taxable as ordinary income
so they aren’t eligible for favorable capital-gains rates.
According to Len Burman, an economist who heads the
nonpartisan Tax Policy Center in Washington, less than half of equity
investments are now held in taxable accounts.
Under Mrs. Clinton’s proposal, top-bracket
taxpayers would have to hold an investment for six years instead of the
current term of one year to qualify for the lowest rate of 23.8% on capital
gains. It isn’t clear whether the changes would apply to all assets, or just
to stock, but a Clinton campaign adviser said they wouldn’t apply to
collectibles, such as art, which are currently taxed at a 28% rate.
Continued in article
Teaching Case on Channel Stuffing
From The Wall Street Journal Accounting Weekly Review on July 31, 2015
SEC Investigating Smirnoff Maker Diageo
by: Tripp Mickle and Saabira Chaudhuri
Jul 24, 2015
Click here to view the full article on WSJ.com
TOPICS: Revenue Recognition
SUMMARY: The Securities and Exchange
Commission is investigating whether Diageo PLC has been shipping excess
inventory to distributors in an effort to boost the liquor company's
results. By sending more cases to distributors than wanted, the
British-based owner of Smirnoff and Johnnie Walker would be able to report
increased sales and shipments. That allows Diageo to report shipments as
sales, leaving distributors with a bitter taste as sales of the company's
brands have waned. The company has already changed the way it accounts for
those shipments, and that will almost certainly lead to lower inventory
levels even as Diageo responds to securities investigators. In the U.S.,
liquor producers follow a three-tier system to market. Producers like Diageo
ship to wholesalers, who then ship to retailers. Liquor companies can record
shipments as sales when they ship them to the wholesaler.
CLASSROOM APPLICATION: This is a great
article for a discussion regarding when to recognize sales. The Securities
and Exchange Commission probe raises important questions over not only who
owns inventory as it moves through distribution channels but who makes
decisions about supply.
QUESTIONS:
1. (Introductory) What is the SEC? What is its area of authority?
2. (Advanced) Why is the SEC investigating Diageo PLC? How does
this investigation relate to the SEC's responsibilities?
3. (Advanced) What are the accounting rules regarding revenue
recognition? What are possible times sales can be recognized in the business
transaction described in the article? When should the sales be recognized?
4. (Advanced) What is cash basis accounting? What is accrual basis
accounting? How does revenue recognition differ when a company is cash basis
vs. accrual basis?
Reviewed By: Linda Christiansen, Indiana University Southeast
"SEC Investigating Smirnoff Maker Diageo." by Tripp Mickle and Saabira
Chaudhuri, The Wall Street Journal, July 24, 2015 ---
http://www.wsj.com/articles/sec-investigating-smirnoff-maker-diageo-1437678975?mod=djem_jiewr_AC_domainid
Agency probing whether Diageo has shipped excess
inventories to distributors.
The Securities and Exchange Commission is
investigating whether Diageo PLC has been shipping excess inventory to
distributors in an effort to boost the liquor company’s results, according
to people familiar with the inquiry.
By sending more cases to distributors than wanted,
the British-based owner of Smirnoff and Johnnie Walker would be able to
report increased sales and shipments, according to these people.
Diageo confirmed Thursday to The Wall Street
Journal that it received an inquiry from the SEC regarding its distribution
in the U.S.
“Diageo is working to respond fully to the SEC’s
requests for information in this matter,” a company spokeswoman said.
Diageo’s American depositary receipts fell 5%
Thursday afternoon, following the Journal’s report on the inquiry, and ended
the day down $4.99, or 4.2%, to $114.67.
The inquiry coincides with a period of tumult in
Diageo’s executive ranks. The company announced in June that North American
President Larry Schwartz would be retiring by the end of the year. Since
then, the company has also announced the departures of its chief marketing
officer for North America and a president of national accounts in the U.S.
Continued in article
Bob Jensen's threads on channel stuffing scandals ---
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm#ChannelStuffing
Teaching Case
From The Wall Street Journal Accounting Weekly Review on July 31, 2015
Amazon Posts Surprising Profit
by: Greg Bensinger
Jul 23, 2015
Click here to view the full article on WSJ.com
TOPICS: Financial
Accounting, Financial Statement Analysis
SUMMARY: Amazon.com
Inc., typically known for sacrificing short-term profit so it could spend
its money on long-term investments, created an investor frenzy with results
that put it narrowly in the black. While Amazon has long plowed nearly every
dollar it makes back into product development, services rollouts and
warehouse construction, it now appears to be pursuing a more conservative
path. Particularly impressive is the sales growth of the cloud-computing
unit and Amazon's North American sales results. The company is set to see
those grow, as it recently announced an expansion into Mexico, where it
previously had no consumer retail site. Still, Amazon warned there may be
more red ink in its future. Despite the apparent success of its highly
touted "Prime Day" sales event this month, Amazon said its third-quarter
operating results could wind up between a loss of $480 million and a profit
of $70 million.
CLASSROOM APPLICATION: Amazon
has an unusual business model and strategy. This article offers information
regarding how that strategy impacts financial reporting.
QUESTIONS:
1. (Introductory) Why is Amazon's profit report surprising? What is
more typical for the company?
2. (Advanced) What is the company's strategy for growth? How does
that strategy impact the financial statements? What accounts are affected?
What types of journal entries do the accountants make to reflect these
actions?
3. (Advanced) What did the company report regarding changes in
revenues and operating expenses for the most recent quarter? How did that
affect the company's overall profitability?
4. (Advanced) What is trend analysis? If you were doing a trend
analysis for the company, how would it look? What has been changing?
5. (Advanced) How was Amazon's stock price affected by these
financial reports? Why does the market often react to financial reporting?
6. (Advanced) How are Amazon's business segments performing? What
segments are doing well; which are not? Should Amazon make changes? What
segment analysis should the company be doing?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Amazon Now Worth More Than Wal-Mart
by Kevin Kingsbury
Jul 24, 2015
Online Exclusive
Amazon Soars to Record After Booking a Surprising Profit
by Kristen Scholer
Jul 23, 2015
Online Exclusive
Amazon Earnings: Options Market Expects Shares to Surge
by Saumya Vaishampayan
Jul 23, 2015
Online Exclusive
Amazon Earnings: What to Watch
by Greg Bensinger
Jul 23, 2015
Online Exclusive
Amazon's Performance Isn't an Open Book
by Spencer Jakab
Jul 22, 2015
Online Exclusive
How 20 Years of Amazon Changed Retail
by Marcelo Prince and Sarah Slobin
Jul 15, 2015
Online Exclusive
"Amazon Posts Surprising Profit," by Greg Bensinger, The Wall Street
Journal, July 23, 2015 ---
http://www.wsj.com/articles/amazon-posts-surprising-profit-1437682791?mod=djem_jiewr_AC_domainid
Shares hit new high as conservative spending and
growth in cloud computing lift results.
Amazon.com Inc., typically known for sacrificing
short-term profit so it could spend its money on long-term investments,
created an investor frenzy Thursday with results that put it narrowly in the
black.
Shares of the Seattle online retailer surged by
more than 17% to over $566 in after-hours trading, pushing its market value
well past that of Wal-Mart Stores Inc., to about $264 billion.
The company’s $92 million profit in the second
quarter, on sales of $23.18 billion, stands as a reminder of the typically
modest income expectations for the Web giant, which for years has operated
at a spitting distance from break-even. Analysts had forecast a loss this
time around and a more modest sales gain than the 19.9% Amazon posted.
Continued in article
From the CFO Journal's Morning Ledger
on July 24, 2015
Amazon posts surprising profit
http://www.wsj.com/articles/amazon-posts-surprising-profit-1437682791?mod=djemCFO_h
For just the second time, Amazon.com Inc. shared
sales figures
Thursday for its cloud-computing division
Thursday. Amazon Web Services sales rose to $1.82 billion from $1 billion a
year earlier, and operating profit increased to $391 million from $77
million. Some believe the unit could operate on a stand-alone basis and,
because of its growth, is a primary reason to invest in Amazon. Amazon
posted a profit of $92 million for the third quarter, helped by sales which
rose a better-than-expected 20% to $23.18 billion.
United, Southwest post record profits
http://www.wsj.com/articles/united-southwest-post-record-profits-1437689970?mod=djemCFO_h
Two of the biggest U.S. airlines reported record
profits for the second quarter but said they planned to reduce expansion
plans for later this year, as demand has weakened.
Jensen Comment
"Surprising profits" and "record profits" make us wish that someday the
accounting standard setters (think FASB and IASB) would someday be able to
operationally define "profit" and make "profit" measures more comparable between
business firms.
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.
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
can be found at
http://faculty.trinity.edu/rjensen/Theory01.htm
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 7, 2015
UPS Earnings Surge, Gives Optimistic Guidance
by: Laura Stevens
Jul 29, 2015
Click here to view the full article on WSJ.com
TOPICS: Cost
Accounting, Financial Reporting, Managerial Accounting
SUMMARY: United
Parcel Service Inc. reported strong earnings, delivered optimistic
rest-of-the-year guidance and outlined its plans for controlling costs
during 2015's peak holiday season. The delivery company said all three of
its major business segments contributed to a near tripling in profit to
$1.23 billion. The rise also reflected an after-tax charge of $665 million
in last year's second quarter that was related to employee health care. The
latest results led UPS executives to raise their full-year outlook to the
high range of their previous guidance of between 6% and 12% growth in
earnings per share.
CLASSROOM APPLICATION: This
article offers a good, small case study of how UPS is reining in costs and
approaching its next holiday busy season.
QUESTIONS:
1. (Introductory) What financial results did UPS recently report?
Were these results favorable or unfavorable?
2. (Advanced) What challenges has UPS faced in the past two holiday
seasons? What is UPS doing to manage those issues for future busy seasons?
3. (Advanced) What managerial accounting tools could UPS use to
manage the holiday volume more successfully? How could the company adjust
pricing to manage volume surges and maintain or increase profitability?
4. (Advanced) What changes has UPS made? Which of these changes
involve variable costs? Which involve fixed costs? How flexible are the
company's plans? Does the company need flexibility or are volumes steady?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
UPS, FedEx Got Back On Time This Holiday
by Laura Stevens
Dec 29, 2014
Online Exclusive
UPS, FedEx Cap Holiday Deliveries Amid Late Surge
by Laura Stevens and Suzanne Kapner
Dec 23, 2014
Online Exclusive
"UPS Earnings Surge, Gives Optimistic Guidance," by Laura Stevens, The
Wall Street Journal, July 29, 2015 ---
http://www.wsj.com/articles/ups-earnings-surge-led-by-growth-in-international-segment-1438085242?mod=djem_jiewr_AC_domainid
Chief executive says shipping company looking at
reining in costs during holiday season.
United Parcel Service Inc. on Tuesday reported
strong earnings, delivered optimistic rest-of-the-year guidance and outlined
its plans for controlling costs during this year’s peak holiday season.
Despite a slight dip in second-quarter revenue, the
news sent UPS shares up 5.1% to $99.94 in 4 p.m. composite trading on the
New York Stock Exchange.
The delivery company said all three of its major
business segments contributed to a near tripling in profit to $1.23 billion.
The rise also reflected an after-tax charge of $665
million in last year’s second quarter that was related to employee health
care.
The latest results led UPS executives to raise
their full-year outlook to the high range of their previous guidance of
between 6% and 12% growth in earnings per share.
Executives said the stronger dollar has driven more
import traffic to the U.S., boosting the company’s international segment and
its bottom line.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 7, 2015
Hackers Trick Email Systems Into Wiring Them Large Sums
by: Ruth Simon
Jul 30, 2015
Click here to view the full article on WSJ.com
TOPICS: Cybercrime,
Internal Controls
SUMMARY: Cybercriminals
are exploiting publicly available information and weaknesses in corporate
email systems to trick small businesses into transferring large sums of
money into fraudulent bank accounts, in schemes known as "corporate account
takeover" or "business email fraud." Companies across the globe lost more
than $1 billion from October 2013 through June 2015 as a result of such
schemes, according to the Federal Bureau of Investigation. The estimates
include complaints from businesses in 64 countries, though most come from
U.S. firms. Both "organized crime groups from overseas and domestic-based
actors" are typical perpetrators.
CLASSROOM APPLICATION: This
is a great example to show students the dangers of cyber and other crime, as
well as showing the importance of having internal controls or prevent or
reduce losses.
QUESTIONS:
1. (Introductory) What are the facts of the Mega Metals Inc.
situation? Was the company able to recover any of the funds?
2. (Advanced) What are internal controls? Please give some examples
of several internal controls commonly used in businesses.
3. (Advanced) How could a good internal control system prevent or
reduce losses from schemes like the ones discussed in the article? What
specific internal controls could have prevented the Mega Metal loss?
4. (Advanced) In what situations can missing funds be recovered?
How are they recovered?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"Hackers Trick Email Systems Into Wiring Them Large Sums," by Ruth Simon,
The Wall Street Journal, July 30, 2015 ---
http://www.wsj.com/articles/hackers-trick-email-systems-into-wiring-them-large-sums-1438209816?mod=djem_jiewr_AC_domainid
Scrap processor thought it paid $100,000 to its
vendor: ‘We in fact had sent a wire to who knows where.’
Cybercriminals are exploiting publicly available
information and weaknesses in corporate email systems to trick small
businesses into transferring large sums of money into fraudulent bank
accounts, in schemes known as “corporate account takeover” or “business
email fraud.”
Companies across the globe lost more than $1
billion from October 2013 through June 2015 as a result of such schemes,
according to the Federal Bureau of Investigation. The estimates include
complaints from businesses in 64 countries, though most come from U.S.
firms. Both “organized crime groups from overseas and domestic-based actors”
are typical perpetrators, said Patrick Fallon, a section chief in the FBI’s
Criminal Investigative Division.
Their targets are businesses such as Mega Metals
Inc., a 30-year-old scrap processor. In April, the company wired $100,000 to
a German vendor to pay for a 40,000-pound container load of titanium
shavings. Mega Metals typically buys three to four loads of titanium a week
from suppliers in Europe and Asia, for anywhere from $50,000 to $5 million
or more per transaction. Mega Metals crushes and washes the titanium scrap
before selling it to mills that remelt the scrap into new products.
But following the recent transaction, the vendor
complained that it hadn’t received payment. A third party had infected the
email account used by a broker working for Mega Metals, the company said.
“We got tricked,” said David Megdal, vice president of the family-owned
business in Phoenix, which has 30 employees. “We, in fact, had sent a wire
to who knows where.”
George Kurtz, chief executive of CrowdStrike Inc.,
an Irvine, Calif., cybersecurity firm that investigated the loss, said it
appears that malicious software implanted on the broker’s computer allowed
the crooks to collect passwords that provided access to the broker’s email
system, and then to falsify wire-transfer instructions for a legitimate
purchase. “Given that the money has been moved out several times, there is
no hope of recovering it,” said Mr. Kurtz.
Continued in article
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 7, 2015
New Rule to Lift Veil on Tax Breaks
by: Theo Francis
Aug 05, 2015
Click here to view the full article on WSJ.com
TOPICS: GASB,
Governmental Accounting
SUMMARY: Cities and
states have plied companies with tax breaks for decades hoping to attract
jobs and commerce. A new accounting standard will force many to disclose the
total annual cost. The rule approved by the Governmental Accounting
Standards Board, the municipal equivalent of the board that sets the
standards for corporate reporting, will require government officials to show
the value of property, sales and income taxes that have been waived under
agreements with companies or other taxpayers.
CLASSROOM APPLICATION: This
is a great update to use for governmental accounting.
QUESTIONS:
1. (Introductory) What is GASB? What is its purpose and its area of
authority?
2. (Advanced) What are the details of GASB's new accounting
standard? What does require? When was it adopted and when will it go into
effect?
3. (Advanced) Who will benefit from these new standards? Who could
be adversely affected by them?
4. (Advanced) Why did GASB think these new standards are necessary?
What have state and local governments been doing? How did those activities
impact information reported by the financial statements and the users of the
financial statements?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"New Rule to Lift Veil on Tax Breaks," by Theo Francis, The Wall Street
Journal, August 5, 2015 ---
http://www.wsj.com/articles/new-rule-to-lift-veil-on-tax-breaks-1438725046?mod=djem_jiewr_AC_domainid
Accounting standard will require government
officials to disclose value of property, sales and income taxes that have
been waived.
Cities and states have plied companies with tax
breaks for decades hoping to attract jobs and commerce. A new accounting
standard will force many to disclose the total annual cost.
The rule approved Monday by the Governmental
Accounting Standards Board, the municipal equivalent of the board that sets
the standards for corporate reporting, will require government officials to
show the value of property, sales and income taxes that have been waived
under agreements with companies or other taxpayers. It kicks in starting
next year.
Shelby County, Tenn., which includes the city of
Memphis, waived about $48.7 million in property taxes last year, equivalent
to 6.5% of its property tax receipts. Chicago channeled $372 million to
nearly 150 special taxing districts in 2014, or $1 for every $13 of property
taxes billed in the city, according to figures from the Cook County clerk’s
office, which collects city taxes. Before it was shut down in 2012, a major
California tax-incentive program sent about 12% of statewide property taxes
to redevelopment agencies—and more than 25% in some counties—often
benefiting private industry.
Small towns can make big tax commitments as well.
Belleville, Ill., with just 43,000 people about 20 miles east of St. Louis,
sent $15.6 million of property- and sales-tax receipts—a big part of the
city’s nearly $97 million in total revenue—to its 19 special taxing
districts last year, where the beneficiaries include developers that built
shopping centers and residential homes. Special tax districts typically are
created for private or public entities to finance, build or operate
infrastructure or facilities.
The numbers show how the costs of discounted tax
bills, special tax zones or outright waivers are piling up for local
governments that in some cases have pressing problems with pensions and
other budgetary issues. Deals like Nevada’s promise last fall to give Tesla
Motors Inc. up to $1.3 billion in tax breaks for building a battery plant
there and the $8.7 billion of incentives Washington offered Boeing Co. and
its suppliers to expand jetliner production in the state have long been
subject to complaints that they increase the burden on existing businesses
and individual taxpayers while creating too few jobs.
Continued in article
Bob Jensen's threads on the sad state of governmental accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 7, 2015
U.S. Beer Maker Says Tax Code Encourages Foreign Takeovers
by: John D. McKinnon
Jul 31, 2015
Click here to view the full article on WSJ.com
TOPICS: Corporate
Taxation, International Business
SUMMARY: Lawmakers
say the beer industry is a high-profile example of a trend that has helped
accelerate foreign takeovers of U.S. companies in recent years. The trend
should be worrisome, particularly because of the U.S. job losses that often
follow foreign takeovers. Because of the differential between the higher
U.S. corporate rate and lower taxes offered by other countries, a dollar of
pretax earnings in the U.S. is worth 62 cents under American ownership, but
72 cents under foreign ownership. That has accelerated the takeover of U.S.
beer makers by foreign firms.
CLASSROOM APPLICATION: This
article is appropriate for a corporate tax class and offers an example of an
industry affected by relatively high corporate taxes.
QUESTIONS:
1. (Introductory) Who is Jim Koch and why did he testify before a
Senate subcommittee? What did he report?
2. (Advanced) How has the beer industry been affected by foreign
takeovers? How does the U.S. tax code encourage these activities?
3. (Advanced) What tax law changes is Congress considering? How
could these changes address the issues presented in this article?
4. (Advanced) What are some ripple effects resulting from the
current tax law? How is employment and the U.S. economy affected?
5. (Advanced) How can businesses incorporate tax planning into
managing operations and transactions given the information included in this
article?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Lawmakers, White House Explore Tax Revamp for U.S. Firms Overseas
by John D. McKinnon
Jul 22, 2015
Online Exclusive
"U.S. Beer Maker Says Tax Code Encourages Foreign Takeovers," by John
D. McKinnon, The Wall Street Journal, July 31, 2015 ---
http://www.wsj.com/articles/u-s-beer-maker-says-tax-code-encourages-foreign-takeovers-1438269148?mod=djem_jiewr_AC_domainid
Jim Koch of Boston Beer Co. says 90% of U.S.-brewed
beer is made by foreign companies.
Almost 90% of the beer made in America now is
produced by foreign-owned firms, and the U.S. tax code is one big reason,
the founder of the Boston Beer Co. —one of the largest remaining
American-headquartered beer makers—told a Senate subcommittee.
Jim Koch, who says his company is significantly
disadvantaged by the high U.S. tax rate, told a Senate subcommittee that the
tax code has led to increased takeovers of American beer makers—including
many leading craft producers—by foreign firms.
Lawmakers say the beer industry is a high-profile
example of a trend that has helped accelerate foreign takeovers of U.S.
companies in recent years. The trend should be worrisome, particularly
because of the U.S. job losses that often follow foreign takeovers,
lawmakers added.
Because of the differential between the higher U.S.
corporate rate and lower taxes offered by other countries, a dollar of
pretax earnings in the U.S. is worth 62 cents under American ownership, but
72 cents under foreign ownership, Mr. Koch said. That has accelerated the
takeover of U.S. beer makers by foreign firms, he said.
Sen. Rob Portman (R., Ohio) said companies aren't
to blame for taking advantage of the opportunities created by the tax math.
“If there’s villain in this story it’s the U.S. tax code, and frankly it’s
Washington,” Mr. Portman, the subcommittee’s chairman, said in his opening
statement.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 7, 2015
Lawmakers Unveil Tax Plan on Intellectual Property
by: John D. McKinnon
Jul 30, 2015
Click here to view the full article on WSJ.com
TOPICS: Corporate
Taxation, Patent Box
SUMMARY: House
Republicans' quest to overhaul the tax code took a step forward, as top
members of the Ways and Means Committee rolled out a plan to stop the
worrisome migration of U.S. intellectual property to other countries. The
plan - designed to be broadly appealing to many businesses - is expected to
become one of the cornerstones of a broader overhaul of U.S. corporate tax
rules that Republicans on the Ways and Means Committee are expected to
construct in coming weeks. The legislation would give companies an ultralow
10% tax rate on income they generate from patents and other intellectual
property. Supporters hope the move will halt a trend that has seen many
American multinational firms locate more of their valuable intellectual
property in lower-tax countries, even when it is developed in the U.S. That
has allowed them to avoid the relatively high U.S. corporate tax on the
resulting profits, which often accumulate offshore. Measures to stem the
practice have been ineffective. The legislation would create what is known
as a "patent box." Similar legislation already has been adopted in several
European countries and the trend threatens to attract even more U.S.
intellectual property in coming months.
CLASSROOM APPLICATION: This
is an interesting update for a corporate taxation class.
QUESTIONS:
1. (Introductory) What is a patent box? What are the proposed
changes for tax treatment of patent boxes?
2. (Advanced) What issues would the patent box tax treatment
address? How does the tax treatment of patent boxes differ in the U.S. vs.
other countries? Why is the U.S. law different?
3. (Advanced) What threats and problems is the legislation
addressing? What enticements does the legislation offer to U.S. companies?
Would those enticements be sufficient to meet the goal?
4. (Advanced) How does the current U.S. tax law affect how U.S.
companies do business? If the tax laws regarding patent boxes were changed,
how would that affect business in the U.S.? What would be the difference in
tax revenues paid to the government? What are the benefits of the proposed
legislation? What are the potential problems?
5. (Advanced) Please explain how the U.S. taxes multinational
companies. What activities and problems is this tax treatment causing?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Lawmakers Embrace Patent Tax Breaks
by John D. McKinnon
May 05, 2015
Online Exclusive
"Lawmakers Unveil Tax Plan on Intellectual Property," by John D. McKinnon,
The Wall Street Journal, July 30, 2015 ---
http://www.wsj.com/articles/lawmakers-unveil-new-tax-plan-on-intellectual-property-1438195972?mod=djem_jiewr_AC_domainid
Plan aims to stop migration of U.S. intellectual
property to other countries.
House Republicans’ quest to overhaul the tax code
took a step forward Wednesday, as top members of the Ways and Means
Committee rolled out a plan to stop the worrisome migration of U.S.
intellectual property to other countries.
The plan—designed to be broadly appealing to many
businesses—is expected to become one of the cornerstones of a broader
overhaul of U.S. corporate tax rules that Republicans on the Ways and Means
Committee are expected to construct in coming weeks.
Members of the panel, led by its influential
chairman Paul Ryan (R., Wis.), are hoping to use the overhaul to make
American businesses more competitive compared with foreign rivals, and make
the U.S. itself more attractive as a place to do business. With the help of
some Democrats, they hope the overhaul can generate enough tax revenue in
the short run to take care of another problem—shoring up the troubled
federal highway program.
The legislation floated on Wednesday would give
companies an ultralow 10% tax rate on income they generate from patents and
other intellectual property. Supporters hope the move will halt a trend that
has seen many American multinational firms locate more of their valuable
intellectual property in lower-tax countries, even when it is developed in
the U.S. That has allowed them to avoid the relatively high U.S. corporate
tax on the resulting profits, which often accumulate offshore. Measures to
stem the practice have been ineffective.
The problem is about to get worse unless Congress
acts soon, many lawmakers and businesspeople fear.
The legislation would create what is known as a
“patent box.” Similar legislation already has been adopted in several
European countries and the trend threatens to attract even more U.S.
intellectual property in coming months. Worse, European countries are
expected to start requiring U.S. and other firms to move research jobs to
qualify for their patent boxes.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 14, 2015
Companies Lament Missing R&D Tax Credit Again
by: Emily Chasen
Aug 11, 2015
Click here to view the full article on WSJ.com
TOPICS: Corporate
Taxation, R&D, R&D Tax Credit
SUMMARY: The tax
credit companies use to offset some of their research and development costs
has lapsed again, but companies are forecasting the boost it could have on
results this year, should lawmakers extend it. The R&D tax credit, first
enacted in 1981 on a temporary basis, is typically renewed every few years.
The most recent provision for the credit expired at the end of last year.
The Senate Finance Committee voted to advance a bill aimed at extending the
tax break through the end of 2016. Some legislators, and the White House
proposed making the credit permanent. Companies are reporting tax rates with
and without the credit.
CLASSROOM APPLICATION: This
article would be a good addition to a discussion of the R&D tax credit,
providing an update of the current status.
QUESTIONS:
1. (Introductory) What is R&D? How is it recorded for financial
accounting purposes?
2. (Advanced) What is the R&D tax credit? When was it enacted? Why
was it enacted? What are the requirements to take that credit? What are the
benefits of the tax credit?
3. (Advanced) What is the current status of the R&D tax credit?
What is Congress considering? How does the current status of the credit
impact companies' financial reporting?
4. (Introductory) Why might Congress be delayed in making this
decision? How does that uncertainty impact corporate planning and
strategies?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Tax Extenders Approved By Senate Finance Committee
by Kristin Lin
Jul 21, 2015
Online Exclusive
"Companies Lament Missing R&D Tax Credit Again," by Emily Chasen, The Wall
Street Journal, August 11, 2015 ---
http://blogs.wsj.com/cfo/2015/08/11/companies-lament-missing-rd-tax-credit-again/?mod=djem_jiewr_AC_domainid
The tax credit companies use to offset some of
their research and development costs is missing again, but companies are
forecasting the boost it could have on results this year, should lawmakers
extend it.
The R&D tax credit, first enacted in 1981 on a
temporary basis, is typically renewed every few years. The most recent
provision for the credit expired at the end of last year.
The Senate Finance Committee voted last month to
advance a bill aimed at extending the tax break through the end of 2016.
Some legislators, and the White House proposed making the credit permanent.
Companies are reporting tax rates with and without
the credit.
Generic drugmaker Impax Laboratories Inc.IPXL
+1.51% said on its second-quarter conference call Monday that its 37.6%
adjusted effective tax rate for this year would have been 1.5% lower if the
tax credit was still in effect.
It expects it could record the impact of the credit
on the full year in the fourth quarter if Congress decides to renew it then.
Computing solutions company Super Micro Computer
Inc.SMCI +0.99% said on a conference call last week that it expects its
effective tax rate to be 34% for the upcoming quarter, but its tax rate
could decline by 7% in the final quarter if Congress reinstates the tax
credit.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 14, 2015
SEC, PCAOB Move to Enhance Audit Committee and Auditor
Disclosures
by: Deloitte Risk Journal Editor
Aug 07, 2015
Click here to view the full article on WSJ.com
TOPICS: Audit
Committee, Auditing
SUMMARY: Recently,
the SEC published a concept release on possible revisions to audit committee
disclosures, and the PCAOB issued (1) a supplemental request for comment on
rules to require disclosures about the audit partner and certain other audit
participants, and (2) a concept release on audit quality indicators (AQIs).
These three releases contemplate expanding disclosures about an audit and
how the audit committee oversees the auditor.
CLASSROOM APPLICATION: This
article is a good update for an auditing class.
QUESTIONS:
1. (Introductory) What is the SEC? What is its area of authority?
What is the PCAOB? What is its area of authority?
2. (Advanced) What did the SEC release regarding audit committees?
What is the reason for this release? What the release discuss? What would be
the value of any revisions?
3. (Advanced) What did the PCAOB issue? What information is the
PCAOB requesting? What is the board's intention with this request? What is
the value of this information? How could it be used?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"SEC, PCAOB Move to Enhance Audit Committee and Auditor Disclosures," by
Deloitte Risk Journal Editor, The Wall Street Journal, August 7, 2015 ---
http://deloitte.wsj.com/riskandcompliance/2015/08/07/sec-pcaob-move-to-enhance-audit-committee-and-auditor-disclosures/?mod=djem_jiewr_AC_domainid
Recently, the SEC published a
concept release¹ on possible revisions to audit
committee disclosures, and the PCAOB issued (1) a
supplemental request for comment² on rules to
require disclosures about the audit partner and certain other audit
participants and (2) a
concept release³ on
audit quality indicators (AQIs). These three releases contemplate expanding
disclosures about an audit and how the audit committee oversees the auditor.
Following is an excerpt from Deloitte’s Heads Up newsletter that
provides an overview of the releases and focuses on those of the PCAOB.
SEC’s Concept Release on Audit Committee
Disclosures
The responsibilities of audit committees have
changed significantly since the SEC’s adoption of audit committee disclosure
requirements in 1999.⁴ Accordingly, the commission recently decided to
publish a concept release on possible revisions to audit committee
disclosures and seek feedback on those revisions, particularly those
pertaining to disclosures about audit committees’ oversight of independent
auditors. As explained in an SEC
press release, “the concept release invites
comment on whether commission disclosure requirements should be refined to
provide more insight into the information the audit committee used and the
factors it considered in overseeing the independent auditor.”
The SEC’s concept release discusses specific
potential changes to audit committee disclosure requirements, including
those related to the audit committee’s oversight of the auditor; its process
for appointing or retaining the auditor; and the qualifications of the audit
firm and certain members of the engagement team selected by the audit
committee.
In addition, the concept release explores options
for the location of such potential disclosures and solicits feedback on the
impact that related rules may have on smaller reporting companies and
emerging growth companies (EGCs).
For more information on the SEC’s concept release,
including details about submitting comments on the release to the SEC, see
Deloitte LLP’s
July 2015 Audit Committee Brief.
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 14, 2015
The Smart Way for an Executive to Exit
by: Veronica Dagher
Aug 08, 2015
Click here to view the full article on WSJ.com
TOPICS: Individual
Taxation, Retirement Plans, Stock Options
SUMMARY: Merger and
acquisition activity is booming and some executives may soon find themselves
unemployed as companies unite and adjust their top ranks. When job losses
hit, quick action and professional assistance may help high earners maximize
the value of certain work-related benefits and avoid costly errors. This
article discusses potential mistakes and useful strategies in three areas:
stock-options, company stock in 401(k)s, and life insurance conversion.
CLASSROOM APPLICATION: This
article offers tax planning ideas for executives leaving a company. It can
be used in an individual income tax class to show students examples of how
to attract and help clients.
QUESTIONS:
1. (Introductory) What are stock options? What are incentive stock
options and nonqualified options? How do they differ?
2. (Advanced) What are the choices for departing executives who
have stock options? How do the departing executive's choices differ for each
type? What rules apply? How does this help the executive minimize taxes?
3. (Advanced) What is a 401(k)? What is net unrealized
appreciation? To what does it apply? What options does a departing executive
have? What are the benefits of each of the options? How can an executive in
this position minimize taxes?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"The Smart Way for an Executive to Exit," by Veronica Dagher, The Wall
Street Journal, August 8, 2015 ---
http://www.wsj.com/articles/the-smart-way-for-an-executive-to-exit-1438966440?mod=djem_jiewr_AC_domainid
Merger and acquisition activity is booming and some
executives may soon find themselves unemployed as companies unite and adjust
their top ranks.
For example, private-equity owner 3G Capital
Partners LP replaced several top executives of Kraft Foods Group Inc. in
recent months ahead of the July combination of Kraft and H.J. Heinz Co. to
form Kraft Heinz Co.
When job losses hit, quick action and professional
assistance may help high earners maximize the value of certain work-related
benefits and avoid costly errors.
Here are potential mistakes and useful strategies
in three areas: Stock-option smarts
Under the tax code, there is a critical deadline
for incentive stock options: They must be exercised within three months of
leaving employment to retain favorable tax treatment. There can be a big
payoff for departing executives in negotiating the terms of any nonqualified
stock options and also the mix of incentive and nonqualified options.
Jay Messing, senior director of planning for Wells
Fargo Private Bank in New York, recently worked with a departing executive
who had ISOs and also nonqualified options that would expire at the earlier
of their original expiration date or one year after his termination. Several
of the nonqualified-option grants were “underwater,” meaning that they were
currently worthless because the price at which they would enable the holder
to buy shares was above the current market price.
The client “didn’t realize that unlike ISOs, which
are subject to strict statutes, companies have flexibility to alter the
terms” of nonqualified options, Mr. Messing says.
On Mr. Messing’s advice, the executive was able to
negotiate an extension of the nonqualified options’ expiration date,
providing more time for the stock to potentially recover and be “in the
money.”
In addition, the company board agreed to exchange
some of his ISOs for nonqualified options. That effectively extended the
expiration date of those grants, although the potential tax benefits
inherent in the ISOs were lost. Mr. Messing says that is a trade-off to
discuss with one’s tax and financial advisers.
Executives should also realize that they may be
able to negotiate the acceleration of the vesting of unvested grants that
might have otherwise been forfeited, Mr. Messing says.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 14, 2015
Sale/Lease-Back Deals Catch On
by: Robyn A. Friedman
Aug 12, 2015
Click here to view the full article on WSJ.com
TOPICS: Financial
Accounting, Lease Accounting, Sale/Lease-Backs
SUMMARY: One of the
fastest-growing trends among big retail and restaurant chains in recent
years has been a practice called sale/lease-backs, where retailers sell
their stores, pocket the profits and then lease the stores back from the
buyer. The transactions allow companies to cash out the value of their
real-estate holdings, which have risen sharply in recent years. But they can
also saddle companies with large lease expenses that can become burdensome
over time. Still, a number of companies are taking the sale/lease-back
plunge. But now the sale/lease-back trend is starting to catch on with
smaller entities, including health-care facilities and medical office
buildings.
CLASSROOM APPLICATION: This
is a good article to show student the business relevance of what we are
teaching. This article is appropriate for use in a financial accounting
class when covering leaves and sale/lease-backs.
QUESTIONS:
1. (Introductory) What is a sale/lease-back? What are the business
reasons for entering into such a transaction?
2. (Advanced) For financial reporting purposes, what are the types
of leases? How do they differ? What are the rules for each type?
3. (Advanced) How should the seller handle the gain or loss on the
sale transaction? What factors must the seller consider when determining how
to record the sale?
4. (Advanced) How should the seller/lessee record the lease? What
factors could affect how it is recorded?
5. (Advanced) How should the purchaser/lessor record the
transaction? How should the lessor record the lease?
6. (Advanced) How could a sale/lease-back hurt the financial
results of a business? In what situations should this transaction be
avoided?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"Sale/Lease-Back Deals Catch On," by Robyn A. Friedman, The Wall Street
Journal, August 12, 2015 ---
http://www.wsj.com/articles/sale-lease-back-deals-catch-on-1439300184?mod=djem_jiewr_AC_domainid
One of the fastest-growing trends among big retail
and restaurant chains in recent years has been a practice called
sale/lease-backs, where retailers sell their stores, pocket the profits and
then lease the stores back from the buyer.
The transactions allow companies to cash out the
value of their real-estate holdings, which have risen sharply in recent
years. But they can also saddle companies with large lease expenses that can
become burdensome over time.
Still, a number of companies are taking the
sale/lease-back plunge. Last month, Sears Holdings Corp. sold 235 properties
to Seritage Growth Properties, a real-estate investment trust, for $2.7
billion. Sears, which spun off Seritage, will lease back a majority of the
acquired properties. In June, Darden Restaurants Inc., the owner of Olive
Garden and LongHorn Steakhouse, said it was jettisoning 430 of its more than
1,500 restaurants to a publicly traded REIT and leasing them back.
But now the sale/lease-back trend is starting to
catch on with smaller entities, including health-care facilities and medical
office buildings.
Consider DEC Property LLC, the owner of a
13,000-square-foot medical office building in Tempe, Ariz. In June, DEC,
which is owned by seven physicians, sold the 10-year-old single-story
building to Nashville, Tenn.-based Community Healthcare Trust Inc. for $2.8
million. An endoscopy practice, of which several of the sellers are a part,
then leased back 10,400 square feet of the space to continue their practice.
A school occupies the remaining space.
Before the sale, the endoscopy practice locked in
its lease with the sellers for five years, with two five-year options. That
made the property more marketable.
“When you buy a medical office building, you’re not
buying the bricks and mortar—you’re buying the practice,” said Colleen
McPherson, vice president of the Healthcare Services Group at Colliers
International. “This building increased in value substantially because of
the lease that was put in place with the practice/tenant.”
Due to favorable demographics—the rising demand for
medical care by both aging baby boomers and maturing millennials—the vacancy
rate for medical office buildings is dropping, from 10.3% in 2010 to 9.6% in
the second quarter of 2015, according to commercial real-estate firm Marcus
& Millichap Inc.
At the same time, due to a flow of cash into the
sector, prices are rising, from $208.11 a square foot in June 2010 to
$239.94 a square foot in June 2015, according to New York-based data firm
Real Capital Analytics Inc., with average capitalization rates dropping from
8.3% to 7% over the same period. The cap rate, a valuation measure, is equal
to a property’s annual income divided by its purchase price.
Facilities deemed to be less risky because they are
anchored by medical practices are worth even more. According to Marcus &
Millichap, brand-new medical facilities with leases extending 10 years or
more in strong urban locations are trading at cap rates in the low-6% range.
Medical office buildings are also perceived as
somewhat recession-resistant, since demand for medical care is strong in
both good economic times and bad. According to the National Association of
Real Estate Investment Trusts, at the height of the recession and financial
crisis in 2008, health-care REITs fared better than other sectors, with a
negative return of 11.98% for the year. In comparison, the FTSE NAREIT All
Equity REIT Index, which tracks all REITs, was down 37.7% that year.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 14, 2015
SEC Approval of Pay-Gap Rule Sparks Concerns
by: Victoria McGrane and Joann S. Lublin
Aug 05, 2015
Click here to view the full article on WSJ.com
TOPICS: CEO Pay-Gap
Disclosure, Dodd-Frank, SEC
SUMMARY: Companies
must start disclosing the pay gap between their top boss and rank-and-file
employees under one of the most significant postcrisis rules addressing
executive pay, launching a period of uncertainty for companies over whether
the disclosure will rile up shareholders, employees and the broader public.
The Securities and Exchange Commission voted 3-2 to approve the measure.
Required by the 2010 Dodd-Frank financial law, the CEO pay-ratio rule
emerged as a major flash point because it tied corporate disclosure policy
to divisive political debates about income inequality and executive pay,
although it could have the opposite effect. High median compensation of the
rank and file (which will tend to produce lower CEO pay ratios) could
attract activist investors like flies to honey if they believe a company is
failing to adequately control costs.
CLASSROOM APPLICATION: This
article discusses the new financial reporting requirement. A related article
presents an interesting idea, considering whether the new rule could produce
negative and/or unintended consequences and hurt lower-paid workers.
QUESTIONS:
1. (Introductory) What are the details of the new SEC rule
discussed in this article? Why was the SEC required to propose and pass a
rule like this?
2. (Advanced) What is the reasoning behind this rule? What does the
SEC and other parties hope to achieve?
3. (Advanced) What information must companies report? What various
parties will be interested in this information? How might these parties
react?
4. (Advanced) What are some of the negative or unintended
consequences that could result from implementation of this rule? How could
companies react? How could investors react?
5. (Advanced) What is the rule regarding the compensation of non-U.S.
workers? Why is this permitted? Is that a good policy?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
SEC Set to Approve CEO Pay-Gap Disclosure Rule
by Victoria McGrane and Joann S. Lublin
Aug 04, 2015
Online Exclusive
Dealpolitik: Unintended Consequences of CEO Pay Ratio Rule?
by Ronald Barusch
Aug 10, 2015
Online Exclusive
CFOs Prep for Pay-Ratio Rules
by Kimberly S. Johnson and Maxwell Murphy
Jul 21, 2015
Online Exclusive
Companies Disclose Pay Ratio Before SEC's Final Rule
by Kristin Lin
Jul 20, 2015
Online Exclusive
"SEC Approval of Pay-Gap Rule Sparks Concerns," by Victoria McGrane and Joann
S. Lublin, The Wall Street Journal, August 5, 2015 ---
http://www.wsj.com/articles/sec-set-to-approve-final-ceo-pay-ratio-rule-1438783961?mod=djem_jiewr_AC_domainid
Companies must start disclosing the pay gap between
their top boss and rank-and-file employees under one of the most significant
postcrisis rules addressing executive pay, launching a period of uncertainty
for companies over whether the disclosure will rile up shareholders,
employees and the broader public.
The Securities and Exchange Commission on Wednesday
voted 3-2 to approve the measure, with the panel’s two Republican members
opposing it.
Required by the 2010 Dodd-Frank financial law, the
CEO pay-ratio rule emerged as a major flash point because it tied corporate
disclosure policy to divisive political debates about income inequality and
executive pay.
Companies will have to explain large pay gaps to
investors, and face new challenges explaining to workers why they make so
much less than the boss and, possibly, why they are less richly rewarded
than their peers or competitors.
Steven Seelig, a senior regulatory adviser for
Towers Watson & Co., a human-resources consultancy, said the SEC rule means
rank-and-file workers will be able to see how they stack up against the
median employee at their firm and at other firms. “This is going to raise
all sorts of questions as to whether that person believes they’re paid
fairly both internally…and [compared] to competitors,” he said.
The pay-ratio measure is one of several Dodd-Frank
provisions that aim to empower shareholders to better understand and
challenge executive-pay practices at major U.S. companies. The SEC earlier
this year unveiled another proposal designed to make it easier for investors
to judge whether top executives’ compensation is in line with the company’s
financial performance. The commission previously greenlighted new “say on
pay” rules directing firms to submit executive-compensation packages
regularly to a nonbinding shareholder vote.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 21, 2015
PCAOB Continues to Sharpen Focus on
Internal Controls
by: Maxwell Murphy
Aug 13, 2015
Click here to view the full article on WSJ.com
TOPICS: Audit, COSO,
Internal Controls, PCAOB, Treadway Commission
SUMMARY: Companies
with significant accounting problems seem to have a looser grip on their
internal controls over financial reporting, even after they attest to their
adequacy. Audit-oversight inspections indicate 36% of company audits had
internal-control deficiencies in 2013, up from 16% five years ago. Since
2010, there's been an increased focus from the PCAOB on internal controls.
The Committee of Sponsoring Organizations of the Treadway Commission, or
COSO, in 2013 updated its internal-controls safeguards for the first time in
more than two decades. COSO abandoned the 1992 framework in December,
creating a soft deadline, but there is no set Securities and Exchange
Commission penalty for foot dragging.
CLASSROOM APPLICATION: This
article offers a good opportunity to discuss COSO, the Treadway Commission,
and internal controls.
QUESTIONS:
1. (Introductory) What is the SEC? What is its area of authority?
What is COSO? How is COSO involved with internal controls?
2. (Advanced) What are internal controls? What purpose do they
serve? Why are they important?
3. (Advanced) What is the PCAOB? What is its purpose and area of
authority? How is it involved with auditing in general, and more
specifically with auditing of internal controls?
4. (Advanced) Please give at least one example of internal controls
integrated into accounting and other examples of internal controls involving
more than just financial records and accounting.
5. (Advanced) What did the PCAOB report regarding internal
controls? Why is this information concerning? Who should be concerned about
it?
6. (Advanced) How can businesses benefit from following the COSO
standards? How could businesses be disadvantaged if they do not implement
the standards?
7. (Advanced) What are the penalties for not following the COSO
standards? What authority does COSO have over companies? Could any other
parties impose sanctions or other negative ramifications?
8. (Advanced) How should these issues be addressed? What are some
possible remedies?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Companies Drag Feet on Updating Fraud Safeguards
by Maxwell Murphy
Mar 03, 2015
Online Exclusive
"PCAOB Continues to Sharpen Focus on Internal Controls," by Maxwell Murphy,
The Wall Street Journal, August 11, 2015 ---
http://blogs.wsj.com/cfo/2015/08/13/pcaob-continues-to-sharpen-focus-on-internal-controls/
Companies with significant accounting problems seem
to have a looser grip on their internal controls over financial reporting,
even after they attest to their adequacy.
Audit-oversight inspections indicate 36% of company
audits had internal-control deficiencies in 2013, up from 16% five years
ago, according to Jeanette Franzel, a board member of the Public Company
Accounting Oversight Board. Since 2010, there’s been an increased focus from
the PCAOB on internal controls,
according to a Thursday blog post by data and
research provider Audit Analytics.
The Committee of Sponsoring Organizations of the
Treadway Commission, or COSO, in 2013 updated its internal-controls
safeguards for the first time in more than two decades. COSO abandoned the
1992 framework in December, creating a soft deadline, but there is no set
Securities and Exchange Commission penalty for foot dragging.
As CFO Journal reported in March, several
companies still hadn’t adopted the 2013 COSO standards,
but those companies that responded to requests for
comment said they planned to make the switch this year. SEC officials say
companies that don’t move to the current framework may be more likely to
face questions from both the agency and their investors.
Ms. Franzel on Saturday spoke at the American
Accounting Association’s annual meeting, and said weak
controls continue to be the most frequent problems, “which is a concern.”
She said, however, that the number of severity of such weaknesses is on the
decline.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 21, 2015
How Etsy Crafted a Tax Strategy in Ireland
by: Suzanne Kapner
Aug 17, 2015
Click here to view the full article on WSJ.com
TOPICS: Corporate
Taxation, IPO, Tax Planning, Tax Strategy
SUMMARY: As Etsy
geared up for its initial public offering, the company adopted some ideas
from rival technology companies that have been aggressive about routing
their inventions and earnings through low-tax jurisdictions overseas to
minimize what they might owe to Uncle Sam. The company relocated some of its
intellectual property to Dublin earlier this year to avoid U.S. taxes by
setting up a subsidiary in Ireland, the location of its European
headquarters, then lent the unit money to be used to buy intellectual
property from the U.S. company. Etsy's U.S. tax bill will increase
initially, because the U.S. company made money on the sale of the
intellectual property. But the structure is expected to eventually reduce
Etsy's U.S. tax bill because the income associated with the intellectual
property held in Dublin will be taxed at the Irish rate of 12.5%, much lower
than the U.S. rate.
CLASSROOM APPLICATION: This
article provides a good explanation of the international corporate tax
strategy adopted by Etsy.
QUESTIONS:
1. (Introductory) What is Etsy? What is its business model? Where
is it located and from where does it derive its revenues?
2. (Advanced) Please describe the tax strategy the corporation had
adopted. How will it help the company avoid U.S. taxes? Will the savings be
minor or significant?
3. (Advanced) Are there business purposes, other than tax
avoidance, for these actions? Are the actions legal?
4. (Advanced) What is an IPO? Was this tax planning done in
anticipation of the IPO? How can a plan like this affect an IPO?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Etsy Shares Surge in Market Debut
by Corrie Driebusch
Apr 17, 2015
Online Exclusive
"How Etsy Crafted a Tax Strategy in Ireland," by Suzanne Kapner, The Wall
Street Journal, August 21, 2015 ---
http://www.wsj.com/articles/how-etsy-crafted-a-tax-strategy-in-ireland-1439765858?mod=djem_jiewr_AC_domainid
Etsy Inc., the online marketplace for artisans,
works to keep its business “mindful, transparent and humane,” but that
became tricky when it crafted a new tax strategy.
The startup, which built its eBay -like marketplace
in Brooklyn, has been so serious about authenticity that its founder made
his own underwear. But as it geared up for its initial public offering, the
company adopted some ideas from rival technology companies that have been
aggressive about routing their inventions and earnings through low-tax
jurisdictions overseas to minimize what they might owe to Uncle Sam.
Its advisers proposed a number of more-complex
options, but the company passed on structures known by nicknames like the
“Double Irish” or “Dutch Sandwich” that have become flash points in the
broader debate about gaps in the corporate tax code, according to people
familiar with the company.
What it did agree to, though, was to relocate some
of its intellectual property to Dublin earlier this year. While that
approach ranks as relatively straightforward in the business of tax
avoidance, it has taken Etsy into the realm of legalistic corporate-speak
and vague disclosure that its founders long railed against. Etsy briefly
described the moves this way in a May earnings release: “Etsy’s revised
corporate structure was implemented to more closely align with its global
operations and future expansion plans outside the U.S.”
The questions Etsy grappled with as it planned its
tax strategy show the difficulty of staying true to values proclaimed on its
website that include running a “mindful, transparent and humane business”
while maturing into a publicly traded company that must compete globally
with rivals that are often less idealistic.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 21, 2015
U.S. Postal Service Tries Hand as Fishmonger, Grocer
by: Laura Stevens
Aug 18, 2015
Click here to view the full article on WSJ.com
TOPICS: Business
Segments, Cost Behavior, Managerial Accounting, Pricing
SUMMARY: The U.S.
Postal Service is ramping up same-day delivery of everything from bottled
water to fresh fish as its new postmaster general tries to better compete
with FedEx, UPS and even Amazon.com. In New York City, letter carriers in
the early morning hours load boxes of fresh and frozen seafood from Fulton
Fish Market onto mail trucks and deliver them to local restaurants by
11 a.m. They collect packages from Internet electronics
retailer Newegg Inc. for fast, local afternoon delivery. They're also doing
daily water delivery to businesses for Nestlé in Manhattan and Brooklyn.
Same-day delivery is part of a big push by Megan Brennan, the new postmaster
general, to make the postal service more competitive.
CLASSROOM APPLICATION: This
article provides a case study of the USPS business model and how the agency
is attempting to expand it business and profitability. The article would be
good for managerial and cost accounting classes.
QUESTIONS:
1. (Introductory) What is the U.S. Postal Service's main line of
business? What other business areas and product lines is it attempting to
add?
2. (Advanced) Why is the USPS entering new areas of business? What
has been its financial history?
3. (Advanced) What were the USPS's traditional business segments?
What new business segments has it added or plans to add? How is management
using segment analysis to improve overall profitability?
4. (Introductory) What is cost behavior? What is a fixed cost, a
variable cost, and a mixed cost?
5. (Advanced) How is the USPS using some of its fixed costs to add
additional revenues? What variable costs are associated with these new
ventures? How do the incremental revenues compare to the incremental costs
for each new business segment?
6. (Advanced) The article mentions some pricing issues. How does
the USPS set prices? Who is the agency's competition? How does that compare
to the competition's pricing? What are the various ways a business can set
prices? Which would be appropriate for the USPS?
7. (Advanced) What do you think the USPS's future prospects are?
Are you optimistic about its future, or do you have concerns? Please explain
the reasoning for your answer.
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
U.S. Postal Service Narrows Its Loss
by Lindsay Ellis
Aug 11, 2015
Online Exclusive
U.S. Mail Delivers Amazon Groceries in San Francisco
by Greg Bensinger and Laura Stevens
Sep 05, 2015
Online Exclusive
U.S. Mail Cuts Prices, Chafing UPS and FedEx
by Laura Stevens
Sep 15, 2014
Online Exclusive
For FedEx and UPS, a Cheaper Route: the Post Office
by Laura Stevens
Aug 05, 2014
Online Exclusive
"U.S. Postal Service Tries Hand as Fishmonger, Grocer," by Laura Stevens,
The Wall Street Journal, August 18, 2015 ---
http://www.wsj.com/articles/u-s-postal-service-tries-hand-as-fishmonger-grocer-1439855940?mod=djem_jiewr_AC_domainid
The U.S. Postal Service is ramping up same-day
delivery of everything from bottled water to fresh fish as its new
postmaster general tries to better compete with FedEx, UPS and even
Amazon.com.
In New York City, letter carriers in the early
morning hours load boxes of fresh and frozen seafood from Fulton Fish Market
onto mail trucks and deliver them to local restaurants by 11 a.m. They
collect packages from Internet electronics retailer Newegg Inc. for fast,
local afternoon delivery. They’re also doing daily water delivery to
businesses for Nestlé SA in Manhattan and Brooklyn.
Same-day delivery is part of a big push by Megan
Brennan, the new postmaster general, to make the postal service more
competitive.
“Clearly, the consumer demand is such that we all
want the package today,” said Ms. Brennan in an interview. “So we’re being
responsive to that.”
About six months after taking the top job at the
quasigovernmental agency, Ms. Brennan said she’s pushing Congress to green
light the shipping of alcoholic beverages. She also wants to expand grocery
delivery and offer more Sunday delivery.
The postal service must grow. Volumes of
first-class mail, its most profitable product, fell 2.2% through the first
three quarters of the year. It has fallen about 20% over the past decade.
While the agency’s package business is growing in double digits, it’s still
only about a fifth of total revenue. For fiscal 2014, the agency’s revenue
was $67.85 billion.
Continued in article
Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 21, 2015
Macy's Cuts Guidance as Sales, Profit Slide
by: Suzanne Kapner
Aug 13, 2015
Click here to view the full article on WSJ.com
TOPICS: Activist
Investor, Business Segments, Corporate Taxation, Financial Reporting
SUMMARY: Macy's
Inc. cut its forecast for sales growth this year to zero after posting
declines in quarterly revenue and earnings, intensifying pressure on the
retailer to find new ways to grow beyond its core department-store business.
Macy's is also contending with activist investor Starboard Value LP, which
has accumulated a stake in the retailer and is pushing it to spin off its
real-estate holdings.
CLASSROOM APPLICATION: This
article offers an overview of Macy's and its current condition, as well as
challenges it is facing. It would be good for coverage of a variety of
accounting topics.
QUESTIONS:
1. (Introductory) What is Macy's and what is its business model?
What are the company's financial trends in recent years?
2. (Advanced) What is the company's current financial condition?
What challenges is the industry facing? More specifically, what challenges
is Macy's facing? How is the company addressing and managing those
challenges?
3. (Advanced) What is an activist investor? What do they do? What
impact is Macy's activist investor having on the company?
4. (Advanced) What are the details of Macy's decision to sell some
of its real estate? What is the impact of that sale on the financial
statements?
5. (Advanced) How will the real estate sale affect the company's
tax liability? Macy's chief executive commented on the tax issue. What did
he mean by his comment?
6. (Advanced) What are Macy's various business segments? How are
each of those segments performing? How could the company use segment
analysis to improve overall profitability?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Activist Knocks on Macy's Door
by David Benoit and Suzanne Kapner
Jul 16, 2015
Online Exclusive
"Macy's Cuts Guidance as Sales, Profit Slide," by Suzanne Kapner, The Wall
Street Journal, August 13, 2015 ---
http://www.wsj.com/articles/macys-cuts-guidance-as-sales-profit-slide-1439383072?mod=djem_jiewr_AC_domainid
Macy’s Inc. cut its forecast for sales growth this
year to zero after posting declines in quarterly revenue and earnings,
intensifying pressure on the retailer to find new ways to grow beyond its
core department-store business.
On Wednesday Macy’s reported a 2.6% drop in sales
to $6.1 billion for the three months to Aug. 1. Sales at existing stores
fell 2.1%. When licensed departments are included, sales declined 1.5%.
“Our performance in the first half of the year was
not as strong as we had hoped,” Chief Financial Officer Karen Hoguet said on
a conference call.
Shares of the retailer fell 5% to $64.11 in
Wednesday trading, making it the worst performer in the S&P 500. The drop
was the largest for Macy’s on a percentage basis since Aug. 13, 2014.
The results extend a rough patch for a chain that
dominates the department-store landscape but is having trouble posting solid
growth as shopper habits change.
It also doesn’t bode well for other department
stores such as J.C. Penney Co. and Kohl’s Corp. , which are due to report
earnings later this week. Sears Holdings Corp. already reported an 11%
decline in sales at existing stores in the second quarter.
Macy’s is also contending with activist investor
Starboard Value LP, which has accumulated a stake in the retailer and is
pushing it to spin off its real-estate holdings.
To that end, the retailer on Wednesday said it had
agreed to sell property in Brooklyn to real-estate developer Tishman Speyer
for $170 million in cash upon closing in the fourth quarter. Macy’s will
continue to own the first five floors of the store, or about 310,000 square
feet. Tishman will own the remaining five floors and a parking garage across
the street that it will convert to office space.
Continued in article
Teaching Case
Keurig Green Mountain, formerly Green Mountain Coffee Roasters
---
https://en.wikipedia.org/wiki/Keurig_Green_Mountain
"SEC Investigating Green Mountain Coffee - Are Revenue Recognition
Disclosures to Blame?" AccountingWeb, October 10, 2010 ---
http://www.accountingweb.com/community-voice/blogs/admin/sec-investigating-green-mountain-coffee-are-revenue-recognition
MarketWatch
posted an article titled
Green Mountain's accounting creates a stir. The
article strongly suggests that Green Mountain (NASDAQ:GMCR) "has a history
of changing the way it reports revenue..." It goes on to say ..."its
bookkeeping is being investigated by the Securities and Exchange
Commission."
Another
article I found quotes the following from today's
Form 8-K filing (which I haven't found yet):
On September 20, 2010, the staff of the SEC's
Division of Enforcement informed the Company that it was conducting an
inquiry and made a . . .
Continued in article
"Tempest in a K-Cup: Red Flags on Green Mountain"
SSRN, August 25, 2015
Authors
Dennis Caplan, State University of New York (SUNY) at Albany
Saurav K. Dutta, State University of New York (SUNY) at Albany
David Marcinko, Skidmore College
Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2648493
Abstract:
“Tempest in a K-Cup” discusses financial accounting
and financial statement analysis in the context of Green Mountain Coffee
Roasters. The case begins with background on the evolution of Keurig and
Green Mountain. Next it discusses the rapid growth of Green Mountain and its
step-wise acquisition of Keurig. The case focuses on events in 2011-2012, a
period in which Green Mountain experienced significant stock price
volatility, was challenged by the SEC about its financial disclosures and
business relationships, and endured a public bashing by a well-known
hedge-fund manager, David Einhorn of Greenlight Capital.
Students completing the case gain a better
appreciation for the level of scrutiny that financial statements receive
from regulators, investors, and journalists. Specific topics include the use
of trend analysis, ratio analysis, and free cash flows in analyzing a
company’s prospects, the risk of channel-stuffing, and the role of
short-sellers in capital markets. The case requires students to critically
read, analyze and apply accounting guidance with respect to sales returns,
related party transactions, and segment reporting. The case also requires
students to read and analyze communications between the Securities and
Exchange Commission (SEC) and Green Mountain.
Bob Jensen's threads on Revenue
Accounting Controversies ---
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Humor for August 1-31, 2015
Here’s How 5 Legendary Talk Show Hosts Said Goodbye ---
http://time.com/3982859/tv-hosts-last-shows/?xid=newsletter-brief
Mystery pooper targeting holes of Norwegian golf course ---
http://www.upi.com/Odd_News/2015/07/24/Mystery-pooper-targeting-holes-of-Norwegian-golf-course/2881437763634/
Hump-Day Humor ---
http://www.thefiscaltimes.com/Columns/2015/07/29/Joe-Biden-Looming-Threat-Republican-Presidency
Forwarded by Paula
John was sitting
outside his local pub one day, enjoying a quiet pint and generally feeling
good about himself, when a nun suddenly appears at his table and starts
decrying the evils of drink.
"You should be
ashamed of yourself young man! Drinking is a Sin! Alcohol is the blood of
the devil!"
Now John gets
pretty annoyed about this, and goes on the offensive.
"How do you know
this, Sister?"
"My Mother
Superior told me so."
"But have you ever
had a drink yourself? How can you be sure that what you are saying is
right?"
"Don't be
ridiculous--of course I have never taken alcohol myself"
"Then let me buy
you a drink - if you still believe afterwards that it is evil I will give up
drink for life"
"How could I, a
Nun, sit outside this public house drinking?!"
"I'll get the
barman to put it in a teacup for you, then no one will ever know."
The Nun
reluctantly agrees, so John goes inside to the bar.
"Another pint for
me, and a triple vodka on the rocks", then he lowers his voice and says to
the barman "and could you put the vodka in a teacup?"
"Oh no! It's not
that Nun again is it?"
Jean Louise's second impulse was to blame it on the
minister. He was a young man, a Mr. Stone by name, with what Dr. Finch called
the greatest talent for dullness he had ever seen in a man on the near side of
fifty. There was nothing whatsoever wrong with Mr Stone, except that he
possessed all the necessary qualifications for a
certified public accountant: he did not like people, he was quick with numbers,
he had no sense of humor, and he was butt-headed.
Harper Lee, author of To Kill a Mockingbird, in her newly released book,
Go Set a Watchman, Chapter 7 ---
https://mail.google.com/mail/u/1/#inbox/14f370e95e1cd3ab
Thank you Denny Beresford for the heads up. When you employ or marry Mr. Stone
you've hit rock bottom.
Forwarded by Paula
Sarah was in the fertilized egg business.
She had several hundred young pullets' and ten
roosters to fertilize the eggs. She kept records and any rooster not
performing went into the soup pot and was replaced. This took a lot of time,
so she bought some tiny bells and attached them to her roosters. Each bell
had a different tone, so she could tell from a distance which rooster was
performing.
Now, she could sit on the porch and fill out an
efficiency report by just listening to the bells. Sarah's favorite rooster,
old Butch, was a very fine specimen but, this morning she noticed old
Butch's bell hadn't rung at all! When she went to investigate, she saw the
other roosters were busy chasing pullets, bells-a-ringing, but the pullets
hearing the roosters coming, would run for cover.
To Sarah's amazement, old Butch had his bell in his
beak, so it couldn't ring. He'd sneak up on a pullet, do his job, and walk
on to the next one. Sarah was so proud of old Butch, she entered him in the
Dowerin Show and he became an overnight sensation among the judges.
The result was the judges not only awarded old
Butch the "No Bell Peace Prize" they also awarded him the "Pulletsurprise"
as well. Clearly old Butch was a politician in the making.
Who else but a politician could figure out how to
win two of the most coveted awards on our planet by being the best at
sneaking up on the unsuspecting populace and screwing them when they weren't
paying attention? Vote carefully in the next election. You can't always hear
the bells.
Forwarded by Paula
An Englishman, a Scotsman, an Irishman, a Welshman,
a Gurkha, a Latvian, a Turk, an Aussie, a German, a Yank, an Egyptian, a
Korean, a Mexican, a Spaniard, a Russian, a Pole, a Lithuanian, a Jordanian,
a Kiwi, a Swede, a Finn, a Canadian, an Israeli, a Romanian, a Bulgarian, a
Serb, a Swiss, a Greek, a Singaporean, an Italian, a Norwegian, an
Argentinian, a Libyan and an African go to a night club. The bouncer says,
"Sorry, I can't let you in without a Thai."
17 Lies Parents Told Their Kids ---
http://www.teamjimmyjoe.com/2015/01/17-funniest-lies-parents-told-their-kids/
Air Sickness Bag (read that barf bag) Virtual Museum ---
http://www.airsicknessbags.com/
Philosophy Explained With Donuts ---
http://www.openculture.com/2015/08/philosophy-explained-with-donuts.html
Humor August 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor083115
Humor July 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor073115
Humor June 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor May 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor April 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor March 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor033115
Humor February 1-28, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor022815
Humor January 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor013115
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 August 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 ---
http://faculty.trinity.edu/rjensen/
July 31,
2015
Bob
Jensen's New Bookmarks for July 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
FASB's Technical Agenda ---
http://www.fasb.org/technicalagenda
PwC: Financial statement presentation guide - 2014 second edition
(updated July 2015) ---
http://www.pwc.com/us/en/cfodirect/publications/accounting-guides/financial-statement-presentation-accounting-guide.jhtml?display=/us/en/cfodirect/publications/accounting-guides
Seven Big Banks Trading Under Book Value ---
http://247wallst.com/banking-finance/2015/07/28/7-big-banks-trading-under-book-value/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=JUL292015A&utm_campaign=DailyNewsletter
Jensen Question
Can your students explain how there can still be goodwill on the books under
such circumstances?
"Management Accountant—What Ails Thee?" Editorial by Ranjani Krishnan,
Journal of Management Accounting Research: Spring 2015, Vol. 27, No. 1,
pp. 177-191 ---
http://aaajournals.org/doi/full/10.2308/jmar-10461
INTRODUCTION
For decades management accountants have made
substantial contributions to the practice, research, and teaching of
business. Economists such as Holmstrom (1979), Holmstrom and Milgrom (1991),
and Jensen and Meckling (1976) identified agency problems that could exist
between the firm and its owners, discussed the informativeness of signals of
managerial effort, and the optimal use of these signals in contracting.
Management accountants calibrated the properties of the signals, identified
optimal weighting schemes for the signals, determined the relative values of
signals in contracts, and assessed the difficulty in designing goal
congruent systems using these signals (Banker and Datar 1989; Feltham and
Xie 1994; Datar, Kulp, and Lambert 2001). Terms such as “controllability,”
“congruence,” and “balance,” which form the bedrock of modern accounting and
control systems, were first discoursed in the management accounting
literature. It is practically impossible to think of a major corporation
that does not have a Balanced Scorecard (Kaplan and Norton 1992). Topics
such as Activity Based Costing (ABC), Time Driven ABC, Customer Lifetime
Value, Capacity Cost Allocation, Target Costing, and the Balanced Scorecard,
are the staples of undergraduate, master's, and M.B.A. curricula throughout
the world.
Privately however, management accountants appear to
have had two damaging hobbies—self-flagellation, and exchanging doomsday
predictions. The same people who will laugh when told that a Zombie
apocalypse is imminent have no trouble declaring (almost triumphantly) that
the end of management accounting is within sight. The result is that we
scare away the young, further damaging our dwindling numbers.
Little respect is accorded to a discipline that
insists on endless debates about its own theoretical and methodological
boundaries. We have no trouble teaching our undergraduate or graduate
students that management accounting “measures, analyzes, and reports
financial and nonfinancial information that helps managers make decisions to
fulfill the goals of an organization” (Horngren, Datar, and Rajan 2012, 4),
or that “A fundamental purpose of managerial accounting is to enhance firm
value by ensuring the effective and efficient use of scarce resources”
(Sprinkle and Williamson 2007, 415).
Continued in article
"Saving Management Accounting in the Academy," by Sue Haka (former AAA
President), AAA Commons, Last Edited February 10, 2012 ---
http://commons.aaahq.org/posts/98949b972d
Discussion:
Saving Management
Accounting in the Academy
Details:
The long run place
of management accounting in the academy seems in peril for
several reasons. First, there is an ongoing migration of
accounting topics to other disciplines. Second, evidence
suggests that the diversity in management accounting research
seems to be dwindling. Third, the value of our content for MBA
programs is not apparent. Finally, our engagement with the
management accounting practitioner community is weak.
First-topic migration:
I don't know about your experiences, but at my institution I
must be ever vigilant about traditional management accounting
topics migrating into management, marketing, or supply chain
classes. While I am delighted that cost-volume-profit topics are
important to my marketing colleagues, unfortunately the students
that come to my management accounting class after having been
"taught" CVP by my marketing colleagues cannot distinguish
between fixed and variable costs! Other topics taught by my
colleagues include ABC in supply chain and balanced scorecard in
management. Making sure that students are required to take a
management accounting class prior to classes where discussions
about how ABC is important for supply chain decision making
requires constant vigilance. Years ago management accounting
virtually gave capital budgeting up to the finance
department...is fair value measurement next!
Second-research
diversity: I have often been among those who have
suggested that general accounting research is not sufficiently
diverse (i.e. an overabundance of financial archival focus). I
forgot my mother's phrase--when you point at others, three
fingers point back at you! Recent reviews of JMAR topical areas
suggest a lack of diversity within our discipline. These reviews
show an overwhelming focus on performance measurement--in 2008
(2007) 48% (50%) of submitted articles were focused on
performance measurement. Only one other category is over 12%. It
seems that management accounting research is fairly narrow.
Third-value in the MBA:
Management accounting should be a bedrock of MBA programs.
However, we have let financial accounting eclipse management
accounting. MBA programs have, over the last decade, decreased
accounting content and the majority of that reduction has come
out of management accounting. Yet most MBAs become managers and
management accounting should be highly value added for them.
Finally-practitioner
engagement: While our colleagues in auditing and
financial accounting have opportunities to serve as fellows at
the SEC or FASB or take a semester or year to work at one of the
big four firms, management accounting faculty have
few established programs allowing us to experience first hand
many of the issues that we teach and write about. I believe
creating these types of opportunities would help us diversify
our research and convince others of the value of management
accounting for MBAs and in the practicing communities.
I'm sure you
have other issues that imperil the discipline of management
accounting. Please add your comments and discussion.
Note the relatively large number of comments to this article
Also see
Accounting at a Tipping Point (Slide Show) --
Former AAA President Sue Haka
April 18, 2009
http://commons.aaahq.org/files/20bbec721b/Midwest_region_meeting_slides-04-17-09.pptm
The comment (from James Gong) may be of special interest to some of you.
Ken Merchant is a former faculty member from Harvard University who form many
years now has been on the faculty at the University of Southern California.
Here are my two cents. First, on the teaching side,
the management accounting textbooks fail to cover new topics or issues. For
instance, few textbooks cover real options based capital budgeting, product
life cycle management, risk management, and revenue driver analysis. While
other disciplines invade management accounting, we need to invade their
domains too. About five or six years ago, Ken Merchant had written a few
critical comments on Garrison/Noreen textbook for its lack of breadth. Ken's
comments are still valid. Second, on the research and publication side,
management accounting researchers have disadvantage in getting data and
publishing papers compared with financial peers. Again, Ken Merchant has an
excellent discussion on this topic at an AAA annual conference.
Bob Jensen's threads on management accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
Question for Cost Accounting Students
Every cost accounting student can explain why toilet seats purchased by the Navy
cost over $1 million each?
Times are changing with technology.
Are cost accounting courses and textbooks and professors keeping up with
changing times in defense contracting?
Hint:
Pictures of Midshipman Bob Jensen on a battleship ---
http://faculty.trinity.edu/rjensen/Tidbits/Ocean/Set01/OceanSet01.htm
When I was on a battleship salt water splashed underneath toilet seats over
a trough --- with salt water flowing under ten toilet seats in each row. Privacy
in the bathroom is was reserved only for officers' quarters above deck. Salt
water is corrosive such that ship builders had to guarantee that toilet seats
would not corrode from salt water splash in the trough.
But a guarantee against corrosion is only part of the cost of each toilet
seat. Every cost accounting student knows that the bulk of the cost of a $1
million toilet seat is overhead cost allocation for costs having nothing
remotely related to toilet seat manufacturing.
"Pentagon Purchasing Is Overdue for an Overhaul," by Charles Josef
Duch, The Wall Street Journal, July 22, 2015 ---
http://www.wsj.com/articles/pentagon-purchasing-is-overdue-for-an-overhaul-1437608461?mod=djemBestOfTheWeb
Here’s an anecdote that illustrates the problems
with U.S. defense acquisition: The Navy,
concerned about corrosion of equipment that spends its operating life
surrounded by salt water, began requiring
paperwork to certify that new systems would be corrosion free. But the rule
applies without exception, meaning Navy staff go through the motions to
certify the corrosion resistance of, say, new software programs they
acquire.
Rep. Mac Thornberry cited this example when rolling
out legislation in March that would overhaul Pentagon procurement. Mr.
Thornberry, who leads the House Armed Services Committee, wants to give
program managers more responsibility and eliminate dozens of reports
required by Congress or the Pentagon. “The system has just grown these
barnacles around it that’s made it so sluggish it’s a wonder anything comes
out the other end,” he told the Washington Post.
This is a worthwhile endeavor: For foes of
excessive bureaucracy and paperwork, the Pentagon is what one would call a
target-rich environment.
Continued in article
Jensen Comment
It seems like it's time to rewrite some of those badly out-of-date cost
accounting textbooks.
Bob Jensen's threads on management and cost accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
50 Cent’s accountant has no idea how much money he (the rapper) has
---
http://pagesix.com/2015/07/23/50-cents-accountant-has-no-idea-how-much-money-he-has/
Jensen Comment
Estimates range from $4.4 million to $155 million. Shouldn't bean counters be
able to do better than this?
Years ago when I started out as a staff accountant for Ernst & Ernst in
Denver I worked on the tax returns of a very wealthy widow from Nebraska who
inherited the oil wells, real estate, and other assets of her late husband.
Estimating her net worth was an enormous challenge, because her husband hid so
much of his wealth over the years. For example, each year following his death
his widow discovered troves of uncut diamonds that were hidden in various parts
of the world in the rafters and walls of buildings she inherited.
I suspect that 50 Cent is trying to hide his assets from creditors and the
IRS such that bean counters will have similar problems trying to estimate his
wealth.
California Proposition 13 ---
https://en.wikipedia.org/wiki/California_Proposition_13_%281978%29
"McCubbins & Seljan: The Effect Of Proposition 13 On Municipal
Revenue Sources," by Paul Caron, TaxProf Blog, July 27, 2015 ---
http://taxprof.typepad.com/taxprof_blog/2015/07/mccubbins-seljan-the-effect-pf-proposition-13-on-municipal-revenue-sources.html
Jensen Comment
One enormous problem, especially in Silicon Valley, is that housing (even
apartments) are no longer affordable by families of public service providers
like police, fire fighters, and teachers. Proposition 13 constrains revenues
intended for public services. Sleeping facilities can be provided for emergency
workers on duty (like firefighters) but this leads to separations from their
families living long commuting distances apart. It also leads to very long
commutes by non-emergency workers like teachers. This turns an eight-hour
workday into an 10-12 hour workday. Highly-paid Wall Street workers don't seem
to mind the long days, but the best lower-paid public service workers must be
inclined to look for jobs in towns that they can afford.
Plato's Cave ---
https://en.wikipedia.org/wiki/Allegory_of_the_Cave
Math Works Great—Until You Try to Map It Onto the World ---
http://www.wired.com/2015/07/math-works-great-try-map-onto-world/
In 1900, the great mathematician David Hilbert
presented a list of 23 unsolved problems worth investigating in the new
century. The list became a road map for the field, guiding mathematicians
through unexplored regions of the mathematical universe as they ticked off
problems one by one. But one of the problems was not like the others. It
required connecting the mathematical universe to the real one. Quanta
Magazine
Continued in article
"In Plato's Cave: Mathematical models are a
powerful way of predicting financial markets. But they are fallible" The
Economist, January 24, 2009, pp. 10-14 ---
http://faculty.trinity.edu/rjensen/2008Bailout.htm#Bailout
Bob Jensen's threads on Mathematical Analytics in Plato's Cave
http://faculty.trinity.edu/rjensen/TheoryTAR.htm#Analytics
"What The College Kids Are Reading (at recommendations from their
professors)," LISNews, July 24, 2015 ---
http://lisnews.org/what_the_college_kids_are_reading
Lots of colleges have these reading programs; some
are just for freshmen, and for others, the entire campus or local community
joins in. The idea is that books will stir discussion — and unite a class or
campus around a topic. Some schools even have the author speak on campus, or
weave the book's content into the year's curriculum.
Bob Jensen's threads to online libraries ---
http://faculty.trinity.edu/rjensen/bookbob2.htm#---Libraries
Bob Jensen's Recommended (Cartoon) Book
The History of Economics & Economic Theory Explained with Comics, Starting with
Adam Smith ---
http://www.openculture.com/2013/12/the-history-of-economics-economic-theory-explained-with-comics.html
This is not a free download ---
http://www.amazon.com/gp/product/0810988399/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0810988399&linkCode=as2&tag=openculture-20
. . .
The book covers two (plus) centuries of economic
history. It starts with the Physiocrats, Adam Smith and theoretical
development of capitalism, and then steams ahead into the 19th century,
covering the Industrial Revolution, the rise of big business and big
finance. Next comes the action packed 20th century: the Great Depression,
the New Deal, the threat from Communism during the Cold War, the tax reforms
of the Reagan era, and eventually the crash of 2008 and Occupy Wall Street.
Along the way,
Goodwin and the illustrator
Dan E. Burr demystify the economic theories of
figures like Ricardo, Marx, Malthus, Keynes, Friedman and Hayek — all in a
substantive but approachable way.
As with most treatments of modern economics, the
book starts with Adam Smith. To get a feel for Goodwin’s approach, you can
dive into the first chapter of Economix,
which grapples with Smith’s theories about the free market, division of
labor and the Invisible Hand. Economix can be purchased
online here.
Related Content:
An Introduction to Great Economists — Adam Smith, the Physiocrats & More —
Presented in a Free Online Course
60-Second Adventures in Economics: An Animated Intro to The Invisible
Hand and Other Economic Ideas
Reading Marx’s Capital with David Harvey (Free Course)
Jensen Comment
I ordered a used copy of this book from Amazon. This book is a most interesting
way to learn the history of economics succinctly.
One surprise is that the book has a relatively good index. Another surprise
is that the book has some small sections on my special interest --- derivative
financial instruments and hedging, although these play a miniscule role in the
comic book.
A few interesting quotations are shown below:
Page 17and Page 19
Enter Jean-Baptiste Colbert (1619-1683), who became
the finance minister of France in 1665. He thought money was wealth, end of
story. ... French thinking on economics change. Maybe wealth wasn't a
stockpile of silver like Colbert thought. Maybe wealth
circulated, like blood circulates throughout a body. Laws,
regulations, tariffs, subsidies, and so on would get in the way of that
natural circulation.
Page 61
Marx's logic applied to the
Ricardo model and we don't live in that model. (Neither does
Greece)
Page 22and Page 23
Bakers didn't work because some Bread Planner told
them to, or because they were saints who wanted people to be well fed. They
worked because it was good for them ... So in Smith's economy, competition
kept everyone honest. Every baker --- saint or greedhead alike --- was led,
"as if by an invisible hand," to sell bread at fair price, high enough to
pay for the baker costs and work, low enough that others didn't steal the
customers.
Page 183
Way back in the 1920s, the Austrian economists Ludwig
von Mises (1881-1973) and Freederick Hayek (1899-1992) saw economic planning
become political dictatorship in country after country. They saw that when
people lose their economic liberty, they lose their political liberty. ...
Haye especially was a formidable thinker; instead of assuming the
market worked, which economists had be doing since Ricardo, Hayek looked to
how it worked --- how interaction of small units (people) creates a complex
intelligence (the market), which responds to shortages, changes in
taste, or new technologies far better than any human planner can ("invisible
brain" might be a better term than "invisible hand.") . . . People who try
to replace this brain with their own systems will fail, and in the
process of failing, they'll do a lot of dmagbe.
Page 184
Like Hayek, Friedman stressed that concentrated power
is threat to freedom. But he didn't seem to see that power cn concentrate
in more than one form.
Page 185
(Market failure) refers to how --- even
textbook-perfect markets--- can give bad results. for instance, with
externalities which are essentially side effects of economic transactions.
Bad externalities are everywhere, because the people mking decisions aren't
the ones getting hurt. (in mathematical models these externalities
are sometimes called non-convexities).
Page 240
By the 1980s, the
IMF was full of neoliberals. Strure adjustment came down to adopting
neoliberalism. Structural adjustment was hard to refuse; The World Bank,
private lenders, business, the US Treasury, even aid donors would all steer
cler of a country that the IMF was unsound (say what?)
Still, people hated structural adjustment, and
the IMF knew it. So part of the program was protected democracy in which the
economic program was protected from democracy.
Continued in a nice summary of Economix
Added Comment
If you want to learn more about controversial Keynesian economics you might
start with this book.
Misbehaving: The Making of Behavioral Economics
by Richard Thaler W. W. Norton & Company, $27.95 (Cloth)
Review by John McMahon on July 15, 2015---
http://bostonreview.net/books-ideas/john-mcmahon-richard-thaler-misbehaving-behavioral-economics
"The mad, mad world of researching and publishing!" by Jim Hunton, AAA
Doctoral Consortium, June 18, 2009 ---
http://commons.aaahq.org/files/0895522bed/Hunton_Publishing_Panel_061009.ppt
This link was also posted to the AAA Commons ---
http://commons.aaahq.org/posts/f9238c3ec1
Jensen Comment
The above AAA Doctoral Consortium presentation preceded the first of 30
retractions of Jum Hunton's research publications allegedly because he faked the
data. For Jim research and publishing did indeed become a "mad, mad" world. It
would really be interesting if Jim in the future mustered up the courage and
humility to make presentations at AAA conferences.
More about the Jim Hunton cheating scandals ---
http://retractionwatch.com/2015/06/29/accounting-professor-notches-30-retractions-after-misconduct-finding/#more-29236
Hunton and Other Professors Who Cheated (search repeatedly on the word "Hunton") ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
July 15, 2015 reply from Paul Williams
Liked the slide about taking calculated risks to
"maximize" success. Seems he certainly took his own advice. Perhaps Gary
Previts and Tim Fogarty had the right idea about adding some diversity to
the Doctoral Consortium. Three quarters of submissions were archival
financial, but we don't have a problem because the "bias ratio" is negative.
And that was said with an apparently straight face to a group of people
allegedly trained to analyze data (fictitious or otherwise).
Question
Are rainbow options are eligible for hedge accounting under FAS 133 and/or
IFRS 9?
Rainbow Options ---
https://en.wikipedia.org/wiki/Rainbow_option
Jensen Comment
I don't think rainbow options should be eligible for hedge accounting under FAS
133 that generally only allows hedge accounting for derivatives with one type of
risk. An exception was subsequently made in FAS 138 for derivatives that hedge
interest rates and foreign exchange risk in combination largely because hedging
swaps for these "cross-currency" risks were so commonplace in the derivatives
markets for simultaneous hedging ---
https://en.wikipedia.org/wiki/Cross_currency_swap
I really have not investigated the FASB and IASB stand on hedge accounting
for rainbow options.
What do you think about hedging with these options?
The IRS on July 8, 2015 labeled the “basket options” strategy of
converting short-term capital gains and ordinary income into lighter-taxed
long-term gains as a “listed transaction" tax shelters that will be trouble for
firms that are still using them ---
http://www.bloomberg.com/politics/articles/2015-07-08/irs-moves-against-hedge-fund-maneuver-once-used-by-renaissance
FASB
"Not-for-profit financial reporting headed for a change," by Larry Smith
and Ken Euwema, Journal of Accountancy, July 1, 2015 ---
http://www.journalofaccountancy.com/issues/2015/jul/not-for-profit-financial-reporting.html
As a part of the response to the call for increased
transparency and accountability among not-for-profit entities (NFPs), FASB
has taken on a project to improve the existing NFP financial reporting
model. The goal is to improve the usefulness of NFP financial statements by
providing better information about an NFP's liquidity, financial
performance, and cash flows to the primary users of financial statements,
governing boards, donors, grantors, creditors, and other stakeholders of
NFPs.
The fundamental reporting model for NFPs has
existed for over 20 years. During that time, NFP organizations have
developed different methods of reporting their operating results in a way
that conveys the connection between financial choices and mission execution
because existing GAAP does not prescribe a specific way of reporting
operating performance. Additionally, changes in endowment laws together with
the existing framework for reporting restricted and unrestricted net assets,
and the lack of required information about the liquidity of an organization,
have contributed to the confusion in determining whether an NFP is in sound
or poor financial condition.
Continued in article
Bob Jensen's threads on NFP accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
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
This case is intended for use in a wide variety of
learning contexts, including undergraduate and
graduate government and not-for-profit accounting
courses, advanced accounting courses, public policy
courses, along with courses that address municipal
pensions at the college or university level, or
other training programs. The case achieves four
primary objectives: developing proficiency in ratio
analyses for a municipality, conducting research
related to the financial status of a municipality,
improving critical thinking and problem-solving
skills, and developing an awareness of potential
public interest issues facing municipal leaders. We
find that students benefit from analyzing the
financial condition of the City of Providence, RI
and develop critical thinking skills through their
analyses.
City of
Providence Overview
The city of Providence,
Rhode Island was founded in 1638 by Roger
Williams, who fled religious persecution in
Massachusetts and started a settlement based on
religious and political freedom (GoProvidence.com
2012). Providence is a
medium-sized city, ranking 134th of U.S. cities
in terms of size (Citymayors.com
2013), with a
population of 178,042 based on the 2010 U.S.
census (United
States Census Bureau 2010).
Mayor Angel Taveras, the
37th mayor and first Latino mayor of Providence,
began serving in January 2011 (Smith
2011).
Due to its easy
accessibility by water, Providence has a rich
history as a major world seaport; but it has
also been vulnerable to hurricanes, experiencing
devastating effects from the great New England
Hurricane of 1938 and Hurricane Carol in 1954.
In the late 1970s the city's infrastructure was
greatly enhanced, and in the 1990s two major
rivers running through the city were uncovered
and moved, adding a pleasing aesthetic aspect to
the city. As a result of the major improvements
to the infrastructure, as well as significant
building projects in the 1990s and the first
decade of the 21st century, the city has
experienced a cultural revival and has been
successful in attracting visitors to its
world-renowned restaurants and cultural events,
particularly Waterfire, an event that occurs
over numerous weekends in the summer and early
fall. Cultural institutions include the Tony
award-winning Trinity Repertory Company and
Providence Performing Arts Center. Providence is
also home to a number of colleges that lend an
academic and innovative air to the city
including Brown University, Providence College,
Rhode Island College, the Rhode Island School of
Design (RISD), and Johnson & Wales University (JWU).
The prominence of RISD has led to growth in the
Providence arts scene, and JWU's culinary school
has fueled the growth and national reputation of
the Providence restaurant scene (GoProvidence.com
2012).
The
Providence Economy
Manufacturing was the
predominant industry in Providence from the
1830s until the 1980s, with the production of
textiles, light metals, and jewelry being most
prevalent. The textile industry saw a sharp
decline in the late 1920s, as companies in the
northern states faced increasing competition
from those in the south, and therefore jewelry
and light metal manufacturing grew to be the
dominant manufacturing sectors during the middle
part of the 20th century. However, after World
War II, Providence saw a big decline in
population and many of the large manufacturing
companies left the city for the suburbs. By
1970, four of the five largest companies with a
strong manufacturing presence during the
industrial revolution of the 1800s had left the
city, and only Gorham Silver remained. Other
companies, such as Speidel, Federal Products,
and Imperial Knife, were also present but were
not as dominant as their earlier counterparts.
During this time service industries, such as
financial, educational, and health services,
were beginning to overtake manufacturing as
growth industries (Conley and Campbell
2012).
|
Continued in artciel
Bob Jensen's Threads on the Sad State of Governmental Accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
"Insights from the 2014 CPA Passing Rate Data," by Mark Goldman,
MGR Accounting Recruiters, July 3, 2015 ---
http://www.mgrar.com/insights-from-the-2014-cpa-passing-rate-data/
Jensen Comment
This shows the 2014 first-time pass rates broken down by age groups. The
first-time pass rates have more than doubled relative to pass rates in the
1960s. As I've mentioned before there are many various possible reasons,
especially the sophistication of CPA exam multimedia coaching courses and other
aids that were virtually nonexistent in the 1960s.
I would like to say that in the 1960s the CPA exams were harder, but there
are too many other explanations for increased passage rates. One explanation is
the "denominator effect." By this I mean that virtually any college graduate
could take the CPA exam in the 1960s and 1970s without so much as having had one
accounting course. I had an advisee in the MBA Program at the University of
Maine who dropped out of the program before the end of his first semester
because he had so little money to remain in college and was no longer being
funded by his parents.
He recently graduated in philosophy from Colby College in the 1970s and
had never had a single accounting course. I loaned him some CPA exam study
materials that I scrounged from my office. He studied them like crazy every free
minute that he was not sleeping or working as a waiter. He passed the CPA exam
on his first try without ever having an accounting course. His native
intelligence combined with a monumental amount of self study paid off much
better than most people in the denominator of the CPA passage rate formulas of
the 1970s.
In the 21st Century students applying to take the CPA exam must have
150-hours (a fifth year) with a relatively large number of courses aimed at
passage of the CPA examination. Hence in this Century the denominator is much
more constrained to contain only students who have studied accounting in college
courses.
In other words, the "denominator effect" alone should account for the much of
the doubling of the CPA Exam passage rates.
More CPA Examination data and advice ---
http://nasba.org/
Harvard Business Review Case Studies ---
https://hbr.org/store/case-studies?referral=03033&cm_mmc=email-_-so-_-best_selling_case_studies-_-best_selling_case_studies_071515_so&utm_source=so_best_selling_case_studies&utm_medium=email&utm_campaign=best_selling_case_studies_071515_so
These are not free!
MIT’s Introduction to Poker Theory: A Free Online Course ---
http://www.openculture.com/2015/07/mits-introduction-to-poker-theory.html
Bob Jensen's threads on free online mathematics and statistics tutorials ---
http://faculty.trinity.edu/rjensen/bookbob2.htm#050421Mathematics
Question
When is marriage a bad deal for taxes?
Jensen Comment
There are many types of taxes and many complicated things to think about when
relating taxes to marriage. Generally, marriage is a better deal when one spouse
makes a lot more taxable income than the other spouse. It can be less so in
divorce for the higher income spouse.
The Supreme Court has spread Iowa marriage law
nationwide. That means more same-sex couples will tie the knot and learn about
the sometimes surprising tax results of matrimony. In general, if only one
member of the couple has income, it’s a good tax deal, but not so much for
two-earner couples. The weird complexity of the tax law means there are lots of
exceptions.
Tax Roundup, 6/29/15: Congratulations, newlyweds, here’s your tax bill! And
windy subsidies, IRS stonewalling, more. ---
http://rothcpa.com/2015/06/tax-roundup-62915-congratulations-newlyweds-heres-your-tax-bill-and-windy-subsidies-irs-stonewalling-more/
Jensen Comment
In same-sex marriages under a rainbow flag, always remember that sometimes in
divorce "he/she gets the gold mine and he/she gets the shaft" ---
https://www.youtube.com/watch?v=U-p0zn3PijY
It's sad that there will be increases in fraud that accompany the rainbow
marriage ruling. Of course we've known this for years when some men/women marry
women/men more for money than for love. The same fraud risks now apply to gay
marriages.
A recent Tax Court decision sheds light on the importance of lease terms
to determine what is rent and how Sec. 467 may apply to advance rents ---
http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2015/Tax/is-it-rent.jsp
"Majority of CPAs polled had clients victimized by tax ID theft this year,"
by Paul Bonner, Journal of Accountancy, July 16, 2015 ---
http://www.journalofaccountancy.com/news/2015/jul/identity-theft-tax-returns-201512652.html
Sixty-three percent of CPAs who answered the 2015
tax software survey conducted by The Tax Adviser and JofA said
at least one of their clients was a victim of tax identity theft in the 2015
filing season.
CPAs interviewed in connection with the survey’s
findings on identity theft also echoed National Taxpayer Advocate Nina
Olson’s report to Congress released Wednesday detailing long telephone wait
times and other frustrations experienced by victims of identity theft in
dealing with the IRS (Objectives
Report to Congress).
In the survey, conducted in May, most CPAs
reporting theft of clients’ IDs said the problem affected fewer than 5% of
their clients, although 76 respondents (2%) said between 6% and 10% of their
clients were victims. Ten respondents reported between 11% and 15% of their
clients were victims, and two respondents put the percentage at more than
15%.
Many respondents had some difficulty dealing with
the IRS in resolving the issues, with only 27% saying it was easy or very
easy to resolve, and 39% saying it was difficult or very difficult. A
significant percentage of respondents, 44%, reported that the victims were
unaware of the theft before attempting to file their 2014 returns, and
another 42% said some victims were aware of it and others were not.
Continued in article
Over 90% of taxpayer ID theft victims were blocked from communicating with
the IRS
"National taxpayer advocate: IRS falling down on the job of helping identity
theft victims," y Alistair M. Nevius, Journal of Accountancy, July
15, 2015 ---
http://www.journalofaccountancy.com/news/2015/jul/tax-identity-theft-201512647.html
During some of the busiest weeks of tax season,
less than one caller in 10 to the IRS’s Taxpayer Protection Program phone
line was able to reach IRS staff for assistance, according to Nina Olson,
the national taxpayer advocate, in her midyear
Objectives Report to Congress released on
Wednesday. And the average time that callers had to wait to get through was
as high as 60.2 minutes, for the week of Feb. 7.
Olson reported that the Taxpayer Protection Program
(TPP) stopped more than 3.8 million suspicious tax returns during this
year’s filing season; however, 34% of those suspended returns turned out to
be legitimate. At the end of May, the IRS had 671,773 identity-theft cases
in its open inventory, a 69% increase from May 2014.
According to the report, stolen identity cases are
the most common type of case that Olson’s Taxpayer Advocate Service deals
with, which she attributes to the low level of service on the TPP phone
lines and the high false positive rate for suspended returns.
Continued in article
Jensen Comment
Count me as one of the 90+ percent who could not get through to the IRS.
However, since I guessed I was a victim due to a long-delayed refund I also
filed a paper return in February that did not get processed by the IRS until
July. Then I got a notice that the if I would not object the IRS would double my
refund if I did not bother the IRS.
I never did find out why my refund was doubled. I'm certain it was
not because I was an ID theft victim. Most
likely I was an IRS ID theft a victim because of a hugeTurbo Tax database breach
in 2013 that leaked SS numbers and IRS Pin numbers to hackers (Turbo Tax was
only place that had my PIN number outside the IRS).
I suspect that my 2014 refund was doubled by the IRS because Turbo Tax made a
calculation error on my return. I never make mistakes. Yeah right!
In a CBS Sixty Minutes segment the IRS said that eliminating billions of
dollars of fake return fraud is impossible unless electronic filing is
eliminated. The IRS is not considering elimination of electronic filing. Hackers
in Russia, China, and elsewhere make money on this fraud primarily by stealing
ID information on taxpayers like the theft of IDs from the Turbo Tax database.
They then sell that ID information to fraudsters here in the USA who use the
purchased ID information. Often a single USA citizen or undocumented immigrant
will file hundreds of tax returns. According to the CBS Sixty Minutes segment
about 40% of the filed fake returns pay off with refunds to the crooks.
Unless forced to file electronically in the future I will only file a paper
return via the USA Postal Service in the future. This delays refunds but is
faster than getting a refund after being an electronic filer ID theft victim. If
I don't ever have an IRS PIN number the odds of having a bad person file a phony
tax return under my Social Security number are greatly reduced.
BDO International (fifth largest multinational accounting firm and closing in
on KPMG) ---
https://en.wikipedia.org/wiki/BDO_International
"BDO Sees Annual Revenue Jump 26 Percent," by Michael Cohn,
Accounting Today, July 21, 2015 ---
http://www.accountingtoday.com/news/firm-profession/bdo-sees-annual-revenue-jump-26-percent-75244-1.html
BDO USA saw a whopping 26 percent spike in annual
revenue for the fiscal year ended June 30, 2015, growing to $1.05 billion
from $833 million last year.
All of BDO’s business lines contributed to growth,
particularly in the consulting and advisory practice, which experienced a
51.4 percent growth in revenue. The firm's tax practice also saw a large
growth rate of 29.9 percent, while the assurance practice grew a healthy
17.5 percent.
Continued in article
Here you can build customized charts from our database of demographic,
economic, and state financial reports data, as well as the Institute for Truth
in Accounting's proprietary analysis on state assets and liabilities ---
http://www.statedatalab.org/c/iatNlH15b4c0f99
"Medicine, Law, Business: Which Grad Students Borrow The Most?" NPR,
July 15, 2015 ---
Click Here
http://www.npr.org/sections/money/2015/07/15/422590257/medicine-law-business-which-grad-students-borrow-the-most?utm_source=facebook.com&utm_medium=social&utm_campaign=npr&utm_term=nprnews&utm_content=20150715
Hint: Except for the outliers the correlation with starting salaries is
less than I would have expected. However, the outliers increase this
correlation. In some fields, especially business, the variance in lifetime
earnings is much greater.
Partial Quotation from the Article
Students studying medicine and law typically borrow
more than $100,000 to get through school, and many go on to high-paying
careers.
At the other end of the spectrum, many Ph.D.
students wind up in academia. Most get grants and subsidies — and the
majority don't have to borrow any money at all to get through grad school.
One striking case: MBAs. People who go to business
school take on significantly less debt than people at other professional
schools. Most MBA programs are two years long — shorter than law school
(three years) or med school (four).
But that's not nearly enough to explain the
difference.
Jensen Question
I have a granddaughter who recently graduated in pharmacy with
enormous debt. It's not clear why pharmacists in general graduate with more
debt than most other graduates outside of medicine. In her case the reason
was that she chose an expensive small private college well beyond the means
of her family for so many years.
Her brother is now entering the University of Maine system intent
of a nursing career. He has much more fear of debt than his sister. This is
the main reason his undergraduate degree will cost so much less before he
goes on to graduate school. As valedictorian of his high school class he
also earned a scholarship of $1,000 per year for any college of his
choosing.
Bob Jensen's threads on student debt ---
http://faculty.trinity.edu/rjensen/HigherEdControversies.htm#StudentDebt
Bob Jensen's threads on careers ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#careers
"FASB Nears Proposal on Hedge Accounting," by Tammy Whitehouse,
Compliance Week, July 15, 2015 ---
https://www.complianceweek.com/blogs/accounting-auditing-update/fasb-nears-proposal-on-hedge-accounting#.Vak-q_lkZLd
After several years of
relative inaction on hedge accounting, now the Financial Accounting
Standards Board is near issuing a proposed update to accounting standards
that would have a big effect on what would qualify for hedge accounting and
how the accounting would be explained in financial statements.
FASB has
decided tentatively to propose a number of
targeted amendments to hedge accounting rules for both financial and
nonfinancial hedges. The board is developing a draft accounting standards
update to amend Topic 815 in the Accounting Standards Codification while the
staff also is planning to study the costs, benefits, and complexity of what
the board plans to propose. An proposed update to accounting standards is
expected by the end of 2015.
According to a
PwC alert, FASB’s plan is to propose
“targeted amendments” to several areas of
existing hedge accounting guidance for both financial and nonfinancial
hedges. “The goal is to better align hedge accounting with a reporting
entity’s risk management objectives and simplify hedge accounting for
preparers,” the firm says. “The changes, if finalized, will significantly
change what qualifies for hedge accounting, how it is documented, how hedge
effectiveness is assessed and hedge ineffectiveness is measured, and how the
hedging results are presented and disclosed in the financial statements.” An
exposure draft is expected by the end of the year.
Continued in article
Bob Jensen's free tutorials on hedge accounting ---
http://faculty.trinity.edu/rjensen/caseans/000index.htm
"Obama’s Overtime Proposal Could Be Costly for Colleges," by Paul
Basken, Chronicle of Higher Education, July 1, 2015 ---
http://chronicle.com/article/Obama-s-Overtime-Proposal/231287/?cid=at
. . .
American institutions of higher education employ
more than 3.8 million people, according to government data cited by the
College and University Professional Association for Human Resources. That
figure includes more than 1.5 million faculty members; 238,000 people in
executive, administrative, or managerial positions; 800,000 in other
professional positions; and more than 900,000 in other positions not
exempted from federal overtime rules, the association said.
Many entry and midlevel professional positions —
including many in student life, development, administration, and academic
affairs — pay less than $50,440 per year, said Andy Brantley, the
association’s president and chief executive officer.
An increase in the overtime threshold "was long
overdue," Mr. Brantley said. "Unfortunately, a change of this magnitude will
have a significant impact for every campus."
The effect will be most pronounced for colleges in
parts of the country that have lower average wages and lack state laws that
already set stricter rules on overtime pay, said Tara E. Daub, a partner at
the law firm Nixon Peabody.
Colleges will have to absorb that cost in some way,
such as cuts in services or tuition increases, said Shannon D. Farmer, a
partner at Ballard Spahr, a law firm with clients in higher education. And
the effect would linger, she said, as Mr. Obama’s proposal calls for
automatic increases in the future tied to average incomes.
Worries About an ‘Ambush’
Even more concerning, Ms. Farmer said, is the
possibility that the Department of Labor will end or revise the exemption
for teaching positions. That exemption also applies to many doctors and
lawyers, who, along with professors, are in positions that are either
relatively well paid or involve wide fluctuations in numbers of hours worked
each week, she said.
The administration’s proposed change does not
explicitly suggest repealing the teaching exemption, she said, though it
does invite comments on it. "So what people are concerned about is that
there is going to be basically an ambush rule here," where the Department of
Labor might endorse a change in the teaching exemption later in the process,
she said.
That type of change — sought by many advocates of
adjuncts as part of an overall campaign for
improving pay and conditions for part-time,
non-tenure-track faculty members — could perhaps happen some day, said Ms.
Daub, a member of Nixon Peabody’s Labor and Employment group. But it won’t
happen in the current rule-making process, she said, because revising the
teaching exemption has not been included in the terms of the initial
proposal.
"It would have to go through the whole
notice-and-comment period," said Ms. Daub, who was scheduled to address the
topic on Wednesday morning at the annual conference of the National
Association of College and University Attorneys in Washington. "They can’t
just slip that in at the end."
Either way, at least one university doesn’t seem
especially concerned. At the University of Wisconsin at La Crosse, Mr.
Obama’s scheduled visit on Thursday to outline the plan is largely a matter
of celebration, given that it will be the first time a sitting U.S.
president has ever visited the campus. It’s "an historic opportunity for our
UW-L community," the chancellor, Joe D. Gow, said in a
campuswide email.
Continued in article
EY: PCAOB seeks comment on audit quality indicators ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_EE0992_AQI_2July2015/$FILE/TothePoint_EE0992_AQI_2July2015.pdf
EY: FASB simplifies the subsequent measurement of inventory ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB3019_Inventory_23July2015/$FILE/TothePoint_BB3019_Inventory_23July2015.pdf
What you need to know
• The FASB issued final guidance that simplifi
es the subsequent measurement of inventor ies by replacing today’s lower
of cost or market test with a lower of cost and net realizable value
test.
• The guidance applies only to
inventories f or which cost is determined by methods other than last -
in first - out (LIFO) and the retail inventory method (RIM) . Entities
that use LIFO or RIM will continue to use existing impairment models.
• The guidance is effective for public business
entities for fiscal years beginning after 15 December 2016, and interim
periods within those fiscal years. For all other entities, it is
effective for fiscal years beginning after 15 December 2016, and interim
periods within fiscal years beginning after 15 December 2017. Early
adoption is permitted .
EY: GASB overhauls government retiree health care rules
What you need to know
• The GASB issued final guidance that will
change how state and local g overnment s calculate and report the costs
and obligations associated with defined benefit other postemployment
benefit (OPEB) plans .
• Government employers that do not prefund OPEB
obligations will have to record a gross OPEB liability , while those
that fund their OPEB plans through a trust that meets the specified
criteria will have to record a net OPEB liability in their accrual -
basis financial statements based on the plan fiduciary net position
rather than plan funding.
• The new standard will make a government’s
obligations more transparent, and m any governments will likely report a
much larger OPEB liability than they do today.
• The guidance is effective for fiscal years
beginning after 15 June 201 7 , and early application is encouraged.
"Europe is trying to hide a giant pile
of debt," by Harry S. Dent Jr., Business Insider, July 24, 2015 ---
http://www.businessinsider.com/europe-trying-to-hide-giant-pile-of-debt-2015-7
It’s kind of like selling
goods to consumers with very bad credit and then being surprised when they
don’t pay.
Continued in article
Jensen Comment
It's pretty much a north versus south thing that's revealed in one graph.
Scroll down the article to see this amazing graph.
The deep debtor nations are known for
chronic political corruption, low economic productivity, and bloated public
sector spending. This raises real questions about the sustainability of the EU.
Question
Why should Americans who can afford a $100,000 Tesla get a free ride on USA
roads and bridges?
Why America should start making drivers pay per mile ---
http://www.citylab.com/cityfixer/2015/07/18-reasons-america-should-adopt-a-per-mile-driving-fee/397331/#ixzz3f0syZ5Ce
50-State Fiscal Condition Ranking ---
http://taxprof.typepad.com/taxprof_blog/2015/07/50-state-fiscal-condition-ranking.html
With new spending commitments
for Medicaid and growing long-term obligations for pensions and health care
benefits, states must be ever vigilant to consider both the short- and
long-term consequences of policy decisions. Understanding how each state is
performing in regard to a variety of fiscal indicators can help state
policymakers as they make these decisions.
A
closer analysis of the individual metrics behind the ranking shows how each
state’s fiscal condition should be assessed. Notably, nearly all states
have unfunded pension liabilities that are large relative to state personal
income, indicating that all states need to take a closer look at their
unfunded pensions, which represent a significant portion of each state’s
economy. Another financial crisis could mean serious trouble for many
states that are otherwise fiscally stable.
State-Based Accounting 101: Ranking
Fiscal Condition States must confront pension costs ---
http://reason.com/archives/2015/07/09/state-based-accounting-101-ranking-fisca#.03jwkv:SV1M
. . .
First, let's look at
the states with the best and worst fiscal conditions. At the top of the list
are: Alaska (1), North Dakota (2), South Dakota (3), Nebraska (4), and
Florida (5). Norcross explains, "these states are considered fiscally
healthy relative to other states because they have significant amounts of
cash on hand and relatively low short-term debt obligations." The bottom of
the list includes: Illinois (50), New Jersey (49), Massachusetts (48),
Connecticut (47), and New York (46). These states face large debt
obligations and have very little cash on hand to pay short-term bills.
Continued in article
"Grant Thornton fined £975,000 over building society audit," by
Harriet Agnew, Financial Times, July 8, 2015 ---
http://www.ft.com/intl/cms/s/0/dad4e22a-2573-11e5-bd83-71cb60e8f08c.html#axzz3fQ4g6J6j
Grant Thornton agreed on Wednesday to pay a
£975,000 fine to settle a two-year accounting probe into its audit of
Manchester Building Society’s use of interest
rate swaps.
Under the settlement with the
Financial Reporting Council,
Grant Thornton also received a severe
reprimand. Alastair Nuttall and Marcus
Swales, who were the firm’s audit engagement
partners in relation to Manchester Building Society, have been fined £39,000
and £45,500, respectively. Both have been reprimanded.
Continued in article
Bob Jensen's threads on Grant Thornton ---
http://faculty.trinity.edu/rjensen/Fraud001.htm
Internal Audit ---
https://en.wikipedia.org/wiki/Internal_audit
"New mission, principles articulated for internal audit," by Ken
Tysiac, Journal of Accountancy, July 6, 2015 ---
http://www.journalofaccountancy.com/news/2015/jul/new-mission-internal-audit-201512583.html#sthash.1aSI3v3E.dpu
f
P&G Settles Suit on Puffed-Up Packaging: Olay containers
raised eyebrows of California prosecutors, who called them deceptive ---
http://www.wsj.com/articles/p-g-settles-suit-on-puffed-up-packaging-1436305037?mod=djemCFO_h
Olay is getting a makeover, though not entirely of
its own accord.
Procter & Gamble Co. will change the packaging of
some Olay skin-care products as part of a settlement with California
prosecutors, who had accused the company of misleading consumers by selling
jars of face cream in packaging that was at times much larger than the
contents. The company also agreed to pay $850,000 in civil penalties and
costs.
The civil protection lawsuit stems from an
investigation that began in 2012, according to a spokesman for the district
attorney’s office in California’s Riverside County, which was one of four
counties that handled the case. Inspections of Olay containers and packages
led to allegations that P&G was violating the state’s so-called slack-fill
law, which prohibits the use of oversize packaging to make products appear
larger.
Continued in article
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
"IRS Gets Happy (Pizza)," by Roger Russell, Accounting Today,
July 17, 2015 ---
http://www.accountingtoday.com/news/tax-practice/irs-gets-happy-pizza-75227-1.html?utm_campaign=daily-jul%2020%202015&utm_medium=email&utm_source=newsletter&ET=webcpa%3Ae4784366%3A2722275a%3A&st=email
Thank you Elliot Kamlet for the heads up.
Happy Asker, the founder of a pizza chain based in
Farmington Hills, Mich., that operated restaurants throughout Michigan, Ohio
and Illinois, was sentenced last week to 50 months in prison for income and
employment tax fraud.
He was also ordered to pay $2.5 million to the
Internal Revenue Service as restitution.
Asker was convicted of three counts of filing false
income tax returns for the years 2006 through 2008, 28 counts of aiding and
assisting in the filing of false income and payroll tax returns for several
of Happy’s Pizza franchise restaurants for the years 2006 through 2009, and
corruptly endeavoring to obstruct and impede the administration of the
Internal Revenue Code.
Continued in article
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Getting accountants and auditors to follow the
rules, as well as their spirit, isn’t easy—keeping them honest has been an
uphill battle for going on 80 years.
In a
Fortune article three weeks ago, former SEC
Chief Accountant Lynn Turner told me that the current accounting and
auditing systems we all rely on need wholesale reform.
Since then, there has been a flurry of activity
from regulators, who have issued proposals to shore up weaknesses in U.S.
corporate accounting and auditing. The Securities and Exchange Commission
(SEC) issued a concept release on potential new audit committee disclosures,
including possible new requirements for information about how the audit
committee actually oversees the company’s auditor. And the Public Company
Accounting Oversight Board (PCAOB) issued two new proposals. One could
require disclosure of the partner and others involved in a company audit.
The second relates to the potential creation and disclosure of what the
PCAOB calls “measures that may provide new insights into audit quality.”
Since audits have been required of public companies
for 80 years, you’d think that measures of audit quality would already be
clear, well established, and tracked. So why is this just now in the works?
Given the choice between the stricter accountability of clear metrics and
the greater freedom of none, companies, their auditors, and regulators have
chosen flexibility.
Coninued in article
"Financial Engineering and the Arms Race Between Accounting Standard Setters
and Preparers," by Ronald A. Dye, Jonathan C. Glover, and Shyam
Sunder, Accounting Horizons, Volume 29, Issue 2 (June 2015) ---
http://aaapubs.org/doi/full/10.2308/acch-50992
This article is free only to AAA members.
Abstract
This essay analyzes some problems that accounting standard setters confront
in erecting barriers to managers bent on boosting their firms' financial
reports through financial engineering (FE) activities. It also poses some
unsolved research questions regarding interactions between preparers and
standard setters. It starts by discussing the history of lease accounting to
illustrate the institutional disadvantage of standard setters relative to
preparers in their speeds of response. Then, the essay presents a general
theorem that shows that, independent of how accounting standards are
written, it is impossible to eliminate all FE efforts of preparers. It also
discusses the desirability of choosing accounting standards on the basis of
the FE efforts the standards induce preparers to engage in. Then, the essay
turns to accounting boards' concepts statements; it points out that no
concept statement recognizes the general lack of goal congruence between
preparers and standard setters in their desires to produce informative
financial statements. We also point out the relative lack of concern in
recent concept statements for the representational faithfulness of the
financial reporting of transactions. The essay asserts that these oversights
may be responsible, in part, for standard setters promulgating recent
standards that result in difficult-to-audit financial reports. The essay
also discusses factors other than accounting standards that contribute to
FE, including the high-powered incentives of managers, the limited
disclosures and/or information sources outside the face of firms' financial
statements about a firm's FE efforts, firms' principal sources of financing,
the increasing complexity of transactions, the difficulties in auditing
certain transactions, and the roles of the courts and culture. The essay
ends by proposing some other recommendations on how standards can be written
to reduce FE.
Jensen Comment
The analytics of this Accounting Horizons article, rooted heavily in
Blackwell's Theorem, add academic elegance to the accountics science of the
article but do not carry over well in the real world --- largely because of the
limiting Plato's Cave assumptions of Blackwell's Theorem, However, the article
lives up to the fine academic reputations of its authors in other respects that
make it important to consider when pitting financial engineering against
regulation.
What needs to be extended is how financial engineering is not something that can
be reduced per se. Changes in regulation are more apt to impact some
firms positively (i.e., opportunity) and other firms negatively (i.e.,
cost) simultaneously. And there are always considerations of direct impacts
versus externalities. For example, eliminating coal as an energy source cleans
the air and water but puts generations of miners and entire towns out of work as
well as increasing the cost of electric power.
The FASB requirement to book employee stock options when vested makes
employee compensation more transparent to investors while making startups more
costly to operate. And with each significant increase in financial reporting and
compliance regulations businesses are increasingly mummified in red tape. As the
saying goes: "The road to Hell is paved with good intentions."
The above article features lease accounting standards but ignores the positives
and negatives of alternative details in setting such standards and the virtual
impossibility of reliably measuring some liabilities such as estimating
operating lease renewals ad infinitum.
The above article ignores trade-offs in the standards. The prominent example is
how balance sheet priorities of the FASB and IASB greatly harmed income
statements.
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/
"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.
From the CFO Journal's Morning Ledger on July 24, 2015
Amazon posts surprising profit
http://www.wsj.com/articles/amazon-posts-surprising-profit-1437682791?mod=djemCFO_h
For just the second time, Amazon.com Inc. shared
sales figures
Thursday for its cloud-computing division
Thursday. Amazon Web Services sales rose to $1.82 billion from $1 billion a
year earlier, and operating profit increased to $391 million from $77
million. Some believe the unit could operate on a stand-alone basis and,
because of its growth, is a primary reason to invest in Amazon. Amazon
posted a profit of $92 million for the third quarter, helped by sales which
rose a better-than-expected 20% to $23.18 billion.
United, Southwest post record profits
http://www.wsj.com/articles/united-southwest-post-record-profits-1437689970?mod=djemCFO_h
Two of the biggest U.S. airlines reported record
profits for the second quarter but said they planned to reduce expansion
plans for later this year, as demand has weakened.
Jensen Comment
"Surprising profits" and "record profits" make us wish that someday the
accounting standard setters (think FASB and IASB) would someday be able to
operationally define "profit" and make "profit" measures more comparable between
business firms.
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.
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 can be found at
http://faculty.trinity.edu/rjensen/Theory01.htm
From the CFO Journal's Morning Ledger on July 28, 2015
Corporate pension plans underfunded, outlook unclear, PwC says
http://blogs.wsj.com/cfo/2015/07/27/corporate-pensions-plans-underfunded-outlook-unclear-pwc-says/?mod=djemCFO_h
Longer life expectancies combined with low interest rates have pushed
corporate pension plans further into the red, according to a recent
PricewaterhouseCoopers LLC study. The median funding level for large-company
retirement plans in 2014 fell to 83%, compared with 90% in 2013. Those plans
were 100% funded in 2007.
Bob Jensen's threads on pension accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Pensions
Disabilities ---
https://en.wikipedia.org/wiki/Disability
Jensen Question
Are there any HTML processors that automatically code for sight and hearing
impaired readers?
Are there any Web browsers that will read text aloud? See the Jaws Screen Reader
cited below.
There is software available for captioning video
for the hearing impaired but it is purportedly tedious to use for authors.
Increasingly learning videos are captioned for the hearing impaired.
"The Challenges of Surfing While Blind: My seeing-eye dog can’t help
me with your website. Please code it for accessibility," by Deann Elliott,
The Wall Street Journal, July 26, 2015 ---
http://www.wsj.com/articles/the-challenges-of-surfing-while-blind-1437950347?tesla=y
. . .
A well-designed website that conforms to the Web
Content Accessibility Guidelines 2.0 (WCAG) permits use by people of all
abilities. In my case, text labels that identify the buttons and graphical
features allow me to “see” what’s on the screen. The code is hidden and need
not interfere with the way the website works for sighted customers. But
without these features, a site that works beautifully with a mouse is
useless to me.
Technology has removed many of the barriers that
people with disabilities face in the physical world, making life in the
mainstream tantalizingly close. Can’t drive to the mall? There’s Amazon!
Can’t read the electric bill? Bank online! As my guide dog and I contemplate
the 25th anniversary of the Americans with Disabilities Act (ADA), the
landmark civil-rights law signed July 26, 1990, the gap between sight and
blindness has never been narrower.
The ADA requires government websites to be
accessible. Sadly, the law provides little guidance to the private sector on
this point, since it was passed before the Internet became ubiquitous. It
applies to a “place” of public accommodation—but is the Internet a place?
That question has been wending its way through the courts.
Disability advocates have worked to broaden the
law’s applicability, with some success. In April, Harvard University and
M.I.T. announced plans to voluntarily make their edX website for online
courses compliant with the WCAG after deaf advocates filed federal lawsuits
alleging discrimination. In 2010 the Justice Department announced it would
consider issuing Web-accessibility regulations under the ADA, though the
rule-making process lumbers on. With the number of websites growing rapidly,
change isn’t coming fast enough.
“More than 50 percent of the websites on the
Internet are either inaccessible or unusable for people who use adaptive
technology,” Brian Charlson, director of technology at the Carroll Center
for the Blind in Newton, Mass., told me in his office a few months back.
The consequences range from inconvenient to
significant. When I can’t place an online order at my favorite Vietnamese
noodle shop, I get Chinese instead. If a task is urgent, I pester family and
friends for “favors.” When they hover over my screen to help me navigate
around a virtual barrier, I’m keenly aware that my charge-card number and
the details of my transaction are on display. At work, unequal access in an
increasingly networked economy contributes to an unemployment rate that’s
more than twice as high for people with disabilities—and that’s not counting
many who have given up looking for work.
Continued in article
Jensen Comment
The above article is disappointing in that it does not mention most
technologies and newer products that can be tried by the sight-impaired
learners.
"For Bill on Disabled Access to Online Teaching Materials, the Devil’s in
the Details," by Rebecca Koenig, Chronicle of Higher Education,
September 30, 2014 ---
http://chronicle.com/blogs/wiredcampus/for-bill-on-disabled-access-to-online-teaching-materials-the-devils-in-the-details/54651?cid=at&utm_source=at&utm_medium=en
User:Steinsky/Encyclopaedia for the blind ---
https://en.wikipedia.org/wiki/User:Steinsky/Encyclopaedia_for_the_blind
Scroll down to Software for the Spoken Wikipedia
Free Monitor
I don't know anything about this free monitor or the open-source software for
sight-impaired people, but it sounds wonderful
http://www.nvaccess.org/
Thank you Scott Bonacker for the heads up.
Jaws Screen Reader ---
https://en.wikipedia.org/wiki/JAWS_%28screen_reader%29
JAWS (Job Access With Speech) is a computer screen
reader program for Microsoft Windows that allows blind and visually impaired
users to read the screen either with a text-to-speech output or by a
Refreshable Braille display.
JAWS is produced by the Blind and Low Vision Group
of Freedom Scientific, St. Petersburg, Florida, USA.
A May 2012 screen reader user survey by WebAIM, a
web accessibility company, found JAWS to be the most popular screen reader
worldwide; 49.1% of survey participants used it as a primary screen reader,
while 63.7% of participants used it often.[1]
Continued in article
"Awesome FingerReader Gadget Lets the Blind Read Printed Text," Chris
Smith, Yahoo Tech, April 18, 2014 ---
https://www.yahoo.com/tech/awesome-fingerreader-gadget-lets-the-blind-read-printed-83091898650.html
Useful Products for the Blind ---
http://acb.org/node/1644?gclid=CILy1Ymm-8YCFQeLaQodK74Iiw
Carroll Store Products for the Blind ---
http://carroll.org/products-for-the-blind-specials/?gclid=CKuM0vKo-8YCFYsRHwodm-8D8g
Web Accessibility Services ---
http://carroll.org/accessibility-services/web-accessibility-services/
World Access for the Blind ---
https://en.wikipedia.org/wiki/World_Access_for_the_Blind
Royal Society for the Blind ---
https://en.wikipedia.org/wiki/Royal_Society_for_the_Blind
Bob Jensen's threads on learning technologies for people with disabilities
---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Handicapped
17 Most Unreliable Cars To Own ---
http://www.trendingstories.net/es/95/page2/17-Most-Unreliable-Cars-To-Own
Recall that in the 2008 Chrysler was taken over by Fiat. It seems that did not
help Chrysler's reputation for manufacturing unreliable cars --- sort of like
the blind leading the blind. However. there are other unreliable models from
supposedly more reputable manufacturing companies.
Fiat 500L (the least reliable of all)
Volkswagen Beetle
Ford Fiesta
Audi RS6
Nissan Pathfinder
Mercedes-Benz CLA 250
Chevrolet Silverado
Ford Escape
Cheverolet Cruze
Dodge Dart
Volkswagen Passat
Ford C-MAX Energi
Infiniti Q50
Mercedes-Benz S-Class
Mini Cooper Countryman
Volkswagan Touran
Jeep Grand Cherokee
Jensen Added Comment
My Jeep Grand Cherokee that sits in my barn most of the time is a real lemon. My
friend (an elderly U-boat engineer) who bought a Mercedes became so frustrated
with breakdowns that he traded it for a Subaru. Thus far he's more impressed
with reliability. Years ago I had two German Beetles back in the days when they
had air-cooled engines. Neither car seemed very reliable to me. Both were prone
to oil leaks.
The most reliable cars I ever owned were a Plymouth stationwagon and a
Cadillac sedan that I inherited from my father. But this is anecdotal. Cuban
cars today provide some evidence that cars built in the 1950s were perhaps the
best in terms keeping them running for ever and ever --- well maybe not the
"best" compared to Model T Fords.
From the CFO Journal's Morning Ledger on July 27, 2015
Record fine for Fiat Chrysler
http://www.wsj.com/articles/record-fine-for-fiat-chrysler-1437953747?mod=djemCFO_h
Federal regulators hit Fiat Chrysler Automobiles NV with a
record $105 million fine for recall lapses covering millions of vehicles,
adding to mounting scrutiny of the auto maker’s safety practices.
Question
What are the 10 most-expensive and 10 least-expensive states to own a car in the
USA?
Hint
An important factor is insurance pricint. The most surprising outcomes are the
outliers where Hawaii is the least-expensive state and Michigan is the most
expensive state. I would have put Alaska, California, and Hawaii on top
with Michigan, Texas, and Louisiana near the bottom. Shows what I know!
Most-expensive car ownership states:
Michigan (most expensive)
Mississippi
North Dakota
California
Maryland
West Virginia
Wyoming
Louisiana
Texas
Georgia
Least-expensive car ownership states:
Washington State
Illinois
Minnesota
North Carolina
Vermont
Idaho
Iowa
Ohio
Wisconsin
New Hampshire
Hawaii (least expensive)
Jensen Comment
One factor that seems to be ignored is depreciation cost. One only has to look
at the rust trim on older cars to realize what salting the roads does in the
snowbelt. Vehicle bodies last much longer in most southern states. You can
usually get better buys on used cars that have never been near snow, ice,
or salty ocean breezes.
Another factor that's ignored is parking cost. For example I think (without
checking the facts) almost half the people in New York live in New York City.
Most people living in Manhattan, for example, avoid car ownership because
of the cost and other hassles of parking (such as trying to find a parking place
on a crowded street).
Maintenance costs are ignored in the above rankings. The first time we rented
a car in Alaska a long-time resident (Professor Tom Robinson) who met us at the
airport warned us not to sign anything until we inspected the windows of the car
we were about to rent. Look for cracks and ships. Since there are only three
paved highways in Alaska there are a lot of broken windows arising from flying
rocks on unpaved roads. It's not that you should refuse to rent a car with some
damage to windows. That may even be a good thing if you catch my drift. The
important thing is to note the prior damage on paper before you drive off in the
car. Sure enough the car we rented had a small crack in the windshield before we
drove off from the airport in Fairbanks.
Even though it's expensive I generally take all the insurance I can get on a
rental car just to avoid any hassle with having to deal with the insurance
policies on my own cars. It would seem that there is an added consideration of
insurance coverage variations in states. For example, maybe it is smarter to pay
for rental car insurance in Michigan and Mississippi than in New Hampshire and
Hawaii. I also advise paying for the added insurance in Maine where native
drivers are "Maniacs" even if drunk driving laws are strictly enforced.
Also pay the added insurance cost in Texas where drunk drivers roam free.
I might add that I've never had an insurance claim on a rental car. I did
have a claim on my new Subaru when somebody took out two doors while we were
having a meal in a Maine restaurant. Must have been one of those "Maniacs."
From the CFO Journal's Morning Ledger on July 27, 2015
The Nasdaq Composite Index has increased in
value by $664 billion so far this year, but more than half of that can be
attributed to just six companies, the
WSJ’s Dan Strumpf reports:
Amazon.com Inc., Google Inc., Apple Inc.,
Facebook Inc., Netflix Inc. and
Gilead Sciences Inc. The concentrated gains are sparking fears that
soft trading everywhere else in the market could signal a pullback to come.
Other indicators are also flashing yellow. In
the Nasdaq, falling stocks have outnumbered rising stocks this year, sending
the “advance-decline line” into negative territory, a phenomenon that has
come before market downturns in the past, investors and analysts said.
A rally driven by just a
handful of stocks doesn’t necessarily mean the market has turned unhealthy
or that shares will fall. Still, many analysts are uncomfortable with the
widening divergence between the top gainers and the rest of the market. Many
see a stock market that is on the cusp of a shift— though of course no one
can predict just what will happen.
Jensen Comment
Worth and value can be defined in various ways depending a lot upon how
intangibles are valued relative to tangible assets and whether the valuation is
based upon aggregation of values of net assets versus stock market valuation of
equity shares. Certainly Walmart is worth a lot more than Amazon in terms of
tangible assets like stores, warehouses, and delivery trucks. Amazon is now
worth slightly more in terms of stock market valuation of equity shares that are
based on a whole lot of technology intangibles in the case of Amazon.
Walmart employs many more workers, and this carries with it a lot of unbooked
financial obligations for such things as future payroll and employee benefit
costs, especially medical insurance costs. Add to this the constant costs
of labor disputes and costs of fending off unions. Walmart also has much higher
inventory costs since Amazon tends to pass many inventory costs upstream
to suppliers. Amazon has more robotics and is positioned for replacement of
labor with even more robotics and other technologies.
Amazon is more vulnerable to risks of outsourcing such as the risks supplier
pricing disputes and labor disputes in UPS/USPS and price gouging by UPS or the
USPS. My point is that a whole lot of important
risks in Amazon's operations are outside the control of Amazon due to
outsourcing.
Our current managerial accounting courses and textbooks do a poor job of
analyzing financial risks when comparing companies like Amazon versus Walmart.
"After Five Years,
Dodd-Frank Is a Failure: The law has crushed small banks, restricted
access to credit, and planted the seeds of financial instability,"
by Jeb Hensarling, The Wall Street Journal, July 19, 2015 ---
http://www.wsj.com/articles/after-five-years-dodd-frank-is-a-failure-1437342607?tesla=y
Tuesday will mark five years since President
Obama’s signing of the Dodd-Frank law, the most sweeping rewrite of the
country’s financial laws since the New Deal. Mr. Obama
told the country that the legislation would “lift
our economy.” The statute itself
declared that it
would “end too big to fail” and “promote financial stability.”
None of that has come to pass. Too-big-to-fail
institutions have not disappeared. Big banks are bigger, small banks are
fewer, and the financial system is less stable. Meanwhile, the economy
remains in the doldrums.
Dodd-Frank was based on the premise that the
financial crisis was the result of deregulation. Yet George Mason
University’s
Mercatus Center reports that regulatory
restrictions on financial services grew every year between 1999-2008. It
wasn’t deregulation that caused the crisis, it was dumb regulation.
Among the dumbest were Washington’s
affordable-housing mandates, beginning in 1977, that led to a loosening of
underwriting standards and put people into homes they couldn’t afford. The
Federal Reserve played its part in the 2008 financial crisis by keeping
interest rates too low for too long, inflating the housing bubble.
Washington not only failed to prevent the crisis, it led us into it.
Dodd-Frank was supposedly aimed at Wall Street, but
it hit Main Street hard. Community financial institutions, which make the
bulk of small business loans, are overwhelmed by the law’s complexity.
Government figures indicate that the country is losing on average one
community
bank or
credit union a day.
Continued in article
Bob Jensen's Rotten to the Core threads ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm
9 Microsoft analysts sound off about the company's future ---
http://www.businessinsider.com/street-has-mixed-opinions-on-microsoft-2015-7?op=1#ixzz3giAN8VTc
Jensen
Comment
It's future seems to be in the clouds and costs (read that cost containment).
The "analysts" are not at all specific. I think its future is cloudy. By the way
did you note that TurboTax will no longer offer cloud archiving of tax returns.
From the
CFO Journal's Morning Ledger on July 21, 2015
Microsoft buys back stock, cuts costs
---
http://blogs.wsj.com/cfo/2015/07/22/microsoft-buys-back-stock-cuts-costs/?mod=djemCFO_h
Microsoft Corp.
repurchased $4.3 billion of its shares during its fiscal fourth quarter, and
returned another $2.5 billion to shareholders in the form of dividends, CFO
Journal’s Vanessa O’Connell reports. The total is nearly double the amount
from last year, said finance chief Amy Hood, during a conference call with
analysts
Tuesday.
Jensen Comment
This makes me wonder if the money could have been better spent on new and better
products. Lately Microsoft is known more for its bad deals like buying Nokia for
over $7 billion ---
https://en.wikipedia.org/wiki/Nokia
From the
CFO Journal's Morning Ledger on July 21, 2015
Top lawmakers in Congress have been hammering out the
framework for a deal with the White House that could overhaul the way U.S.
firms are taxed on their overseas earnings. The discussions are still in an
early phase, but items on the table include the elimination of taxation on
world-wide income, paired with a one-time tax on overseas holdings and
safeguards to prevent future abuses, the
WSJ’s John D. McKinnon reports.
Overhauling the U.S. system for taxing multinational
businesses has been a priority for Republicans, as well as some Democrats.
Propelling this year’s discussions, which are being led by Rep. Paul
Ryan (R., Wis.), is the realization that a tax
overhaul could be coupled with a boost in highway funding, a priority of the
Obama administration and Democrats. Some experts say it is too difficult to
fix the tax code piecemeal, given the complex intermingling of individual
and corporate tax rules. But Mr. Ryan has made a practical calculation that
the moment is ripe for what would still amount to a substantial
revamp.
Meanwhile, the Senate Committee on
Finance voted
on Tuesday to approve semiannual extensions
of dozens of popular business tax credits and deductions,
CFO Journal’s Kristin Lin reports.
If ultimately approved by Congress, businesses will be
able to take advantage of more than 30 credits and deductions until the end
of 2016.
"Triple Bottom Line
Accounting and Energy-Efficiency Retrofits in the Social-Housing Sector: A Case
Study," by Kathryn Bewley and Thomas Schneider,
Accounting and the Public Interest, December 2013, Vol. 13, No. 1, pp.
105-131 ---
http://aaajournals.org/doi/abs/10.2308/apin-10359
This is not a free download
Abstract
This paper reports the findings of a case study conducted to learn about the
information, actors, actions, and processes involved in energy-efficiency
investment decisions in the social-housing sector. These decisions draw on
environmental, social, and economic factors, which are studied from a
“triple bottom line” (TBL) accounting perspective. The quantitative methods
we use rely on Levels I, II, and III fair-value measures similar to those
used in financial accounting. The qualitative methods rely primarily on
interviews conducted and transcribed by the researchers. Our main findings
show that a pure financial bottom-line approach would not fully indicate the
overall desirability of the type of energy-efficiency investment undertaken
in this case. By factoring in other quantitative and qualitative outcomes
drawn from the research methods applied, a different conclusion may be
reached.
Bob Jensen's threads on triple bottom line
reporting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#TripleBottom
From the
CFO Journal's Morning Ledger on July 21, 2015
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
Bob Jensen's threads on sustainability accounting ---
http://faculty.trinity.edu/rjensen/Theory01.htm#ResearchVersusProfession
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.
July 20, 2015 reply from Zabihollah Rezaee
I coauthored with Ann Brockett of EY a book on
“Corporate Sustainability: Integrating Performance and Reporting”, which was
published by Wiley in 2012 and received the Axiom Gold Award in 2013 (see
attached cover page). I am now working on a new book on “Business
Sustainability: Performance, Compliance, Accountability and Integrated
Reporting”, scheduled for publication by the Greenleaf in October 2015.
Attached is cover page of the new book. I will send you a review copy if you
are interested in submitting a review report by August 15th, 2015.
Best regards,
Zabi
Jensen Comment
From the
Inside Flap
Global businesses are under
close scrutiny and profound pressure from lawmakers, regulators, the
investment community, and their diverse stakeholders to focus on
sustainability and accept accountability and responsibility for their
multiple bottom lines of economic, governance, social, ethical, and
environmental (EGSEE) performance. Would you like to leave more
resources for the next generation? Watch your business grow
continuously? Have an ethical and competent organizational culture?
Presenting recent
developments in sustainability performance and sustainability reporting
and assurance, Corporate Sustainability sheds light on the
importance, relevance, and benefits of business sustainability and
accountability reporting in all areas of EGSEE performance.
Filled with features and
practical examples relevant to professionals of all levels, corporate
leaders, directors and executives, as well as auditors, practitioners,
and educators, this timely and essential book discusses:
- How organizations
focused on sustainability performance and accountability reporting
can reflect their key performance indicators (KPIs) in every area of
EGSEE business affairs
- The importance of
sustainability performance, reporting, and assurance
- The initiatives,
rules, regulations, and standards of performance and reporting
- Emerging issues and
best practices of sustainability performance, reporting, and
assurance
- Future trends in
sustainability performance
Organizations worldwide
recognize the importance of sustainability performance and
accountability reporting. However, how to actually implement
sustainability reporting remains a major challenge. Read Corporate
Sustainability and discover how to fully—and successfully—integrate
sustainability into your business's reporting and performance management
systems.
From the
Back Cover
Make sustainability
happen, Corporate sustainability is the responsibility of every
organization, not just a select few.
Corporate Sustainability
explores business sustainability and accountability reporting and their
integration into strategy, governance, risk assessment, performance
management, and the reporting process. Written by renowned experts in
the field of managing for sustainable performance, this important book
also highlights how people, business, and resources collaborate in a
business sustainability and accountability model.
Take a look inside for
essential guidance on:
- The case for
sustainability
- Best practices of
sustainability programs
- Sustainability risk
management
- The sustainability
reporting process
- Web-based corporate
reporting
- Promoting
transparency in financial reporting
- Global convergence
in corporate governance
- Corporate social
responsibility
- The ethical
dimension of sustainability
- Global
environmental initiatives and regulations
A significant
contribution on how to put sustainability principles to work,
Corporate Sustainability offers real-life tools and practices for
creating an authentic corporate framework for sustainability.
"Companies seeking to
embrace sustainability must navigate a thicket of policies and
standards, from ethical performance to environmental protection to
executive compensation—and do so transparently, comprehensively, and
globally. Ann Brockett and Zabihollah Rezaee have created a valuable
field guide to this brave new world of multiple bottom lines, providing
guidance on how companies can engender public trust and investor
confidence while pursuing their economic goals."
—Joel Makower, Executive Editor, GreenBiz.com, author,
Strategies for the Green Economy
"The Fields That Students Flock to During Recessions," by Josh Zumbrun,
The Wall Street Journal, July 16, 2015 ---
http://blogs.wsj.com/economics/2015/07/17/the-fields-that-students-flock-to-during-recessions/
Graduating into a recession stunts the careers of
the young men and women entering the labor market. But it turns out a lot of
students don’t sit back and passively accept this outcome: Many students who
see a recession during their early college years switch to majors with
better job prospects.
According to
new research from Benjamin
Keys at the University of Chicago, Brian
Cadena at the University of Colorado Boulder and Erica
Blom at Edgeworth Economics, the shifts can be
dramatic.
When the national unemployment rate rises by 1
percentage point, the share of women studying business rises by nearly
two-thirds of a percentage point. The share of women studying nursing climbs
by nearly a third of a percentage point. An additional quarter percentage
point switch into accounting. Meanwhile, enrollment in education, literature
and languages, sociology and psychology drops.
Jensen Comment
Accounting ranks number three from the top. It may well be on the top if it did
not take five years (150 selective credits) and a certification examination to
become a CPA. It is true that accounting firms are always hiring when the
economy goes up or down. However, in public accounting there's a lot of forced
turnover before employees are eligible to become partners. The secondary market
declines somewhat for accountants who do not become partners after working in
CPA firms for 5-10 years.
The low-ranking fields tend to be low ranking in boom or bust in the economy.
Also many high-ranking fields like nursing are high ranking in boom or bust.
Airbnb ---
https://en.wikipedia.org/wiki/Airbnb
AirBnB has a genius plan to steal more business from hotels ---
http://www.slate.com/blogs/moneybox/2015/07/21/airbnb_for_business_the_home_sharing_startup_wants_to_woo_corporate_clients.html#ixzz3gztKw2MY
Jensen Comment
Technology gives rise to new business models, and few are more dramatic than
Uber (transportation) and Airbub (apartment and home rentals). In my opinion
academic accountants have not kept pace with changing times in research or
classrooms or textbooks.
A noteworthy example is AirbuB.
What are the cost advantages and disadvantages of this new business model for
providers and users of these rental properties? When and where are the AirBub
competitions for traditional business and labor union models going to
become enormous over time? Why?
Whereas Uber is facing a lot of resistance in from labor unions and taxi
companies that rely on traditional business models, Airbub to date seems
to be getting a free pass when it seems to me that hotel labor unions and their
politician puppets should be up in arms. That may soon change as the competition
is increasingly taking a bite out of the revenues of hotels and time shares.
In any case I hope for more academic literature in research and teaching that
compares AirBub models with the traditional hotel models under varying locations
and circumstances (such as minimum wage differences). There should be more
guidance for providers of AirBub apartments and houses. For example, how does
liability insurance and casualty increase and why? Do insurance companies
already charge more for AirBub participation?
How do you calculate breakeven and prices? For example, AirBub does not compete
well with hotels in terms of very short term rentals, e.g., one night stands.
AirBuB competes very well in terms of monthly rentals. How about rentals more
than one day and less than 30 days?
Should hotels be offering new menus of choice. For example, should a Marriott
Courtyard offer differ rental prices for guests who want daily maid service
versus those that are willing to make their own beds and clean their own rooms
and bathrooms? Should Courtyard guests have an option of paying for swimming
pools and beaches?
There may be some data already available. For example, how do revenue and costs
differ between Marriott Residence Inns versus Courtyard and Fairfield Inns
As I study the
Inn at Sunset Hill down the road under new management it seems to me
that bed and breakfast inns should perhaps offer more pricing choices. For
example, guests that bring their own bedding and clean their own rooms could
perhaps be given lower rates. This is problematic from a cost accounting
standpoint. Outsourcing bedding laundry entails considerable fixed costs. It
costs just as much for laundry pick up whether the truck picks up bedding for 10
rooms versus 20 rooms. The marginal cost of washing the bedding for each room is
relatively low beyond the cost of picking up the laundry for one room.
My point here is that until costs of goods and services are analyzed it's easy
to be misled by superficial ideas on such matters.
Also perhaps the Inn at Sunset Hill should seriously consider providing rooms to
AirBub since competition is very keen up here among traditional bed and
breakfast inns.
The IRS Scandal, Days 701-800 ---
http://taxprof.typepad.com/taxprof_blog/2015/07/the-irs-scandal-days-701-800.html
Jensen Comment
This has gone on so long that it's easy to forget the main focus of the "IRS
Scandal" since months before the USA national election of 2014. The main focus
is whether the IRS acquiesced (eagerly) to White House requests to abuse the IRS
agency's powers to influence the outcome of the 2014 election. Beyond the
original IRS admission of trying to discourage Tea Party political donations,
the further scandal probably could have been put to bed if IRS executive Lois
Lerner had been willing to back her Congressional testimony by taking an oath
that she was telling the truth concerning not receiving her marching orders from
the White House. Instead when asked to take an oath she fell back on her
Fifth Amendment rights which have always been perceived as a signal of guilt.
What the Republicans really want is to embarrass the White House with evidence
that the the IRS was illegally used for partisan politics --- something
analogous to Nixon's Watergate. The scandal was exacerbated by the mysterious
disappearance of Lois Lerner's IRS emails.
So the Obama IRS wasn’t just persecuting
right-leaning nonprofits — it was out to prosecute them, too. And with the
help of the Obama Department of Justice and FBI.
Via Freedom of Information Act lawsuits, the
watchdog group Judicial Watch just got evidence of the plot. A “DOJ Recap”
on an Oct. 8, 2010 meeting tells how officials from the three agencies
discussed “several possible theories to bring criminal charges under FEC
law” against groups “posing” as tax-exempt nonprofits.
As part of the project, the IRS handed the FBI 21
computer disks with 1.23 million pages of confidential IRS returns from
113,000 nonprofit 501(c)(4) groups — nearly every 501(c)(4). This, though
federal law generally bans the IRS from sharing such data.
The evidence shows “that the Obama IRS scandal is
also an Obama DOJ and FBI scandal,” noted Judicial Watch President Tom
Fitton. “The FBI and Justice Department worked with Lois Lerner and the IRS
to concoct some reason to put President Obama’s opponents in jail before his
re-election. And this abuse resulted in the FBI’s illegally obtaining
confidential taxpayer information.”
Coninued in article
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
"SEC Issues Another Big Whistleblower Award," by Jaclyn Jaeger,,
Compliance Week, July17, 2015 ---
https://www.complianceweek.com/blogs/enforcement-action/sec-issues-another-big-whistleblower-award#.Va5davlkZLd
The Securities and Exchange Commission today
awarded a whistleblower more than $3 million to a company insider whose
information helped the SEC crack a complex fraud case. It is the third
highest award to date under the SEC’s whistleblower program.
“The whistleblower’s specific and detailed
information comprehensively laid out the fraudulent scheme, which otherwise
would have been very difficult for investigators to detect,” the SEC said.
“The whistleblower’s initial tip also led to related actions that increased
the whistleblower’s award
Continued in article
Is Whistleblowing a Moral Act?" by Steven Mintz, Ethics Sage,
July 14, 2015 ---
http://www.ethicssage.com/2015/07/is-whistleblowing-a-moral-act.html
Bob Jensen's threads on whistleblowing ---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing
"Los Angeles’ Garment Industry Frets Over (minimum wage) Pay Hike Some say
a $15 minimum wage, slated by 2020, will drive them out," by Eric Morath and
Alejandro Lazo, The Wall Street Journal, July 15, 2015 ---
http://www.wsj.com/articles/los-angeles-garment-industry-frets-over-pay-hike-1436986903?mod=djemCFO_h
Jensen Comment
One possible cost accounting student assignment is to compare relocation costs
and revised operating costs of various types of companies such as garment
manufacturing versus food processing versus food retailing versus furniture
assembly. A complicating factor is the underground cash economy. For example, in
garment manufacturing its somewhat common to hire home workers to sew on the
basis of completed job lots rather than hourly wages.
Hack Brief: Attackers Spill User Data From Cheating Site Ashley Madison
---
http://www.wired.com/2015/07/hack-brief-attackers-spill-user-data-cheating-site-ashley-madison/
"Hacker Pleads Guilty to Stealing Tax Filings from 4 CPA Firms," by
Michael Cohen, Accounting Today, July 7, 2015 ---
http://www.accountingtoday.com/news/tax-practice/hacker-pleads-guilty-to-stealing-tax-filings-from-4-cpa-firms-75123-1.html
A Bulgarian hacker has admitted to participating in
a $6 million fraudulent tax return scheme in which he used tax-filing
information stolen from at least four major CPA firms in the U.S.
Vanyo Minkov, 32, pleaded guilty Monday before U.S.
District Judge Jose L. Linares in a Newark, N.J., federal court to a
superseding information charging him with one count of conspiring to file
false and fraudulent tax return.
In late 2012, Minkov and other conspirators
allegedly hacked into the networks of at least four accounting firms and
stole the 2011 tax filings for over 1,000 of the firms’ clients. The names
of the accounting firms were not publicly identified by prosecutors, but
according to the 2013 indictment and the more recent superseding
information, one CPA firm was based in Connecticut, two of the others were
in California, and the fourth was in Pennsylvania.
Continued in article
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Commodities trader (Noble Group) has faced criticism for accounting
irregularities ---
http://www.wsj.com/articles/noble-group-launches-accounting-review-1436229173
SINGAPORE—Commodities trader Noble Group Ltd. will
launch an independent review into its accounting, which has come under some
scrutiny this year, the company said Tuesday.
The Hong Kong-based company will appoint four
nonexecutive directors and accounting consultant PricewaterhouseCoopers LLC
to conduct the review, it said in the statement.
Noble Group has faced heavy criticism this year
from several research firms, including U.S. short seller Muddy Waters, which
accused it of accounting irregularities. The company has denied any
wrongdoing.
The review will focus on Noble’s so-called
mark-to-market of fair value accounting, the company said. Mark-to-market
calculations, which are used to value assets, can include an element of
subjectivity when estimating future commodity prices and production, for
example. Noble’s critics say this practice led the company to report
stronger results than it should have in the past.
Coninued in article
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
YouTube ---
https://en.wikipedia.org/wiki/YouTube
YouTube Home ---
https://www.youtube.com/
YouTube Education ---
https://www.youtube.com/edu
From the CFO Journal's Morning Ledger on July 20, 2015
YouTube advertisers increase 40% in year
---
Top brands eager to reach millennial
consumers have boosted the number of advertisers on Google Inc.’s
video site by 40% in the past year, the Financial Times reports. YouTube
also said advertisers from the top 100 brands based on a ranking by
Interbrand were spending 60% more than last year.
Jensen Comment
This reveals the changing times in free communication, marketing, entertainment,
education, and training --- yes free education and training. YouTube is playing
a huge role in education and training as major universities and training
companies now have YouTube channels for a vast amount of training and education
videos.
See YouTube Education ---
https://www.youtube.com/edu
Especially note the featured channels
But featured channels are almost a miniscule part of what you can learn on
YouTube. For example, you can learn how to operate or trouble shoot almost any
device in the market by searching YouTube in a clever way. You can learn how to
do virtually anything in Excel via YouTube. You can learn how to analyze
financial statements and prepare tax returns on YouTube. In fact there is very
little that you cannot learn from YouTube.
My problem with YouTube learning is that it is less efficient than first
trying other sources, especially Wikipedia. You can efficiently scan millions of
Wikipedia modules with word searches and in many instances their table of
contents. For example, compare searches of the "Capital Asset Pricing Model" in
Wikipedia versus YouTube. Learning about the CAPM from YouTube takes much more
time than learning about this model from Wikipedia.
And Wikipedia does not advertise --- yet!
Wikipedia ---
https://en.wikipedia.org/wiki/Main_Page
How to Mislead With Statistics
Output Per Hour Worked in the USA
From the CFO Journal's Morning Ledger on July 17, 2015
For a decade, economic output per hour worked has
barely budged, and over the past two quarters it has fallen. That is, if you
consult the federal government’s formula for calculating productivity,
something that contrarian economists at Google Inc. and
Stanford recommend against, the
WSJ’s Timothy Aeppel reports. Google chief
economist Hal Varian says sluggish U.S. productivity doesn’t reflect a
high-tech wave of innovations that save people time and money. “There’s a
lack of appreciation for what’s happening in Silicon Valley,” he says,
“because we don’t have a good way to measure it.”
One measurement problem is that a lot of what
originates in America’s technology hub is free or nearly free. But the only
way goods and services move the official U.S. productivity needle is when
consumers and businesses pay for them. Anything free, no matter how much it
improves everyday life, isn’t included. Many in Silicon Valley say it is
just a matter of time before new innovations surface in salable products and
goose the official productivity tally. First, though, businesses must
harness the innovations to the products they sell. Driverless-car
technology, for example, won’t hit city streets for a while.
From the CFO Journal's Morning Ledger on July 16, 2015
The rest of this year should prove to be very
interesting in the ongoing debate over U.S. corporate tax reform. And of all
places, a seemingly mundane highway-funding bill that just cleared the House
is the starting point for what could turn into an end-of-year clash over
taxes on foreign earnings, among other matters, the
WSJ’s John D. McKinnon reports. House Ways and
Means Committee Chairman Paul Ryan (R., Wis.) wants to shore up the ailing
highway fund with a one-time slug of money from a rewrite of U.S. taxes on
American multinational firms’ foreign earnings. On its own, that’s not
likely to sound terribly palatable to CFOs who are holding their money
offshore specifically to avoid a tax hit. But Mr. Ryan aims to ease U.S. tax
rules for multinationals’ future foreign earnings at the same time.
In broad terms, Mr. Ryan aims to modernize the
much-criticized U.S. rules for taxing American multinationals to make them
more competitive with their foreign rivals. At 35%, the U.S. corporate tax
rate is among the world’s highest. The U.S. also continues to seek to tax
American firms on their foreign earnings, while most other developed
countries now tax only the profits earned within their borders. But the
relatively narrow overhaul that Mr. Ryan and others envision likely wouldn’t
seek to lower the basic U.S. rate. Instead, it would focus on easing the
rules for money earned in foreign countries.
Overhauling the U.S. business tax code has always
proved politically challenging, in part because many businesses themselves
are nervous about it. Some skeptical Democrats say Congress should find a
way to expand revenues to fund highways from fuel taxes or other user fees
instead.
From the CFO Journal's Morning Ledger on July 15, 2015
Toshiba executives likely to step down over accounting scandal
http://www.wsj.com/articles/toshiba-executives-expected-to-step-down-over-accounting-scandal-1436870307?mod=djemCFO_h
Toshiba Corp.
President Hisao Tanaka and several other executives are likely to step down
soon over an accounting scandal at the Japanese company involving profit
inflated by more than $1 billion. The other executives that people familiar
with the situation expect to leave Toshiba include Norio Sasaki, a former
president who is currently vice chairman. The board is also likely to
undergo significant membership changes.
. . .
Toshiba has detailed a number of cases in which
business units failed to book adequate costs for executing contracts,
causing the company to overstate profit. Toshiba said in June that it
would need to
reduce operating profit for the 2009 through
2013 fiscal years by a total of ¥54.8 billion. People familiar with the
matter said the figure has now ballooned to at least ¥150 billion ($1.2
billion). Toshiba declined to comment.
During those years, the company’s combined
operating profit totaled ¥1.05 trillion, so even at the higher level,
the reduction would amount to less than 15% of the company’s operating
profit over the five years.
Continued in WSJ article
Bob Jensen's threads on creative accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Manipulation
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
From the CFO Journal's Morning Ledger on July 13, 2015
Jeep-trial jurors skeptical of Chrysler’s safety efforts
http://www.wsj.com/articles/jeep-trial-jurors-skeptical-of-chryslers-safety-efforts-1436695202?mod=djemCFO_h
A Georgia jury that hit Fiat Chrysler
Automobiles NV with nearly $150 million in damages wasn’t swayed by
the auto maker’s argument that U.S. regulators had found its gas-tank
placement wasn’t a risk and didn’t require a recall.
Jensen Comment
Jeep looks and feels like a muscle car. But as a Jeep Cherokee owner I find
that's a facade. Each year I spend hundreds (and sometimes thousands) on my Jeep
that I mostly use to hall brush to the dump. The Jeep sits idle in my barn
all winter, because I don't trust driving it in the winter.
After the USA Government bailout in which Italy's Fiat took over Chrysler,
the poorly made Fiats never did take hold in the USA --- mostly because they are
even more poorly made than Jeeps. Now Fiat wants to sell Chrysler to GM, but GM
is not showing much interest.
In the bailout of Chrysler the USA Government put up over $1 billion in trust
to make good on Chrysler's stupid lifetime guarantees of Chrysler vehicle power
trains (the lifetime warranty does not apply to Jeeps).
Lifetime warranties are really dumb and are difficult to account for in the
financial statements.
I received 10 new batteries when K-Mart installed a new battery at no charge
in my Plymouth stationwagon in the 1970s. . For good reason K-Mart no longer
provides new replacement of batteries for the lifetime of the vehicle. I did not
get rid of my old Plymouth until it would only go in reverse after over 20
years of use. Plymouths were more reliable than Jeeps. And if I still
drove the Plymouth I would still be getting free new batteries from K-Mart.
From the CFO Journal's Morning Ledger on July 16, 2015
Ford to build new Lincoln Continental in Michigan
https://mail.google.com/mail/u/1/#inbox/14e9678b30d3dbc6
Ford Motor Co.
said the new Lincoln Continental luxury car will be built in Michigan,
marking a win for U.S. workers, as contract talks with the United Auto
Workers union kick into gear this week.
From the CFO Journal's Morning Ledger on July 10, 2015
Ford to move current small car production outside U.S.
http://www.wsj.com/articles/ford-to-move-current-small-car-production-outside-u-s-1436463445?mod=djemCFO_h
Ford Motor Co.
will move production of small cars from a plant in Michigan to a factory
outside the U.S. in 2018 in a new setback to efforts to create a market for
small cars made in the U.S. The move could put pressure on the United Auto
Workers union to temper demands for wage increases in upcoming contract
negotiations.
From the CFO Journal's Morning Ledger on July 9, 2015
A Resource Guide for Audit Committees
http://deloitte.wsj.com/cfo/2015/07/09/a-resource-guide-for-audit-committees/
Expectations for audit committees are higher than ever, and setting the
appropriate tone at the top has never been more important. Deloitte’s “Audit
Committee Resource Guide” includes regulatory requirements, leading
practices and questions for audit committees to consider as they execute
their responsibilities. It also includes tools and resources provided by
Deloitte LLP’s Center for Corporate Governance and other governance
organizations. The guide is a reference for both seasoned and new audit
committee members as they address areas such as oversight of internal
controls, financial reporting, risk, interaction with the internal and
independent auditors, and review of earnings press releases.
Continue »
Read more Deloitte Insights »
From the CFO Journal's Morning Ledger on July 9, 2015
Corporate America could use more competition
http://www.wsj.com/articles/why-corporate-america-needs-competitive-spirit-1436384494?mod=djemCFO_h
A decline in competition as market power becomes
concentrated in the hands of fewer companies is bad for innovation and
consumers. But policy makers can reverse the trend, writes Greg Ip. The
answer isn’t just tougher antitrust oversight, since mergers can be good for
customers and innovation, but for policy makers to take into account how any
new policy or rule helps or hurts new entrants to an industry.
When Benefits of Corporate Inversions Exceed Tax Benefits
From the CFO Journal's Morning Ledger on July 8, 2015
For U.S. firms that relocated abroad
before regulators cracked down on tax inversions, the benefits have turned
out to be greater than just a residence in a lower-tax jurisdiction.
Companies that got out while the getting was good have since enjoyed a
competitive advantage with regard to corporate takeovers, in part due to the
very regulations intended to block the inversions, the
WSJ’s Liz Hoffman reports. Since the Treasury
rules went into effect last fall, 55 U.S. companies have been sold to or
targeted by foreign buyers, many of those acquirers formed by inversions
themselves.
Take the case of Horizon Pharma PLC,
which completed its takeover of a small, closely held Irish drug company
last fall and then redomiciled in Dublin.
On Tuesday, Horizon went public with a $1.75
billion, all-stock takeover bid for Depomed Inc. Horizon
CEO Timothy Walbert said that buying Depomed, would generate “significant
operating and tax synergies,” or savings. Depomed paid 38% of its profits in
taxes last year, according to regulatory filings. Horizon is targeting a tax
rate in the low 20s over the longer term. Ireland has a corporate tax rate
of 12.5%.
LIBOR Reliability and Scandal ---
https://en.wikipedia.org/wiki/Libor
From the CFO Journal's Morning Ledger on July 8, 2015
No fix for Libor: benchmark still broken, regulators say
http://www.wsj.com/articles/libor-reform-has-not-gone-far-enough-says-regulator-1436195584?mod=djemCFO_h
A top U.K. regulator says efforts to overhaul the
London interbank offered rate, or Libor, haven't gone nearly far enough. The
U.S. Federal Reserve says Libor is no longer fit to serve as the market’s
main benchmark. And Intercontinental Exchange Inc., which
is in charge of reforming Libor, says it is
struggling to get enough support from the industry to
make the benchmark better.
Jensen Comment
This is an enormous problem for hedge accounting, especially when implementing
FAS 138
Illustrations in Bob Jensen's Tutorials ---
http://www.cs.trinity.edu/~rjensen/138EXAMPLES.htm
MF Global ---
https://en.wikipedia.org/wiki/MF_Global
John Corzine ---
https://en.wikipedia.org/wiki/Jon_Corzine
From the CFO Journal's Morning Ledger on July 8, 2015
Corzine, other ex-MF Global officials settle suit for $64.5 million
http://www.wsj.com/articles/SB10597066333209974492404581094100260070050?mod=djemCFO_h
Jon S. Corzine and other former MF Global
officials will pay $64.5 million to settle an investor lawsuit,
according to a court filing. The money from Mr. Corzine and former CFO Henri
J. Steenkamp will come from directors’ and officers’ insurance policies they
had while working at MF Global. The
Tuesday filing said the insurance money is
“being rapidly and continually depleted” by the litigation. Messrs. Corzine
and Steenkamp must provide proof of their reported net worth or the
plaintiffs can cancel the settlement, according to the filing.
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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"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
"Who Is The PwC Partner Responsible For MF Global? Someone With A Lot of
Baggage," by Francine McKenna, re:TheAuditors, June 14, 2013 ---
Click Here
http://retheauditors.com/2013/06/14/who-is-the-pwc-partner-responsible-for-mf-global-someone-with-a-lot-of-baggage/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ReTheAuditors+%28re%3A+The+Auditors%29
Bob Jensen's threads on the MF Global Scandal
Search for "MF Global" at
http://faculty.trinity.edu/rjensen/Fraud001.htm
PwC: In brief: Dodd-Frank clawback rule: recovery of erroneously
awarded compensation ---
http://www.pwc.com/us/en/cfodirect/publications/in-brief/sec-dodd-frank-clawback-rule-954.jhtml?display=/us/en/cfodirect/publications/in-brief
Greeks Vote No to EU Bailout Terms
From the CFO Journal's Morning Ledger on July 6, 2015
In a resounding “no” to austerity, Greeks
have called Europe’s bluff by refusing to endorse its latest bailout terms,
the WSJ reports. Greeks
overwhelmingly voted against their international creditors’ conditions for
further aid, in a result that could push the country closer to bankruptcy
and an exit from the euro. More than 61% of Greeks voted no in
Sunday’s referendum on austerity measures and other overhauls
that European and International Monetary Fund officials had demanded in
recent talks.
The stability of the eurozone could now hinge
on whether Greece and its creditors can find a way out of their dangerous
impasse. Hard-line
eurozone policy makers, led by
German Finance Minister Wolfgang Schäuble, believe that expelling Greece for
its recalcitrance would strengthen the eurozone and put pressure on other
economically underperforming countries—including Italy and France—to reform,
officials in Berlin say.
. . .
The outcome of the vote in Greece pushes the
eurozone
into unknown territory. And whatever the outcome,
it is unlikely to happen quickly. Eurozone governments are wary of
delivering a quick sweetheart deal to the victorious left-wing government of
Greek Prime Minister Alexis Tsipras. Such a deal would risk creating
incentives for insurgent movements elsewhere in the bloc to follow suit.
"Debt Isn’t Killing Greece. Its Leaders
Are The country was poised for 3% growth before Syriza took power. More debt
relief would reward loony policies," by Holger Schmieding, The Wall
Street Journal, July 17, 2015 ---
http://www.wsj.com/articles/greece-can-ease-its-debt-burden-with-reform-1437078320?tesla=y
Half the world seems to be obsessed with debt
relief for Greece. The farther observers are from Brussels, Berlin or
Frankfurt, the more they seem to believe that only a massive upfront
write-off of public debt can save Athens. Some proponents of such a
“haircut” have clear motives: Greece wants any relief it can get, and the
International Monetary Fund wants to safeguard its own exposure by asking
eurozone governments to take losses on their own debt holdings. But in many
cases, the haircut enthusiasts simply do not understand the basics.
Debt relief is only a side issue. Getting economic
policies right matters much more. A government that pursues radical
left-wing policies will suffer the same fate as the populists’ paradise of
Venezuela, whether it gets debt relief or not. A country that enacts serious
supply-side reforms can enhance its capacity to sustain debt via economic
growth and the fall in financing costs that comes with improving
credibility.
Continued in article
No Means Yes
Greece Agrees Its Third European Bailout After Marathon Talks ---
http://time.com/3955221/greece-bailout-marathon/?xid=newsletter-brief
The terms of the deal
are the harshest Greece has ever faced from its creditors
. . .
The details of the
agreement were sketchy. But even from the rough contours outlined at a press
conference on Monday morning, it was clear that Greece had bowed to nearly
all the demands of its creditor nations, especially Germany, and had taken
on commitments that would be extremely difficult for the Greek government to
fulfill without
losing the trust and support of its electorate.
Continued in article
Jensen Comment
A Greek friend on the AECM listserv mentioned, I suspect facetiously, a
few weeks back that since the then Greek Finance Minister, Yanis Varoufakis, was
an expert on game theory such that the "fatherland did not have a chance." His
exact words were:
In the current situation, I think Greece’s problem is mainly
what Bismarck said “three professors and the fatherland is lost”.
Perhaps Varoufakis resigned in advance of
the latest rounds of bailout negotiations to salvage his honor as a
game theorist in our Academy.
The real test now is whether the Greek
government will enforce its new austerity terms over the coming years.
June 14, 2015 reply from Tom Selling
Hi, Apostolos:
Thanks for
providing important context and perspective.
I didn’t
understand what you meant by the quote you attributed Bismarck, so I
spent 5 minutes on a google search. Permit me a technical addendum from
this Wikipedia article about the composition of the German parliament in
the 19th century:
The Frankfurt Assembly
(German: Frankfurter Nationalversammlung, literally Frankfurt
National Assembly) was the first freely elected parliament for all
of Germany,[1] elected on 1 May 1848
…
Because of this
composition [underrepresentation of the entrepreneurial class] the
National Assembly was later often dismissively dubbed the
Professorenparlament ("Professors' parliament") and ridiculed with
verses such as „Dreimal 100 Advokaten – Vaterland, du bist verraten;
dreimal 100 Professoren – Vaterland, du bist verloren!“[5]
("Three times 100 lawyers – Fatherland, you are betrayed; three
times 100 professors – Fatherland, you are doomed”.)
I think that you are saying
that the Germans are adopting a posture that, in their eyes, may be
theoretically sound, but will nonetheless fail. Am I correct?
Best,
Tom
From the CFO Journal's Morning Ledger on July 2, 2015
The four largest U.S. airlines—American
Airlines Group Inc., United Continental Holdings Inc.,
Delta Air Lines Inc. and Southwest Airlines Co.—have
confirmed that they are part of a Justice Department Probe into whether
airlines colluded on expansion plans,
the WSJ reports. Consumer advocates and
politicians contend that the industry is trying to extend its recent run of
prosperity by controlling capacity to keep airfares high.
While it wasn’t clear what triggered the
probe, airline executives have repeatedly said in recent months that they
would limit growth to protect profit margins. Those statements were in
response to broad declines in airline stocks, sparked by investor fears that
cheap fuel would prompt carriers to oversupply the market. While some
carriers have scaled back their growth forecasts, the industry overall is
still expanding the seats it offers at a healthy pace.
From the CFO Journal's Morning Ledger on June 29, 2015
The debt crisis in Greece approached a fateful climax
as its lenders were ordered to stay closed for six days starting
Monday and its central bank moved to impose
capital controls to prevent money from flooding out of the country,
the WSJ reports. The moves put Greece closer than
it ever has been to an exit from the euro and pushes the common currency
itself into uncharted waters ---
http://www.wsj.com/articles/SB11064341213388534269604581075703841095260?mod=djemCFO_h
The decision came after the European Central
Bank—meeting in an emergency session Sunday—opted not to expand a lifeline
of emergency funds that has been sustaining Greek banks while nervous
depositors pulled their money out. In response, European stocks slumped Monday
and the euro fell. Greece’s stock market will be closed for as long as banks
are not open to the public, the country’s Capital Markets Commission said.
On Athens’s rainy streets late
Sunday, many ATMs already had been emptied.
Jensen Comment
The ball now seems to be in the court of the Greek electorate that purportedly
is badly divided in terms of whether to accept an austerity deal from the EU or
to enter into uncharted chaos of withdrawing from the Eurozone. There are no
winners for the short-term future, and there's probably not a lot to be gained
from attributing blame as to how Greece got to this cliff edge.
Not enough voters in the USA are concerned that over $100 trillion in
unfunded entitlements (read that Medicare, Medicaid, and possibly free
college) and uncontrollable fraud may lead us to a similar cliff. It was sad
last night on CBS Sixty Minutes to learn from IRS officials that it may
be impossible to stop the hemorrhage of tens of billions of dollars from ID
theft phony tax returns. That fraud may alone may soon grow to hundreds of
billions of dollars, much of which is going to Russia, China, etc. See the Tax
Refund Scam at
http://www.cbsnews.com/videos/the-tax-refund-scam/
Another crisis in Greece is that Greece, along with Italy, is burdened with
tens of thousands of undocumented immigrants from African shores. The EU has a
new policy for relocating many of these arrivals to other parts of Europe, but
the new policy has no mechanism of enforcement unless other European nations put
out the welcome mat --- dream on. Will the USA put out the welcome mat for
undocumented immigrants in Italy and Greece? Many of them are probably already
close to the Rio Grande, but thousands are still begging for help in Greece and
Italy. The world seems to be at a social and economic brink at a time when
global leadership is at an all-time low amidst old tribal and religious strife
all over the world. The answer in Russia and North Korea and places unknown is
to build a bigger WMD arsenal. Remember the Kingston Trio lyric: "Someone
will set the spark off and we will all be blown away." ---
The Merry Minuet (slightly altered)
https://www.youtube.com/watch?v=bp6dsKleGpU
They're rioting in Africa.
The Russians build humungous tanks and kill more Ukrains. There's tornados in
the Midwest and Texas California needs rains.
The whole world is festering with unhappy souls. Kenyans hate Somolians.
Nigerians hate Bokos.
Americans hate ISIS. Greeks hate the Deutsch. And I don't like anybody very
moich!
But we can be tranquil and thankful and proud for man's been endowed with a
mushroom shaped cloud.
And we know for certain that some lovely day
someone will set the spark off and we will all be blown away.
They're raining rockets on Israel. We need nukes in Iran. What nature
doesn't do to us will be done by our fellow man
"SEC considers updating audit committee disclosure requirements," by
Ken Tysiac, Journal of Accountancy, July 1, 2015 ---
http://www.journalofaccountancy.com/news/2015/jul/sec-audit-committee-reporting-201512573.html
July 2, 2015 reply from Dennis Beresford
While the SEC Release is fairly long (55 pages) and lists 74 separate
questions on which it seeks comment, its scope is actually pretty limited.
As noted in the Release it is “focused on the audit committee and auditor
relationship.” In other words, of the many different responsibilities
of audit committees (see some of their published charters for examples), the
SEC is focusing on oversight of the independent auditor. The Release goes on
to say that “commenters may also provide views on other aspects of audit
committee disclosures, such as those related to roles and responsibilities,
audit committee qualifications, oversight of financial reporting, or
oversight of internal control over financial reporting. However, of the 74
questions on which comments are requested, only the last two are directed to
these “other aspects.”
As also noted in the Release, the Sarbanes-Oxley Act defines an audit
committee’s responsibilities as, “overseeing the accounting and financial
reporting processes of the issuer and audits of the financial statements of
the issuer.” While I am very supportive of improving audit committee
reporting, it’s disappointing to me that the SEC has chosen to overlook the
first part of that responsibility - oversight of the issuer’s accounting and
financial reporting processes – in this Release. While independent audits
can add value to the financial reporting process, if a company’s personnel
and processes aren’t doing things right in the first place it’s a big
problem. In my experience, the audit committee needs to and does spend
considerably more time keeping tabs on company financial management
(including internal audit, IT, risk management) than on overseeing the
external audit. We certainly did the appropriate things with respect to the
latter but the emphasis was always on the former.
Denny
"Instead of Converging Two Sacks of Mush, Let’s Reimagine What Accounting
Could Be," by Tom Selling, The Accounting Onion, July 6, 2015 ---
Click Here
http://accountingonion.com/2015/07/instead-of-converging-two-sacks-of-mush-lets-try-something-constructive.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29
Here is a summary of Chief Accountant James
Schnurr’s recent remarks regarding IFRS:
- Despite having been a national office
partner at Deloitte, and being closely involved with the firm’s
promotion of IFRS, he still needed to spend a considerable amount of
time since last October “researching and discussing IFRS.”
- He found that “constituents” still support
the objective of a single set of high-quality, globally accepted
accounting standards.
- A single set of high-quality, globally
accepted accounting standards is not attainable.
- The FASB and IASB should continue to make
efforts at convergence.
As ludicrous as that sounds already, two further
observations are in order. First, we know that many of the comments on the
record (written and oral) prior to Mr. Schnurr’s arrival began with some
sort of hosanna in support of a single set of globally accepted accounting
standards. Even the strongest critics of the SEC’s 2008 convergence
Roadmap proposal did it to avoid being sorted into
the “crank” comment letter pile. But, almost always, the hosanna had a
dangling qualifier: something like the U.S. must not lose its sovereignty
over financial reporting, or the U.S. must not compromise quality for the
sake of convergence, or the costs of getting there are far greater than the
benefits, yada yada.
My second observation is that Mr. Schnurr now
resurrects a mere platitude as the basis for continuing convergence efforts
without providing a single shred of supporting evidence. His
immediate predecessors were in spin mode for years against the decisively
negative feedback to the Roadmap proposal, but they didn’t have the luxury
of opacity. The law required the SEC to solicit comments, which became part
of the public record. Judgment day finally arrived when the SEC staff had
to finally issue its
report conceding that convergence was a practical
impossibility. The Chief Accountant announced his resignation, effectively
immediately, the day before the report was issued. About a year later he was
appointed to the FASB.
Clearly, SEC Chairperson Mary Jo White has been
stalling on the IFRS question for as long as she could get away with. She
is not interested in any more public discourse. Mr. Schnurr is doing nothing
more or less than carrying her water as best as he knows how — with emphasis
on opacity.
But, although, it may not matter too much, I have
been heartened by one voice of reason near the top of the SEC’s leadership.
What Can We Do That Could Actually Make a
Difference?
SEC Commissioner Kara Stein provided her own
assessment of the prospects for a single set of high quality accounting
standards. Even though her
remarks were
delivered months earlier, they read like a direct rebuttal of Mr. Schnurr:
Coninued in article
Jensen Comment
Many power centers are in favor on one set of global standards, including the
multinational CPA firms, the AICPA, probably the SEC, and many business firms.
Academics are split on the issue, but my reading is that most favor one set of
global standards.
The opposition to USA adoption of IFRS comes, in my opinion, from the major
clients of CPA firms who will have to foot the bill for the convergence,
training, rewriting of software, etc. Major business firms are opposed on
practical (e.g., cost) and theoretical grounds such as shifting the rule-making
power from the FASB and SEC to an international body controlled by many nations.
It's a little like shifting the USA lawmaking from the U.S. Congress to the
United Nations where all sorts of enemies of the USA will do everything they can
to harm the USA. I'm not saying that the IASB is out to hurt the USA (at least
not yet), but giving the IASB the power to set domestic accounting standards is
a worry in my opinion. Plus there are still some professionals in the USA that
think principles-based IFRS standards are weaker standards and will subject USA
businesses to more litigation costs in USA courts. Currently it's quite common
for business firms to take comfort in FASB bright lines that do not exist in
IFRS.
Important academics like Yale's Shyam Sunder have written a lot about
providing the IASB monopoly powers in setting global accounting standards ---
http://faculty.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Tom's article quoted above concludes as follows:
Two very different visions for the role of IFRS in
U.S. capital markets have recently emerged from the SEC. One of them makes a
clear-eyed assessment of the evidence, and it concludes that fundamental
change is called for. This could be the seeds for a constructive dialogue.
The other is a sack of mush.
Jensen Comment
For as long as I've known Tom he's been opposed to giving the IASB a
monopoly on setting global accounting standards, including USA accounting
standards.
I'm opposed to giving the IASB a monopoly over global standards. But
resistance is probably futile for the long run ---
http://faculty.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
From the CFO Journal's Morning Ledger on July 1, 2015
Accounting regulator proposes plan for naming audit partner
https://mail.google.com/mail/u/1/#inbox/14e492e5a128bef9
The Public Company Accounting Oversight Board formally
proposed an idea that could let U.S. investors know precisely who is in
charge of a company’s outside audit. Under the new rule, audit firms would
disclose the names of their individual “engagement partners” in charge of
each company’s audit, but in a less-prominent place than originally
contemplated.
From the CFO Journal's Morning Ledger on July
2, 2015
Fannie, Freddie CEOs to get $3.4 million raises
http://www.wsj.com/articles/fannie-freddie-ceos-to-get-big-pay-raises-1435760279
The chief executives of government-controlled
mortgage-finance firms Fannie Mae and Freddie Mac will get
multimillion-dollar paydays thanks to a massive raise approved by the
companies’ regulator.
Bob Jensen's threads on outrageous executive compensation ---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation
From the CFO Journal's Morning Ledger on July 1, 2015
Apple loses federal appeal in e-books case
http://www.wsj.com/articles/apple-loses-federal-appeal-in-e-books-case-1435673945?mod=djemCFO_h
A federal appeals court upheld a 2013 decision finding
Apple Inc. liable for conspiring with publishers to raise
the price of e-books. The iPhone maker is expected to pay $450 million, most
of it to e-book consumers, as part of a November agreement with private
plaintiffs and 33 states that joined the Justice
Department’s 2012 lawsuit accusing Apple of violating
civil antitrust law.
IMF: Greece's Debt Sustainability ---
http://www.imf.org/external/pubs/ft/scr/2015/cr15165.pdf
From the CFO Journal's Morning Ledger on July 1, 2015
For Greek currency, it’s about options
http://www.wsj.com/articles/for-greek-currency-its-about-options-1435715146?mod=djemCFO_h
Greece is poised between remaining a member of the eurozone or leaving it.
In fact, there are five possible future currency arrangements for Greece.
Greece stays in the eurozone. z
This is the option likely to cause the smallest short-term disruption to
the Greek economy. The Greek central bank would retain access to
liquidity from the European Central Bank, and Greek banks would stay on
life support. This looks increasingly likely to be accompanied by some
kind of further negotiated debt relief. To get it, Greece would almost
certainly have to agree to more conditions of the sort successive Greek
governments have found it hard to accept.
Greece keeps the euro, but sits outside the
eurozone.
Jacob Funk Kierkegaard, of the Peterson Institute for International
Economics in Washington, calls this the “Montenegro option” and argues
this is the most likely outcome for Greece. This wouldn’t be “a new
drachma, but Montenegro—i.e. Greece becomes just another relatively poor
unilaterally euroized non-EU Balkan economy,” he wrote.
In some ways, this would be the worst of all
worlds because Greece would lose access to the ECB. Countries using a
foreign currency as legal tender have no access to a lender of last
resort, which means that every bank liquidity crisis becomes a solvency
crisis. They therefore tend to have stunted domestic financial sectors,
which almost every academic study shows is bad for growth, or have a
banking system owned by foreigners, which exports the
lender-of-last-resort role to other countries’ central banks. (Mexico
didn’t adopt the dollar after the 1994-95 financial crisis, but in order
to avoid an undue shrinkage of its banking sector, it allowed most of
its banks to be bought by foreigners.)
A currency board.
In this case, Greece would create a new currency but lock it to the
euro, as Estonia did with the German mark in 1992 after it gained
independence from the Soviet Union. The amount of new drachmas in
circulation would be limited by the size of Greece’s international
reserves: about $5.8 billion at the last count. Advertisement
Advocates argue that this would impose
discipline on the Greeks; poor economic policies lead to an outflow of
reserves and, therefore, of the domestic monetary base, which pushes up
drachma interest rates, while good policies have the reverse effect. The
drawback is that again the central bank is limited in its
lender-of-last-resort powers because it can’t create money freely. It
also imposes discipline that, for now, may make it look unappetizing to
Greece’s current rulers. It isn’t much talked about, has a few
enthusiastic and long-standing cheerleaders, but is a theoretical
possibility.
A dual system.
Here the drachma and the euro would circulate side by side. This has
many historical precedents going back centuries. In practice, a dual
system is likely to emerge when the Greek government runs out of euros
and has to pay its domestic bills in government IOUs. The IOUs could at
some future date be redeemed in euros or could be eventually redeemed in
drachmas, but they would initially be euro-denominated obligations of
the government that would have a lesser value in the public mind than
euro notes or coins.
This state of affairs could continue for a long
time, but there is an economic tendency called Gresham’s Law: ”Bad money
chases out good.” Over time, euros would disappear from circulation
because people would hoard them as a store of value, and people would
spend the government IOUs. De facto, the drachma, whether or not it
would be so called, would become the main means of exchange.
The new drachma.
The move to the new drachma may not come with a bang, but gradually. But
an eventual formal switch of the currency would give Greece control over
its own monetary policy. However, a new currency would likely create
enormous short-term disruption, not least because a devaluation would
follow and the banks would in effect be insolvent.
From the CFO Journal's Morning Ledger on June 30, 2015
Next Up for Banks: Implementing New Regulations
http://deloitte.wsj.com/cfo/2015/06/30/next-up-for-banks-implementing-new-regulations/
Banks are shifting their focus from scrambling to comprehend a wave of new
regulations triggered by Dodd-Frank to the even bigger task of
implementation and compliance, according to a Deloitte Center for Regulatory
Strategies’ report. Learn some possible steps that banking institutions can
take as part of their continual efforts to meet heightened regulatory
expectations, as well as the importance of developing a strong risk culture.
Continue »
Read more Deloitte Insights »
But big employers are looking ahead to 2018, when a
hefty excise tax kicks in on generous employee health-care plans. The tax is
spurring them to consider moving workers to less costly plans, such as those
with high deductibles. The tax, meant to help fund insurance for the
previously uninsured under the Affordable Care Act, is 40% a year on the
amount by which employer-sponsored plans exceed $10,200 for individual
coverage and $27,500 for family coverage.
"The Accounting Faculty Shortage: Causes and Contemporary Solutions,"
Douglas M. Boyle, Brian W. Carpenter, and Dana R. Hermanson, Accounting
Horizons, Volume 29, Issue 2 (June 2015), pp. 245-264 ---
http://aaajournals.org/doi/full/10.2308/acch-50967
Not a free download
Abstract
The shortage of doctorally qualified accounting faculty has been a concern
for the accounting profession for many years (Plumlee, Kachelmeier, Madeo,
Pratt, and Krull 2006; Advisory Committee on the Auditing Profession [ACAP]
2008; Pathways Commission 2012; Plumlee and Reckers 2014). One potential
strategy for mitigating the shortage is the expansion of more flexible
doctoral programs that would allow interested practitioners the opportunity
to pursue doctorates without completely exiting the labor market (Trapnell,
Mero, Williams, and Krull 2009; Pathways Commission 2012; Association to
Advance Collegiate Schools of Business International [AACSB] 2013). The
success of this solution will depend largely on the acceptance of the
resulting candidates by the parties that would hire them. This study
examines factors associated with the accounting faculty shortage in general,
and more specifically with the perceived value of attracting practitioners
into more flexible doctoral programs as a means of potentially reducing the
shortage. Based on a survey of over 800 accounting faculty and
administrators, the results suggest that the expected future shortage of
doctorates will be more pronounced in smaller, public, and non-doctoral
institutions. Overall, faculty and administrators value attracting
practitioners into academia, but only moderately support the creation of
more flexible doctoral programs for such individuals. The perceived value of
attracting practitioners into academia and support for the creation of more
flexible doctoral programs are stronger in smaller, non-doctoral
institutions. Overall, the results
suggest that non-traditional doctoral programs may initially provide
graduates primarily for smaller, non-doctoral institutions, where the future
shortage of doctorates is expected to be most acute.
. . .
The survey results indicate that, overall, the
participants perceive a relatively high degree of value in attracting
practitioners into academia. Moderate support was expressed for the creation
of AACSB-accredited doctoral programs that would allow these practitioners
to pursue their degrees on a part-time basis. However, participants from
doctoral-granting institutions and larger institutions placed less value on
bringing practitioners into academia and were less supportive of flexible
programs. These findings imply that acceptance of graduates from flexible
programs is dependent upon the nature of the hiring institution, with
smaller, non-doctoral-granting institutions likely being most accepting of
such graduates. This is possibly in part because, as noted above, smaller,
non-doctoral institutions reflect the segment of the market facing a more
serious future faculty shortage. This segment of the market also is likely
to be open to a broader range of faculty research contributions beyond
top-tier basic research, which is the primary focus of traditional Ph.D.
programs and the focus of tenure requirements at doctoral-granting
institutions.
We also find that tenure-track faculty and
administrators have less positive views of non-traditional doctoral
education than lecturers. Thus, academic
support for non-traditional doctoral education is strongest in the group
that has the least power in the academic hierarchy, reflecting a potentially
important barrier to change in doctoral education.
Despite this challenge, non-traditional doctoral education appears to be
gaining some momentum in the academic marketplace, as evidenced by the
number of new programs being established.
The next section provides background information.
The following sections address the methodology, results, and discussion and
conclusion.
. . .
Specific support for such an expansion of
non-traditional approaches to doctoral education was recently expressed by
the Pathways Commission (2012), which also pointed to the important role of
practitioners in accounting education. Several of the Commission's
recommendations and objectives highlighted the value of integrating
accounting practitioners into the learning process. Specifically, objective
1.1 calls for academia to “integrate professionally oriented faculty more
fully into significant aspects of accounting education, programs, and
research” (Pathways Commission 2012, 11). In addition, the Commission noted
that the traditional full-time model for accounting doctoral education is
currently the “only one real path” to a terminal degree. To address this
issue, the Commission called for accounting educators to “develop mechanisms
to meet future demand for faculty by unlocking doctoral education via
flexible pedagogies in existing programs and by exploring alternative
pathways to terminal degrees that align with institutional missions and
accounting research goals” (Pathways Commission 2012, 31).
. . .
In terms of variations in perceptions across
groups, two main patterns appear most notable.
First, participants from larger institutions and those
with doctoral programs are less supportive of alternative paths to a
doctorate. However, this lower level of
support from larger institutions and those with doctoral programs may not
greatly impede the overall acceptance of alternative models, since the
aggregate negative impact of the faculty shortage appears to most heavily
reside with smaller institutions (Plumlee and Reckers 2014), consistent with
our survey results. Thus, the potential solution of attracting practitioners
into newly created part-time AACSB-accredited doctoral programs is more
strongly supported by the institutions that are most negatively impacted by
the shortage. Overall, while flexible doctoral education does not have
strong, broad-based support, it does appear that there is a match between
the institutions most exposed to the faculty shortage and those most
supportive of non-traditional doctoral education—namely, smaller,
non-doctoral institutions. Thus, it is reasonable to expect non-traditional
programs, at least initially, to primarily serve the faculty needs of
smaller, non-doctoral institutions.
Second, lecturers often have perceptions that are
quite different from those of the other academic ranks. In particular,
lecturers are much more supportive of alternative paths to a doctorate. This
finding highlights an important potential barrier to change, specifically
that the strongest proponents of flexibility in doctoral education are those
with the least power and influence in the academic hierarchy.
These results also suggest that further research
should be performed to better understand how the factors of faculty
retirement and accreditation requirements might be addressed to further
mitigate the growing shortage, as well as examining potential solutions for
the opportunity costs and significant time commitments for even the more
traditional pools of potential doctoral candidates. The highest-ranking
solutions to the faculty shortage included increasing the compensation for
doctorally qualified faculty, subsidizing the educational cost incurred by
practitioners who transition to academia, and reducing pressure on
doctorally qualified faculty to publish research. While compensation for
newly hired doctorally qualified accounting faculty has been on the rise,
further research is needed to examine and ensure the competitiveness of
faculty compensation at all ranks compared to other options within the
broader accounting profession. The ADS Program has provided sustainable
funding for early stage practitioners interested in pursuing doctoral study
in traditional full-time programs and focusing on audit or tax. The results
of this effort should be further studied and potentially replicated for
practitioners with higher levels of experience or in other areas of
accounting that are facing shortages of faculty. Additionally, the pressure
expressed by the participants to publish research warrants further
investigation, as the study's results indicate that such pressure was
perceived to be a significant contributing factor to the current shortage.
Investigating potential implementation issues related to all of these
possible solutions also provides a robust area for future research.
Other avenues for future research exist as well.
The AACSB recently implemented new faculty-qualification criteria, moving
from two categories (academically or professionally qualified) to four
categories of faculty. Future research can examine any effects of this
change on the faculty shortage or the remedies to the shortage. Also,
research may examine any effects within the college of business if
accounting departments move to hiring a larger number of non-traditional
doctoral faculty, while other business disciplines do not.
The findings and implications of the study should
be viewed in light of several limitations. First, while the sample size is
nearly 900 participants, it represents 12.4 percent of the population and as
such may not reflect the views of the entire population. A comparison of the
characteristics of the sample to the population indicates that the sample
appears to be similar to the population on several dimensions. In addition,
we note that the response rate appears reasonable in light of prior research
(e.g., Bailey et al. 2008). Second, those who elected to participate and
complete the survey may represent individuals who are more sensitive to the
accounting faculty shortage, and thus the results may reflect a heightened
perception of the shortage and different views of potential solutions than
may actually exist in the population. Third, participants were asked to
indicate the likely quality of part-time doctoral programs in accounting,
but these programs currently exist in a limited number. Thus, it is likely
that the majority of the participants have not had any direct exposure to
such programs and may be without a meaningful basis to make such an
assessment of quality.
The accounting faculty shortage has been of concern
for at least two decades. We hope that the insights provided in this study
will be useful to practitioners, faculty, administrators, and other parties
in better understanding and mitigating the shortage. The results of this
study suggest that there is perceived value in attracting practitioners into
academia and that there is a moderate support for the flexible programs that
may be required to attract practitioners in numbers great enough to notably
impact the current doctorate shortage, primarily at smaller, non-doctoral
institutions.
Jensen Comment
I would be more supportive of traditional accounting doctoral programs if they
were doing a better job. In truth they are generating accounting Ph.D.s who do
not understand the limitations of their models.
First of all accountics scientists have almost
zero interest in validating their findings ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm
Second they don't seem to understand the
limitations of their models
Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm
Third they don't seem to be aware of the limitations of their craft or the
power of non-traditional (read that non-mathematical) methodologies of research
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics
Science"
http://faculty.trinity.edu/rjensen/AccounticsWorkingPaper450.pdf
But at the moment all power for generating accounting Ph.D. graduates resides
with accountics scientists
Big Data ---
https://en.wikipedia.org/wiki/Big_data
It's a very complicated concept
From Accounting Horizons, Volume 29, Issue 2 (June 2015), pp. 377-476
---
FORUM: BIG DATA
July 6, 2015 reply from Jagdish Gangolly
I have not yet read these papers on big data, but
will sometime during the next month or so. Having had my foot in both
Accounting and Computing camps, sometimes I must wonder if, in Accounting,
it is just one more buzzword to be mastered. If it is so, I would most
vigorously oppose introducing it as a course at any level in Accounting.
Big data is a term used in computing for an
approach to processing data that is too Voluminous (bytes), of too high a
Velocity (transaction density), too Varied (data formats), too varied
(constantly changing focus), and high complexity (in terms of number of
sources, analytical models to be supported,...).
In the real world, Big data evolved because the
state of the art technologies (RDBMS with its query language) and their
associated data structures were not equipped to support these requirements
of high volume, dense, varied, and complex situations. In a sense it was a
regression to the older technologies with no underlying basic model (RDBMS
and its query language have a very sound mathematical basis with the former
in Logic/mathematics, and the latter in its property of relational
completeness of query languages).
In my humble opinion, accounting data is not
voluminous (I do not know of any accounting database larger than a petabye
or two (does any one on AECM know of such a database?), transaction
densities in most accounting systems are not very high (I do not know of any
accounting system where the transaction densities exceed a few million a
second). accounting data, in terms of data formats are rather quite simple
(numbers, letters, and a few fairly simple objects), And most analytical
modeling in accounting, there there is not much of it, is not complex as in
other domains (such as social networks, bioinformatics, and such where quite
complex machine learning models are common).
I stand to be convinced that Accounting needs Big
Data, but till now I am very sceptical and unconvinced. That does not mean
we should stand still or ignore what is happening with Big data. Big data is
probably gaining ground in areas peripheral to Accounting, such as in CRM,
supply chains, and similar areas where it makes sense. And so we need to
take notice. But I am not sure it is time to introduce it in the curriculum
when VERY few of us accounting academics have a good grasp of some newer
technologies such as Big Table, no-SQL, Hadoop,.... or even longstanding
machine learning techniques such as pattern recognition, computational
learning, dimensionality reduction, etc.
Big Data is the new fad in the corporate world, but
its foundations is just being developed as "Data Science". If we are to
introduce Big Data in our curriculum a decade or two from now, we must try
to introduce basic elements of Data Science first today. Engineers did not
start studying the emerging field suddenly, they started with basic sciences
such as Physics and Chemistry literally well over a century before
engineering was introduced into the undergraduate curriculum. The first
undergraduate engineering curriculum in the English speaking world was
introduced at the University Manchester only around 1910 or so, and one of
the first class graduate around 1914 (my grandfather, I am proud toi say was
in that class). But basic sciences were introduced over a century earlier.
Until we realise the above all we will be doing is
to use buzz words of Big Data to impress each other and appear erudite and
profoundly intellectual. Anf to teach our students how to use those
buzzwords to impress others.
And one last comment. Much of the work in Big Data
is based on open source/public domain technologies; domains which most of us
accounting academics have not just ignored but shunned in the past (how many
of us have used no-sql (such as MongoDB), Big Table, Hadoop,...?). Until we
have, Big Data will just be a buzzword for us.
Sorry for being pessimistic, but I think that is
the way things are now. Or at least as I see them.
Regards,
Jagdish
Jagdish S. Gangolly Department of Informatics
College Engineering & Applied Sciences State University of New York at
Albany 1400 Washington Ave Albany, NY 12222 Phone: 518-956-8251, Fax:
518-956-8247
July 6, 2015 reply for Patricia Walters
Denny, Jagdish, and Others:
In reading the responses to this thread, I felt it
might not be clear why Accounting Horizons was addressing this issue.
In September 2014, the AACSB published a white
paper on Accounting Accreditation Standard A7: Information technology skills
and knowledge for accounting graduations: An Interpretation.
Colleges, like TCU, with accounting programs that
are separately accredited need to abide by this standard. Standard A7
states:
"Consistent with mission, expected outcomes, and
supporting strategies, accounting degree programs include learning
experiences that develop skills and knowledge related to the integration of
information technology in accounting and business. Included in these
learning experiences is the development of skills and knowledge related to
data creation, data sharing, data analytics, data mining, data reporting,
and storage within and across organizations (Information Technology Skills
and Knowledge for Accounting Graduates)."
The Basis for Judgment states that accounting
degree programs should "integrate current and emerging accounting and
business information technologies throughout the academic curricula" and
that graduates of such programs should "demonstrate the ability to
effectively utilize technology, understand its capabilities, impacts, risks,
and opportunities. Finally, its states that "there will be a transitional
period of 3 years, from 2013-2016, related to this standards."
Here's an answer to one of the document's
"anticipated questions."
"Standard A7 may be interpreted to be primarily
focused on information technology and to a lesser extent to the areas of
data/business analytics. Is this the correct interpretation?
Since the approval of the revised standards in
2013, more clarity is emerging that reinforces the importance of Standard A7
and, moving forward, additional perspectives and guidance will emerge on the
learning expectations across these fields. In all cases, the response of an
accounting academic unit to Standard A7 must be based on its mission and
strategic management plan. The continuing evolution of big data,
data/business analytics, cloud computing, etc. strongly supports the dual
focus of Standard A7 relating to information technology issues and
developments in this dynamic environment but also to the analytical skills
and knowledge related to data management and analysis needed by accounting
graduates."
If other separately accredited accounting programs
are not implementing such courses, how are they planning to meet this
standard?
Pat
"The enemy within Rogue employees can wreak more damage on a company than
competitors," The Economist, July 25, 2015 ---
http://www.economist.com/news/business/21659776-rogue-employees-can-wreak-more-damage-company-competitors-enemy-within
. . .
The most familiar type of enemy within is the
fraudster. The Economist Intelligence Unit, a sister organisation of The
Economist, conducts a regular poll of senior executives on the subject of
fraud committed by insiders. In 2013 the poll discovered that about 70% of
companies had suffered from at least one instance of fraud, up from 61% in
the previous survey. Fraud is often petty: a survey of British employees for
YouGov in 2010 found that a quarter of staff eligible for expenses admitted
to inflating claims. But fraud can also be more audacious and more harmful:
think of former employees setting up rivals using stolen technology and
purloined client lists.
Even more dangerous than the fraudster is the
vandal. Thieves at least have a rational motive. Vandals are driven by a
desire for revenge that can know no limits. David Robertson of K2
Intelligence, a company that specialises in corporate investigation,
recounts the story of a British manufacturing company that was undergoing
restructuring. A member of the information-technology department discovered
that his name was on the list of people whose services would no longer be
required. He built a “backdoor” into the company’s IT system from his home
computer and set about wreaking damage—deleting files, publishing the chief
executive’s e-mails and distributing pornographic pictures.
Some enemies-within start out as star employees. A
striking number of the worst corporate scandals in recent years have been
the work of high-flyers who bend and then break the rules in order to please
their bosses. Barings, a collapsed British investment bank, showered Nick
Leeson with rewards before it discovered that he had produced his outsized
results because he took outsized (and unauthorised) risks.
Other enemies-within are the very opposite of
high-flyers. The HSBC execution squad are only the latest example of
low-level employees who have either wittingly or unwittingly used the power
of the internet to blacken their employer’s reputation. In April 2009 two
employees of Domino’s, a fast-food chain, posted videos of themselves
“abusing takeaway food”. And in July 2012 a Burger King employee posted
photos of himself online which showed him standing in a tub of lettuce in
filthy shoes along with the caption “This is the lettuce you eat at Burger
King”.
Continued in article
Jensen Comment
If employees do not get greedy and limit themselves to relatively small damages
to the company they are almost impossible to detect --- such as those that pad
expense accounts, use business vehicles for personal use, take home office
supplies, etc. The greater the greed the greater the risk.
Probably the most effective way to detect employee misdeeds is to reward or
at least encourage whistle blowing. This of course is no panacea "if everybody
is doing it." For example, if a lot of professors are attending phony research
conferences in Europe in order to partly fund family vacations it becomes less
likely that they will rat on each other.
Almost everything boils down to having internal controls. Universities are
notorious for lack of controls on most everything concerning faculty behavior
and performance. Professors do not check up on each other to see of data is
faked. Administrators generally do not inspect submitted receipts with a
magnifying glass. We pride ourselves on trust even though, as accounting
professors, we preach otherwise when it comes to internal controls that we teach
to our students.
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on managerial accounting and controls ---
http://faculty.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
Peter Schiff ---
https://en.wikipedia.org/wiki/Peter_Schiff
Life of a Financial Analyst Often in the Media: Win a Few Times,
Lose a Lot of Times ---
http://mutualfunds.com/news/2015/07/28/gold-is-it-really-likely-to-hit-5-000-an-ounce/
It’s worth noting that Schiff did accurately
predict in 2006 and again in 2007 that the U.S. economy would not be strong,
that the housing market would crash and that we would have high
unemployment.”
However, an article from U.S. News & World Report analyzing Schiff’s
forecasts about the crisis also found 12 ways
Schiff was wrong in 2008:
- Wrong about hyperinflation
- Wrong about the dollar
- Wrong about commodities except for gold
- Wrong about foreign currencies except for the
Yen
- Wrong about foreign equities
- Wrong in timing
- Wrong in risk management
- Wrong in buy-and-hold thesis
- Wrong on decoupling
- Wrong on China
- Wrong on U.S. treasuries
- Wrong on interest rates, both foreign and
domestic
By nearly any measure, sunny South Florida is tops in fraud ---
http://finance.yahoo.com/news/nearly-measure-sunny-south-florida-125838097.html#
Jensen Comment
Part of the problem is that so many Cuban immigrants fleeing Castro were highly
educated in professions like medicine and law. They prospered in the USA by
inventing ways to defraud Medicare, Medicaid, and the courts with piñatas of
punitive damages for phony liability claims.
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
From the CPA Newsletter on June 6, 2015
Retirement planning tactics that could be eliminated
The U.S. government may take action to eliminate three "loopholes" related
to retirement savings. These include back-door Roth IRA conversions, certain
"aggressive" tactics for claiming Social Security benefits and stretch IRAs.
Money magazine/Reuters
(6/30)
From the CPA Newsletter on June 29, 2015
Puerto Rico can't pay its debt, governor says
http://www.nytimes.com/2015/06/29/business/dealbook/puerto-ricos-governor-says-islands-debts-are-not-payable.html?_r=0
Puerto Rican Gov. Alejandro Garcia
Padilla said the commonwealth won't be able to pay approximately $72 billion
of debt. Government officials were working with creditors of the electric
authority to avert a default on a $416 million payment due
Wednesday.
The New York Times (tiered subscription model)
(6/28
Jensen Comment
Signs of more defaults to come. Chicago? Illinois? California? Major problems
seem to be debt piled up for overly generous, probably fraudulent, public
pensions? In the long-run there are more serious problems such as the drought in
California and other parts of the west like Nevada.
Forwarded by Sharon Garvin on June 30, 2015
Of possible interest to AECM members, here is a YouTube video some of
FASB's recent meeting:
Sharon Garvin
PWC: Financial and nonfinancial hedges: Significant changes to be
exposed ---
http://www.pwc.com/us/en/cfodirect/publications/in-brief/hedge-accounting-financial-nonfinancial-asc-815.jhtml?display=/us/en/cfodirect/issues/accounting-reporting
Jensen Comment
I especially enjoyed the part about hedging effectiveness of non-financial items
which must be really confusing to students.
"Police: Accountant stole $423K from client," by Eric Veronikis,
PennLive, June 29, 2015 ---
http://www.pennlive.com/midstate/index.ssf/2015/06/police_accountant_stole_423k_f.html
Police arrested a Red Lion accountant Monday for
allegedly pilfering $423,000 from a client, police said.
Shirley Cottrell, owner of Complete Business
Accounting, stole the money during the past 12 years from a company she
handled accounting duties for, according to police.
Police encouraged anyone who has hired Complete
Business Accounting to audit their accounts thoroughly and to contact their
local police department should they find any discrepancies.
Continued in article
Bob
Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
"Some Ernst & Young Audits Had Deficiencies, PCAOB Says, by Michael
Rapoport, The Wall Street Journal, June 30, 2015 ---
http://www.wsj.com/article_email/some-ernst-young-audits-had-deficiencies-pcaob-says-1435692093-lMyQjAxMTE1MDA2MTQwMzE0Wj
The government’s audit regulator found deficiencies
in 20 audits conducted by Ernst & Young LLP in the latest annual inspection
of the Big Four accounting firm.
The deficient audits found by the Public Company
Accounting Oversight Board represent 36% of the 56 reviewed by the board in
its 2014 inspection report of Ernst & Young, issued Tuesday. That is an
improvement from last year’s report, in which the board found 28 deficient
audits at E&Y out of 57 audits or partial audits surveyed, a deficiency rate
of 49%.
A deficiency, as defined by the PCAOB, means the
audit firm hadn’t obtained enough evidence to support its approvals of a
company’s financial statements and internal controls. It doesn’t mean the
financial statements are inaccurate or that the problems found haven’t since
been addressed.
In a statement, E&Y said it is “fully committed to
delivering high-quality audits.” The firm said it believes its audit quality
and that of the profession as a whole are “improving and we are committed to
continuing this process.”
Among the types of deficiencies the inspectors
found in E&Y’s audits were insufficient testing of controls related to
revenue recognition, problems with testing of controls related to oil and
gas properties and insurance reserves, and a failure to identify that a
company had miscalculated its loss on conversion of its convertible notes.
In two of the audits surveyed, E&Y revised its
opinion of the company’s internal controls after the inspection to issue a
negative opinion, the PCAOB said.
The PCAOB didn’t identify the companies involved in
each deficient audit, in accordance with its usual practice.
Continued in article
Bob Jensen's threads on Ernst & Young ---
http://faculty.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's threads on professionalism in auditing ---
http://faculty.trinity.edu/rjensen/Fraud001c.htm
Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 26,2015
Beware the Stock-Buyback Craze
by: John Waggoner
Jun 20, 2015
Click here to view the full article on WSJ.com
TOPICS: Stock
Buybacks
SUMMARY: Companies
are spending vast amounts of perfectly good capital to buy back their own
shares. Whether or not you think buybacks are a good way for companies to
spend their cash, the strategy of buying companies that have reduced their
shares through buybacks has worked well-except when buyback fever bursts. In
theory, buying back your own stock reduces the number of shares, thereby
making the remaining shares more valuable. But it isn't a precise formula:
Stocks can go down despite a buyback program. And companies can use
repurchased shares to pay executives and employees who get shares or options
as part of their compensation, so the share count remains more or less the
same despite the buyback program. Even when buybacks do reduce a company's
float and drive up the stock price, it is hard to argue that buying back
shares is a particularly wise use of a company's capital. After all,
management could use the money for more practical things that will expand
the business: research and development, for example, or new products.
CLASSROOM APPLICATION: This
is a good article about the current trends in stock buybacks, as well as its
impact on the company, its growth and strategy, and the financial
statements.
QUESTIONS:
1. (Introductory) What is a stock buyback? Why do some companies
choose to participate in stock buybacks?
2. (Advanced) How do stock buybacks affect a company's financial
statements? How is the transaction entered into the company's financial
records? What accounts are affected?
3. (Advanced) How is a business affected by the stock buyback? How
does it affect the company's stock price? How does it affect the company's
strategies and options for growth?
4. (Advanced) Why are stock buybacks so common now? Are certain
economic conditions encouraging this behavior at this particular time?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"Beware the Stock-Buyback Craze," by John Waggone, The Wall Street
Journal, June 20, 2015 ---
http://www.wsj.com/articles/beware-the-stock-buyback-craze-1434727038?mod=djem_jiewr_AC_domainid
Investing in companies that are buying back shares
is a time-tested strategy. But the rapid pace of buybacks is one reason for
caution.
Sometimes people do silly things with money,
particularly if everyone else is doing it. There simply is no other way to
explain the box-office success of “Avengers: Age of Ultron.”
Companies aren’t any different. Currently, they are
spending vast amounts of perfectly good capital to buy back their own
shares. And now you can buy mutual funds that invest in the biggest players
in the buyback craze.
Whether or not you think buybacks are a good way
for companies to spend their cash, the strategy of buying companies that
have reduced their shares through buybacks has worked well—except when
buyback fever bursts.
Chief executives can be just as faddish as anyone
else, and currently, corporate buybacks are what all the cool kids are
doing. Companies in the S&P 500 stock index bought back about $148 billion
of their own shares in the first quarter of 2015, says Howard Silverblatt,
senior index analyst at S&P Dow Jones Indices. That’s up from $132.6 billion
in the fourth quarter of 2014, although still shy of the $172 billion record
set in the third quarter of 2007.
The ETFs that buy stocks of companies engaged in
buybacks are “a twist on a traditional equity portfolio, and there’s plenty
of evidence that supports the rationale for the strategy,” says Stoyan
Bojinov, ETF analyst at ETFdb.com, an online guide to exchange-traded funds.
In theory, buying back your own stock reduces the
number of shares, thereby making the remaining shares more valuable. But it
isn’t a precise formula: Stocks can go down despite a buyback program. And
companies can use repurchased shares to pay executives and employees who get
shares or options as part of their compensation, so the share count remains
more or less the same despite the buyback program.
Continued in article
Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 26,2015
GOP's Rand Paul Calls For 14.5% Flat Tax
by: John D. McKinnon and Janet Hook
Jun 18, 2015
Click here to view the full article on WSJ.com
TOPICS: Taxation,
Flat Tax
SUMMARY: Sen. Rand
Paul is pledging to "blow up the tax code and start over" with a federal
flat tax of 14.5%. The plan would eliminate payroll taxes on workers, as
well as gift and estate taxes and all duties and tariffs. His flat tax would
apply to all personal income, including wages, salaries, dividends, capital
gains, rents and interest. It would exempt the first $50,000 of income for a
family of four. For businesses, Mr. Paul would adopt the same 14.5% rate.
Corporations currently pay at rates up to 35%, while small-business owners'
profits are taxed at rates as high as 39.6%.
CLASSROOM APPLICATION: This
article offers details of an example of a flat tax. You can use this to
compare and contrast with the current tax law.
QUESTIONS:
1. (Introductory) What is a flat tax system? What are the details
of the plan recommended by Rand Paul?
2. (Advanced) How does a flat tax differ from the current tax
system? What is the philosophy behind a flat tax?
3. (Advanced) What current tax law would remain the same under Sen.
Paul's plan? Why would some of the current law be retained, while much of it
would be eliminated?
4. (Advanced) How would individuals and businesses plan and operate
differently under a flat tax? What behaviors would it encourage and what
would it discourage? In contrast, what behaviors are encouraged and
discouraged with the current tax system?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Blow Up the Tax Code and Start Over
by Rand Paul
Jun 18, 2015
Online Exclusive
"GOP's Rand Paul Calls For 14.5% Flat Tax," by John D. McKinnon and Janet
Hook, The Wall Street Journal, June 18, 2015 ---
http://www.wsj.com/articles/gops-rand-paul-calls-14-5-flat-tax-1434587746?mod=djem_jiewr_AC_domainid
Sen. Rand Paul is pledging to “blow up the tax code
and start over” with a federal flat tax of 14.5%, as he seeks to boost his
support among conservatives in the Republican presidential field.
Tax plans increasingly have become a defining issue
for Republicans in the 2016 nomination fight, and Mr. Paul’s proposal
represents one of the more detailed—and aggressive—so far.
Mr. Paul said his plan, laid out on The Wall Street
Journal’s opinion pages, would reduce the government’s tax take by over $2
trillion over 10 years, or at least 5%, based on congressional revenue
estimates for 2016 to 2025. It would require substantial spending cuts to
avoid adding to deficits—an amount roughly equal to all deficit reduction
the federal government has done since 2010.
He predicted his plan would boost economic growth
by nearly a percentage point a year.
The plan would eliminate payroll taxes on workers,
as well as gift and estate taxes and all duties and tariffs. His flat tax
would apply to all personal income, including wages, salaries, dividends,
capital gains, rents and interest. It would exempt the first $50,000 of
income for a family of four.
The plan would eliminate many deductions but
preserve two widely used ones, for mortgage interest and charitable
contributions. One of the few targeted tax breaks it would retain is the
earned-income tax credit, a wage supplement for lower-income working
families.
For businesses, Mr. Paul would adopt the same 14.5%
rate. Corporations currently pay at rates up to 35%, while small-business
owners’ profits are taxed at rates as high as 39.6%.
To further accelerate economic growth, Mr. Paul
called for allowing the expensing of all capital purchases—deducting the
cost from income immediately—and eliminating the current complicated system
of depreciation.
The main aim of his plan would be to “turbocharge
the economy and pull America out of [its] slow-growth rut of the last
decade,” Mr. Paul wrote.
In an interview, Mr. Paul said the most distinctive
element of his plan compared with other flat-tax proposals is the idea of
repealing the payroll taxes on workers that are used to fund Social Security
and Medicare, leaving more money in workers’ pockets.
Continued in article
Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 26,2015
Welcome Back, Wal-Mart Greeters
by: Sarah Nassauer
Jun 19, 2015
Click here to view the full article on WSJ.com
TOPICS: Internal
Controls, Managerial Accounting, Shrink
SUMMARY: Wal-Mart
Stores Inc. is keeping a closer eye on the front door. Three years ago, the
retailing giant moved its "greeters" away from entrances in many stores so
they could do double duty directing shoppers to open registers or tidying
shelves. Now, it is experimenting with moving them back, in part to deter
theft. Wal-Mart is testing the approach in around 300 of its 4,500 or so
U.S. stores. It also has added "asset protection customer specialists" to
some door areas-employees tasked with the dual job of saying welcome with a
smile and deterring shoplifters by checking receipts before some shoppers
leave and giving a preliminary scan of merchandise being returned. The
renewed focus on "door presence" is part of Wal-Mart's efforts to improve
the profitability of its U.S. operations by making the stores friendlier,
keeping them well stocked, and reducing theft.
CLASSROOM APPLICATION: This
is a good managerial accounting article to show how internal controls
outside of the financial system can impact financial results.
QUESTIONS:
1. (Introductory) What is a Wal-mart greeter? Which of their duties
are most obvious to a customer? What other duties and responsibilities of
the greeter are not so obvious to customers?
2. (Advanced) What are internal controls? What are their purposes
in an organization? Why is establishing, implementing, and monitoring
internal controls an important part of management's duties?
3. (Advanced) How are the greeter's duties part of Wal-Mart's
internal control plan? What tasks do they do that impact the financial
success and security of the business?
4. (Advanced) Please give a few examples of what a greeter does and
how each of those duties ultimately relate to the financial statements.
5. (Advanced) What are the costs associated with having a greeter?
What are the potential gains or savings from having a greeter? Should the
company continue with the greeter position? Why or why not?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"Welcome Back, Wal-Mart Greeters," by Sarah Nassauer, The Wall Street
Journal, June 19, 2015 ---
http://www.wsj.com/articles/wal-mart-ushers-greeters-back-to-the-front-1434651944?mod=djem_jiewr_AC_domainid
To deter theft, and improve its customer service,
the chain is bringing back a Sam Walton invention.
Three years ago, the retailing giant moved its
“greeters” away from entrances in many stores so they could do double duty
directing shoppers to open registers or tidying shelves. Now, it is
experimenting with moving them back, in part to deter theft.
Wal-Mart is testing the approach in around 300 of
its 4,500 or so U.S. stores. It also has added “asset protection customer
specialists” to some door areas—employees tasked with the dual job of saying
welcome with a smile and deterring shoplifters by checking receipts before
some shoppers leave and giving a preliminary scan of merchandise being
returned, spokesman Brian Nick said.
The APCS, as they are known by employees, will wear
bright yellow vests, not the chain’s standard blue, he said.
The renewed focus on “door presence” is part of
Wal-Mart’s efforts to improve the profitability of its U.S. operations by
making the stores friendlier, keeping them well stocked, and reducing theft.
The company is also boosting wages for some employees to give them more
incentive to be more helpful and attentive, a sign that labor cuts in recent
years likely went too far.
Greeters are a storied part of Wal-Mart’s playbook.
Sam Walton created the role in the 1980s to offer a warm hello to customers
and act as “a warning to the thief,” according to the founder’s 1992
autobiography.
Continued in article
Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 26,2015
CFOs Attempt to Rally Risk Busters
by: Emily Chasan
Jun 23, 2015
Click here to view the full article on WSJ.com
TOPICS: Accounting
Careers, Auditing, Internal Audit, Internal Controls
SUMMARY: Many
corporate finance chiefs, facing worries ranging from cybersecurity threats
to new financial regulations, are trying to build up their company's first
line of defense: teams of internal auditors. Unlike external
auditors-outsiders who inspect a company's financial records-internal
auditors, often employees, report to senior management and the board of
directors. They evaluate a company's risk-management and control systems,
and recommend ways to improve them. These days, however, executives with the
right mix of skills for those tasks aren't easy to find. The number of job
openings for internal auditors posted with the Institute of Internal
Auditors has more than doubled from a year earlier, while the number of
résumés posted by job seekers is down 42%.
CLASSROOM APPLICATION: This
is an excellent article explaining the employment needs and trends in
internal auditing, as well as explaining how the positions' responsibilities
have evolved.
QUESTIONS:
1. (Introductory) What is an internal auditor's position in an
organization? What tasks do they do and what purposes do they serve? Why is
the internal auditing function so important?
2. (Advanced) How does internal auditing differ from external
auditing? Why are both needed?
3. (Advanced) How has internal auditing evolved in recent years?
What are the reasons for these changes?
4. (Advanced) What are the job prospects for an internal auditing
position? What is the supply and demand for candidates for the positions?
What are the necessary qualifications and experience? How have the changes
in internal auditing changed the qualifications for the position and the
supply of candidates for the positions?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"CFOs Attempt to Rally Risk Busters," by Emily Chasan, The Wall Street
Journal, June 23, 2015 ---
http://www.wsj.com/articles/cfos-attempt-to-rally-risk-busters-1435019117?mod=djem_jiewr_AC_domainid
Companies race to build up teams of internal
auditors, but the right mix of skills can be hard to find
Many corporate finance chiefs, facing worries
ranging from cybersecurity threats to new financial regulations, are trying
to build up their company’s first line of defense: teams of internal
auditors.
Unlike external auditors—outsiders who inspect a
company’s financial records—internal auditors, often employees, report to
senior management and the board of directors. They evaluate a company’s
risk-management and control systems, and recommend ways to improve them.
These days, however, executives with the right mix of skills for those tasks
aren’t easy to find.
The job has become “a very key role,” said Dan
Fairfax, chief financial officer of Brocade Communications Systems Inc.,
which last year completed a six-month search for a new internal-audit chief.
A competitor poached the previous one last year,
which Mr. Fairfax says is a sign of increasing demand for executives who can
mount proper responses to potential business risks.
The San Jose, Calif., data and storage networking
company, which has about $2.2 billion a year in revenue, has expanded its
requirements for the position in the past few years. It needed someone who
could quickly understand its operations and take a hard line on the need for
strong internal-control systems, but who could be “thoughtful” in finding
efficiencies, proposing changes and following through with them, Mr. Fairfax
said.
As finance chief, Mr. Fairfax had to explain to
Brocade’s head of human resources that he wasn’t being too picky and ask for
patience from the board’s audit committee as he kept searching for the right
executive.
In the end, Brocade hired Adrian Barry, an audit
executive with 20 years of experience in technology companies—most recently
as a vice president at rival networking company Aruba Networks Inc., a
Hewlett-Packard Co. unit.
“We couldn’t be happier, but it was a long road,”
Mr. Fairfax said.
Companies are coping with a growing regulatory
burden, including nearly 400 new rules issued under the 2010 Dodd-Frank Act,
provisions of the 2010 Affordable Care Act and new guidelines for
internal-control systems. That has upped the stakes on compliance.
Meanwhile, companies are facing the most severe
internal-auditor shortage in more than a decade, said Richard Chambers,
chief executive of the Institute of Internal Auditors, a Florida-based
professional group with more than 180,000 members.
“It’s a classic supply-and-demand dilemma,” said
Mr. Chambers.
The number of job openings for internal auditors
posted with the Institute of Internal Auditors has more than doubled from a
year earlier, while the number of résumés posted by job seekers is down 42%.
Continued in article
Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 26,2015
Netflix Plans 7-for-1 Stock Split
by: Maria Armental
Jun 24, 2015
Click here to view the full article on WSJ.com
TOPICS: Stock
Dividend, Stock Split
SUMMARY: Netflix
Inc. plans to split its highflying stock 7-for-1, a move intended to make
the shares more attractive to retail investors as the video streaming
company presses on with an ambitious international expansion.
CLASSROOM APPLICATION: This
article would be great to use for discussions of stock splits and stock
dividends because many of our students are customers of this company.
QUESTIONS:
1. (Advanced) What are Netflix's plans regarding its stock? What is
Netflix's reason for this decision?
2. (Advanced) What is a stock split? What is its impact on a
company's financial statements? What is a stock dividend? How does it impact
financial statements? How are stock splits and stock dividends similar? How
do they differ?
3. (Advanced) The article mentions both a stock split and a stock
dividend. Which of the two is this transaction? Why do you think it is
reported as both?
4. (Advanced) What impact do stock splits and stock dividends
typically have on the price of the stock? Why?
5. (Introductory) The article states that 7-for-1 stock splits are
unusual. Why?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Why Netflix's Stock Could Keep Running Post-Split
by Maureen Farrell
Jun 24, 2015
Online Exclusive
What Netflix's Stock Split Could Mean for Investors
by Maureen Farrell
Jun 23, 2015
Online Exclusive
Apple's 7-for-1 Stock Split Is 'Very Unusual'
by Paul Vigna and Steven Russolillo
Apr 23, 2014
Online Exclusive
Here's How Visa's Stock Split Will Affect the Dow
by Kristen Scholer
Jan 30, 2015
Online Exclusive
"Netflix Plans 7-for-1 Stock Split," by Maria Armental, The Wall Street
Journal, June 24, 2015 ---
http://www.wsj.com/articles/netflix-plans-7-for-1-stock-split-1435092497?mod=djem_jiewr_AC_domainid
Netflix Inc. plans to split its highflying stock
7-for-1, a move intended to make the shares more attractive to retail
investors as the video streaming company presses on with an ambitious
international expansion.
A dividend of six additional shares for each
outstanding share would be paid out on July 14. Shares would begin trading
at the new price the following day.
Netflix went public in 2002 and split its stock
2-for-1 in 2004.
Shares, which have nearly doubled in price since
the beginning of the year, surged in late trading to a record $703.50.
A 7-for-1 stock split is unusual. Apple Inc. did it
last year, and its stock has surged 37% since then, closing at $127.03 on
Tuesday.
Netflix’s shares, which traded just under $100 at
the beginning of 2013, closed Tuesday at $681.19.
While splits don’t change a company’s value, they
tend to generate renewed interest in the stock as the lower price makes it
more attractive to a larger group of investors, driving up the value.
Popular in the 1990s, stock splits had largely
fallen out of favor following the financial crisis. From 2008 through 2013,
only 12 S&P 500 companies, on average, split their stocks each year. Among
the S&P 500 companies that have split their stock this year are Visa Inc.
and Starbucks Corp.
Continued in article
Inheritance Tax ---
https://en.wikipedia.org/wiki/Inheritance_tax
Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 17, 2015
A New Tax Break for (Wealthy) Married Couples
by: Laura Saunders
Jul 11, 2015
Click here to view the full article on WSJ.com
TOPICS: Estate Tax,
Gift Tax, Trusts
SUMMARY: The
Internal Revenue Service recently released final rules detailing a generous
estate- and gift-tax break for married couples who don't set up expensive
trusts before death. The break, known as "portability," allows spouses to
pass nearly $11 million of assets to heirs free of estate tax. Without it,
many couples would qualify only for one estate-tax exemption instead of two.
CLASSROOM APPLICATION: This
is an excellent update for tax classes regarding portability of estate-tax
exemptions.
QUESTIONS:
1. (Introductory) What is estate tax? What is the current estate
tax exemption? Why does tax law allow for an exemption? Does it change? If
so, when?
2. (Advanced) What is portability? Why does tax law allow for it?
What advantages does it offer taxpayers? Which taxpayers would be benefited?
Who are not benefited?
3. (Advanced) What is the important tax-planning issue explained in
the article? Why is time of the essence? Why do many taxpayers miss the
filing and the deadline?
4. (Advanced) How is portability limited? What costs are required
to taking advantage of portability? Are these costs nominal, reasonable, or
exorbitant?
5. (Advanced) How do the estate tax rules relate to taxation of
gifts? How should taxpayers coordinate tax-planning of both areas together?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"A New Tax Break for Married Couples," by Laura Saunders, by Laura Sanders,
The Wall Street Journal, July 11, 2015 ---
http://www.wsj.com/articles/a-new-tax-break-for-married-couples-1436537358?mod=djem_jiewr_AC_domainid
You can’t take it with you, but it’s getting easier
to leave it to your heirs.
The Internal Revenue Service recently released
final rules detailing a generous estate- and gift-tax break for married
couples who don’t set up expensive trusts before death.
The break, known as “portability,” allows spouses
to pass nearly $11 million of assets to heirs free of estate tax. Without
it, many couples would qualify only for one estate-tax exemption instead of
two.
This exemption, which is indexed for inflation, is
$5.43 million per individual in 2015. This year, only a tiny fraction of
estates—about 4,000—are expected to owe taxes, according the data from the
Tax Policy Center, a nonpartisan group in Washington.
But the new rules come with crucial caveats,
experts say. “Individuals and advisers need to be aware that they must act
quickly after the first spouse dies,” says Laura Hirschfeld, an estate-tax
lawyer at McDermott Will & Emery in New York.
Continued in article
Forbes: IRS Announces 2015 Estate And Gift Tax Limits ---
http://www.forbes.com/sites/ashleaebeling/2014/10/30/irs-announces-2015-estate-and-gift-tax-limits/
. . . the federal estate tax exemption rises to
$5.43 million per person, and the annual gift exclusion amount stays at
$14,000.
2015 State Death Tax Exemption and Top Tax Rate Chart ---
http://wills.about.com/od/stateestatetaxes/fl/2015-State-Death-Tax-Exemption-and-Top-Tax-Rate-Chart.htm
EY: Worldwide Estate and Inheritance Tax Guide 2014 ---
http://www.ey.com/Publication/vwLUAssets/Worldwide-Estate-and-Inheritance-Tax-Guide-2014/$FILE/Worldwide-Estate-and-Inheritance-Tax-Guide-2014.pdf
Crowe Clark Whitehill: UK Inheritance Tax in a Nutshell ---
https://www.crowehorwath.net/uploadedfiles/uk/industries/private_clients/guide
to iht.pdf
Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 17, 2015
Google Takes Stricter Approach to Costs
by: Alistair Barr
Jul 14, 2015
Click here to view the full article on WSJ.com
TOPICS: Cost
Accounting, Managerial Accounting
SUMMARY: With
revenue growth ebbing, profit margins shrinking and shares flat, Google is
curbing hiring and seeking ways to run its sprawling empire more
efficiently. Google is a long way from cutting jobs and the company is still
growing. But the scrutiny on expenses is a significant change for a company
that long favored expansion and experimentation over bottom-line concerns.
Some employees cite examples of increased frugality, albeit at a workplace
that is luxurious compared with most others. Travel, supplies and events all
require more justification or approvals than in the past.
CLASSROOM APPLICATION: This
article offers a good example of a company using managerial accounting tools
to manage costs in an attempt to maintain/increase profitability.
QUESTIONS:
1. (Introductory) What is Google's current financial condition? How
has the situation changed in recent years?
2. (Advanced) What is a company's most recent profit margin? How
has Google's profit margin changed? What is the reason for this? How should
Google management approach this issue?
3. (Advanced) How has Google's approach to hiring employees changed
in recent times? What other expense categories are being examined and
changed?
4. (Advanced) What is a fixed cost and what is a variable cost? How
do they differ? What different approaches should managers take when a
particular expense is in one of those categories or the other?
5. (Advanced) In general, is the expense of employing employees a
fixed expense or a variable expense? What information would you need to
decide accurately? Which type of expense would Google employees likely be?
Why? How would this affect how Google manages hiring and employee totals?
6. (Advanced) In what areas is Google slowing or restricting
hiring, and in what areas is hiring continuing? Why? Show how Google could
use managerial accounting tools - segmenting and others - to effectively
analyze hiring and employment priorities.
7. (Advanced) The article states travel, supplies and events all
require more justification or approvals than in the past. What managerial
accounting tools could help the company analyze these expenses, manage the
spending levels, and help to keep track of spending throughout the year and
in total?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"Google Takes Stricter Approach to Costs," by Alistair Barr, The Wall
Street Journal, July 14, 2015 ---
http://www.wsj.com/articles/google-takes-stricter-approach-to-costs-1436827885?mod=djem_jiewr_AC_domainid
With revenue growth ebbing, profit margins
shrinking and shares flat, Google is curbing hiring and seeking ways to run
its sprawling empire more efficiently, according to recruiters, venture
capitalists and others familiar with the matter.
New Chief Financial Officer Ruth Porat, who joined
the company in late May, is active in the effort. Ms. Porat, who reduced
expenses and reallocated capital while CFO of Morgan Stanley, is involved in
an internal audit examining costs, revenue and accounting systems, according
to one of the people. She is looking to make her mark on what has become a
more stable but more complex company, another person said.
Google will offer an update on its expenses on
Thursday, when it reports second-quarter financial results after regular
trading hours and Ms. Porat is expected to speak during a conference call
with Google analysts for the first time. The company declined to comment for
this article.
The clearest sign of the new attitude: Google added
1,819 employees in the first quarter, bringing its total to 55,419. That was
the smallest increase since the final quarter of 2013; last year, Google
added an average of 2,435 employees per quarter.
For many years, Google teams assumed they could add
staff each year. Now, Google executives are selecting which groups can hire,
based on the company’s strategic priorities. Since late last year, many
Google teams have had to submit plans describing how additional employees
will produce specific business objectives, such as increased revenue or more
users.
Continued in article
Bob Jensen's threads on managerial and cost accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
Teaching Case in Taxation
From The Wall Street Journal Weekly Accounting Review on July 17, 2015
Energy Companies to Merge in $15.8 Billion Deal
by: Alison Sider and Chelsey Dulaney
Jul 14, 2015
Click here to view the full article on WSJ.com
TOPICS: Partnership
Taxation, Partnership Accounting, Master Limited Partnerships, Mergers,
Master Limited Partnerships, Mergers, Partnership Accounting
SUMMARY: A
partnership controlled by Marathon Petroleum Corp., a refinery and pipeline
company, will buy MarkWest Energy Partners LP for $15.8 billion in one of
the biggest oil-patch deals since crude prices began to slump last summer.
The deal will marry Marathon's oil pipeline network with MarkWest's business
separating natural gas into fuels such as propane and ethane. The deal is
the latest consolidation between energy partnerships, which don't pay
corporate income taxes but distribute their available cash to shareholders.
The need to keep these hefty payouts growing means the partnerships are
always looking to expand.
CLASSROOM APPLICATION: This
is a good example of a merger involving master limited partnerships.
QUESTIONS:
1. (Introductory) What is a partnership? What are the other forms
of doing business? How do they differ? How does partnership accounting
differ from accounting for other forms of doing business?
2. (Advanced) What is a master limited partnership? What tax laws
apply to these types of partnerships?
3. (Advanced) What are the benefits of MLPs? What challenges are
associated with them? Why would a business choose this form of doing
business?
4. (Advanced) What is a merger? Why are these partnerships
interested in this kind of deal?
5. (Advanced) How will this transaction be entered into the
accounting records? What accounts will be affected? How will it impact the
financial statements?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Marathon Takes Gold With MPLX and MarkWest
by Liam Denning
Jul 14, 2015
Online Exclusive
"Energy Companies to Merge in $15.8 Billion Deal," by Alison Sider and
Chelsey Dulaney, The Wall Street Journal, July 14, 2015 ---
http://www.wsj.com/articles/mplx-to-buy-markwest-energy-creating-4th-largest-mlp-1436785264?mod=djem_jiewr_AC_domainid
A partnership controlled by Marathon Petroleum
Corp. , a refinery and pipeline company, will buy MarkWest Energy Partners
LP for $15.8 billion in one of the biggest oil-patch deals since crude
prices began to slump last summer.
The deal will marry Marathon’s oil pipeline network
with MarkWest’s business separating natural gas into fuels such as propane
and ethane.
The combined company would have a market
capitalization of $21 billion, making it the fourth-largest master limited
partnership. These partnerships, which typically own infrastructure like
pipelines that earn steady revenue from long-term contracts, have fared
better than traditional drilling companies during the energy downturn but
still have faced headwinds.
Shares of MPLX closed 15% lower to $59, while
shares of MarkWest rose nearly 14% to $68. Shares of Marathon Petroleum
Corp. rose 7.9%.
The deal is the latest consolidation between energy
partnerships, which don’t pay corporate income taxes but distribute their
available cash to shareholders. The need to keep these hefty payouts growing
means the partnerships are always looking to expand.
Gary R. Heminger, Marathon’s chief executive, said
the deal would allow the partnership to boost its annual distribution by 25%
through 2017.
“The combination significantly increases our size,
scale and the opportunity to grow over a very long period of time,” Mr.
Heminger told analysts during a conference call on Monday.
Continued in article
Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 17, 2015
A Resource Guide for Audit Committees
by: Deloitte CFO Journal Editor
Jul 09, 2015
Click here to view the full article on WSJ.com
TOPICS: Audit
Committees, Auditing
SUMMARY: For audit
committees, expectations are higher than ever and setting the appropriate
tone at the top has never been more important, but getting it right is no
small undertaking. Shareholders and other interested parties rely on audit
committees to execute their oversight duties while keeping up with an
increasingly complex financial reporting environment and an ever-changing
regulatory landscape. The Audit Committee Resource Guide includes regulatory
requirements, leading practices and questions for audit committees to
consider as they execute their responsibilities.
CLASSROOM APPLICATION: This
article offers a good explanation of the oversight responsibilities of audit
committees.
QUESTIONS:
1. (Introductory) What is an audit committee? Why do companies have
audit committees?
2. (Advanced) What are an audit committee's responsibilities
regarding the financial reporting process? What value does this offer to the
financial statements?
3. (Advanced) Besides financial statements, what other reporting
does an audit committee oversee? How involved are the committee members in
the process?
4. (Advanced) What does an audit committee do regarding ethics of
the company? What does it do regarding fraud prevention and detection?
5. (Advanced) In general, what are the responsibilities of internal
auditors? What are the responsibilities of external auditors? How should the
audit committee be involved with internal and external auditors?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"A Resource Guide for Audit Committees," by Deloitte CFO Journal Editor,
The Wall Street Journal, July 9, 2015 ---
http://deloitte.wsj.com/cfo/2015/07/09/a-resource-guide-for-audit-committees/?mod=djem_jiewr_AC_domainid
For audit committees, expectations are higher than
ever and setting the appropriate tone at the top has never been more
important, but getting it right is no small undertaking. Shareholders and
other interested parties rely on audit committees to execute their oversight
duties while keeping up with an increasingly complex financial reporting
environment and an ever-changing regulatory landscape.
“The experience and judgment of an audit committee
member is important to management and shareholders who depend on them to
appropriately execute their governance responsibilities. To fulfill their
responsibilities, audit committees need a clear understanding of what is
required by the committee‘s charter, NYSE and NASDAQ listing requirements,
and relevant SEC and PCAOB rules,” says Larry Patrick, an audit partner and
national managing partner of audit committee programs and client matters at
Deloitte & Touche LLP.
Deloitte’s
Audit Committee Resource Guide
includes regulatory requirements, leading practices and questions for audit
committees to consider as they execute their responsibilities. It also
includes tools and resources provided by Deloitte’s Center for Corporate
Governance and other governance organizations. The guide is a reference for
both seasoned and new audit committee members as they address areas such as
oversight of internal controls, financial reporting, risk, interaction with
the internal and independent auditors, and review of earnings press
releases.*
Continued in article
Audit Committee Resource Guide ---
http://www2.deloitte.com/content/dam/Deloitte/us/Documents/center-for-corporate-governance/us-aers-audit-committee-resource-guide-2015-032615.pdf
Teaching Case on Audit Committees and Corporate
Governance
From The Wall Street Journal Weekly Accounting Review on February 6, 2015
Meet the Corporate Board's 'Kitchen Junk Drawer'
by: Michael Rapoport and Joann S. Lublin
Feb 03, 2015
Click here to view the full article on WSJ.com
TOPICS: Audit Committees, Sarbanes-Oxley
SUMMARY: As new risks multiply, the audit
committee has become the "kitchen junk drawer" for many corporate boards.
The workload of the powerful committees has expanded sharply beyond their
core role of overseeing a company's financial reporting. They are grappling
with new regulations, whistleblower claims and issues like cybersecurity and
foreign corruption. In addition, the Securities and Exchange Commission is
expected to suggest new rules by the end of next month requiring them to
disclose more about their activities.
CLASSROOM APPLICATION: This is an excellent
article on audit committees for financial accounting classes, as well as for
auditing and forensic accounting classes.
QUESTIONS:
1. (Introductory) What is an audit committee? What are their
duties? Why are audit committees important?
2. (Advanced) What is the Sarbanes-Oxley Act? How has it affected
the work of audit committees?
3. (Advanced) How have the duties of audit committees expanded in
recent years? What are the reasons for this?
4. (Advanced) What qualifications should a company seek in a member
of the audit committee? As top management in a business, how would you
attract these kinds of people? What benefits could they add to your
business?
5. (Advanced) What does the SEC expect to release regarding the
activities of audit committees? What could this change? Would it increase
responsibilities of the audit committee or relieve some of their burdens?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Meet the Corporate Board's 'Kitchen Junk Drawer'," by Michael Rapoport and
Joann S. Lublin, The Wall Street Journal, February 3, 2015 ---
http://www.wsj.com/articles/meet-the-corporate-boards-kitchen-junk-drawer-1422933078?mod=djem_jiewr_AC_domainid
Workload of the Audit Committee Has Expanded Well
Beyond Oversight of Financial Reporting.
As new risks multiply, the audit committee has
become the “kitchen junk drawer” for many corporate boards.
The workload of the powerful committees has
expanded sharply beyond their core role of overseeing a company’s financial
reporting. They are grappling with new regulations, whistleblower claims and
issues like cybersecurity and foreign corruption. In addition, the
Securities and Exchange Commission is expected to suggest new rules by the
end of next month requiring them to disclose more about their activities.
“It’s not the favorite committee,’’ says Fredric
Reynolds, a retired CBS Corp. chief financial officer and audit committee
chairman at Mondelez International Inc. To attract committee members, he
sometimes promises relatively short stints: “You’ll be released for time
served and good behavior,’’ he tells directors.
Mr. Reynolds estimates he spends 100-plus hours a
year on Mondelez’s audit committee. One key part of that is the audit
committees’ oversight of whistleblower complaints, which is required by the
2002 Sarbanes-Oxley Act. The vast majority are from people frustrated with
their work colleagues, he adds. But when there’s smoke, “you don’t know if
it’s fire.”
The speed and complexity of business and risk
oversight “are stretching and straining many audit committee agendas,”
according to a global survey of audit committee members released last week
by accounting firm KPMG. Three-quarters of the 1,500 respondents said the
amount of time required to carry out their responsibilities has increased at
least “moderately” over the past two years.
Serving on an audit committee “has taken more time
than I expected,’’ says a former tech-industry finance chief who sits on the
board of a fast-growing community bank.
Continued in article
Bob Jensen's threads on Audit Committee Professionalism ---
http://faculty.trinity.edu/rjensen/Fraud001c.htm#AuditCommittee
Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 17, 2015
Microsoft Write-Down Stokes Valuation Concerns
by: Kimberly S. Johnson
Jul 09, 2015
Click here to view the full article on WSJ.com
TOPICS: Acquisitions,
Goodwill, Write-Down
SUMMARY: Finance
chiefs may need to tread more carefully when pricing acquisitions, to avoid
hefty write downs at a later date. Microsoft Corp.'s $7.6 billion write-down
of its 2014 acquisition of Nokia's handset business is the latest, and among
the largest in the tech industry in recent years. Hewlett-Packard Co. wrote
down $8.8 billion in 2012 on its acquisition of U.K. software maker
Autonomy. A year prior, the company wrote down $885 million based on its
2010 Palm acquisition.
CLASSROOM APPLICATION: This
article is appropriate for financial accounting, especially coverage of
goodwill and write-downs.
QUESTIONS:
1. (Introductory) What is goodwill? How is it related to
acquisitions? Why do they occur?
2. (Advanced) What is a write-down? What are the details of
Microsoft's write-down? Why did the company have to do a write-down?
3. (Advanced) Are write-downs problematic in all situations? How
can write-downs be avoided? What should management be doing to manage these
situations?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"Microsoft Write-Down Stokes Valuation Concerns," by Kimberly S. Johnson, The
Wall Street Journal, July 9, 2015 ---
http://blogs.wsj.com/cfo/2015/07/09/microsoft-write-down-stokes-valuation-concerns/?mod=djem_jiewr_AC_domainid
Finance chiefs may need to tread more carefully
when pricing acquisitions, to avoid hefty write downs at a later date.
Microsoft Corp.’s $7.6 billion write-down of its
2014 acquisition of Nokia ’s handset business is the latest, and among the
largest in the tech industry in recent years. Hewlett-Packard Co. wrote down
$8.8 billion in 2012 on its acquisition of U.K. software maker Autonomy. A
year prior, the company wrote down $885 million based on its 2010 Palm
acquisition.
Sale premiums are typically higher on technology
assets, because they’re “priced on growth, rather than near-term
profitability,” said Glen Kernick, technology industry leader at Duff &
Phelps Corp., a valuation and corporate finance advisory firm.
“Tech companies are carrying a higher proportion of
goodwill…with allocations of greater than 50%,” he said. “Deals and
valuations are premised on risker synergies and future technologies.”
Five information technology companies in the S&P
500 recorded goodwill impairment charges or write-downs during their 2014
fiscal year, according to S&P Capital IQ. Communications equipment maker
Juniper Networks Inc. recorded the largest goodwill impairment in 2014, $850
million, for its security reporting unit.
Yahoo Inc. took an $88.4 million impairment hit in
2014 based on the value of its units in the Middle East, India and Southeast
Asia, according to a regulatory filing.
In 2013, Earthlink Holdings Corp. and Applied
Materials Inc. reported the largest tech write-downs, according to Duff
&Phelps, at $256.7 million and $224 million, respectively. The companies did
not return requests for comment.
Mr. Kernick said he expects to see more tech
company impairment charges as valuations in certain parts of the sector are
getting “a little frothy.” Pricing for cloud-computing and mobile payment
companies are worth watching, he said.
Continued in article
Bob Jensen's threads on the controversies of fair value accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#FairValue
Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 24, 2015
L.A.'s 'Red-Hot' West Side Story
by: Matt Hudgins
Jul 22, 2015
Click here to view the full article on WSJ.com
TOPICS: 1031
Exchange, Capital Gains Tax, Tax Planning, Taxation
SUMMARY: The
founder and president of California Landmark, Ken Kahan, purchased and razed
a circa-1950 apartment complex in 2003 to make way for the on Villa Montana
project, which he completed in 2005. That same year, Mr. Kahan obtained
local and state approvals to divide the property into condominiums. He built
as a condo play and could have exited at that time, since the market was
very hot, however, he would have paid ordinary income taxes on any sale
proceeds. As an alternative to condominium sales, Mr. Kahan decided to
operate the complex as rental apartments. And by selling the 20 units as a
single, income-producing property, he will have the option to reinvest the
proceeds via a tax-deferred exchange. Regulated under Section 1031 of the
federal tax code, a so-called 1031 exchange enables a seller to avoid paying
capital-gains tax on proceeds from the sale of certain business or
investment properties, as long as the seller reinvests those funds in a
similar property.
CLASSROOM APPLICATION: This
is an excellent article to show how tax planning influences business
decisions and how deals are structured. This particular case involves a 1031
exchange of real estate.
QUESTIONS:
1. (Introductory) What aspect of real estate is the focus of this
article? What are the details of Ken Kahan's real estate transaction? How
does Mr. Kahan's transaction fit into the main idea of this article?
2. (Advanced) What is a 1031 exchange? How must the deal be
structured? What are the tax benefits?
3. (Advanced) How did the tax law regarding a 1031 exchange
influence Mr. Kahan decisions regarding Villa Montana when he built it? How
did he structure the sale for better tax treatment?
4. (Advanced) How did Villa Montana's buyer structure the deal to
take advantage of the tax law?
5. (Advanced) How can tax law influence aspects of a business deal?
How could the price negotiations be influenced by tax advantages or
consequences? How is the real estate market affected by 1031 exchanges in
particular?
6. (Advanced) Why is the 1031 exchange a part of U.S. tax law? What
purpose does it serve? Who is benefited?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"L.A.'s 'Red-Hot' West Side Story," by Matt Hudgins, The Wall Street Journal,
July 21, 2015 ---
http://www.wsj.com/articles/l-a-s-red-hot-west-side-story-1437497963?mod=djem_jiewr_AC_domainid
Even though apartment rents in Los Angeles have
risen 20% over the past five years, some real-estate investors are betting
that rents still have more room to grow.
That partly explains why earlier this month,
investor and developer Darius Joe Meraj paid $20.1 million for Villa
Montana, a 20-unit apartment complex in the affluent Los Angeles
neighborhood of Brentwood. The price works out to more than $1 million per
unit, the highest price ever paid in the city for apartments not directly
adjacent to the beach. Moreover, the price is four times the
$223,122-per-unit average price that Los Angeles apartments sold for in
2014, according to Real Capital Analytics, a New York-based researcher.
The deal “shows how red-hot the west side of Los
Angeles is,” said Ron Harris, one of the Marcus & Millichap brokers who
represented the seller, California Landmark Group.
But monthly rents at Villa Montana already far
surpass the norm. Rents in the 90049 ZIP Code, which includes Brentwood,
averaged $3,200 a month in the second quarter this year, up from $2,984 a
month in the second quarter last year, according to Marcus & Millichap. The
average rent in Villa Montana is close to $5,000 a month, Mr. Harris said.
A marketing package that Marcus & Millichap sent to
potential buyers stated that Villa Montana’s new owner would have “the
opportunity to increase rental price points by approximately 19% to 20%
through aggressive management and by instituting a minor upgrade program to
the flooring, countertops and appliances.”
Continued in article
Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 24, 2015
Accounting Roundup-Second Quarter 2015 in Review
by:
Deloitte CFO Journal Editor
Jul 17, 2015
Click here to view the full article on WSJ.com
TOPICS: FASB, Financial Accounting, GAAP, GASB, Governmental
Accounting, IASB
SUMMARY: The second quarter of 2015 was a productive one for the
Financial Accounting Standards Board (FASB). The Board made significant
progress on its simplification initiative and amended certain aspects of the
joint FASB-IASB revenue standard. Governmental Accounting Standards Board (GASB)
issued three Statements related to pensions and other postemployment
benefits as well as a Statement that simplifies the GAAP hierarchy for state
and local governments. On the international front, the IASB issued an
exposure draft that would defer the effective date of its counterpart
revenue standard, IFRS 15. The IASB also issued a series of amendments to
its IFRS for Small- and Medium-sized Entities as well as proposals that
would (1) revise its conceptual framework for financial reporting and (2)
make narrow-scope amendments to its pension accounting requirements.
CLASSROOM APPLICATION: This article offers updates from FASB, GASB,
and IASB.
QUESTIONS:
1. (Introductory) What is FASB? What is GASB? What is IASB? What
are the areas of authority for each of these organizations?
2. (Advanced) What did FASB accomplish in the second quarter of
2015? How will those changes impact accounting? Are they significant changes
or minor ones?
3. (Advanced) What is an ASU? Why are they issued? How do they
differ from other FASB issuances?
4. (Advanced) What did GASB do in the second quarter of 2015? Who
was impacted?
5. (Advanced) For the second quarter of 2015, what were IASB's
activities? Do these impact U.S. companies?
Reviewed By: Linda Christiansen, Indiana University Southeast
"Accounting Roundup-Second Quarter 2015 in Review," by Deloitte CFO Journal
Editor, The Wall Street Journal, July 17, 2015 ---
http://deloitte.wsj.com/cfo/2015/07/17/accounting-roundup-second-quarter-2015-in-review/?mod=djem_jiewr_AC_domainid
The second quarter of 2015 was a productive one for
the Financial Accounting Standards Board (FASB). The Board made significant
progress on its simplification initiative (i.e., the Board’s effort to
reduce the cost and complexity of current U.S. GAAP while maintaining or
enhancing the usefulness of the related financial statement information) by
issuing (1) final ASUs on cloud computing, debt issuance costs and a
practical expedient for measuring retirement benefit plans and (2) proposed
ASUs on the accounting for share-based payments, equity method accounting
and the accounting for measurement-period adjustments. In addition, the
Board amended certain aspects of the joint FASB-IASB revenue standard,
releasing two proposed ASUs that would (1) amend certain portions of the
guidance in ASU 2014-09 on performance obligations and licensing and (2)
defer the standard’s effective date by one year.
There was also a flurry of activity at the
Governmental Accounting Standards Board (GASB), which issued three
Statements related to pensions and other postemployment benefits as well as
a Statement that simplifies the GAAP hierarchy for state and local
governments.
On the international front, the IASB followed the
FASB’s lead in issuing an exposure draft that would defer the effective date
of its counterpart revenue standard, IFRS 15. The IASB also issued a series
of amendments to its IFRS for Small- and Medium-sized Entities as well as
proposals that would (1) revise its conceptual framework for financial
reporting and (2) make narrow-scope amendments to its pension accounting
requirements.
Continued in article
Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 24, 2015
Audit Regulator Finds 17 Deficient Audits at
PricewaterhouseCoopers
by: Michael Rapoport
Jul 22, 2015
Click here to view the full article on WSJ.com
TOPICS: Audit
Inspections, Auditing, PCAOB
SUMMARY: Audit
regulators found 17 deficient audits at PricewaterhouseCoopers LLP in its
latest annual inspection of the Big Four accounting firm, a slight
improvement from the level of problems found a year ago. The 17 deficient
audits were out of 58, for a deficiency rate of 29%. That is down from 32% a
year ago. A deficient audit means the audit firm hasn't obtained enough
evidence to support its opinions that bless a company's financial statements
and internal controls. It doesn't mean the company's financial statements
are inaccurate or that the problems found with the audit haven't since been
addressed.
CLASSROOM APPLICATION: This
article is good for auditing and financial accounting discussions of the
PCAOB and inspection of audits.
QUESTIONS:
1. (Introductory) What is the PCAOB? What is its purpose and area
of authority?
2. (Advanced) What is an audit inspection? Why does the PCAOB
conduct them?
3. (Advanced) What is a deficiency? What are the implications of a
deficiency? If a deficiency is found, should the financial statements be
restated? Why or why not? What problems could deficient audits cause?
4. (Advanced) What are internal controls? Why do companies
implement them? Why are they important? What are auditor duties regarding
client's internal controls? Why does the PCAOB look at an auditor's
assessment of internal controls?
5. (Advanced) What are the Big Four accounting firms? Why are they
the focus of this article? Are other firms' audits inspected?
6. (Advanced) How are the Big Four firms doing with audit
inspections? Are the errors at an acceptable level? How could the deficiency
rates be improved?
Reviewed By:
Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
PCAOB Warns on Internal-Control Problems
by Emily Chasen
Oct 25, 2015
Online Exclusive
Big Firms Getting Better Grades on Internal Control Audits: PCAOB
by Emily Chasen
Jun 04, 2015
Online Exclusive
Corporate Audits to Get Wider Review
by Noelle Knox
Dec 15, 2014
Online Exclusive
"Audit Regulator Finds 17 Deficient Audits at PricewaterhouseCoopers," by
Michael Rapoport, The Wall Street Journal, July 21, 2015 ---
http://www.wsj.com/articles/audit-regulator-finds-17-deficient-audits-at-pricewaterhousecoopers-1437499025?mod=djem_jiewr_AC_domainid
Audit regulators found 17 deficient audits at
PricewaterhouseCoopers LLP in its latest annual inspection of the Big Four
accounting firm, a slight improvement from the level of problems found a
year ago.
The 17 deficient audits were out of 58 PwC audits
and partial audits reviewed by the Public Company Accounting Oversight Board
in its annual inspection report issued Tuesday, for a deficiency rate of
29%. That is down from a year ago, when PCAOB inspectors found 19 deficient
audits out of 59 reviewed, a rate of 32%.
A deficient audit, under the PCAOB’s definition,
means the audit firm hasn’t obtained enough evidence to support its opinions
that bless a company’s financial statements and internal controls. It
doesn’t mean the company’s financial statements are inaccurate or that the
problems found with the audit haven’t since been addressed.
In a statement, PwC said it is “pleased” with its
improvement, and that further enhancements in audit quality were its audit
practices’s “top priority.”
Among the types of deficiencies the inspectors
found at PwC in one audit or another were deficiencies in testing controls
over revenue; problems with testing whether a company should write down its
goodwill; and insufficient procedures with regard to testing a company’s
accounting for a business combination.
The PCAOB didn’t identify the companies involved in
each deficient audit, in accordance with its usual practice.
Continued in article
Bob Jensen's threads on PwC woes ---
http://faculty.trinity.edu/rjensen/Fraud001.htm
Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 24, 2015
Lawmakers, White House Explore Tax Revamp for U.S. Firms
Overseas
by: John D. McKinnon
Jul 22, 2015
Click here to view the full article on WSJ.com
TOPICS: Corporate
Taxation, International Business
SUMMARY: Top
lawmakers and the White House are in the early stages of discussing an
ambitious overhaul of how the U.S. taxes its multinational firms. Topics
being discussed include whether to eliminate the U.S. system of taxing
companies on their world-wide income, what safeguards to adopt to prevent
future abuses, and whether to provide special tax treatment for intellectual
property.
CLASSROOM APPLICATION: This
article is a very good update regarding the current issues with corporate
taxation and possible changes being discussed by Congress.
QUESTIONS:
1. (Introductory) What are the tax issues and problems being
discussed by Congress? What is a major funding concern?
2. (Advanced) What goals do the politicians have with any of these
possible tax changes? What are the various plans to achieve these goals?
3. (Advanced) Where are the areas of consensus between the parties?
What are the areas of disagreement?
4. (Advanced) How could businesses incorporate tax planning into
managing operations and transactions given the information included in this
article? For what kinds of deals should businesses act before these
potential changes are passed by Congress? In what ways should businesses
wait until after changes are made?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"Lawmakers, White House Explore Tax Revamp for U.S. Firms Overseas," by John
D. McKinnon, The Wall Street Journal, July 22, 2015 ---
http://www.wsj.com/articles/lawmakers-white-house-explore-tax-revamp-for-u-s-firms-overseas-1437521869?mod=djem_jiewr_AC_domainid
Top lawmakers and the White House are in the early
stages of discussing an ambitious overhaul of how the U.S. taxes its
multinational firms, according to officials involved in the effort.
The talks, part of an effort to find funding for a
long-term highway bill, are preliminary and could yet fall apart or be
overtaken by other approaches. But both Republicans and Democrats appear
open to accommodating each other’s priorities, which could make the path to
a deal smoother, according to the officials.
Topics being discussed include whether to eliminate
the U.S. system of taxing companies on their world-wide income, what
safeguards to adopt to prevent future abuses and whether to provide special
tax treatment for intellectual property.
There is already one area of clear agreement. All
sides acknowledge that an overhaul could raise revenues for highways by
imposing a one-time tax on foreign corporate earnings sitting offshore.
“Everyone is largely in agreement on the building
blocks of a deal,” said Rep. John Delaney (D., Md.), a longtime backer of
the idea. Mr. Delaney said negotiators are thinking, “Let’s get the
framework set, so then we can arm wrestle on the numbers.”
Overhauling the U.S. system for taxing
multinational businesses has been a priority for Republicans, as well as
some Democrats. Propelling this year’s discussions, which are being led by
Rep. Paul Ryan (R., Wis.), is the realization that a tax overhaul could be
coupled with a boost in highway funding, a priority of the Obama
administration and Democrats.
Continued in article
Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 24, 2015
Coal Miners Pressed on Cleanup Costs
by: John W. Miller and Dan Frosch
Jul 17, 2015
Click here to view the full article on WSJ.com
TOPICS: Cost
Analysis, Financial Accounting, Managerial Accounting
SUMMARY: State and
federal regulators are pressing U.S. coal companies to prove that they can
pay for the cost of cleaning up after they are finished mining, putting new
financial pressure on an industry already facing historic strains. Under a
1977 federal law, coal companies operating in the U.S. must set money aside
to pay to restore lands after mines close, by planting trees and grass,
burying exposed waste rock and building barriers that protect waterways from
contamination. At issue for regulators is whether coal companies should
continue to qualify for a practice known as "self-bonding" to pay for future
mine cleanups - essentially using their own finances as insurance - or
whether they should be required to post cash or secure outside guarantees to
keep mining.
CLASSROOM APPLICATION: This
is an interesting article that could be used as a case study for managerial
accounting.
QUESTIONS:
1. (Introductory) What are coal mining companies required to do
after closing the mine? What are the reasons for this requirement?
2. (Advanced) The article states that federal law requires coal
companies to set aside money to restore land. What does this mean for
accounting purposes? How would the accountants record this in the financial
records? How would the company's financial statements be affected? Would
money have to be placed into a separate bank account? Is the cash account
affected?
3. (Advanced) How could a company account for these costs from a
managerial accounting perspective? How should the clean-up costs be
incorporated into the cost of the product? Does the fact that the cost comes
after the mine closes affect how to account for it?
4. (Advanced) When would the costs of the clean up be an expense on
the financial statements? When would those costs be deducted on the
company's tax return?
5. (Advanced) If the estimated cost of the clean-up is different
than the actual cost, how should the company report that?
Reviewed By:
Linda Christiansen, Indiana University Southeast
"Coal Miners Pressed on Cleanup Costs," by John W. Miller and Dan Frosch,
The Wall Street Journal, July 17, 2015 ---
http://www.wsj.com/articles/coal-miners-pressed-on-cleanup-costs-1437151107?mod=djem_jiewr_AC_domainid
State and federal regulators are pressing U.S. coal
companies to prove that they can pay for the cost of cleaning up after they
are finished mining, putting new financial pressure on an industry already
facing historic strains.
Regulators even in energy-friendly states such as
Wyoming and West Virginia are stepping up oversight on coal companies amid
concerns that taxpayers could be left on the hook for expensive and
environmentally complicated cleanups if the companies go bankrupt. That has
created a political challenge for governors of coal states, who don’t want
to be viewed as pushing vital industries into further financial trouble.
“It is tough times in the coal fields right now,”
said Harold Ward, acting director of the mining and reclamation division at
the West Virginia Department of Environmental Protection. “You hope for them
to be successful, but you anticipate the worst.”
Coal producers have been rocked by competition from
inexpensive natural gas, tougher environmental rules and a global coal glut
that has decimated prices. On Thursday, the Obama administration proposed
new mining rules, including a prohibition on mining within 100 feet of
streams.
The nation’s three largest publicly listed coal
companies—
Peabody Energy
Corp.
, Alpha Natural Resources Inc. and Arch
Coal Inc.—have seen their cumulative value collapse to below $1 billion from
more than $25 billion four years ago.
Alpha is in talks to obtain financing for a
potential bankruptcy filing early next month,
The Wall Street Journal reported this past week.
On Thursday, the New York Stock Exchange suspended trading in Alpha’s stock
and said it would begin a process to delist the company.
Continued in article
Humor July 1-31, 2015
Jokes on MAAW ---
http://maaw.blogspot.com/2015/07/jokes-on-maaw.html
Hump-Day Humor ---
http://www.thefiscaltimes.com/Columns/2015/07/29/Joe-Biden-Looming-Threat-Republican-Presidency
Humor at Bob Jensen's Website Since 2000 or Before
Go to
http://faculty.trinity.edu/rjensen/Bookurl.htm
- Select a date span
- Search repeatedly on the word "humor"
Most of the humor that I post is forwarded by grandmothers --- Go Figure!
Mystery pooper targeting holes of Norwegian golf course ---
http://www.upi.com/Odd_News/2015/07/24/Mystery-pooper-targeting-holes-of-Norwegian-golf-course/2881437763634/
Jensen Comment
This guy just set a word's record in the number of holes-in-one.
A Bit of Accountancy Humor Inspired by Enron and Related Scandals ---
http://faculty.trinity.edu/rjensen/fraudEnron.htm#Humor
It's No Laughing Matter: Analyzing Political Cartoons
http://www.loc.gov/teachers/classroommaterials/presentationsandactivities/activities/political-cartoon/resources.html
A Redneck Love Song ---
http://1funny.com/if-my-nose-was-running-money/
Becoming Richard Pryor ---
http://www.becomingrichardpryor.com/pryors-peoria/
Darwin Awards ---
https://en.wikipedia.org/wiki/Darwin_Awards
Nominated for a Darwin Award in July 2015
Devon Staples, 22, was killed in a bizarre incident
that took place in a backyard as Staples and his friends were firing off
fireworks. Investigators said Staples had placed the fireworks mortar tube on
top of his head and set it off.
http://www.wgme.com/news/features/top-stories/stories/maine-police-say-1-man-killed-calais-fireworks-accident-28113.
Forwarded by Paula
Something for
everyone to do to keep those
"aging" gray cells active!
1. Johnny's mother had three children. The first child was named April. The
second child was named May.
...What was the third child's nam
e?
2. There is a
clerk at the butcher shop, he is five feet ten inches tall and he wears size
13 sneakers
...What does he weigh?
3. Before Mt.
Everest was discovered,
....
what was the highest mountain in the world?
4. How much dirt
is there in a hole
...that measures two feet by three feet by four feet?
5. What word in
the English language
...is always spelled incorrectly?
6. Billy was born
on
December 28th, yet his birthday is always in
the summer.
....How is this possible?
7. In California , you cannot take a picture of a man with a wooden leg.
...Why not?
8. What was the
President's name
....
in 1975?
9. If you were
running a race,
...and you passed the person in 2nd place, what place would
you be in now?
10. Which is
correct to say,
....
"The yolk of the egg are white" or "The yolk of the
egg is white"?
11. If a farmer
has 5 haystacks in one field and 4 haystacks in the other field,
...
how many haystacks would he have if he combined them all in
another field?
Here are the Answers
1. Johnny's mother had three children. The first child was named April The
second child was named May. What was the third child's name?
Answer:
Johnny, of course
2. There is a
clerk at the butcher shop, he is five feet ten inches tall, and he wears
size 13 sneakers. What does he weigh?
Answer:
Meat.
3. Before Mt.
Everest was discovered, what was the highest mountain in the world?
Answer:
Mt. Everest; it just wasn't discovered yet. [You're not very
good at this are you?]
4. How much dirt
is there in a hole that measures two feet by three feet by four feet?
Answer:
There is no dirt in a hole.
5. What word in
the English language is always spelled incorrectly?
Answer:
Incorrectly
6. Billy was born on
December 28th, yet his birthday is always in
the summer. How is this possible?
Answer:
Billy lives in the Southern Hemisphere
7. In California , you cannot take a picture of a man with a wooden leg.
Why not?
Answer:
You can 't take pictures with a wooden leg. You need a camera
to take pictures.
8. What was the
President's name in 1975?
Answer: Same as is
it now -
Barack
Obama [Oh, come on.....]
9. If you were
running a race, and you passed the person in 2nd place, what place would you
be in now?
Answer:
You would be in 2nd. Well, you passed the person in second
place, not first.
10. Which is
correct to say, "The yolk of the egg are white" or "The yolk of the
egg is white"?
Answer:
Neither, the yolk of the egg is yellow [duh!]
11. If a farmer
has 5 haystacks in one field and 4 haystacks in the other field, how many
haystacks would he have if he combined them all in another field?
Answer:
One. If he combines all of his haystacks, they all become one
big one.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
IMPOSSIBILITIES IN THE WORLD
1) You can't count your hair.
2) You can't wash your eyes with soap.
3) You can't breathe through your nose when your tongue is
out.
Put your tongue back in your mouth, you silly person.
Ten (10) Things I know about you.
1) You are reading this.
2) You are human.
3) You can't say the letter ''P'' without separating your lips.
4) You just attempted to do it.
6) You are laughing at yourself.
7) You have a smile on your face and you skipped No. 5.
8) You just checked to see if there is a No. 5.
9) You laugh at this because you are a fun loving person and everyone does
it too.
Oldies That Are Good for Another Round
Tower: "TWA
2341, for noise abatement turn right 45Degrees."
TWA 2341: "Center, we are at 35,000 feet. How much noise can we make up
here?"
Tower: "Sir, have you ever heard the noise a 747 makeswhen it hits a 727?"
___________________________________________
O'Hare Approach Control to a 747: "United 329 heavy, your traffic is a
Fokker,
one o'clock, three miles, Eastbound."
United 329: "Approach, I've always wanted to say this...I've got the little
Fokker in sight."
____________________________________________
A student became lost during a solo cross-country flight. While attempting
to locate the aircraft on radar, ATC asked: "What was your last known
position?"
Student: "When I was number one for takeoff."
____________________________________________
A DC-10 had come in a little hot and thus had an exceedingly long roll out
after touching down.
San Jose Tower Noted: "American 751, make a hard right turn at the end of
the runway, if you are able. If you are not able, take the Guadeloupe exit
off Highway 101, make a right at the lights and return to the airport."
___________________________________________________
Message from Tower: "Delta 351, you have traffic at
10 o'clock, 6 miles!"
Delta 351: "Give us another hint! We have digital watches!"
__________________________________________
A Pan Am 727 flight, waiting for start clearance in Munich, overheard
the following:
Lufthansa (in German): "Ground, what is our start clearance time?"
Ground (in English): "If you want an answer you must speak in English."
Lufthansa (in English): "I am a German, flying a German airplane, in
Germany.Why must I speak English?"
Unknown voice from another plane (in a beautiful British accent): "Because
you lost the bloody war!"
_______________________________________________
One day the pilot of a Cherokee 180 was told by the tower to hold short of
the active runway while a DC-8 landed. The DC-8 landed, rolled out, turned
around, and taxied back past the Cherokee.
Some quick-witted comedian in the DC-8 crew got on the radioand said, "What
a cute little plane. Did you make it all by yourself?"
The Cherokee pilot, not about to let the insult go by, came back with a real
zinger: "I made it out of DC-8 parts. Another landing like yours and I'll
have enough parts for another one."
________________________________________________
The German air controllers at Frankfurt Airportare renowned as a
short-tempered lot. They not only expect one to know one's gate parking
location, but how to get there without any assistance from them. So it was
with some amusement that we (a Pan Am 747) listened to the following
exchange between Frankfurt ground control and a British Airways 747, call
sign Speedbird 206.
Speedbird 206: "Frankfurt,Speedbird 206 clear of active runway."
Ground: "Speedbird 206. Taxi to gate Alpha One-Seven."
The 747 pulled onto the main taxiway and slowed to a stop.
Ground: "Speedbird, do you not know where you are going?"
Speedbird 206: "Stand by, Ground, I'm looking up our gate location now."
Ground (with quite arrogant impatience): "Speedbird 206, have you not been
to Frankfurt before?"
Speedbird 206 (coolly): "Yes, twice in 1944, but it was dark -- And I didn't
land."
_________________________________________________
While taxiing at London's Gatwick Airport, the crew of a US Air flight
departing for Ft. Lauderdale made a wrong turn and came nose to nose with a
United 727.
An irate female ground controller lashed out at the US Air crew, screaming:
"US Air 2771, where the hell are you going?! I told you to turn right onto
Charlie taxiway! You turned right on Delta! Stop right there. I know it's
difficult for you to tell the difference between C and D, but get it right!"
Continuing her rage to the embarrassed crew, she was now shouting
hysterically: "God! Now you've screwed everything up! It'll takeforever to
sort this out! You stay right there and don't move till I tell you to! You
can expect progressive taxi instructions in about half an hour, and I want
you to go exactly where I tell you, when I tell you, and how I tell you! You
got that, USAir 2771?"
"Yes, ma'am," the humbled crew responded.
Naturally, the ground control communications frequency fell terribly silent
after the verbal bashing of US Air 2771. Nobody wanted to chance engaging
the irate ground controller in her current state of mind.Tension in every
cockpit out around Gatwick was definitely running high.
Just then an unknown pilot broke the silence and keyed his microphone,
asking: "Wasn't I married to you once?"
Forwarded by Paula
2 TOUGH QUESTIONS
Question 1: If you knew a woman who was pregnant, Who had 8 kids already,
Three who were deaf, One mentally retarded, And she had syphilis, Would you
recommend that she undergoes an abortion?
Read the next question before looking at the response for this one.
Question 2:
It is time to elect a new world leader, and only your vote counts.. Here are
the facts about the three candidates.
Candidate A: Associates with crooked politicians, and consults with
astrologists. He's had two mistresses. He also chain smokes And drinks 8 to 10
martinis a day.
Candidate B: He was kicked out of office twice, Sleeps until noon, Used opium
in college And drinks a quart of whiskey every evening.
Candidate C: He is a decorated war hero, He's a vegetarian, Doesn't smoke,
Drinks an occasional beer And never committed adultery.
Which of these candidates would be your choice?
Decide first ... No peeking, and then scroll down for the response.
Candidate A is Franklin D. Roosevelt. Candidate B is Winston Churchill.
Candidate C is Adolph Hitler.
And, by the way, on your answer to the abortion question:
If you said YES, you just killed Beethoven.
Humor July 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q3.htm#Humor073115
Humor June 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor May 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor April 1-30, 2015
---
http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015
Humor March 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor033115
Humor February 1-28, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor022815
Humor January 1-31, 2015
---
http://faculty.trinity.edu/rjensen/book15q1.htm#Humor013115
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 July 31, 2015 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
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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
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http://faculty.trinity.edu/rjensen/AccountingNews.htm
Accounting
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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 ---
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Jensen's Homepage ---
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