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 ---
h
ttp://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 
open access
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 
open access
1711
 
Retraction: Financial Reporting Transparency and Earnings Management
James E. Hunton, Robert Libby and CheriL. Mazza
Citation | Full Text | PDF (358 KB) | Supplemental Material 
open access
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 
open access
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 
open access
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 
open access
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 
open access
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 
open access
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 
open access
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 
open access
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) | Supplemental Material 

 

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

  1. New Jersey
    Taxes as percentage of home value: 1.89%
    •Median home value: $348,300
    •Rank based on percentage of income: 1

     
  2. New Hampshire
    Taxes as percentage of home value: 1.86%
    •Median home value: $249,700
    •Rank based on percentage of income: 2

     
  3. Texas
    Taxes as percentage of home value: 1.86%
     •Median home value: $249,700
    •Rank based on percentage of income: 2

     
  4. Wisconsin
    Taxes as percentage of home value: 1.76%
    •Median home value: $170,800
    •Rank based on percentage of income: 8

     
  5. Nebraska
    Taxes as percentage of home value: 1.70%
    •Median home value: $123,300
    •Rank based on percentage of income: 14

     
  6. Illinois
    Taxes as percentage of home value:
    1.73% •Median home value: $202,200
    •Rank based on percentage of income: 5

     
  7. Connecticut
    Taxes as percentage of home value: 1.63%
    •Median home value: $291,200
    •Rank based on percentage of income: 4

     
  8. Michigan
    Taxes as percentage of home value: 1.62%
    •Median home value: $132,200
     •Rank based on percentage of income: 10

     
  9. Vermont
    Taxes as percentage of home value: 1.62%
    •Median home value: $132,200
    •Rank based on percentage of income: 10

     
  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/

  1. New York
    Average Annual State and Local Taxes: $9,718
    •Difference from National Average: 39 percent
    •Adjusted Rank by Cost of Living: 51

     
  2. California
    •Average Annual State and Local Taxes: $9,509
    •Difference from National Average: 36 percent
    •Adjusted Rank by Cost of Living: 50

     
  3. Nebraska
    •Average Annual State and Local Taxes: $9,450
    •Difference from National Average: 36 percent
    Adjusted Rank by Cost of Living: 37

     
  4. Connecticut
    •Average Annual State and Local Taxes: $9,099
    •Difference from National Average: 31 percent
    •Adjusted Rank by Cost of Living: 49

     
  5. Illinois
    •Average Annual State and Local Taxes: $9,006
    •Difference from National Average: 29 percent
    •Adjusted Rank by Cost of Living: 38

     
  6. Wisconsin
    •Average Annual State and Local Taxes: $8,975
    •Difference from National Average: 29 percent
    •Adjusted Rank by Cost of Living: 39

     
  7. Vermont
    •Average Annual State and Local Taxes: $8,838
    •Difference from National Average: 27 percent
    •Adjusted Rank by Cost of Living: 45

     
  8. New Jersey
    •Average Annual State and Local Taxes: $8,830
    •Difference from National Average: 27 percent
    •Adjusted Rank by Cost of Living: 47

     
  9. Iowa
    •Average Annual State and Local Taxes: $8,788
    •Difference from National Average: 26 percent
    •Adjusted Rank by Cost of Living: 33

     
  10. 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:

  1. Contractor delays and performance issues were not always identified.
  2. A contractor incurred unauthorized costs that increased the cost of the contract.
  3. Contracting officers in all Government agencies did not have access to contractor past performance evaluations when making contract awards.
  4. 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

  1. Raef A. Lawson,
  2. Edward J. Blocher,
  3. Peter C. Brewer,
  4. Jan Taylor Morris,
  5. Kevin D. Stocks,
  6. James E. Sorensen,
  7. David E. Stout
  8. 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

Looking for consistency in application of the new revenue recognition standard, staff at the Securities and Exchange Commission are warning companies to be careful how they arrive at the many new judgments required under the new rules.

Wesley Bricker, deputy chief accountant at the SEC, said in a recent speech that the standard will lead to reporting that is consistent, relevant to investors, and faithful to the underlying economics of transactions if companies do their homework and apply appropriate professional judgment. “The mere hope to achieve the promise of a single standard will not be sufficient,” he said. He called on companies to move forward with implementation efforts “without delay” by understanding the key principles of the new standard and how they apply to a...

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
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by Laura Saunders
Jun 20, 2020
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"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
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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

RELATED ARTICLES: 
Yahoo's Tax Options: Bad or Worse
by Miriam Gottfried
Sep 10, 2015
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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 --- 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

 

 

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  --- 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/

 

 

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 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 




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

US tax implications of alimony payments to US nonresidents
http://www.thetaxadviser.com/issues/2015/aug/us-tax-implications-of-alimony-payments-to-us-nonresidents.html
The tax treatment of alimony payments can get complicated when the spouses are from different countries. Here is a look, from both spouses’ perspectives, at how U.S. tax law treats payments from U.S. citizens to foreign ex-spouses.
The Tax Adviser

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.

Read more: America’s Best Companies to Work For - Facebook (NASDAQ:FB) - 24/7 Wall St.
http://247wallst.com/special-report/2015/08/10/the-best-companies-to-work-for/#ixzz3iQeOHu6W
 

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 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.

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.

As to her tendency to focus on the negative of the Big Four I will refer you to when she in her own words was "barred" as a speaker because of her negative reputation ---
http://america.aljazeera.com/opinions/2014/1/conferences-ethicsconflictsinterestauditingaccounting.html
 
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

Paul Gillis

Accounting Professor

Chaoyang District, Beijing, China
Education Management
Current
  1. Guanghua School of Management at Peking University
Previous
  1. PCAOB,
  2. Pansoft Co. Ltd.,
  3. Peking Unversity

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.

"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 NedevThe 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.

Read more:
 http://www.businessinsider.com/criminals-are-manipulating-the-stock-market-and-regulators-cant-seem-to-stop-it-2015-8#ixzz3iJfdSVbe

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.

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.

"Determinants of Goodwill Impairment: International Evidence," by Martin Glaum, Wayne R. Landsman, and Sven Wyrwa, SSRN, May 20, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2608425

Abstract:     
This study investigates the determinants of firms’ decision to impair goodwill under IFRS. Our empirical analysis is based on data for the years 2005 to 2011 for 8,110 non-financial firm-years and 1,358 financial firm-years from 21 countries where firms apply IFRS. We specifically investigate which role national enforcement systems play for firms’ decisions whether or not to impair goodwill. We find that firms’ decisions are related to measures of performance, but also to proxies for managerial and firm-level incentives. We also find that goodwill impairment is associated with lagged stock-market return, suggesting that firms tend to delay necessary impairment. Further investigations reveal that the timeliness of goodwill impairment depends on the strength of national accounting and auditing enforcement systems: in countries with weak enforcement systems firms tend to delay necessary goodwill impairments, while firms in countries with strong enforcement systems tend to write off goodwill in a timely fashion, both before and after the Financial Crisis. However, even in countries with strict enforcement impairment decisions appear to be influenced by managerial and firm-level incentives, such as CEO reputation concerns and by management’s preferences for smooth earnings.

Bob Jensen's threads on goodwill impairment ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Impairment


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.


Read more:
http://wolfstreet.com/2015/07/30/canadas-highly-touted-conservative-mortgage-standards-sink-into-liar-loan-scandal/#ixzz3hYmb4Jr6
 

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:

 


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
 

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Amazon Earnings: What to Watch
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How 20 Years of Amazon Changed Retail
by Marcelo Prince and Sarah Slobin
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"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
 

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UPS, FedEx Got Back On Time This Holiday
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by Laura Stevens and Suzanne Kapner
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"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
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Aug 04, 2015
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by Ronald Barusch
Aug 10, 2015
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by Kimberly S. Johnson and Maxwell Murphy
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Companies Disclose Pay Ratio Before SEC's Final Rule
by Kristin Lin
Jul 20, 2015
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"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
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"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
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by Greg Bensinger and Laura Stevens
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U.S. Mail Cuts Prices, Chafing UPS and FedEx
by Laura Stevens
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For FedEx and UPS, a Cheaper Route: the Post Office
by Laura Stevens
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"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 stirThe 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

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


"Can corporate accounting ever be reformed?" by Eleanor Bloxham, Fortune, July 13, 2015 ---
http://fortune.com/2015/07/13/accounting-reform/

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."


Tax-Exempt Hospital Compliance With Sec. 501(r): No Violation Is Too Small to Ignore ---
http://www.aicpa.org/Publications/TaxAdviser/2015/july/Pages/Tax_Clinic_05.aspx


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.


Amazon Is Now Worth More Than Walmart ---
http://time.com/3970321/amazon-walmart-worth/?xid=newsletter-brief

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

Investors: sustainability disclosures are mostly fluff ---
http://blogs.wsj.com/cfo/2015/07/21/investors-sustainability-disclosures-are-mostly-fluff/?mod=djemCFO_h
About 75% of companies in the S&P 500 index published sustainability reports last year, CFO Journal’s Emily Chasan reports. But U.S. investors say they are mostly disappointed in the information companies are releasing on greenhouse gas emissions or waste reduction.

PwC
In the loop: Sustainability disclosures - Is your company meeting investor expectations? ---- Click Here
http://www.pwc.com/us/en/cfodirect/publications/in-the-loop/sustainability-disclosure-guidance-sasb.jhtml?display=/us/en/cfodirect/issues/governance

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:

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:

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 ChicagoBrian 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.


IRS Scandal --- https://en.wikipedia.org/wiki/IRS_targeting_controversy

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. 

The IRS scandal on Day 779 just got even worse ---
http://nypost.com/2015/07/07/the-irs-scandal-just-got-even-worse/

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