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 4:  October 1 - December 31 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

For earlier editions of New Bookmarks go to http://faculty.trinity.edu/rjensen/bookurl.htm 
Tidbits Directory --- http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm 

Click here to search Bob Jensen's web site if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at http://www.searchedu.com/.

Bob Jensen's Threads --- http://faculty.trinity.edu/rjensen/threads.htm

574 Shields Against Validity Challenges in Plato's Cave ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

 

Choose a Date Below for Additions to the Bookmarks File

2015

October

November

December

 

 

 

 

December 31, 2015

 

New Bookmarks
Year 2015 December 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

 

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 

MAAW's Listing of Accounting Certifications ---
http://maaw.info/AccountingCertifications.htm
Includes Certified Public Bookkeeper (seriously)

The Tax Advisor is Free on the Web
http://www.thetaxadviser.com/  
Thank you Scott Bonacker for the heads up.


Accounting History Corner
While accrual historical cost accounting evolved in accounting for ventures and business firms, exit (liquidation) value accounting remained the tradition in history clear up to today for personal accounts such as exit value reporting for estates and trusts. The main reason is the purpose of the accounting.

Fair value reporting of going concerns would be of greater interest if accountants could figure out how to report "value in use" to investors apart from "exit value in liquidation." But accountants have never been able to figure out how to reliably measure "value in use" that economists in history have preferred but never helped accountants figure out how to reliably measure in practice. The GAAP for going concerns is now an amalgamation of accrued historical cost (not really valuation at all) combined with some exceptions such as lower-of-cost or market for inventories and exit value reporting of financial instruments and derivative financial instruments. However, it all becomes exit (liquidation) value reporting when a firm is deemed to be no longer a going concern.

In personal accounting non-going concerns are usually the rule rather than the exception. When a person dies his or her estate if valued on the basis of liquidation value and divided up among the heirs. When a couple is being divorced the marriage is no longer a going concern, and the assets and liabilities are accounted for at liquidation value.

It is interesting to look back at the history of "personal" accounting. As you can see the line between personal and business is very fuzzy in history.

"PERSONAL ACCOUNTS, ACCOUNT BOOKS AND THEIR PROBATIVE VALUE: HISTORICAL NOTES, c.1200 TO c.1800," by Basil S. Yamey, Accounting Historians Journal, Volume 39, Number 2 December 2012 pp. 1-26 ---
http://umiss.lib.olemiss.edu:82/articles/1038708.7435/1.PDF

This paper discusses a number of topics pertaining to personal accounts in account books in the period roughly between 1200 and 1800. The main emphasis is on two topics, namely the use of account books as evidence in courts of law, and bad and doubtful debts and their accounting treatment. Examples from various countries and periods are provided to illustrate the discussion, which is not intended to be exhaustive.

The majority of accounts in surviving business account books of the period 1200 to 1800 in Western Europe are personal accounts. They record dealings of the firm with individuals, one-man businesses, partnerships, joint stock companies, religious establishments, and government bodies. In many of the account books there are only personal accounts, and in some there are mainly personal accounts together with a sprinkling of non-personal accounts. This paper considers and illustrates a selection of topics that pertain to personal accounts in the period covered: personal accounts in single entry and double entry bookkeeping systems; the use of account books as evidence in law courts; how a merchant could increase the probative value of his account books; bad and doubtful debtors and debts, and the various accounting treatm ents given to them; and some concluding observations, mainly about ledgers in flames.

Continued in article

"Stock Prices and Earnings: A History of Research," by Patricia M. Dechow, Richard G. Sloan, and Jenny Zha, SSRN
(no longer available free as a download from SSRN), 
Annual Review of Financial Economics, Vol. 6, pp. 343-363, 2014
December 2014 ($32 unless accessed free via your university's library subscription)
http://www.annualreviews.org/doi/full/10.1146/annurev-financial-110613-034522

Abstract:
Accounting earnings summarize periodic corporate financial performance and are key determinants of stock prices. We review research on the usefulness of accounting earnings, including research on the link between accounting earnings and firm value and research on the usefulness of accounting earnings relative to other accounting and nonaccounting information. We also review research on the features of accounting earnings that make them useful to investors, including the accrual accounting process, fair value accounting, and the conservatism convention. We finish by summarizing research that identifies situations in which investors appear to misinterpret earnings and other accounting information, leading to security mispricing.

Jensen Comment
AAA Members may want to accompany this paper with Bill Beaver's recollections of his own pioneering research on stock prices and earnings --- recollections given at the American Accounting Association Annual Meetings as the 2014 Presidential Scholar.
Video (free to AAA members who are subscribed to the AAA Commons) ---
http://commons.aaahq.org/hives/8d320fc4aa/summary

It is somewhat surprising that a predictor variable its extended versions (e.g., earnings per share) that cannot be defined by the FASB and IASB can be an effective predictor after it no longer can be defined. By not being definable, there is little assurance that earnings, eps, etc. are consistently measured over time for a single firm and across firms at a point in time.

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.

Financial Statements Loss of Quality and Predictive Power

Jensen Comment
I don't think the "The EBITDA Epidemic Takes Its Cue from Standard Setters."
Like Professor Verrecchia currently and my accounting Professor Bob Jaedicke decades earlier I think the "EBITDA Epidemic" takes its cue from investors and managers that have a "functional fixation" for earnings, eps, EBITDA, and P/E ratios --- when in fact those metrics are no longer defined by the FASB/IASB and may have a lot of misleading noise and secret manipulations.

"The EBITDA Epidemic Takes Its Cue from Standard Setters," by Tom Selling, The Accounting Onion, October 13, 2013 ---
http://accountingonion.com/2013/10/the-ebitda-epidemic-takes-its-cue-from-standard-setters.html

Jensen Comment
If the FASB cannot define net earnings then it follows from cold logic that they cannot define measures derived from net earnings like EBITDA.

However, virtually all private sector business firms compute net earnings and some measures derived from net earnings like eps, EBITDA, and P/E ratios.

It's doubtful whether net earnings for two different companies or even one company over two time intervals are really comparable.

But all that does not matter when it comes to adjudicating an insider trading case in court even if the accused may not really be an insider.

I'm reminded of why billionaire Martha Stewart went to prison because she acted on inside information about a company --- inside information passed on to her by the CEO of that company. It doesn't matter that the amount of loss saved by the inside tip involved is insignificant compared to her billion-dollar portfolio. Evidence in the case made it clear that she did exploit other investors by acting on the inside tip no matter how insignificant the value of that tip to her. She was hauled off the clink in handcuffs and was released in less than five months. But her good name and reputation were tarnished forever ---
http://en.wikipedia.org/wiki/Martha_Stewart

 

Mark Cuban --- http://en.wikipedia.org/wiki/Mark_Cuban

Flamboyant billionaire Mark Cuban went on trial for very similar reasons (although later acquitted) , although the alleged insider tip and the value of the alleged tip is more obscure than in the Martha Stewart case. Like in the case of Martha Stewart the loss avoided is pocket change ($750,000) relative to Cuban's billion-dollar portfolio.

In the case of Martha Stewart the prosecution had her dead to rights in terms of timing of the tip and her stock sales. In the case of Mark Cuban the SEC's case is based upon an "unreliable witness who refused to testify in person."
http://www.ottawacitizen.com/business/Lawyers+Mark+Cuban+begin+closing+arguments+billionaires/9038098/story.html

"An Accounting Lesson for Twitter," by Jonathan Weil, Bloomberg Businessweek, October 14, 2013 ---
http://www.bloomberg.com/news/2013-10-04/an-accounting-lesson-for-twitter-.html 

What Cuban failed to mention to the jury is that net earnings and EBITDA cannot be defined since the FASB 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/

 

Bob Jensen's threads on accounting history are at
http://faculty.trinity.edu/rjensen/theory01.htm#AccountingHistory


Business History Center
Business History --- https://en.wikipedia.org/wiki/Business_history

Hagley Digital Archives (business and technology history)  --- http://digital.hagley.org/


HISTORIC MILESTONE FOR CANADIAN ACCOUNTING PROFESSION ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=153719&utm_source=MailerMailer&utm_medium=email&utm_content=first-ever+Common+Final+Examination+(CFE)&utm_campaign=Double+Entries+21(20)  

Chartered Professional Accountants of Canada (CPA Canada) congratulates the 2,219 students who successfully passed the profession’s first-ever Common Final Examination (CFE).

“This is both an exciting and historic time for Canada’s accounting profession,” says Kevin Dancey, president and CEO, with CPA Canada. He notes that three legacy accounting designations have come together and are now operating under the Chartered Professional Accountant (CPA) banner across the country.

Currently, Canadian professional accountants who were grandfathered to CPA must also use their legacy designation in combination with the CPA designation.

“The individuals being recognized today will be among the first crop of Canadian CPAs with no legacy designation once they have completed their practical experience,” explains Dancey. “These history makers should be proud of their accomplishment. They are on a career path that can offer a lifetime of rewards.”

In addition to the technical skills associated with the profession, the CPA certification program offers a solid understanding of leadership, teamwork, communications and strategy. All of this skill and knowledge is combined with a strong understanding of what it means to be a professional and to act ethically.

“The new CPA is more than an accounting designation - it also is a business credential, one that can open many doors,” stresses Tashia Batstone, CPA Canada’s vice-president, education. “The program is designed to ensure it meets the needs of employers in all sectors of the Canadian economy.”

This year, the prestigious Governor General’s Gold Medal along with the CPA Canada cash prize of $5,000 for the highest standing in Canada on the 2015 CFE has been awarded to Ms. Erin Compeau from Deloitte LLP in Toronto, Ontario.

Continued in article


From the CFO Journal's Morning Ledger on December 4, 2015

Brick-and-mortar retailers struggled this holiday as consumers chose to point-and-click their way through shopping lists. The stampede of shoppers to the Web grew more thunderous during the final days before Christmas, testing the limits of delivery services and pushing retail chains into deeper, longer promotions than their e-commerce rivals, the WSJ reports. E-commerce sales rose 11.8% from Nov. 26 through Dec. 20 compared with a year ago, according to ChannelAdvisor Corp., which makes e-commerce software and measures online transactions.

The shift to online shopping is straining retailers and delivery networks. A few chains, including Eddie Bauer and Pacific Sunwear, warned customers this week that their holiday packages were delayed and blamed what they said were broader problems at FedEx Corp. FedEx said Wednesday it is running operations round-the-clock to “accommodate additional unforeseen volume from some customers,” but that its delivery network is “performing as designed for the forecasted volumes from our major retail and e-tail customers."

Jensen Comment
This puts a strain on sustainability accounting and the future of property taxes for towns and cities. When I left San Antonio a huge two-story mall that had been vacant for several years was taken over by the non-taxable school district. The biggest mall in the capitol of New Hampshire in Concord used to have a thriving food court that included Burger King and vendors of Italian food, Chinese food, sandwich shops, ice cream shops, etc. now has a darkened food court and more empty stores than stores that are still struggling. The Sears, JC Penney, and Bon Ton Department stores cannot possibly be breaking even. Such is the future of mall shopping.


The bill would also temporarily bar the IRS and SEC from passing increased disclosure rules for corporations and nonprofits
From the CFO Journal's Morning Ledger on December 4, 2015

Massive spending and tax deal advances.
U.S. lawmakers in one fell swoop produced bills setting spending for fiscal 2016 that sweeps in hundreds of policy prescriptions and makes dozens of business and individual tax breaks permanent. The bill’s most contentious provision would end a four-decade ban on oil exports, though the relentlessly low price of oil makes it unlikely that any impact from the policy shift will materialize soon. The bill would also temporarily bar the IRS and SEC from passing increased disclosure rules for corporations and nonprofits. Solar and wind companies scored a major victory in the bill, when lawmakers voted to extend lucrative federal subsidies for renewable energy.

Jensen Comment
This illustrates one the many reasons I prefer that the FASB set accounting rules rather than the SEC. Lobbyists have influence almost everywhere but the biggest lapdogs are in Congress.


Although Ryan gave more than he received in the $1.8 trillion budget that President Obama drooled over when signing the bill with Harry Reid and Nancy Pelosi cheering in the wings, there are some things Republicans favored that aren't getting much publicity.

"White House surrenders on 'dark money' regulation," by Katy O'Donnell, Politico, December 18, 2015 ---
http://www.politico.com/story/2015/12/white-house-dark-money-216956

The Obama administration has thrown in the towel on cracking down on hundreds of millions of dollars in “dark money” — funds given to advocacy groups that claim to be social welfare organizations rather than political committees.

Closing the so-called social-welfare loophole — which exempts the groups from federal tax and disclosure requirements — was one of the most urgent priorities of campaign-finance reformers in the wake of the Supreme Court's decision in the Citizens United case. But then the IRS came under fire for holding up conservative groups applying for the social-welfare tax exemption, and many Republicans cried foul.

By giving in to a GOP provision in the omnibus spending bill, the administration has effectively given up on limiting the political influence of nonprofit groups with unknown funders.

The White House declined to comment on the bill.

Top lawmakers, including Senate Finance Committee Chairman Orrin Hatch, have repeatedly warned IRS Commissioner John Koskinen to abandon the agency's efforts to clarify the social-welfare rule. Now they’ve forced his hand, just as the 2016 campaign is heating up and groups like Karl Rove’s Crossroads GPS on the right and American Bridge 21st Century Foundation on the left are poised to dump unprecedented sums into the presidential race and other campaigns.

Read more: http://www.politico.com/story/2015/12/white-house-dark-money-216956#ixzz3vMavz5fJ

Permanent R&D Tax Credit a ‘Game Changer’ ---
http://blogs.wsj.com/cfo/2015/12/23/permanent-rd-tax-credit-a-game-changer-expert/?mod=djemCFO_h

Christmas came early this year for finance chiefs hoping a permanent research and development tax credit would get President Barack Obama’s signature.

Last Friday’s move made permanent a tax credit that leaves businesses with more money to use for investments and hiring as part of the Protecting Americans from Tax Hikes Act of 2015.

The permanent credit “is really a game changer,” said Yair Holtzman, a practice leader for accounting firm Anchin, Block & Anchin LLP’s research and development tax credits group.

“It’s been unanimous,” Mr. Holtzman said – finance executives “really like the certainty that comes with having a permanent research credit.”

Previous R&D credits were often retroactively renewed but uncertainty still weighed on finance chiefs’ minds, and hindered effective planning. Finance chiefs “want to know when to deploy assets [and] what investments to make in R&D now,” Mr. Holtzman said. When they can’t count on the R&D tax credit, he said, “it’s very much on their minds.”

Continued in article

 


FASB:  Technical Agenda at the End of 2015 ---
http://www.fasb.org/technicalagenda

AICPA:  The 2015 Journal of Accountancy news quiz ---
http://www.journalofaccountancy.com/news/2015/dec/2015-accounting-news-quiz.html


Question
The accounting industry purportedly has more influence on the SEC than the PCAOB.
What is the alleged net result (gossip or fact)?

One answer
Accounting industry and SEC hobble America’s audit watchdog

SEC --- https://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commission

PCAOB --- https://en.wikipedia.org/wiki/Public_Company_Accounting_Oversight_Board

December 17, 2015 message from Charles Levinson

 

Bob,
I wanted to share my latest Special Report, and the third and final installment in a series on financial regulatory reform. This one looks at how the accounting industry and the SEC have hobbled America’s audit watchdog, the PCAOB. It tells the story of one of the more remarkable revolving door cases in Washington. Former Senior Deloitte partner James Schnurr was demoted at Deloitte after a string of damning inspections by the PCAOB, but was then later appointed by Mary Jo White to be SEC Chief Accountant, responsible for overseeing the PCAOB.

 

http://www.reuters.com/investigates/special-report/usa-accounting-PCAOB/

 

Happy Holidays,

Charles

Jensen Comment
Most people in the world think the profession of accountancy is dull. Perhaps it's not as thrilling as the defense industry or the Mafia or the FBI, but it does have its source material for novels on intrigue, fraud, and underhanded dealings.

Of course the there is a lot of material on the frauds for which accountants go to prison ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm

The there are the frauds (at worst) and inept auditing (at worst) where accounting firms settle for billions of dollars in and are sometimes even fined (e.g. KPMG's $456 million fine by the IRS) ---
http://faculty.trinity.edu/rjensen/Fraud001.htm

But many muckrakers and novelists prefer to write about intrigue at the highest levels of government. Here's some pretty good source material ---
http://www.reuters.com/investigates/special-report/usa-accounting-PCAOB/     

Bob Jensen's threads on accounting and auditing professionalism ---
http://faculty.trinity.edu/rjensen/Fraud001c.htm


AICPA --- https://en.wikipedia.org/wiki/American_Institute_of_Certified_Public_Accountants

Jensen Comment
Probably less sensational than the above material for a novelist is the alleged
erosion of the influence of the leading CPA association, the American Institute of CPAs (AICPA), over the past few decades. This erosion of power took place much, much slower and for reasons that are very complicated. One of the main suggested reasons is the failure of the AICPA to position its leadership in the changing times since the roaring 1990 paradigm shift in technological innovation in commerce. For example, after all the hype the AICPA proposed innovation called SysTrust crashed to earth like a Apollo 5 that is all but forgotten these days since no persons were badly hurt in a failed mission. There are of course many other examples for the demise of the AICPA, although nobody suggests that it has crashed and burned.

"The Center Cannot Hold: The AICPA and Accounting Professional Leadership 1997–2013," by R. Drew Sellers, Timothy J. Fogarty, and Larry M. Parker, Accounting Horizons, Volume 29, Issue 3 (September 2015) ---
http://aaajournals.org/doi/full/10.2308/acch-51087

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.

. . .

Recent Trauma Professions are always in a state of change, even if that change is not apparent to outsiders. Accordingly, one would expect that the role and function of a professional trade association would not be fixed. As noted by Fogarty (2011), change in accounting has been breathtaking even when measured between its 100th and 125th anniversaries. Fluctuations in the centrality of the AICPA might reflect important recent events.

Several large and sudden corporate failures in the 1970s had challenged the accounting profession's ability to protect the public interest in audit engagements (Commission on Auditor Responsibility 1978). Auditing standards were also found to be insufficiently articulated to public expectations (Campbell and Mutchler 1988). Having already lost control over accounting standard setting for public companies, the AICPA fought vigorously, but unsuccessfully, against further inroads against its prerogatives in judging professional quality (Seidler 1979). These skirmishes failed to resolve underlying pressures on the profession (Carmichael 1979) leaving mixed opinions about its ongoing value (Zeff 2003). Prominent among the reforms of its era was the establishment of a semi-autonomous Public Oversight Board (Journal of Accountancy 1979), which began what would be the growing expectation of peer review not controlled by the AICPA (Kaiser 1989; Grisdela 1987). At the same time, the AICPA was unsuccessful at getting membership to accept its mandatory peer-review program for nonpublic engagements (Berton 1987). Accounting firms exhibited strong beliefs in their autonomy, rebuffing the AICPA-led rhetoric of collective needs (e.g., Olson 1980; Larson 1983). Peer review also revealed a significant schism between small and large accounting firms, with the former doubting the cost/benefit justification of new self-regulatory programs (Austin and Langston 1981). Through this period, the AICPA mostly struggled to find a degree of proactivity with its membership that might stave off a more intrusive external regulation.

A new era dawned in the advent of the millennium. The robust economy of the 1990s led to pressures to revise the traditional model of the partnership of accounting practitioners (Zeff 2003). The AICPA became fearful that practice, as it was currently delivered, would not be sustainable in the wake of organizational and technological change. The AICPA launched a massive multi-year CPA Vision Project, which sought to move the profession “further up the value chain,” after defining a competency framework (Eddy 2001b). Essentially, a migration toward business advisory and consulting and away from tax compliance and traditional assurance services was strongly recommended. In retrospect, the Vision Project had no discernible market, even if it contained an accurate view of the trajectory of services. The large firms had already occupied as much of this space as they could manage. The small firms enjoyed record incomes by providing services that they had great comfort in delivering, and could not be persuaded to do otherwise (Fogarty et al. 2006). The AICPA, in persisting with the messages that all firm benefits had to be Vision-aligned (Eddy 2001a) and that new CPAs also had to be “Vision-based” (AICPA 2001), bet a good deal of its credibility on its forecasts.

AICPA motives in the wake of the brave new world that it foretold was conflicted by other related initiatives. The AICPA, seeing the migration of businesses to the Internet, attempted to launch a web-trust seal (a.k.a. SysTrust), which it hoped would nudge broader thinking about assurance services (McPhie 2002). This effort never achieved much interest from clients of CPA firms and, in retrospect, appears to be a misreading of the client market and practitioners abilities (Boulianne and Cho 2009). AICPA insiders also created a web portal at this time (CPA2BIZ.com) as a for-profit side business that attempted to broker various professional services over the Internet. Since any profit would not benefit the AICPA membership, nor did it further any version of the public interest, some asserted a serious conflict of interest (Shafer and Owsen 2003).

In retrospect, the AICPA's most egregious misstep may have been its efforts to move away from the CPA designation. By advocating a new credential that would subsume the CPA within a new global business advisor designation (ultimately and unfortunately called the Cognitor), the AICPA boldly asserted the need to invade new domains of work (Shafer and Gendron 2005). Many practitioners resented the implication that their CPA was not sufficient, and that they would need to migrate to a certificate that had just been imagined (Covaleski, Dirsmith, and Rittenberg 2003). Despite an impressive national and local campaign, the AICPA was unable to lead the membership toward its future, suffering an embarrassing 2002 referendum defeat. Washed away in the storm were more modest dreams for limited collaborations with the legal professions (see Frank, Hanson, Lowe, and Smith 2001).

Whereas the Vision project and the Cognitor proposal were instances where the AICPA outreached what the membership wanted, a less-sympathetic and understandable posture occurred in the wake of the wave of accounting-implicated corporate bankruptcies of 2001–2002. Traditional auditing services had been under fee pressure for some time. This situation emboldened client demands for favorable aggressive treatments (Zeff 2003). The large firms had largely responded by pioneering a hybrid audit that added material consultancy elements, in the name of creating a premier noncommodified value-added service (Toffler and Reingold 2003; Jeppesen 1998), an effort distinctly at the vanguard of the AICPA's value chain of services. In the face of the firestorm that consumed Arthur Andersen, with public confidence in the accounting profession at record lows, the AICPA was unable to convincingly regain the high ground. Suggestions that accountants were dedicated to the public interest were compromised and ineffective (Henry and McNamee 2003; Rogers, Dillard, Yuthas 2005). The organization's previous efforts to promote a large-firm agenda, including a largely successful effort to reduce auditors' legal liability, made it a less than credible advocate of the public interest. Leaders of the organization had no options but to go on the defensive, promising to get their own house in order (Melancon 2002) and return practice to its classic professionalism (Carmichael 2003). However, lost trust in financial circles is difficult to restore (Unerman and O'Dwyer 2004).

As the U.S. government undertook the official response to what had become known as “Enron et al.” with what would be the Sarbanes-Oxley Act of 2002, the AICPA should have had the ability to shape and negotiate a resolution that would be acceptable to practice. However, the legislation effectively stripped the AICPA and the profession of its remaining self-regulation function, placing public firm practice under the direct legal control of an external body. During this critical point, the AICPA had “no political capital” (Knoll 2006). Having not objected to the blurring of traditional scope limitations before 2001, the AICPA was not able to meaningfully enter into the post-2001 governmental decision to decouple auditing and consulting service. It also stood on the sidelines as a governmental indictment swiftly led to the dismantling of Arthur Andersen. Much to most people's surprise, the AICPA did not even discharge its chief executive for mismanagement, a move that many had seen as a fore drawn conclusion (MacDonald 2002).

The loss of self-regulation, despite the expenditure of significant lobbying resources (Thornburg and Roberts 2008), left less for the AICPA to do. In addition to changing the tenor of outcomes (DeFond 2010), the new regulatory regime put practitioners into an unbuffered and unfiltered relationship with regulators that was more likely to result in harsh consequences (Hanson 2013) and, probably, lower practitioner prestige (Huber 2013).

The management of its membership has always been problematic for the AICPA. Unlike other professional trade associations, this organization is whipsawed by the disproportionate size of accounting firms. A few large firms are capable of exercising considerable power over the AICPA's agenda. With AICPA membership in a long-term trend of coming from outside public accounting (Young 1995; Grant 2008), such priorities are increasingly unacceptable, even if complaints about them are not new (Weinstein 1987). Large firms are more likely to pursue global issues, favor maximum flexibility in practice, and demand rapid innovations. Smaller firms, and those without a publicly traded audit clientele, would prefer a more conservative platform wherein more advantage is extracted from current arrangements. The AICPA cannot assume that its membership would even support core professional values (see Suddaby, Gendron, and Lam 2009). How aggressively the AICPA should pursue the collective interests of the profession also tends to be disputed in its details (see Picard, Durocher, and Gendron 2014).

The AICPA has been slow to recognize the needs of members to signal practice specialties, apparently fearing erosion of the CPA as the sine qua non of professional inclusion. Those practicing in peripheral, but growing, areas naturally felt underserved if not neglected by the AICPA. In a sudden recent revision of position, the AICPA has operated a program that issues management accounting credentials to any interested member (AICPA 2011) as part of a trans-national professional practice partnership. However, yet to be resolved are high-potential areas such as forensic accounting. The AICPA's willingness to move on specialized credentials seems more defensive than proactive. Without a comprehensive answer to specialization recognition, the AICPA risks being perceived as more of a self-interested operator that views membership interests as a constraint, rather than as a champion of the membership's interests.

Trade associations are known for what they fail to do, as well as for what they accomplish. The AICPA's largest shortfall seems to be in the articulation of practice with the public interest. Having power to do so, the AICPA has had little to add to the standards and enforcement of ethics and independence, topics that garnered significant attention in the 1980s (Preston, Cooper, Scarbrough, and Chilton 1995; AICPA 1986). Some have argued that AICPA positions on these matters have been actually injurious to the public interest (Collins and Schultz 1995). More recently, AICPA statements about the public interest are more likely to be absent than bias (Reiter 2013). Although disagreement exists as to why the AICPA has vacated this space (Hendrickson 2001), the organization clearly no longer acts as a counterweight against the commercialization of accounting (Suddaby et al. 2009; Carrington, Johansson, Johed, and Ohman 2013). This new lack of interest in the public interest is believed to contribute to a worsening collective reputation for the profession (Carnegie and Napier 2010). The belief that the market for professional services will always provide answers may also have silenced the AICPA on issues such as the compatibility of services, auditor rotation, tax reform, and international accounting standards.

Technological change arguably presents the most revolutionary source of practice alteration. As a former AICPA chair noted, “Technology is going to define us and how we do business for the foreseeable future” (Eddy 2001b). The balance struck between the pursuit of efficiency and effectiveness matters to the value of the profession's services (Fischer and Dirsmith 1995). A profession's use of technology can be both skilling and deskilling (Pern and Scattergood 1985), thereby potentially damaging the idea of equality within the ranks. The AICPA has remained relatively silent on this consequential front, except to the extent that it offers yearly reviews of software used by tax preparers. Thus, it implicitly promotes the belief that all technology is a movement toward progress and greater profitability. By advocating the use of skills that are distinctly and exclusively human, like judgment, the AICPA could communicate the need to use new forms of information processing judiciously and prudently. Apparently, the AICPA has not chosen to be a thought leader in this arena.

In sum, the work of professional trade associations is never easy. The AICPA over the last few decades may have witnessed the proverbial “perfect storm,” with mild governmental intrusion, followed by the pipe dreams of abundance, followed by an unprecedented crash. Turbulence of this nature made it difficult to be the unified front of a profession that comprises many diverse segments. Why its membership may have found fault with the AICPA could have been grounded in many different and sometimes opposite reasons. It may have centered upon how a person defines the public interest and professionalism, juxtaposed against a specific or general AICPA action or inaction. Collectively, these prospects diminish the possibilities that the AICPA has remained central to leadership of the profession. An individual aspiring the accounting profession's leadership may have found new organizational vehicles or career avenues.

Research Propositions The above discussion supports the need to test the contribution of AICPA involvement to the careers of those individuals who attain prominence in the accounting profession. Several reasons exist to believe that the trade association used by the U.S. accounting profession no longer captures the loyalty and interest of practicing accountants. Such a decline may be partially attributed to changes in the nature of practice, and partly due to the shortcomings of the AICPA. By focusing on the profession's leaders, the argument does not depend upon the behavior of the rank and file. Those with aspirations to lead the profession would be more likely to seek roles within the trade association, and use such associations to further their position as a leader. This ambition can be approached in different ways. The most intuitive approach pertains to frequency of involvements. This approach is illustrated by the following:

RP1:  The number of leaders of the accounting profession with explicit ties to the AICPA has declined over time.

Continued in article

Jensen Comment
This is material for a novel but probably not a blockbuster novel due to details that are hard to explain in a way that will excite most readers shopping for books in airports before boarding flights. There just aren't enough dead bodies or court trial sensations (yet).

I think the paper overstates the case for the diminished role of the AICPA. It does not give enough recognition to the expanded role of the AICPA in Washington DC lobbying ---
http://www.thetaxadviser.com/newsletters/2015/dec/preparing-for-2016-filing-season.html


ISIS Sanctions Organ Harvesting from Live Captives ---
http://www.newsweek.com/isis-islamic-state-organ-harvesting-islam-muslims-syria-iraq-christians-409023
Jensen Comment
One of the surprising things during my first walk in Hong Kong was watching the selling of live animals (fish, chickens, snakes, dogs, etc.) by street vendors selling these and other food items. Then it dawned on me that this is the way to sell perishables when no refrigeration is available. This makes me wonder if ISIS stores non-refrigerated live captives until an order comes in for a harvested body part in the black market when efforts to collect ransoms fail. I remember a movie where the kidnappers lower the price after Bette Midler's husband refuses to meet the kidnappers' price. Her question while in captivity: "You mean I'm being discounted?"

This organ harvesting  illustration might be used to illustrate the calculation of the Sales Mix Variance if the organs unused organs cannot be preserved ---
http://accounting-simplified.com/management/variance-analysis/sales/mix.html
For example, if Captive A is harvested for a kidney order and the other organs cannot be preserved the sale is probably less profitable than when Captive B is harvested for a heart. Cost variances are very difficult to calculate in this illustration because there are so many joint costs before a particular organ is harvested. But the Caliphate can make use of the sales mix variances computed by his accounting staff. This business will be much more profitable for ISIS once brain transplants become feasible.

 


"Did Fair-Value Accounting Contribute to the Financial Crisis?"
by Christian Laux, Christian Leuz
NBER Working Paper No. 15515 Issued in November 2009 NBER Program(s): CF

The recent financial crisis has led to a major debate about fair-value accounting. Many critics have argued that fair-value accounting, often also called mark-to-market accounting, has significantly contributed to the financial crisis or, at least, exacerbated its severity. In this paper, we assess these arguments and examine the role of fair-value accounting in the financial crisis using descriptive data and empirical evidence. Based on our analysis, it is unlikely that fair-value accounting added to the severity of the current financial crisis in a major way. While there may have been downward spirals or asset-fire sales in certain markets, we find little evidence that these effects are the result of fair-value accounting. We also find little support for claims that fair-value accounting leads to excessive write-downs of banks' assets. If anything, empirical evidence to date points in the opposite direction, that is, towards overvaluation of bank assets.

 

Don't Blame Fair Value Accounting Standards (except in terms of executive bonus payments)
                      This includes a bull crap case based on an article by the former head of the FDIC
http://faculty.trinity.edu/rjensen/2008Bailout.htm#FairValue

Bob Jensen's threads on fair value accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#FairValueFails


"The History of the Black-Scholes Formula," Priceonomics, December 15, 2015
http://priceonomics.com/the-history-of-the-black-scholes-formula/

There is a section in the above document on how the Black-Scholes formula was implemented by two Nobel Economists (including Myron Scholes), their doctoral students, and a key friend  into an index fund called Long-Term Capital Management (LTCM) that very nearly caused the entire collapse of Wall Street due to an overlooked assumption of the Formula that that failed during an extremely unlikely collapse of the Asian securities market. Big Wall Street firms quietly paid for the scandal to go away.

A particularly good video produced by PBS Nova explains the Black-Scholes Formula and how it let to the demise of LTCM in a "Trillion Dollar Bet."

  • The Trillion Dollar Bet transcripts are free --- http://www.pbs.org/wgbh/nova/transcripts/2704stockmarket.html
    However, you really have to watch the graphics in the video to appreciate this educational video --- http://www.pbs.org/wgbh/nova/stockmarket/

    "Trillion Dollar Bet"
    Nobel Prize Winners (Myron Scholes from Stanford, Robert Merton from Harvard) Must Pay Millions Due to Tax Fraud

    "Judge's Ruling In LTCM Case May Resonate," by Diya Gullapalli and Henny Sender, The Wall Street Journal, . August 30, 2004; Page C1 

    A federal judge Friday ruled against a defunct hedge fund whose name has become synonymous with the concept of "systemic risk," in a decision that singled out a Nobel Prize winner for criticism and that could have implications for other hedge funds seeking to avoid taxes.

    Judge Janet Bond Arterton denied Long-Term Capital Management's attempt to reclaim $40 million in taxes, ending a monthlong civil trial involving the fund that was wound down in 1998. Her ruling upheld an Internal Revenue Service claim that the fund had filed improper deductions.

    In a nearly 200-page opinion from her bench in New Haven, Conn., Judge Arterton outlined why she believed tax shelters employed by LTCM lacked the business purpose required to make them legal. She ruled that the fund engaged in at least nine complex leasing transactions that didn't have economic substance and were instead designed mainly to create losses of $106 million to offset LTCM's tax burden.

    The transactions, with acronyms such as CHIPS for Computer Hardware Investment Portfolio, and TRIPS, for Trucking Investment Portfolios, began in 1996 when LTCM swapped a stake in the fund for preferred stock of five U.S. companies.

    That stock was owned by Onslow Trading & Commercial LLC, an entity based in the United Kingdom that acquired the preferred stock in exchange for what are known as lease-stripping and sale-lease-back transactions.

    Judge Arterton's ruling means LTCM must pay roughly $16 million in IRS penalties, or 40% of the $40 million LTCM had been trying to reclaim. Because the U.S. tax code is enforced through civil litigation, no criminal charges are anticipated against the LTCM partners, who include high-profile finance whizzes such as John Meriwether, the ex-Salomon Brothers bond boss who started the fund and Nobel Prize winner Robert Merton.

    A lawyer for LTCM didn't return calls seeking comment.

    The tax-shelter strategies at LTCM were run mainly by Myron Scholes, who shared the Nobel Prize with Mr. Merton. Dr. Scholes worked on option pricing captured in the Black-Scholes model widely used on Wall Street.

    Dr. Scholes was cast in a harsh light in Judge Arterton's opinion.

    The judge wrote that Dr. Scholes and Larry Noe, a tax director at LTCM, were "well aware of the tax requirements of economic substance and business purpose and discussed the need therefore to figure out a reason independent of taxes for Long Term to engage in a transaction."

    Dr. Scholes couldn't be reached to comment.

    "This ruling sends a message that cannot be mistaken that the government means business when cracking down on tax shelters," says Itzhak Shirav, an accounting professor at Columbia Business School in New York. "This was a clear-cut case where lame excuses were offered and totally rejected."

    Judge Arterton's ruling is the latest criticism of tax shelters and part of the government's broader effort to crack down on such schemes.

    Both the IRS and Treasury Department have issued notices criticizing transactions in which advisers used offshore insurance companies to create tax shelters for hedge-fund investments.

    Some experts say the ruling could also provide ammunition for critics to demand more disclosure on how often-secretive hedge funds generate returns.

    Judge Arterton's ruling was as a sober footnote to the saga of LTCM, which opened for business in February of 1994 with more than $1 billion in equity capital, $150 million of which came from 12 founding partners.

    Those partners included the best and the brightest of the then Salomon Brothers bond-trading desk, led by Mr. Meriwether and Messrs. Merton and Scholes. Within several years, the fund's capital had swelled to $5 billion, making it bigger -- and more profitable -- than Salomon.

    LTCM seemed to have delivered on its promise to produce stellar returns with low risk. In 1995, its first full year of operation, it returned almost 59%. By 1997, however, returns were down to about 20%, as the price discrepancies the fund looked to exploit were fast disappearing, and the Asian financial crisis was unfolding.

    To compensate, the fund began using more borrowed money -- a strategy that exacerbated the impact of the fund's collapse in 1998.

    By then, LTCM had assets of $100 billion but $1 trillion worth of total exposure.

    Then came the Russian debt crisis, triggering a loss in the value of LTCM's leveraged positions world-wide and raising the possibility that the fund's problems could trigger a chain of losses.

    That led the Federal Reserve Bank of New York to orchestrate an orderly liquidation of its trades to prevent the so-called global systemic risk.

    Today, Mr. Scholes is an emeritus professor at Stanford University's Graduate School of Business in Palo Alto, Calif., while Mr. Merton is on the faculty of Harvard University's Graduate School of Business Administration.

    Mr. Meriwether is a principal and co-founder of JWM Partners LLC, an investment firm in Connecticut.

    Video: Nobel laureate and Stanford Professor Myron S. Scholes says some countries are likely to leave the euro so they can become more competitive.
    http://www.youtube.com/watch?v=zwGHcrjs3iE&utm_source=Stanford+Business+Re%3AThink&utm_campaign=1451d355ee-RTIssue2&utm_medium=email
    Myron Scholes is also one of two Nobel laureates brought down by the largest hedge fund failure in history (what PBS Nova called The Trillion Dollar Bet) ---
    http://faculty.trinity.edu/rjensen/FraudRotten.htm#LTCM

    Jensen Question
    Can the same theory apply to having California leave the dollar zone?

    Bob Jensen's threads on the LTCM scandal ---
    http://faculty.trinity.edu/rjensen/FraudRottenPart2.htm#LTCM


    "How Accounting Can Help Build a Sustainable Economy," by Eben Harrell, Harvard Business Review, December 14, 2015 ---
    https://hbr.org/2015/12/how-accounting-can-help-build-a-sustainable-economy 

    Jensen Comment
    The above article would benefit from more examples and case study references. It appears to be more hopeful thinking than realities of life as we know it today such as focus on the short term.

    However, times are changing in a ground swell for more attention to sustainability accounting ---
    http://faculty.trinity.edu/rjensen/Theory02.htm#TripleBottom


    Ten Elite Schools Where Middle-Class Kids Don't Pay Tuition ---
    http://www.bloomberg.com/news/articles/2015-04-01/ten-elite-schools-where-middle-class-kids-don-t-pay-tuition?cmpid=BBWGP122315_BIZ
    Children from poor families may also get deals on room, board, and other fees. The trick is to be accepted in a very competitive admissions process that is even more competitive for whites. These are not the only heavily endowed universities offering free tuition and other financial aid to the middle-class and poor students. This tends to offset the decline in merit-based financial aid that is independent of family income.

    Students who are not admitted to elite universities or otherwise cannot attend may get windows to thousands of elite university courses available as MOOCs ---
    http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI
    Increasingly academic credit can also be obtained from MOOCs by paying greatly reduced fees relative to tuition for onsite courses. There are all sorts of opportunities worldwide for inexpensive online credit and even more opportunities for learning without obtaining transcript credit. For example, thousands of tutorials in math, science, and other disciplines are now available free from Khan Academy. The point is that students who merely want to learn can become greater experts than students who graduate from elite universities. The key is motivation to learn by whatever means possible where the materials available for learning are free.

    The scandal in higher education is grade inflation
    Virtually all USA universities and especially the elite universities have moved median course grades from C in the 1940s to A- in the 21st Century such that graduating high grades no longer means as much. The coin of an education is badly cheapened by grade inflation where students receive high grades without much real learning ---
    http://faculty.trinity.edu/rjensen/assess.htm#RateMyProfessor

    Grade inflation also exists in other nations, but many other nations are different from the USA (where slow learners can always be admitted to some college)  in that only the intellectually elite are allowed to go to college ---
    OECD Study Published in 2014:  List of countries by 25- to 34-year-olds having a tertiary education degree ---
    https://en.wikipedia.org/wiki/List_of_countries_by_25-_to_34-year-olds_having_a_tertiary_education_degree

    Whereas nations like Finland and Germany only admit elite and motivated learners into colleges, what Bernie Sanders intends is that virtually anybody who wants to can be admitted to college for free. Sanders most likely hopes that the unmotivated and low-aptitude admissions will not graduate, but there are not many such academic standards in this era of grade inflation ---
    http://faculty.trinity.edu/rjensen/assess.htm#RateMyProfessor



    In my opinion college diplomas will mean less and less as the 21st Century unfolds even though taxpayers will be shelling out billions for degrees not worth the sheepskin they're printed on.


    MOOC for Credit and Noncredit Updates

    EdX (edX) --- https://en.wikipedia.org/wiki/EdX

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

    Arizona State University (ASU) --- http://www.asu.edu/

    Global Freshman Academy at ASU --- http://techcrunch.com/2015/06/23/three-questions-for-the-asuedx-global-freshman-academy-online-program/#.mdnza8b:OlFh

    Jensen Comment
    Arizona State University is one of the most innovative, if not the most innovative, large and respected universities in the  USA. Innovation is so rapid and so complex at ASU that it must be an administrative nightmare.

    Academe was shocked when Starbucks Corporation announced a free undergraduate degree distance education fringe benefit to be administered by ASU. Originally, only employees who had a prior two years of college were eligible, but now virtually all full-time Starbucks employees are eligible to study online for four years from ASU for an undergraduate degree. This Starbucks fringe benefit is part of ASU's innovative online distance education program that is a fee-based program instead of a free MOOC program. For Starbucks employees their employer pays the tuition.

    The University also has an innovative MOOC sports program that the NCAA repackages via Coursera for third parties ---
    http://blogs.wpcarey.asu.edu/knowit/what-lurks-beneath-the-tip-of-the-mooc-iceberg/

    ASU first joined the MOOC window into courses with a journalism course and then expanded MOOC windows into other courses. ASU also commenced a MOOC program as well that is a free video window into its freshman general education core. Anybody in the world may view freshman courses through this window and study alongside ASU campus students taking these core courses. Initially the MOOC viewers could not get academic credit.

    Global Freshman Academy at ASU
    Now ASU is experimenting with making academic credit available to MOOC viewers through edX. MOOCs can be viewed for free but academic credit is fee-based.

    Bob Jensen's threads on thousands of MOOCs from prestigious universities ---
    http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI

    "Less Than 1%," by Carl Straumsheim, Inside Higher Ed, December 21, 2015 ---
    https://www.insidehighered.com/news/2015/12/21/323-learners-eligible-credit-moocs-arizona-state-u?utm_source=Inside+Higher+Ed&utm_campaign=162e714d50-DNU20151221&utm_medium=email&utm_term=0_1fcbc04421-162e714d50-197565045

    ASU has not shared how many credit-seeking MOOC learners it hopes to enroll -- if such a goal exists. Speaking to Inside Higher Ed in April, Philip Regier, university dean for educational initiatives, said there were “a lot of uncertainties” around that number. He added that he expected “maybe 25,000” to register for some of the MOOCs. The astronomy MOOC, the largest of the first three, attracted 13,423 registrants.

    A spokesperson for the university, in response to whether the results are satisfactory, said, “ASU’s goal is reaching learners who want access to high-quality college-level education. The Global Freshman Academy charts a new path in access to higher education, and the results of the inaugural courses are a positive first step for the GFA.”

    Low completion rates are nothing new to MOOCs. In fact, a completion rate in the low double digits -- even in the high teens -- can be seen as a success.

    MOOC researchers, however, have argued that completion rates don’t matter as much as they do in traditional online and face-to-face courses. The open structure of MOOCs, they say, allows learners to register for a course but only focus on a handful of units. In other words, a low completion rate can mask the fact that many learners got something out of the MOOC, even if they didn’t finish it.

    “In open online learning, completion numbers provide only one small perspective on people's learning experiences,” Justin Reich, executive director of MIT’s Teaching Systems Lab, said in an email. “It would also be worth learning more about the experiences of the 3,300 or the 34,000. Did they have good learning experiences? Are they more familiar with ASU and its faculty? What public interests or institutional interests were served by offering the course?”

    Reich has previously explored the demographics of the learners who registered for MOOCs offered by Harvard University and the Massachusetts Institute of Technology -- the two institutions behind edX. His recent research, which appeared earlier this month in Science, found MOOCs “can exacerbate rather than reduce disparities in educational outcomes related to socioeconomic status.” The results build on earlier findings about MOOCs, which have suggested MOOCs cater more to older learners with previously earned degrees instead of the learners ASU is targeting -- high school students, international students and students considering community college, among others.

    “I'm not surprised that few people took advantage of the credit option in the first run -- that's been common across certificate experiments in MOOCs,” Reich wrote. “A trajectory over time will be more useful than a snapshot. If these numbers stay very low, it will be harder to justify continuing the program than if they grow quickly and if the program gets more accepted and recognized.

    Continued in article

    "Nearly 4,000 Starbucks Employees Apply to Arizona State (online)," Inside Higher Ed, September 3, 2014 ---
    https://www.insidehighered.com/quicktakes/2014/09/03/nearly-4000-starbucks-employees-apply-arizona-state

    Following Starbucks employee education benefits with Arizona State University,
    Anthem Blue Cross offers education benefits with the University of Southern New Hampshire

    "An Increasingly Popular Job Perk: Online Education," by Mary Ellen McIntire, Chronicle of Higher Education, June 2, 2015 ---
    http://chronicle.com/blogs/wiredcampus/an-increasingly-popular-job-perk-online-education/56771?cid=wc&utm_source=wc&utm_medium=en

    Wal-Mart subsidizes an entire undergraduate degree.

    "Fiat Chrysler Offers Degrees to Employee Families (including families of dealer employees) ," Inside Higher Ed, November 23, 2015 ---
    https://www.insidehighered.com/quicktakes/2015/11/23/fiat-chrysler-offers-degrees-employee-families?utm_source=Inside+Higher+Ed&utm_campaign=b3c3eb755f-DNU20151123&utm_medium=email&utm_term=0_1fcbc04421-b3c3eb755f-197565045

    Bob Jensen's threads on fee-based distance education ---
    http://faculty.trinity.edu/rjensen/CrossBorder.htm

    Bob Jensen's threads on free online education (most of which still offers free learning without college credits) ---
    http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI

    Bob Jensen's threads on fee-based distance education alternatives ---
    http://faculty.trinity.edu/rjensen/CrossBorder.htm


    "The 12 Most Popular Free Online Courses (MOOCs) For Professionals," by Maggie Zhang, Business Insider, July 8, 2014 ---
     http://www.businessinsider.com/free-online-courses-for-professionals-2014-7

    01. Wesleyan University's "Social Psychology"

    02. University of Maryland's "Programming Mobile Applications for Android Handheld Systems"

    03. Duke University's "Think Again: How to Reason and Argue"

    04. Duke University's "A Beginner's Guide to Irrational Behavior"

    05. University of Toronto's "Learn to Program: The Fundamentals"

    06. Stanford University's "Startup Engineering"

    07. Yale University's "Financial Markets"

    08. The University of Pennsylvania Wharton School's "An Introduction to Financial Accounting"

    09. University of Washington's "Introduction to Public Speaking"

    10. University of Michigan's "Introduction to Finance"

    11. The University of Pennsylvania Wharton School's "An Introduction to Marketing"

    12. Johns Hopkins Bloomberg School of Public Health's "Data Analysis"

    Read more: http://www.businessinsider.com/free-online-courses-for-professionals-2014-7#ixzz37LiJgQ57

    Update
    2015:  The 10 most popular free online courses for professionals ---
    http://www.businessinsider.com/most-popular-coursera-courses-of-2015-2015-12

    Bob Jensen's links to free course materials, videos, and entire courses from prestigious universities ---
    http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI


    Tesco is paying $12 million to settle a US case over its £263 million accounting black hole ---
    http://www.businessinsider.com/tesco-is-paying-12-million-to-settle-a-us-case-over-its-263-million-accounting-black-hole-2015-11
    And the   pain is not over yet.


    "New Information-Reporting Requirements for Employers Under the Affordable Care Act," ---
    http://www.thetaxadviser.com/issues/2015/dec/new-information-reporting-requirements-under-aca.html#sthash.xWeHz9Ym.dpuf


    Illustrations Differences between US GAAP and the FRF for SMEs?
    AICPA in 2015:  Illustrative Financial Statements Prepared Using the Financial Reporting Framework for Small- and Medium-Entities This should set accountics scientists rethinking about their failures to replicate each other's research

    http://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/PCFR/DownloadableDocuments/FRF-SME/FRFforSMEs_Illustrative_Financial_Statements.pdf


    "New Evidence on Linear Regression and Treatment Effect Heterogeneity." by Tymon Słoczyński, iza, November 2015 ---
    http://ftp.iza.org/dp9491.pdf

    Jensen Comment
    Accountics scientists seldom replicate the works of each other ---
    http://faculty.trinity.edu/rjensen/theoryTar.htm

    The Tymon Słoczyński's replications of two studies published in the American Economic Review should make accountics scientists rethink their implicit "policy" of not replicating.

    It is standard practice in applied work to rely on linear least squares regression to estimate the effect of a binary variable (“treatment”) on some outcome of interest. In this paper I study the interpretation of the regression estimand when treatment effects are in fact heterogeneous. I show that the coefficient on treatment is identical to the outcome of the following three-step procedure: first, calculate the linear projection of treatment on the vector of other covariates (“propensity score”); second, calculate average partial effects for both groups of interest (“treated” and “controls”) from a regression of outcome on treatment, the propensity score, and their interaction; third, calculate a weighted average of these two effects, with weights being inversely related to the unconditional probability that a unit belongs to a given group. Each of these steps is potentially problematic, but this last property – the reliance on implicit weights which are inversely related to the proportion of each group – can have particularly severe consequences for applied work. To illustrate the importance of this result, I perform Monte Carlo simulations as well as replicate two applied papers: Berger, Easterly, Nunn and Satyanath (2013) on the effects of successful CIA interventions during the Cold War on imports from the US; and Martinez-Bravo (2014) on the effects of appointed officials on village-level electoral results in Indonesia. In both cases some of the conclusions change dramatically after allowing for heterogeneity in effect.

    Common Accountics Science and Econometric Science Statistical Mistakes ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

    How Accountics Scientists Should Change: 
    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm


    "NBC White Paper 1980. If Japan Can...Why Can't We. Featured W. Edwards Deming," by Jim Martin, MAAW's Blog, December 4, 2015 ---
    http://maaw.blogspot.com/2015/12/nbc-white-paper-1980-if-japan-canwhy.html

    Jensen Quality
    When I was a kid back in the the 1950s a product label that read "Made in Japan" was a warning that the product was most likely "Poor Quality." Decades later that label came to signify "Top Quality."
    The reason for the change is largely the work of quality control statistician W. Edwards Deming.


    Teaching IFRS versus Teaching USA GAAP
    "Concepts-Based Education in a Rules-Based World: A Challenge for Accounting Educators
    ," by Kenneth N. Ryack, M. Christian Mastilak, Christopher D. Hodgdon, and Joyce S. Allen, Issues in Accounting Education, November 2015 ---
    http://aaajournals.org/doi/full/10.2308/iace-51162

    In this paper we discuss the challenges of teaching U.S. GAAP and IFRS side by side. We then focus on one particular challenge of teaching both the more detailed U.S. standards and the less specific IFRS: the likelihood that students will “anchor” on the precise rules in U.S. GAAP when applying the less specific guidelines under IFRS. As a part of this discussion, we report on a classroom experiment designed to test for the presence of anchoring on U.S. GAAP rules when applying IFRS in a lease classification task. Our results indicate that students do anchor on the U.S. GAAP bright-line values for lease accounting when classifying leases under IFRS, primarily when U.S. GAAP rules provide an acceptable quantification of IFRS' less precise guidelines. We do not find that teaching order (i.e., teaching U.S. GAAP first versus IFRS first) directly affects anchoring or lease classification. However, a moderation analysis suggests the interaction between teaching order and anchoring may affect lease classification. Our results suggest that, where possible, instructors may wish to teach principles-based accounting prior to rules-based accounting to mitigate potential anchoring by students and its effect on their accounting judgments.

    From the CFO Journal on June 6, 2013

    FASB’s Seidman: Americans prefer rules to principles
    Outgoing FASB Chairman Leslie Seidman has had plenty of time to tackle long-standing questions about whether accounting principles are more desirable than specific accounting rules,
    writes Emily Chasan. The debate over whether detailed rules and bright-line exceptions are more or less useful than broad principles that require management judgment has dominated her past 1o years on the board. “I think it’s undeniable that we Americans like our rules,” Ms. Seidman said at a Financial Executives International conference in New York on Tuesday, where she was discussing the accounting rulemakers’ soon-to-be-completed joint project on revenue-recognition accounting. She made the comments in her final public speech as chairman of the U.S. accounting rulemaker.


    "Study: Rules-based Accounting Shields Firms From Lawsuits," by Jr. Deputy Accountant Adrienne Gonzalez, Going Concern, January 15, 2013 ---
    http://goingconcern.com/post/study-rules-based-accounting-shields-firms-lawsuits

    According to groundbreaking research by Richard Mergenthaler, assistant professor of accounting at the University of Iowa Tippie College of Business, shareholders are more likely to sue firms that use principles-based accounting standards over rules-based standards.

    Continued in article

    Jensen Comment
    I would have hypothesized that it would be the other way around on the basis that it's really hard to nail Jello to a wall.

    Principles-Based standards also complicate enforcement of regulations
    There are some hurdles that have to be passed before we’re going to be comfortable making the ultimate decision about whether to incorporate IFRS into the U.S. reporting regime. Sticking points include the independence of the International Accounting Standards Board and “the quality and enforceability of standards.
     Mary Shapiro, U.S. Securities and Exchange Commission Chairman, January 5, 2012 ---
     http://www.businessweek.com/news/2012-01-06/sec-s-schapiro-says-she-regrets-loss-in-investor-access-battle.html

    Bob Jensen's threads on concepts-based standards versus bright-line standards ---
    http://faculty.trinity.edu/rjensen/theory01.htm#BrightLines


    "Reinventing the Way We Learn Accounting," by Curtis L. DeBerg," AICPA, December 1, 2015 ---
    http://blog.aicpa.org/2015/12/reinventing-the-way-we-learn-accounting.html#sthash.TFYaWDJH.WxPwxX39.dpbs

    We live in an age of short attention spans and demands for more productivity. In my role as an accounting professor, if I don’t grab my accounting students’ attention and immediately explain the relevancy of a topic, they tune out.

    Today’s young people have a greater aptitude for learning new skills, especially when it comes to new technological applications. They enjoy experimenting, and they don’t mind failing – as long as failure is just a hurdle on the way to the reward at the finish line. Short attention spans and the need to multi-task are not limited to college students.

    The nature of today’s business environment requires CPAs to be multitaskers. Thirty years ago when I was a CPA in public practice, we used to take CPE courses once or twice a year to catch up on new standards and guidance. Today, changes are taking place so quickly that we need to be learning new material daily. Our instructional methods and learning habits need to adapt accordingly.

    Nano Learning: Breaking Instruction Into Small Pieces

    Nano learning breaks instruction into self-contained modules that can last from two to 15 minutes. These small lessons focus on one or two specific learning objectives. Additionally, they’re typically available “on-demand” so students and professionals can learn at their own pace, in their own space, amid their other responsibilities. Many educators and students feel the best way to learn, still, is face-to-face instruction in small group settings, assuming that time is available and the instructor is motivated and inspired. But what if in-person access is not easy, the class setting is not personal, or the instruction is mediocre? A great instructor from a distance who is available for live chats or video conferences might actually be the superior option.

    Blended Learning:

    Stimulating Every Learning Style

    Even with face-to-face instruction, technology now allows us to develop new ways to appeal to different learning styles.

    At my university, for example, Principles of Financial Accounting is the first required course for business majors. To invigorate student engagement in a course dreaded by many, I adopted a blended learning approach known as a “flipped classroom.”

    Students are required to watch short lecture videos before the first class meeting each week. In the second meeting, students are broken into four groups of 30, with each sub-group broken down into groups of three. The breakout sections are led by four mentors, who are outstanding senior accounting majors. Students do their “homework” during class time in their breakout groups. Hence, what formerly was homework becomes classwork; what was classwork now becomes homework. Performance

    Continued in article

    Bob Jensen's threads on Tools and Tricks of the Trade ---
    http://faculty.trinity.edu/rjensen/000aaa/thetools.htm


    "Do Clients Avoid “Contaminated” Offices? The Economic Consequences of Low-Quality Audits," by Quinn T. Swanquist and Robert L. Whited, The Accounting Review, November 2015 ---
    http://aaajournals.org/doi/full/10.2308/accr-51113 

    This study investigates whether the market for audit clients penalizes auditors following association with low-quality audits. Specifically, we examine whether audit offices experience a loss in local market share following client restatements. We document that the frequency of restatement announcements within an office-year (“contamination”) is inversely related to subsequent year-over-year change in local market share. Further analysis indicates that restatements impair the office's ability to both attract and retain audit clients. We find that this effect is strongest in high competition markets and diminished in low competition markets. We also examine auditor retention decisions at the client level and find that the likelihood of auditor dismissal increases with contamination, even for non-restating clients. We also find that, on average, clients dismissing their auditor select less contaminated audit offices. Taken together, our results suggest that market forces penalize auditors for association with audit failures, thereby providing an incentive to maintain high-quality audits and protect reputational capital.

    Jensen Comment
    My own opinion is that this article is misleading in that so many factors affecting client acquisition and retention cannot be measured. Among all these factors I doubt that restatemetns of other clients are such large factors relative to what I consider to be more important factors like price and expertise within the audit firms. For example, an insurance firm is going to be more concerned with the expertise of the auditors complicated insurance accounting and firms with lots of derivatives want auditors who know how to spell the word derivatives. Then there are what I consider extremely important factors such as the rapport of the client management with the top auditors such as rapport in clubs and on the golf courses and in the synagogues.


    Those of you interested in tracking The Accounting Review's  trends in submissions, refereeing, and acceptances'rejections should be interested in current senior editor Mark L. DeFond's annual report at
    http://aaajournals.org/doi/full/10.2308/accr-10477
    This has become a huge process involving 18 editors and hundreds of referees. TAR is still the leading accountics science journal of the American Accounting Association. However, there are so many new specialty journals readers are apt to find quality research in other AAA journals. TAR seemingly still does not publish commentaries and articles without equations and has not yet caught on the the intitiatives of the Pathways Commission for more diversification in research in the leading AAA research journal. Virtually all TAR editors still worship p-values in empirical submissions.

    "Not Even Scientists Can Easily Explain P-values," by Christie Aschwanden, Nate Silver's 5:38 Blog, November 30, 2015 ---
    http://fivethirtyeight.com/features/not-even-scientists-can-easily-explain-p-values/

    P-values have taken quite a beating lately. These widely used and commonly misapplied statistics have been blamed for giving a veneer of legitimacy to dodgy study results, encouraging bad research practices and promoting false-positive study results.

    But after writing about p-values again and again, and recently issuing a correction on a nearly year-old story over some erroneous information regarding a study’s p-value (which I’d taken from the scientists themselves and their report), I’ve come to think that the most fundamental problem with p-values is that no one can really say what they are.

    Last week, I attended the inaugural METRICS conference at Stanford, which brought together some of the world’s leading experts on meta-science, or the study of studies. I figured that if anyone could explain p-values in plain English, these folks could. I was wrong.

    Continued in article

    Jensen Comment
    Why all the fuss? Accountics scientists have a perfectly logical explanation. P-values are numbers that are pumped out of statistical analysis software (mostly multiple regression software) that accounting research journal editors think indicate the degree of causality or at least suggest the degree of causality to readers. But the joke is on the editors, because there aren't any readers.

    November 30, 2015 reply from David Johnstone

    Dear Bob, thankyou for this interesting stuff.

     

    A big part of the acceptance of P-values is that they easily give the look of something having been found. So it’s an agency problem, where the researchers do what makes their research outcomes easier and better looking.

     

    There is a lot more to it of course. I note with young staff that they face enough hurdles in the need to get papers written and published without thinking that the very techniques that they are trying to emulate might be flawed. Rightfully, they say, “it’s not my job to question everything that I have been shown and to get nowhere as a result”, nor can most believe that something so established and revered can be wrong, that is just too unthinkable and depressing. So the bandwagon goes on, and, as Bob says, no one cares outside as no one much reads it.

     

    I do however get annoyed every time I hear decision makers carry on about “evidence based” policy, as if no one can have a clue or form a vision or strategy without first having the backing of some junk science by a sociologist or educationist or accounting researcher who was just twisting the world whichever way to get significant p-values and a good “story”. This kind of cargo-culting, which is everywhere, does great harm to good or sincere science, as it makes it hard for an outsider to tell the difference.

     

    One thing that does not get much of a hearing is that the statisticians themselves must take a lot of blame. They had the chance to vote off P values decades ago when they had to choose between frequentist and Bayesian logic. They split into two camps with the frequentists in the great majority but holding the weakest ground intellectually. The numbers are moving now, as people that were not born when de Finetti, Savage, Lindley, Kadane and others first said that p-values were ill-conceived logically. Accounting, of course, being largely ignorant of there being any issue, and ultimately just political, will not be leading the battle of ideas.


    Most Popular Tax Prof Blogs for the Week Ended December 13, 2015 ---
    http://taxprof.typepad.com/taxprof_blog/2015/12/this-.html

    1. NY Times: Microaggression In The Gym — Millennial Men Struggle To Dress In Health Club Locker Rooms
    2. The IRS Scandal, Day 943
    3. Harvard Law Students Issue 7-Page List Of Demands In Wake Of Racial Unrest
    4. The IRS Scandal, Day 944
    5. College And University President Salaries, 2013
    6. Christians: Understanding The Accidental American — Tina's Story
    7. Will Technology Create More Legal Jobs Than It Destroys?
    8. Congress Orders IRS To Use Private Debt Collection Companies
    9. Christian University President: This Is Not A Day Care, 1 Corinthians 13 Is Not A Microaggression
    10. Fleischer: Skadden As Tom Cruise — Yahoo’s Spinoff Plan Could Be Risky Business

    Question from Item 1 above
    Do men and boys still swim nude in YMCA pools?
    I recall visiting two such pools as a young boy when boys and men were all swimming nude.at the same time.


    "Six strange (bizarre) Australian taxes," by Chris Sheedy, CAS, November 2015 ---
    https://www.icas.com/ca-today-news/six-strange-australian-taxes

    . . .

    1. Queen bee levy

    “Australia has over 125 different taxes, and some of these taxes are as ridiculous as the queen bee levy. Up until recently, if you sold a queen bee for over $20 you had to arrange a 10 cent payment to the Government. A really big money earner for the Government!”

    2. The seafarer’s tax offset

    “This little present by the previous Labor government to the Maritime Union allows those who employ seafarers a 30% tax offset for the salaries they pay. The rationale for the introduction of this tax offset was to ‘stimulate opportunities for Australian seafarers to be employed on overseas voyages and to gain maritime skills’. Since its introduction, it has been claimed by fewer than five taxpayers. Right now there is a bill before the Senate to repeal it. But it will get blocked as in Australia you can’t even take away handouts that no one uses.”

    3. Salary-packaged cars

    “The reason we have tax concessions that encourage people to salary-package cars is because back in 1986, when Australia introduced a fringe benefits tax to tax benefits provided to employees by their employers, it was too difficult to track car expenses. Also, Government wanted to continue to encourage the thriving

    4. The brandy advantage

    “Unlike many countries that use volumetric taxation, where you tax the product based on how much alcohol is in it, Australia has a unique system where it taxes beverages based on how ‘Aussie’ they are.

    Continued in article


    Jensen Comment
    Aside from the free toothpaste, tooth brushes, shaving crème, extra pillows (for Erika's back) and razors Erika and I never would think to ask for the things in the listing below when checking into a hotel. Of course at our age, there are some things like yoga mats that we don't have any use for, but if the grandchildren are along I will keep this listing in mind for the future. We don't ask for the freebies unless there's a need such as not wanting to carry a can of shaving crème on an airplane.

    We do call ahead for a refrigerator and microwave on the morning of the day of our arrival. Ironically, the cheaper hotels (e.g., Comfort Inn) are more apt to have these appliances in every room whereas you have to phone ahead and hope when checking into an expensive hotel like a Hilton or a Marriott. You can request a microwave and refrigerator when you make the reservation, but we have better luck when we also make a request early on the day of arrival.

    There are other things that cheaper hotels do better. For example, Comfort Inn as free quality coffee 24/7 in the lobby whereas Hilton and Marriott force you make crummy coffee in a machine in the room or pay an outrageous price in a restaurant. We carry a thermos pot with us to get better coffee in the lobby or in the restaurant.

    Of course there are more amenities if you pay $100 or more per day for a premium room in an expensive hotel. We don't travel much these days, but I am willing to pay the premium if the conference is in an expensive hotel. The best amenities for us are at home. I guess home greater home appreciation is part of the aging process.

    17 things you should definitely ask for the next time you check in to a hotel ---
    http://www.businessinsider.com/free-things-you-can-get-at-a-hotel-2015-11


    "Is $50 Billion the Price of Repo Safety? A clearinghouse operator wants credit commitments from banks and trading firms," by Katy Burn, The Wall Street Journal, December 9, 2015 ---
    http://www.wsj.com/articles/is-50-billion-the-price-of-repo-safety-1449706582?mod=djemCFO_h

    Bob Jensen's threads on repo scandals (calling loans sales) and accounting rules ---
    http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm#Repo


    Question
    What content to put in an Advanced Cost Accounting Course

    Jensen Comment
    When you search for content you find that content varies across the board.

    Searches related to "Advanced Cost Accounting"

    advanced cost accounting syllabus

    advanced cost accounting course

    advanced cost accounting problems and solutions

    advanced cost accounting midterm

    advanced cost accounting jde

    advanced cost and management accounting

    advanced managerial accounting

    advanced financial accounting


     


    Is Accounting Education Failing Students? The Case for a Skills-Based Curriculum of 4C Plus 1
    SSRN, October 15, 2015
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2692727
    Journal of the CPA Practitioner, 7(2), 5-8, 2015

    Authors

    Dov Fischer Brooklyn College - City University of New York (CUNY)

    Hershey H. Friedman City University of New York (CUNY) - Department of Business Management

    Abstract

    Accounting education has not changed enough in response to the financial scandals and crises of the last two decades. Employers today demand a set of skills that will enable employees to be life-long learners, yet colleges are too narrowly focused on technical knowledge with an increasingly short life-span. We advocate for a skills-based curriculum of the four C’s identified as critical by employers: Communication, Collaboration, Critical Thinking, and Creativity. We add a fifth C for Character/Integrity which, contrary to popular belief, can be taught.


    After KPMG was paid $456 million in 2006 fines for selling phony tax shelters, KPMG promised it would never happen again. Yeah Right!

    Four KPMG partners arrested in tax evasion investigation ---
    http://www.accountancyage.com/aa/news/2436814/four-kpmg-partners-arrested-in-tax-evasion-investigation

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


    The New Financial Planning and Analysis Credential That's Not as Tough as the CFA or CPA Credentials

    From the CFO Journal's Morning Ledger on December 22, 2015

  • Move over, accounting. Increasingly, the real power to boost sales and revenue is coming from a function known as financial planning and analysis, or FP&A, reports Alix Stuart for CFO Journal. Employees in these groups work on everything from forecasting sales, earnings and buybacks to employee raises.

    The specialty appears to be coming into its own in part because of a credentialing program launched by the Association for Financial Professionals two years ago. A person must have two to three years of work experience to enroll. There are no required courses, but participants spend about 72 hours preparing before taking a two-part test that involves basic financial knowledge and free-form spreadsheet modeling.


    "In a Fake Online Class With Students Paid to Cheat, Could Professors Catch the Culprits?' by Brad Wolverton, Chronicle of Higher Education, December 22, 2015 ---
    http://chronicle.com/article/In-a-Fake-Online-Class-With/234687?cid=wc&utm_source=wc&utm_medium=en&elq=5e53f217c61144bcb8f7be3a76e61ae2&elqCampaignId=2123&elqaid=7325&elqat=1&elqTrackId=f7b3e292feda404c8db56c657c1c5e5f

    Jensen Comment
    The best prevention device is still a proctoring village vicar or an employee's supervisor.

    Bob Jensen's neglected  threads on prevention and detection of online cheating ---
    http://faculty.trinity.edu/rjensen/assess.htm#OnsiteVersusOnline 


    From the CFO Journal's Morning Ledger on December 4, 2015

    Accounting standard setters and legislators in the U.S. and abroad are gearing up for the next set of rule changes and regulations that will keep chief financial officers on their toes in 2016 and beyond. From corporate tax plans to revenue from insurance contracts, CFOs will need to make sure their departments are sufficiently nimble to cope with the next wave of compliance demands.

    CFOs received some breathing room when the Financial Accounting Standards Board disclosed it would allow companies to wait an until 2018—instead of 2017—to adopt rules governing how they account for deferred revenue from everything from cellphone contracts to car sales to software. Still, many large firms say they have been preparing parallel books in preparation for the rule changes, and a delay would be costly and unnecessary. Some indicated in comment letters to FASB that they would adopt the rule early, which FASB will allow.

    And then there’s the matter of lease accounting, not to mention new standards for insurance contracts. But perhaps some of the biggest unsettled matters for financial chiefs as 2015 winds down are in the area of taxation. Still on the legislative tax agenda are the roughly 50 temporary tax provisions that expired at the end of 2014 known as tax extenders, including the research-and-development tax credit and the “bonus depreciation” tax break that helps companies accelerate deductions for capital investments

     


    From the CFO Journal's Morning Ledger on December 4, 2015

    The special excise on high-cost health plans known as the “Cadillac tax” isn’t set to go into effect until 2018, but lawmakers have already taken steps to prevent it from kicking in. Even so, with a veto threat in the air from President Obama, its ultimate fate remains uncertain, Kimberly S. Johnson and Maxwell Murphy report. In a 90-10 vote, Senators voted for the inclusion of an amendment axing the tax as part of a larger bill that would make deep cuts to stipulations in the Affordable Care Act.

    If measures to eliminate the tax are unsuccessful, CFOs will have big decisions to make in the coming years regarding company benefit plans, and many companies will likely struggle to renegotiate union contracts. In some cases, companies are shifting to consumer-driven plans, or high-deductible plans that pass more costs and responsibility for their health-care choices to employees. The Kaiser Family Foundation in August estimated the tax will affect roughly a quarter of companies in its first year, nearly doubling over 10 years. That is because the costs of health care are generally expected to grow at quicker clip than will the penalty thresholds.


    From the CFO Journal's Morning Ledger on December 4, 2015

    EU hits McDonald’s with full-blown tax investigation
    http://www.wsj.com/articles/eu-hits-mcdonalds-with-full-blown-tax-investigation-1449140943?mod=djemCFO_h
    European Union regulators confirmed that they have opened a full-blown probe into McDonald’s Corp.’s tax affairs in Luxembourg, warning that a tax deal granted to the fast-food chain in 2009 may have reduced its tax burden in violation of EU law.


    The 1031 Exchange Handbook -- A Complete Guide for Legal, Accounting, Financial and Real Estate Professionals
    SSRN, November 16, 2019, Posted again November 19, 2015
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2690377

    Author

    Andrew G Ogden

    Abstract

    The 1031 Exchange Handbook provides working professionals in law, accounting, finance and real estate with a practical guide and complete reference source to like-kind exchanges. The 1031 Exchange Handbook covers all topics necessary to understand like-kind exchanges of real estate and personal property, with references and explanations of all relevant cases, federal and state statutes, and IRS regulations, rulings and procedures. The 1031 Exchange Handbook also explains how to structure and execute all types of exchanges, and procedures to guarantee the security of funds held by exchange facilitators.


    Connecticut Auditors Raise Questions About Pension Calculations ---
    http://www.ctnewsjunkie.com/archives/entry/auditors_raise_questions_about_pension_calculations/

    Financial State of the States Report on September 2015 ---
    http://www.truthinaccounting.org/library/doclib/TIAFSOS9-2015.pdf

    SINKHOLE STATES WITH THE WORST TAXPAYER BURDENS

    Massachusetts
    Kentucky
    Illinois
    Connecticut
    New Jersey

    SUNSHINE STATES: 5 BEST TAXPAYER SURPLUSES

    South Dakota
    Utah
    Wyoming
    North Dakota
    Alaska

    STATES WITH THE HIGHEST TAXPAYER BURDEN

    New Jersey (Highest)
    Connecticut
    Illinois
    Kentucky
    Massachusetts
    Hawaii
    California
    New York
    Michigan
    Delaware
    Pennsylvania
    Louisiana
    Vermont

    . . .

    While the financial condition of most states appears to have improved as a result of a change in how unfunded pension debt is calculated, the financial condition of four of the five worst states, identified as "Sinkhole States" (New Jersey, Connecticut, Illinois, and Kentucky), continued to deteriorate. Massachusetts is the only sinkhole state that improved from its 2013 Taxpayer Burden during 2014, but only by a modest $600 per taxpayer.

     


    Recognition, Measurement and Accounting Treatment of Human Resource Accounting
    SSRN, November 17, 2015
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2691896

    Authors

    Md. Shamim Hossain University of Dhaka - Department of Accounting & Information Systems ; Independent

    Md. Rofiqul Islam University of Dhaka

    Md. Majedul Palas Bhuiyan BCS General Education Association ; Government Safar Ali College - Department of Management

    Abstract

    Human Resource Accounting (HRA) involves accounting for costs related to human resources as assets as opposed to traditional accounting. Since the beginning of globalization of business and services, human elements are becoming more important input for the success of every organization. The strong growth of international financial reporting standards (IFRS) encourages the consideration of alternative measurement and reporting standards and lends support to the possibility that future financial reports will include non-traditional measurements such as the value of human resources using HRA methods. It helps the management to frame policies for human resources of their organizations. HRA is a process of identifying and measuring data about human resources. It will help to charge human resource investment over a period of time. It is not a new concept in the arena of business world. Economists consider human capital as a production factor, and they explore different ways of measuring its investment. Now accountants are recognizing human resource investment as an asset. This study is build upon Recognition, Measurement and Accounting Treatment of Human Resource Accounting in different organizations.

    History Question
    What company was the first business firm to value human resources on its balance sheet?

    Jensen Answer
    Although I'm not certain how professional sports teams accounted for player contracts before 1977, my research for an American Accounting Association monograph suggested that the RG Barry Corporation was the first company to value all of its human resources on the balance sheet. However, I could not find any value in this "phantasmagoric" valuation.

    PHANTASMAGORIC ACCOUNTING: Research and Analysis of Economic, Social and Environmental Impact of Corporate Business
    (Sarasota, FL: The American Accounting Association, 1977).

    December 1, 2015 reply from Elliot Kamlet

    The idea of valuing Human Resources of a company has been intriguing to me since I was a student.of  Bikki Jaggi (http://www.business.rutgers.edu/faculty-research/directory/jaggi-bikki) who got together with a statistician at Binghamton (Lau) and came up with a model to value human resources.  At the time, there was resistance to the math involved.  See http://www.jstor.org/stable/245105?seq=1#page_scan_tab_contents

     

    December 2, 2015 reply from Bob Jensen

    Hi Elliot,

     

    Not everything that can be counted, counts. And not everything that counts can be counted.
    Albert Einstein

     

    The problems are numerous and complicated in terms of things other than the complicated math in human resource accounting. The biggest problem arises when there is no math whatsoever to make sense out of human resource accounting.

     

    Firstly, there's the problem of ownership and control. Most employment contracts do not prevent an employee from quitting immediately or in a very short period of time. Hence, you cannot own or lease an employee in the same way that we conceptualize owned or leased assets. Human resource accounting requires an entirely new conceptualization of the left side of the balance sheet.

     

    Secondly there's a problem of additivity where the value of individual employees varies interactively with other employees. The higher-order joint components of value are almost impossible to measure and may even become negative if it were possible to put measures of value on a work force.

     

    As an illustration, consider Ivy League tenured faculty. It's not at all uncommon for some departments not to anticipate a tenure track opening for 10-20 years. This is problematic in terms of stagnation when there will be zero now new blood transfusing a department's stale faculty for 10-20 years. Every tenured faculty member is an asset. However, taken as a whole the tenured faculty in a department may become a liability.

     

    Consider the special problem now faced by Brown University. At one time over 90% of the assistant professors hired by Brown received tenure, thereby leading to many departments that expect no tenure track openings for many years. In 2015 Brown announced a very generous $100 million initiative to hire African American, Hispanic, and Native American faculty. But at Brown what this means is that a goodly portion of that $100 million will be used to buy out the tenure of white faculty to create tenure track positions for Brown's affirmative action hiring.

     

    In other words in terms of human resource accounting positive value of individuals becomes a negative value when their values are combined.

     

    Also "value" of a human resource has many contexts vis-à-vis value of a milling machine. With a human resource there's value in terms of routine assigned jobs plus positive and negative values of team contributions plus values of potential leadership promotions plus negative values of lawsuit risks. Milling machines do not sue for falls and slander and microaggressions, but employees sue for millions upon millions.  Human resources also present unique fraud risks relative to physical assets.

     

    Not everything that can be counted, counts. And not everything that counts can be counted.
    Albert Einstein

    Thanks,
    Bob Jensen

    Bob Jensen's threads on triple-bottom reporting, including human resource accounting, are at
    http://faculty.trinity.edu/rjensen/Theory02.htm#TripleBottom


    Does Mandatory Adoption of IFRS Enhance Earnings Quality? Evidence from Closer to Home
    SSRN, September 1, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2691039

    Authors

    Gopal V. Krishnan American University - Kogod School of Business

    Jing Zhang University of Alabama in Huntsville ; McGill University - Desautels Faculty of Management

    Abstract

    Canada adopted IFRS in 2011 and firms were required to provide reconciliation from Canadian GAAP (CGAAP) to IFRS for the fiscal year before the adoption. We run a “horse race” of earnings quality between CGAAP and IFRS. Further, by making use of a natural experiment and a single country focus, our study does not suffer from potential omitted variables arising from differences in socio-economic, political, and legal environments across sample firms. We find that on average, relative to IFRS-earnings, earnings under CGAAP has greater association with next period cash flows. Further, when the difference between earnings under CGAAP and IFRS is large, IFRS-earnings is less value-relevant and less persistent. The results strongly support the notion that higher earnings quality is associated with CGAAP. Finally, our results indicate that differences between CGAAP and IFRS with regard to accounting for financial instruments and investments significantly impair the quality of IFRS-earnings.


    Earnings Management Motives and Firm Value Following Mandatory IFRS Adoption – Evidence from Canadian Companies
    SSRN, November 1, 2015
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2688220

    Authors

    Raymond Leung University of the Fraser Valley

    Abstract

    When Canada already has a set of well-established legal enforcement and investor protection mechanism to control earnings management; and the quality of Canadian GAAP is high, I examine if the accounting quality for Canada can still be improved since its adoption of IFRS mandatorily in 2011. The extant literature argues that IFRS adoption benefits firms domiciled in countries with strong legal and financial institutions. However, when the quality of IFRS is as good as the local standards for many Anglo-Saxon countries such as Canada, it is questionable for these countries to receive substantial economic consequences. Following the literature, I estimate a set of comprehensive measurements of earnings management as the proxies of accounting quality. Empirically, I document evidence that even though the results are mixed, there are still certain significant improvements in accounting quality. However, I find that firms issuing more equities are motivated to associate with lower earnings quality. Also, firms engaging in two distinct strategic directions (prospector vs. defender) have systemically dissimilar effects on earnings quality in IFRS adoption. Finally, I document evidence that firm value following IFRS adoption has been increased, but at the expense of lower accounting quality. Overall, my study shed some lights into the literature that accounting standards per se is not sufficient to ensure a uniform-level of accounting quality because firm-level earnings management motives are important factors too.

     


    Generating Higher Value at IBM (A)
    SSRN Harvard Case (not available for download and not free)
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2688563

    Authors

    Benjamin Esty Harvard Business School - Finance Unit

    Scott E. Mayfield Harvard Business School

    Abstract

    This case analyzes IBM's financial performance and its capital allocation decisions over a 10-year period from 2004 to 2013, during which IBM returned more than $140 billion to shareholders through a combination of dividends and share repurchases. During this time, CEO Sam Palmisano's created, announced, and then regularly updated a long-term financial "roadmap" as part of the firm's strategic transformation. The roadmap showed both a destination (a target EPS number) and a detailed path to that destination in terms of revenue growth, margin expansion, and share repurchases. After successfully achieving its first roadmap, the firm announced a second 5-year roadmap known as the "2015 EPS roadmap". The case is set in May 2014, just after IBM's annual investor briefing. Despite more than 10 years of strong financial performance, IBM reported relatively weak financial results in the first quarter of 2014. Sophia Johnson, an equity analyst, must decide whether to revise her investment recommendation based on what she heard that day.

    This comprehensive case works well in a variety of courses ranging from introductory financial accounting and corporate finance courses to more advanced accounting and finance courses. The case is designed to teach basic financial statement analysis (sources and uses of cash, DuPont formula, financial ratio analysis, etc.) in a unique and interesting setting. It is also designed to illustrate modern payout policy and the various mechanisms for distributing cash to shareholders. A third objective is to explore the advantages and disadvantages of providing long-term earnings guidance. Finally, the case illustrates how publicly stated, long-term financial goals can be an integral part of a corporate transformation program.


    Connecting Free Cash Flow Metrics to What Matters for Investors: Accuracy, Bias, and Ability to Predict Value
    SSRN, 2013
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2685825
    Journal of Applied Finance (Formerly Financial Practice and Education), Vol. 23, No. 2, 2013

    Authors

    Vidya N. Awasthi Seattle University

    Niranjan Chipalkatti Seattle University - Albers School of Business and Economics

    Carlos A. De Mello e Souza Seattle University - Albers School of Business and Economics

    Abstract

    We evaluate six commonly used free cash flow metrics in terms of their accuracy, bias, and ability to predict value using a sample of 6171 valuations covering the period 1988 to 2010. We find that free cash flow measured as cash distributed to claimholders, adjusted for accounting distortions and omissions, plus the net change in surplus cash, produces valuations that are generally more accurate, less biased and closer to the true value generating process than valuations produced by any of the five other metrics. However, in cases where the increase in surplus cash is excessive (>12% of firm value), we observe that free cash flow should exclude the net change in surplus cash, which is consistent with investors anticipating agency frictions to be associated with excessive cash balances.


    Accounting for Goodwill: A Literature Review and Analysis
    SSRN, October 8, 2015
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2685922

    Authors

    He Jennifer Wen University of Missouri-St. Louis

    Stephen R. Moehrle University of Missouri at Saint Louis - Accounting Area

    Abstract

    Goodwill in the accounting context represents amounts paid in excess of the fair value of the identifiable net assets for a business acquisition. The accounting for goodwill has long been a subject of debate and remains so today. Indeed, the guidance for goodwill accounting has been significantly revised twice since 2001 (2001 and 2011). Despite these recent and significant revisions, the topic is back on the Financial Accounting Standards Board (FASB) agenda as the FASB added a project to once again discuss the optimal treatment for goodwill (FASB, 2015). In this paper, we seek to inform this effort by describing the evolution of accounting standards for goodwill and then synthesizing and analyzing the academic literature on goodwill accounting and reporting. Based on this historical perspective and analysis of the literature, we then assess the strengths and weaknesses of different accounting approaches for goodwill, highlight the factors affecting the process of standard-setting on goodwill, and make recommendations. Our recommendations include recommendations for the FASB about optimal guidance and recommendations for academics concerning future academic research projects that would advance the goodwill accounting debate. Hence, this paper should be of interest to academic researchers interested in mergers and acquisitions and goodwill, to financial statement preparers and users, and to standard setters.


    Does the Accounting for Derivatives Affect Risk and Value?
    SSRN, November 3, 2015
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2685896

    Author

    Spencer Pierce Florida State University - College of Business

    Abstract

    Financial accounting standards require derivatives to be recognized at fair value with changes in value recognized immediately in earnings. However, if certain criteria are met, firms may use an alternative accounting treatment for derivatives, hedge accounting, which is intended to decrease reported earnings volatility by altering the recognition timing of derivative gains and losses. Using newly available disclosures, I examine the extent to which firms use hedge accounting and the effect of hedge accounting on financial reporting and capital markets. I find that firms significantly decrease earnings volatility via hedge accounting. However, inconsistent with arguments commonly given for using hedge accounting, I find no evidence that investors’ assessment of firm risk decreases with the decrease in reported earnings volatility from hedge accounting. Despite this, I find evidence that firm value has a positive association with the use of hedge accounting and the resulting decrease in earnings volatility.

    December 3, 2015 reply from Tom Selling

    I don’t need to read this paper to answer: "of course it does!” in some cases. For (just) one thing, you can’t get hedge accounting under GAAP or IFRS for macro hedges (e.g., hedging gross margin). Yet, that’s the way that managers used to hedge. Now, managers can either hedge efficiently and not get hedge accounting, or hedge less efficiently and be able to smooth their earnings.

    But, perhaps in other cases, managers may now hedge because FAS 133 as amended permits hedge accounting, whereas under pre-FAS 133 it might not have been permitted.

    I expect that this posting will raise the short hairs on the back of Bob Jensen’s neck. So, I’m just letting you know in advance that I may not respond to his inevitable rebuttal.

    Tom

    December 4, 2015 reply by Bob Jensen

    Hi Tom,

    In general margins and macro hedges cannot get hedge accounting special treatment to avoid or delay earnings impacts (before hedging settlements) for different reasons.

    For hedge accounting relief the underlyings must be traded on competitive organized exchanges like the Chicago Board of Trade (CBOT), the Chicago Mercantile Exchange (CME), or the Chicago Board of Options Exchange (CBOE). Typical underlyings are the prices of commodities on these exchanges, interest rate indices like LIBOR or U.S. Treasury Rates, and foreign currency (FX) prices. Traders that manipulate underlyings can go to prison. Exhibit A are the Enron energy price traders that manipulated their own markets and went to prison. Exhibit B are the LIBOR traders who more recently went to prison.

    Why can't a corn farmer near Fenton, Iowa get hedge accounting for his/her margins equal to the price of corn minus his/her variable costs?
    The farmer's local price received for a corn crop is highly correlated with corn prices on the above commodity exchanges in Chicago. However, the correlation is not perfect since the farmer's corn is in Iowa rather than Chicago and his/her corn commonly does not meet all quality standards of the above exchanges for corn price derivative contracts like options or futures contracts. However, the correlation is usually high enough that this/her farmer typically hedges his/her particular price of corn on the Chicago exchanges. Hedge accounting privileges can be obtained if his/her cash flow or fair value hedges are deemed sufficiently effective by his/her auditor.
    He only can get hedge accounting privileges to the extent the hedges are deemed effective.

    The farmer can get over-the-counter derivatives from his/her local bank but the corn price underlying must be traded on a something like the CBOT, CME, or CBOT. Typically the farmer net settles derivative settlements for cash such that there is no physical delivery or shipment of corn. He takes his/her corn into a local market and sells it independently of his/her hedging contracts.

    The other component of his/her margin is variable cost. Some components of his/her variable cost like diesel fuel price and some chemicals are traded in commodities markets to the extent that their prices can be hedged (with some ineffectiveness of the hedges). However, most variable costs are not traded on exchanges like what the farmer pays for labor and most branded chemicals not traded in the Chicago exchanges.

    Why can't a corn farmer near Fenton, Iowa manipulate this/her margins equal to the his/her price of corn minus his/her variable costs?
    The farmer's local price received for a corn crop is highly correlated with corn prices on the above commodity exchanges. However, the correlation is not perfect since the farmer's corn is in Iowa rather than Chicago and his/her corn commonly does not meet all quality standards of the above exchanges for corn price derivative contracts like options or futures contracts. However, the correlation is usually high enough that this/her farmer typically hedges his/her particular price of corn on the Chicago exchanges. Hedge accounting privileges can be obtained if his/her cash flow or fair value hedges are deemed sufficiently effective by his/her auditor. He only can get hedge accounting privileges to the extent the hedges are deemed effective

    The farmer can get over-the-counter derivatives from his/her local bank but the corn price underlying must be traded on a something like the CBOT, CME, or CBOT. Typically the farmer net settles derivative settlements for cash such that there is no physical delivery or shipment of corn. He takes his/her corn into a local market and sells it independently of his/her hedging contracts.

    The other component of his/her margin is variable cost. Some components of his/her variable cost like diesel fuel price and some chemicals are are traded in commodities markets to the extent that their prices can be hedged (with some ineffectiveness of the hedges). However, most variable costs are not traded on exchanges like what the farmer pays for labor and most branded chemicals not traded in the Chicago exchanges.

    The main reason the farmer's margins cannot be hedged is that the farmer cannot obtain qualifying derivative contracts on most of the components of his/her variable costs. In particular, there are no derivative contacts from the CBOT, CME, or CBOE for most of his/her variable cost items.

    Macro hedging entails hedging of portfolios of similar items like a portfolio of stock and bond investments.
    Macro hedge accounting privileges are allowed when the portfolio items are homogeneous (fungible), but this/her seldom happens in portfolios identified for accounting purposes. Usually there is some investment variation in those items such as in a diversified portfolio.

    Although the ISAB made a very minor modification of hedge accounting rules for particular kinds of portfolios, in general neither the IASB nor the FASB allow hedge accounting relief for macro hedges. I've written about and referenced the reasons quite extensively at
    http://faculty.trinity.edu/rjensen/acct5341/speakers/cash such that there is no physical delivery or shipment of corn. He takes his/her corn into a local market and sells it independently of his/her hedging contracts.

    The other component of his/her margin is variable cost. Some components of his/her variable cost like diesel fuel price and some chemicals are are traded in commodities markets to the extent that their prices can be hedged (with some ineffectiveness of the hedges). However, most variable costs are not traded on exchanges like what the farmer pays for labor and most branded chemicals not traded in the Chicago exchanges.

    The main reason the farmer's margins cannot be hedged is that the farmer cannot obtain qualifying derivative contracts on most of the components of his/her variable costs. In particular, there are no derivative contacts from the CBOT, CME, or CBOE for most of his/her variable cost items.

    Although the ISAB made a very minor modification of hedge accounting rules for particular kinds of portfolios, in general neither the IASB nor the FASB allow hedge accounting relief for macro hedges. I've written about and referenced the reasons quite extensively at
    http://faculty.trinity.edu/rjensen/acct5341/speakers/cash such that there is no physical delivery or shipment of corn. He takes his/her corn into a local market and sells it independently of his/her hedging contracts.

    The other component of his/her margin is variable cost. Some components of his/her variable cost like diesel fuel price and some chemicals are are traded in commodities markets to the extent that their prices can be hedged (with some ineffectiveness of the hedges). However, most variable costs are not traded on exchanges like what the farmer pays for labor and most branded chemicals not traded in the Chicago exchanges.

    The main reason the farmer's margins cannot be hedged is that the farmer cannot obtain qualifying derivative contracts on most of the components of his/her variable costs. In particular, there are no derivative contacts from the CBOT, CME, or CBOE for most of his/her variable cost items.

    Although the ISAB made a very minor modification ofimes New Roman,serif">Thanks,
    Bob Jensen

    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

     

    PS
    Hedge accounting relief greatly complicated FAS 133 and added hundreds of pages of technicalities to the standard. The FASB originally wanted to avoid such technical complications, but business firms and finance experts quickly convinced the FASB that without hedge accounting relief the booking of derivatives at fair value when they are hedging contracts could greatly distort reported earnings before derivative contracts are settled. For example, hedged items cannot be booked under accounting traditions such as when they are forecasted transactions or contracted purchase commitments. Earnings distortions arise when hedged items are not booked and the hedging contracts are booked. In such cases, firms that hedge have much greater reported earnings volatility than firms that speculated.

    New accounting rules that required derivative contracts to be both booked and carried at fair value made finance experts laugh out loud if there was not hedge accounting relief for firms that hedged rather than speculated. Hence, we have hundreds of pages of hedge accounting technicalities in FAS 133 and IAS 39 now folded into IFRS 9

    But there are very good reasons why margins and portfolios in general cannot get hedge accounting relief even if they are hedged in some non-qualifying manner.


    Does PwC Have a Prayer?
    PricewaterhouseCoopers to audit the Scandal-Ridden Vatican ---
    http://www.msn.com/en-us/news/world/pricewaterhousecoopers-to-audit-the-vatican/ar-AAg3ZFX?ocid=spartanntp

    Jensen Comment
    This seems like a different kind of audit since the deep-down issues of the Vatican are financial fraud. Many of those issues have probably been solved. The hiring of PwC may mostly be to lend credibility to the solutions.


    28 charts that show how America changed since the Fed gave us 0% rates ---
    http://www.businessinsider.com/economic-indicators-since-great-recession-zero-interest-rate-policy-2015-12

    The charts are misleading if readers attribute the all the good news to 0% interest rates and Quantitative Easing (essentially printing money). Certainly 0% contributed to economic recovery but there would have been economic recovery without QE and 0% rates.

    These are the good news charts. What about the bad news like the returns on low risk savings accounts like Certificates of Deposit? In essence the Fed gave the finger to investors who want low-risk interest rates on savings and said either "burn your capital" or "invest is risky alternatives." The savings rate on a 5-year locked-in Certificate of Deposit is now less than 1% per year. You can do about as well stuffing your mattress with your cash. Now retirees must settle for variable-rate annuities that go up and down with financial risk. Some months retirees may do quite well and other months its stale bread and water for breakfast, lunch, and dinner. Note that I do not recommend fixed-income annuities for younger investors. However, after retirement age the inflation risks and liquidity-demand needs are lower since there aren't many years left in life.

    Ben Bernanke can gloat all he wants, but what saved his reputation is that his 0% interest rates did not make inflation soar. Reasons are complex, but the main reason is that the USA became the tallest midget in the global economy. Inflation did not soar in the USA because the other nations of the world were so bad off in terms of their own economies relative to the USA.  Also economic recovery is partly due to the broken backs of folks retiring after 2008.

    So what about taking on financial risks for that portion of retirement savings that is not invested in lifetime annuities? What worked for me may not be a good answer for other retirees, but I had good luck with insured tax exempt funds (in my case from Vanguard). The monthly tax exempt cash flow from these has been relatively steady. Valuation of the shares goes up and down but since I don't intend to have to sell these shares in my lifetime I don't even track the value other than to note that share value went up with Fed's 0% interest policy. Value might go down if and when the Fed kicks in higher rates, but the rate changes will be so gradual that I'm not much worried about my tax-exempt share valuations in my lifetime. Just keep up the monthly cash flows that are tax free.

    I would have more value on paper if I had kept the Iowa farm I inherited because the stupid government keeps requiring corn ethanol in our gas tanks. But being a remote landlord and paying the farm income and property taxes are headaches I do not need in my blissful retirement.


    "Grant Thornton Put Auditor’s Career Above Investor Interests," by David M. Katz, cfo.com, December 3, 2015 ---
    http://ww2.cfo.com/auditing/2015/12/grant-thornton-put-auditors-career-investor-interests/?utm_campaign=CFODailyAlert&utm_nooverride=1&utm_source=CFO-email&utm_medium=email&utm_content=CFODailyAlert_Thursday_2015-12-3&utm_term=auditing&mkt_tok=3RkMMJWWfF9wsRonvarPZKXonjHpfsX56uUsX6KwlMI%2F0ER3fOvrPUfGjI4CT8JhMq%2BTFAwTG5toziV8R7XBLM1s0t4QXxPg

    By allowing a poorly rated partner to continue auditing a public company without sufficient supervision and oversight, “Grant Thornton prioritized the career of its partner and the retention of that partner’s clients over the interest of investors, with serious negative consequences,” Andrew J. Ceresney, director of the Securities and Exchange Commission’s division of enforcement, said in a Wednesday conference call with reporters following the announcement that the accounting firm had reached a $4.5 million settlement with the SEC.

    In the case, Grant Thornton and two of its former partners, Melissa Koeppel, 54, and Jeffrey Robinson, 63, agreed to settle allegations “that they ignored red flags and fraud risks while conducting deficient audits of two publicly traded companies that wound up facing SEC enforcement actions for improper accounting and other violations,” according to an SEC press release.

    Robinson has since retired from Grant Thornton, while Koeppel remains with the firm but in a non-auditing, non-partner role.

    Grant Thornton admitted wrongdoing and agreed to forfeit about $1.5 million in audit fees and interest, pay a $3 million penalty, and hire an independent consultant to review a number of its procedures.

    “We are pleased to have these several years-old matters resolved and we maintain a strong commitment to continually improving the quality of our work,” Grant Thornton stated.

    The admission by the firm follows a similar acknowledgement of wrongdoing by BDO in a September settlement with the SEC. The commission has of late been stressing the need to extract admissions of guilt in its settlements with companies hit with enforcement actions.

    Continued in article

    "Best Case Yet For Publishing Audit Partner Names: Grant Thornton’s Koeppel," by Francine McKenna, Re:TheAuditors.com, December 6, 2015 ---
    http://retheauditors.com/2015/12/06/best-case-yet-for-publishing-audit-partner-names-grant-thorntons-koeppel/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ReTheAuditors+%28re%3A+The+Auditors%29

    . . .

     
    So when Grant Thornton’s inspection report for 2008 was issued in July of 2009, there were nine audits where deficiencies were noted and Koeppel owned one of them. Of note, the Part II quality assurance criticisms for both Grant Thornton’s 2008 and 2009 inspections reports were eventually made public by the PCAOB because “as of July 9, 2010 and August 12, 2011, respectively, the Firm had not addressed certain criticisms in the Reports to the Board’s satisfaction.”
     
    All this time the PCAOB, Grant Thornton’s leadership, and the SEC, as a result of the Part II disclosures, knew that Koeppel was an accident that had already happened. How so?
     
    One of the restatements that led to Koeppel’s inclusion on the partner monitoring list involved Grant Thornton’s audit client, Koss Corporation. In June 2010, Koss restated its financial statements for the preceding two fiscal years because one of its vice presidents had embezzled $31.5 million from 2005 through 2009 and would plead guilty to criminal charges based on the misconduct. Koeppel was the engagement partner for the Koss audit for three of the four years of the embezzlement. In July 2012, Grant Thornton, without admitting any liability, paid $8.5 million to settle a malpractice case filed by Koss.
     
    You remember Koss?  I wrote about it.

    My objective in writing this story was to handily contradict Grant Thornton’s self-serving defense to the Koss fraud. The defense supported by some commentators:

    Audits are not designed to uncover fraud and Koss did not pay for a separate opinion on internal controls because they are exempt from that Sarbanes-Oxley requirement.

    But punching holes in that Swiss-cheese defense is like shooting fish in a barrel.  Leading that horse to water is like feeding him candy taken from a baby. The reasons why someone other than American Express should have caught this sooner are as numerous as the acorns you can steal from a blind pig

    When Koss sued Grant Thornton in 2010 and then settled the lawsuit in 2013, Melissa Koeppel’s name never came up.  She was not named as a defendant, she was not disciplined by the SEC, the PCAOB or her firm.  Instead she kept on auditing.

     

    Continued in article

    Also see
    http://attestationupdate.com/2015/12/04/misbehavin-clients-misbehavin-cpas-part-1/

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


    Journal Rankings
    December 11, 2015 message from Jim Martin

    There seems to be a lot on the web related to ranking journals. Here is
    some of what I have found.

    Journals measured by citations SNIP (Source Normalized Impact per Paper
    measures contextual citation impact by weighting citations based on the
    total number of citations in a subject field), IPP (The Impact per
    Publication measures the ratio of citations per article published in the
    journal), and SJR (SCImago Journal Rank is a prestige metric based on the
    idea that not all citations are the same.).

    http://www.journalmetrics.com/display2.php

    Insead Journal Rankings
    http://sites.insead.edu/library/rankings/journal_rankings.cfm

    Some articles related to journal rankings:

    Chan, K. C., Seow, G. S., & Tam, K. 2009. Ranking accounting journals
    using dissertation citation analysis: A research note. Accounting,
    Organizations and Society, 34(6), 875-885.

    Attaway, A. N., Baxendale, S. J., Foster, B. P., & Karcher, J. N. 2008.
    Reassessing accounting faculty scholarly expectations: journal
    classification by author affiliation. Academy of Educational Leadership
    Journal, 12(3), 71-86.

    Bonner, S. E., Hesford, J. W., Van der Stede, W. A., & Young, S. M. 2006.
    The most influential journals in academic accounting. Accounting,
    Organizations and Society, 31(7), 663-685.

    Glover, S. M., Prawitt, D. F., & Wood, D. A. 2006. Publication Records of
    Faculty Promoted at the Top 75 Accounting Research Programs. Issues in
    Accounting Education, 21(3), 195-218.

    Beattie, V., & Goodacre, A. 2006. A new method for ranking academic
    journals in accounting and finance. Accounting and Business Research,
    36(2), 65-9.

    Reinstein, A., & Calderon, T. G. 2006. Examining accounting departments'
    rankings of the quality of accounting journals. Critical Perspectives on
    Accounting, 17(4), 457-490.

    Jones, M. J., & Roberts, R. 2005. International publishing patterns: An
    investigation of leading UK and US accounting and finance journals.
    Journal of Business Finance & Accounting, 32(5-6), 1107-1140.

    Chan, K. C., Chen, C. R., & Cheng, L. T. W. 2005. Ranking research
    productivity in accounting for Asia-Pacific Universities. Review of
    Quantitative Finance and Accounting, 24(1), 47-64.

    Ballas, A., & Theoharakis, V. 2003. Exploring diversity in accounting
    through faculty journal perceptions. Contemporary Accounting Research,
    20(4), 619-644. 

    Bonner, S. E., Hesford, J. W., Van der Stede, W. A., & Young, S. M. 2006.
    The most influential journals in academic accounting. Accounting,
    Organizations and Society, 31(7), 663-685.

    Prather-Kinsey, J., & Rueschhoff, N. G. 2004. An analysis of international
    accounting research in U.S.- and non-U.S.-based academic accounting
    journals. Journal of International Accounting Research, 3(1), 63-81.

    Brown, L. D. 2003. Ranking journals using social science research network
    downloads. Review of Quantitative Finance and Accounting, 20(3), 291-307.

    Krogstad, J. L., & Smith, G. 2003. Assessing the influence of auditing: A
    journal of practice & theory: 1985-2000.  Auditing, 22(1), 195-204.

    Mathieu, R., & McConomy, B. J. 2003. Productivity in 'top-ten" academic
    accounting journals by researchers at Canadian Universities. Canadian
    Accounting Perspectives, 2(1), 43-76.

    Locke, J., & Lowe, A. 2002. Problematising the construction of journal
    quality: An engagement with the mainstream. Accounting Forum, 26(1),
    45-71.

    Milne, Markus J. 2001. Debating accounting research journal rankings :
    empirical issues from a citation based analysis and theoretical dilemmas
    from Economics. University of Otago, Department of Accountancy and
    Business Law.

    Brinn, T., Jones, M., & Pendlebury, M. 2001. Why do UK Accounting and
    Finance Academics not Publish in Top US Journals? The British Accounting
    Review, 33(2), 223-232.

    Marston, C., & Ayub, A. 2000. Relationship between publications in
    selected journals and research assessment exercise rankings in 1996 for UK
    accountancy departments. Accounting Education, 9(1), 93-102.

    Brinn, T., Jones, M.J., Pendlebury, M. 1998. UK academic accountants'
    perceptions of research and publication practices. The British Accounting
    Review, 30(4), 313-330.

    Smith, K. J., & Dombrowski, R. F. 1998. An examination of the relationship
    between author–editor connections and subsequent citations of auditing
    research articles. Journal of Accounting Education, 16(3-4), 497-506.

    Lee, T. 1997. The editorial gatekeepers of the accounting academy.
    Accounting, Auditing & Accountability Journal, 10(1), 11-30.

    Brinn, T., Jones, M, Pendlebury, M. 1996. "UK Accountants' Perceptions of
    Research Journal Quality", The Accounting Review, 26:3: 265-278.

    Zeff, S. A. 1996. A Study of Academic Research Journals in Accounting.
    Accounting Horizons, 10(3), 158-177.

    Hasselback, J. R., & Reinstein, A. 1995. A proposal for measuring
    scholarly productivity of accounting faculty. Issues in Accounting
    Education, 10(2), 269-306.

    Jolly, S. A., Schroeder, R. G., & Spear, R. K. 1995. An empirical
    investigation of the relationship between journal quality ratings and
    promotion and tenure decisions. Accounting Educators Journal, 7, 47-68.

    Brown, L. D., & Huefner, R. J. 1994. The familiarity with and perceived
    quality of accounting journals: views of senior accounting faculty in
    leading U.S. MBA programs. Contemporary Accounting Research, 11(1),
    223-250.

    Smith, L.M. 1994. "Relative Contribution of Professional Journals to the
    Field of Accounting", Accounting Educators' Journal, 6(1) 1-31.

    Chung, K. H., Pak, H. S., & Cox, R. A. 1992. Patterns of Research Output
    in the Accounting Literature: A Study of Bibliometric Distributions.
    Abacus, 28(2), 168-185.

    Chandy, P. R., Ganesh, G. K., & Henderson, G. V. 1991. Awareness and
    evaluation of selected accounting journals inside and outside the
    discipline: An empirical study. Akron Business and Economic Review, 22(2),
    214-226.

    Hall, T. W., & Ross, W. R. 1991. Contextual effect in measuring accounting
    faculty perceptions of accounting journals: An empirical test and updated
    journal rankings. Advances in Accounting, 9, 161-182.

    Hull, R. P., & Wright, G. B. 1990. Faculty perceptions of journal quality:
    An update. Accounting Horizons, 4(1), 77-98.

    Morris, J. L., Cudd, R. M., & Crain, J. L. 1990. The potential bias in
    accounting journal ratings: Evidence concerning journal-specific bias. The
    Accounting Educators’ Journal, 3(1), 46-55.

    Bricker, R. 1989. An Empirical Investigation of the Structure of
    Accounting Research. Journal of Accounting Research, 27(2), 246-262.

    Schroeder, R.G., Payne, D.D., & Harris, D.G. 1988. Perceptions of
    accounting publications outlets: a further analysis. The Accounting
    Educators' Journal, 1-17.

    Smith, G., & Krogstad, J. L. 1988. A Taxonomy of Content and Citations n
    Auditing: A Journal of Practice & Theory. Auditing: A Journal Of Practice
    & Theory, 8(1), 108-117.

    Cargile, B.R., and Bublitz, B. 1986. Factors Contributing to Published
    Research by Accounting Faculties, The Accounting Review, 61(1), 158-178.

    Brown, L.D., & Gardner, J.C. 1985. Using Citation Analysis to Assess the
    Impact of Journals and Articles on Contemporary Accounting Research,
    Journal of Accounting Research, 23(1), 84-109.

    Brown, L.D., & Gardner, J.C. 1985. Applying Citation Analysis to Evaluate
    the Research Contributions of Accounting Faculty and Doctoral Programs,
    The Accounting Review, 60(2) 262-277.

    Nobes, C. W. 1985. International Variations in Perceptions of Accounting
    Journals. Accounting Review, 60(4), 702-205.

    Dyckman, R.E. & Zeff, S.A. 1984. Two Decades of the Journal of Accounting
    Research. Journal of Accounting Research, 22(1), 225-297.

    Howard, T. P., & Nikolai, L. A. 1983. Attitude Measurement and Perceptions
    of Accounting Faculty Publication Outlets. Accounting Review, 58(4),
    765-776.


    Toshiba Accounting Scandal Draws Record ($60 million) Fine From Regulators ---
    http://www.wsj.com/articles/toshiba-accounting-scandal-draws-record-fine-from-regulators-1449472485?mod=djemCFO_h 

    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


    TOP ACCOUNTING EDUCATORS HONORED BY AICPA FOR INNOVATIVE TEACHING STRATEGIES ---
    http://www.accountingeducation.com/index.cfm?page=newsdetails&id=153682

    . . .

    The following individuals have been recognized with the 2015 honorable mention for their submissions:•Bea Sanders/AICPA Innovation in Teaching Award: “Introducing Accounting: Classroom Application of the Pathways Commission Vision," Melissa Larson, Brigham Young University.

    •George Krull/Grant Thornton Teaching Innovation Award:“Adding a Real-World Fraud Risk Assessment to Your Fraud Or Auditing Class," Mary Jepperson, College of Saint Benedict/Saint John's University.

    •Mark Chain/FSA Teaching Innovation Award: "Crowdsourcing Analysis of Government Expenditures: "Armchair Auditors" - Case and Results of its Use in a Graduate Accounting Systems Class," Daniel O'Leary, University of Southern California. “Bringing an Accounting Case to Life with Trained Actors: Teaching Interviewing and Teamwork Skills," Genevieve Risner, Michigan State University.

     


    Ph.D Student GRE Scores by Discipline ---  https://www.windowssearch-exp.com/images/search?q=GRE+Score&FORM=RESTAB 

    In terms of overall GRE scores, science and business Ph.D. students consistently score higher than most humanities and education disciplines. GRE Scores in 2015 --- https://www.windowssearch-exp.com/images/search?q=GRE+Scores+2015&FORM=IRMHRS

    Phi Beta Kappa would have entirely different admissions profiles if this honorary did not bar business graduates from competing.

    In terms of SAT scores business and education disciplines are near the bottom in terms of undergraduates, but this is due in large measure to the enormous number of business majors in colleges of lower quality, especially lower quality two-year colleges where humanities and science are of much less interest to students relative to business and education.

    In top schools like Cornell, BYU, and Notre Dame business undergraduates are near the top in terms of SAT scores.

    In virtually all top universities with undergraduate business programs there are gpa thresholds for majoring in business to avoid being disproportionately overwhelmed with the number of business majors.


    December 4, 2015 message from Barbara Scofield

    I am interested in connecting with other faculty who teach partnerships in Advanced Accounting and have used (or thought about using) Hugo Nurnberg's article "Applying the New Accounting for Business Combinations and Intangible Assets to Partner Admissions" in Issues in Accounting Education (Nov2014, Vol. 29 Issue 4, p527-543.). to supplement their teaching.  I have prepared examples using his perspective (summarized below) for both partnership formation (not directly addressed in his article) and partnership changes, and I need another set of eyes to give me some feedback before  I add it into my regular teaching materials.

    Nurnberg (2014) pointed out the following:

    1.  The "GOODWILL" method is non-GAAP.

    2.  Partnership changes will be accounted for differently depending on whether the incoming partner is contributing a business or just net assets.

    3.  When an incoming partner is contributing a business, partnership changes will be accounted for differently depending on whether the entering partner has majority control or not.

    4.  There are times when GAAP requires original partnership assets to be written up to fair value (including recognition of unbooked intangibles and/or goodwill).

    5.  What types of intangible assets are recognized on partnership books depends on whether the incoming partner is contributing a business or just net assets.

     

    Barbara W. Scofield, PhD, CPA
    Professor of Accountancy
    Washburn University -- HC 311L
    Topeka, KS   66621
    785-670-1804 (office)

    barbara.scofield@washburn.edu

     


    PwC:  Year-end financial reporting considerations ---
    http://www.pwc.com/us/en/cfodirect/publications/in-depth/2015-year-end-accounting-financial-reporting-considerations.html

    PwC:  2015 SEC comment letter trends (by industry and economic sector) ---
    http://www.pwc.com/us/en/cfodirect/publications/sec-comment-letter-trends.html

    PwC:  Highlights of the 2015 AICPA National Conference on Current SEC and PCAOB Developments ---
    http://www.pwc.com/us/en/cfodirect/publications/in-depth/2015-aicpa-conference-sec-pcaob-developments.html

    PwC:  SASB has released its Sustainability Accounting Implementation Guide for Companies. Learn how it can assist you with sustainability reporting.
    PwC provided the link to ---
    http://using.sasb.org/wp-content/uploads/2015/11/SASB_ImplementationGuide-113015.pdf?submissionGuid=61ce84d1-4e99-4f1c-8033-79ccc984abef
    Bob Jensen's threads on Sustainability Accounting ---
    http://faculty.trinity.edu/rjensen/Theory02.htm#TripleBottom

    PwC:  Preparing for the New Revenue Standard ---
    http://www.pwc.com/us/en/cfodirect/assets/pdf/preparing-for-new-revenue-standard-606.pdf

    PwC:  Managing Your Wealth:  Guide to Tax and Wealth Management ---
    http://www.pwc.com/us/en/cfodirect/issues/tax/tax-wealth-management-guide.html

     


    EY:  The FASB proposed eliminating, modifying and requiring new fair value measurement disclosures as part of its disclosure framework project.---
    http://www.ey.com/Publication/vwLUAssetsAL/FASBProposal_FairValue_3December2015/$FILE/FASBProposal_FairValue_3December2015.pdf

    EY:  PCAOB adopts final rules to disclose name of partner and others on new form ---
    http://www.pwc.com/us/en/cfodirect/publications/in-brief/pcaob-finalizes-rules-disclose-engagement-partner-accounting-firms-new-form.html

  • On December 15, 2015, the Public Company Accounting Oversight Board (“PCAOB”) adopted new rules and amendments to its auditing standards requiring disclosure of the name of the engagement partner and information about other accounting firms that took part in the audit, including other firms within the same network as the group auditor. This information will be filed with the PCAOB on a new PCAOB form, Auditor Reporting of Certain Audit Participants (“Form AP”) and will be searchable on the PCAOB’s website.

    The rules and amendments to the auditing standards require disclosure for all audits of issuers, including employee stock purchase, savings, and similar plans that file annual reports on Form 11-K. At this time, the PCAOB is not extending the Form AP requirements to audits of brokers and dealers unless the broker or dealer is an issuer required to file audited financial statements. Additionally, the PCAOB is recommending the rules and amendments to its auditing standards apply to emerging growth companies, which will be subject to a separate determination by the Securities and Exchange Commission (the “SEC”), pursuant to the JOBS Act.

    Disclosure requirements and effective dates

    The rules require disclosure of:

    Subject to SEC approval, disclosure of the engagement partner will be required for audit reports issued on or after January 31, 2017 (or three months after SEC approval, whichever is later), while disclosure of information about other accounting firms that took part in the audit will be required for audit reports issued on or after June 30, 2017.

    Form AP

    The filing deadline for Form AP will be 35 days after the date the auditor’s report is first included in a document filed with the SEC, with a shorter filing deadline of 10 days for initial public offerings.

    The filing of Form AP is required the first time an audit report is included in a document filed with the SEC. Subsequent inclusion of precisely the same audit report in other documents filed with the SEC does not give rise to a requirement to file another Form AP. Conversely, any changes to the auditor’s report, including if it is dual-dated, requires a new Form AP even when no information on the form, other than the date of the report, changes.

    Continued in article


    Raking it in a banner year:  Financial scams in China in 2015 ---
    http://qz.com/576389/a-banner-year-financial-scams-in-china-nabbed-at-least-24-billion-in-2015/

    The UK may force eBay and Amazon to pay for VAT fraud ---
    http://www.businessinsider.com/uk-may-force-ebay-and-amazon-to-pay-for-vat-fraud-2015-12

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


    Audit Committee --- https://en.wikipedia.org/wiki/Audit_committee

    Why there will be fewer candidates to serve on audit committees
    From the CFO Journal's Morning Ledger on December 15, 2015

    Audit committees have become the go-to group on corporate boards for many of the mounting issues of compliance and risk that companies face, report CFO Journal’s Richard Teitelbaum and Kimberly S. Johnson. “We wind up loading almost everything onto the audit committee,” said Jeffrey Sonnenfeld, a management professor at the Yale School of Management. And that is making it more difficult to find qualified candidates for the job.

    A spotlight was thrown on the subject last Wednesday when Securities and Exchange Commission chairwoman Mary Jo White gave a keynote address at the American Institute of CPAs in Washington, in which she spoke about the increased complexity of the audit committee members’ responsibilities. And the job has become less attractive because of increased responsibilities and legal risks associated with the position, said Robert Willens, president of an eponymous accounting and tax consulting firm.

    Bob Jensen's threads on audit committee professionalism ---
    http://faculty.trinity.edu/rjensen/Fraud001c.htm#AuditCommittee


    From the Scout Report on December 18, 2015

  • The Science of Lie Detection
    Analysis gives a glimpse of the extraordinary language of lying
    https://www.sciencenews.org/blog/culture-beaker/analysis-gives-glimpse-extraordinary-language-lying

    To spot a liar, look at their hands
    http://qz.com/572675/to-spot-a-liar-look-at-their-hands/

    The 8 Biggest Myths About Lying According to the Best Human Lie Detector in
    the World
    http://www.forbes.com/sites/amymorin/2015/06/08/the-8-biggest-myths-about-lying-according-to-the-best-human-lie-detector-in-the-world/

    The Curious story of how the lie detector came to be
    http://www.bbc.com/news/magazine-22467640

    The true history of lying
    http://www.irishtimes.com/culture/books/the-true-history-of-lying-1.2081531

    10 of the Biggest Lies in History
    http://history.howstuffworks.com/history-vs-myth/10-biggest-lies-in-history.htm

     

    Hi Glen,

    I was fascinated by the ACM link to the following article:
    "New lie-detecting software from U-M uses real court case data," by Nicole Casal Moore, the University Record published by the University of Michigan, December 41, 2015 ---
    https://record.umich.edu/articles/new-lie-detecting-software-u-m-uses-real-court-case-data

    Jensen Comment
    This is an illustration of "newness timing" in social science research. Unlike most natural science research, social science research faces the risk that discovery alters behavior such that the discovery is no longer as important before people learned about the discovery.

    For example, lie-detecting software may work better on people who are not aware of the details of this software and its research discoveries. For example, if particular types of hand movements are indicative of lying, a  savvy person will no longer use those hand movements when lying or, worse, will deceptively use hand movements to trick the software. This of course is one of the main findings of years of research with lie detection machines. Some experts can easily fool the machines.

    Another example is when politicians or other criminals learn that deleting email messages or other files on computers does not necessarily mean that the deleted bad stuff cannot be recovered by technical experts. As a result computers are no longer contain bad stuff or, as in the case of Adam Lanza, hard drives are destroyed beyond hope for recovering deleted files.

    Unlike a lie detector machine where the person is always aware that the machine is trying to detect lies, the U-M lie-detection software can be used unobtrusively when people are not aware that they are being observed by special software to detect lying. This of course raises some ethics questions. Use of the software on videos of a public trial are not as controversial as use of the software on a video of a private job interview. I think that a job applicant should be made aware and agree to the use of lie detection software in a job interview. Use of the software in public places, however, is less controversial in my opinion. However, I'm not always correct. For example, the NFL fined the New England Patriots for filming and analyzing the hand signals of the opposing team even though those hand signals could also be filmed and analyzed by any fan in the stadium holding a cell phone camera pointed at the coaches using hand signals. I've not investigated details of this case, but there may have been NFL rules for teams doing what fans are free to do in the stands.

    This begs the question of ethics when auditors film meetings with a client's employees. I suspect that those employees should be made aware that the videos will be analyzed by lie detection software.

    One of the problems with lie detection is that emotions vary with respect to consequences of being discovered lying. Those little white lies about eating a Whopper instead of a salad for lunch are less emotional lies than a confrontation over having an extramarital affair, kiting the accounts, or strangling of a victim in an assault. Much depends on the seriousness of the consequences in being found out.

    An even bigger problem is that people vary in the skill of lying. Some people are just very, very good at lying and are also shrewd about rarely telling lies. Other people are just not very skilled in this regard or repeatedly lie so often that getting caught becomes inevitable.

     

    Here are some threads copied from
    http://faculty.trinity.edu/rjensen/352wpvisual/000datavisualization.htm

    Questions
    Has the art and science of reading faces ever been part of an auditing curriculum?
    Have there been any accountics studies of Ekman's theories as applied to auditing behavioral experiments?
    (I can imagine that some accounting doctoral students have not experimented along these lines?)

    Paul Ekman video on how to read faces and detect lying --- http://www.youtube.com/watch?v=IA8nYZg4VnI
    This video runs for nearly one hour

    Paul Ekman --- http://en.wikipedia.org/wiki/Paul_Ekman

    Ekman's work on facial expressions had its starting point in the work of psychologist Silvan Tomkins.[Ekman showed that contrary to the belief of some anthropologists including Margaret Mead, facial expressions of emotion are not culturally determined, but universal across human cultures and thus biological in origin. Expressions he found to be universal included those indicating anger, disgust, fear, joy, sadness, and surprise. Findings on contempt are less clear, though there is at least some preliminary evidence that this emotion and its expression are universally recognized.]

    In a research project along with Dr. Maureen O'Sullivan, called the Wizards Project (previously named the Diogenes Project), Ekman reported on facial "microexpressions" which could be used to assist in lie detection. After testing a total of 15,000 [EDIT: This value conflicts with the 20,000 figure given in the article on Microexpressions] people from all walks of life, he found only 50 people that had the ability to spot deception without any formal training. These naturals are also known as "Truth Wizards", or wizards of deception detection from demeanor.

    He developed the Facial Action Coding System (FACS) to taxonomize every conceivable human facial expression. Ekman conducted and published research on a wide variety of topics in the general area of non-verbal behavior. His work on lying, for example, was not limited to the face, but also to observation of the rest of the body.

    In his profession he also uses verbal signs of lying. When interviewed about the Monica Lewinsky scandal, he mentioned that he could detect that former President Bill Clinton was lying because he used distancing language.

    Ekman has contributed much to the study of social aspects of lying, why we lie, and why we are often unconcerned with detecting lies. He is currently on the Editorial Board of Greater Good magazine, published by the Greater Good Science Center of the University of California, Berkeley. His contributions include the interpretation of scientific research into the roots of compassion, altruism, and peaceful human relationships. Ekman is also working with Computer Vision researcher Dimitris Metaxas on designing a visual lie-detector.

    Research Papers Worth Reading On Deceit, Body Language, Influence etc.. (with links to pdfs)
     

    Sixteen Enjoyable Emotions.(2003) Emotion Researcher, 18, 6-7. by Ekman, P

    “Become Versed in Reading Faces”. Entrepreneur, 26 March 2009. Ekman, P. (2009)
    Intoduction: Expression Of Emotion - In RJ Davidson, KR Scherer, & H.H. Goldsmith (Eds.) Handbook of Afective Sciences. Pp. 411-414.Keltner, D. & Ekman, P (2003)

    Facial Expression Of Emotion. – In M.Lewis and J Haviland-Jones (eds) Handbook of emotions, 2nd edition. Pp. 236-249. New York: Guilford Publications, Inc. Keltner, D. & Ekman, P. (2000)

    Emotional And Conversational Nonverbal Signals. – In L.Messing & R. Campbell (eds.) Gesture, Speech and Sign. Pp. 45-55. London: Oxford University Press.

    A Few Can Catch A Liar. - Psychological Science, 10, 263-266. Ekman, P., O’Sullivan, M., Frank, M. (1999)
    Deception, Lying And Demeanor.- In States of Mind: American and Post-Soviet Perspectives on Contemporary Issues in Psychology . D.F. Halpern and A.E.Voiskounsky (Eds.) Pp. 93-105. New York: Oxford University Press.

    Lying And Deception. – In N.L. Stein, P.A. Ornstein, B. Tversky & C. Brainerd (Eds.) Memory for everyday and emotional events. Hillsdale, NJ: Lawrence Erlbaum Associates, 333-347.

    Lies That Fail.- In M. Lewis & C. Saarni (Eds.) Lying and deception in everyday life. Pp. 184-200. New York: Guilford Press.

    Who Can Catch A Liar. -American Psychologist, 1991, 46, 913-120.
    Hazards In Detecting Deceit. In D. Raskin, (Ed.) Psychological Methods for Investigation and Evidence. New York: Springer. 1989. (pp 297-332)

    Self-Deception And Detection Of Misinformation. In J.S. Lockhard & D. L. Paulhus (Eds.) Self-Deception: An Adaptive Mechanism?. Englewood Cliffs, NJ: Prentice-Hall, 1988. Pp. 229- 257.

    Smiles When Lying. – Journal of Personality and Social Psychology, 1988, 54, 414-420.
    Felt- False- And Miserable Smiles.Ekman, P. & Friesen, W.V.

    Mistakes When Deceiving. Annals of the New York Academy of Sciences. 1981, 364, 269-278.

    Nonverbal Leakage And Clues To Deception Psychiatry, 1969, 32, 88-105.

    "You Can't Hide Your Lying Brain (or Can You?), by Tom Bartlett, Chronicle of Higher Education, May 6, 2010 ---
    http://chronicle.com/blogPost/You-Cant-Hide-Your-Lying/23780/

    Earlier this week Wired reported that a Brooklyn lawyer wanted to use fMRI brain scans to prove that his client was telling the truth. The case itself is an average employer-employee dispute, but using brains scans to tell whether someone is lying—which a few, small studies have suggested might be useful—would set a precedent for neuroscience in the courtroom. Plus, I'm pretty sure they did something like this on Star Trek once.

    But why go to all the trouble of scanning someone's brain when you can just count how many times the person blinks? A study published this month in Psychology, Crime & Law found that when people were lying they blinked significantly less than when they were telling the truth. The authors suggest that lying requires more thinking and that this increased cognitive load could account for the reduction in blinking.

    For the study, 13 participants "stole" an exam paper while 13 others did not. All 26 were questioned and the ones who had committed the mock theft blinked less when questioned about it than when questioned about other, unrelated issues. The innocent 13 didn't blink any more or less. Incidentally, the blinking was measured by electrodes, not observation.

    But the authors aren't arguing that the blink method should be used in the courtroom. In fact, they think it might not work. Because the stakes in the study were low--no one was going to get into any trouble--it's unclear whether the results would translate to, say, a murder investigation. Maybe you blink less when being questioned about a murder even if you're innocent, just because you would naturally be nervous. Or maybe you're guilty but your contacts are bothering you. Who knows?

    By the way, the lawyer's request to introduce the brain scanning evidence in court was rejected, but lawyers in another case plan to give it a shot later this month.

    (The abstract of the study, conducted by Sharon Leal and Aldert Vrij, can be found here. The company that administers the lie-detection brain scans is called Cephos and their confident slogan is "The Science Behind the Truth.")

    "The New Face of Emoticons:  Warping photos could help text-based communications become more expressive," by Duncan Graham-Rowe,  MIT's Technology Review, March 27, 2007 --- http://www.technologyreview.com/Infotech/18438/

    Computer scientists at the University of Pittsburgh have developed a way to make e-mails, instant messaging, and texts just a bit more personalized. Their software will allow people to use images of their own faces instead of the more traditional emoticons to communicate their mood. By automatically warping their facial features, people can use a photo to depict any one of a range of different animated emotional expressions, such as happy, sad, angry, or surprised.

    All that is needed is a single photo of the person, preferably with a neutral expression, says Xin Li, who developed the system, called Face Alive Icons. "The user can upload the image from their camera phone," he says. Then, by keying in familiar text symbols, such as ":)" for a smile, the user automatically contorts the face to reflect his or her desired expression.

    "Already, people use avatars on message boards and in other settings," says Sheryl Brahnam, an assistant professor of computer information systems at MissouriStateUniversity, in Springfield. In many respects, she says, this system bridges the gap between emoticons and avatars.

    This is not the first time that someone has tried to use photos in this way, says Li, who now works for Google in New York City. "But the traditional approach is to just send the image itself," he says. "The problem is, the size will be too big, particularly for low-bandwidth applications like PDAs and cell phones." Other approaches involve having to capture a different photo of the person for each unique emoticon, which only further increases the demand for bandwidth.

    Li's solution is not to send the picture each time it is used, but to store a profile of the face on the recipient device. This profile consists of a decomposition of the original photo. Every time the user sends an emoticon, the face is reassembled on the recipient's device in such a way as to show the appropriate expression.

    To make this possible, Li first created generic computational models for each type of expression. Working with Shi-Kuo Chang, a professor of computer science at the University of Pittsburgh, and Chieh-Chih Chang, at the Industrial Technology Research Institute, in Taiwan, Li created the models using a learning program to analyze the expressions in a database of facial expressions and extract features unique to each expression. Each of the resulting models acts like a set of instructions telling the program how to warp, or animate, a neutral face into each particular expression.

    Once the photo has been captured, the user has to click on key areas to help the program identify key features of the face. The program can then decompose the image into sets of features that change and those that will remain unaffected by the warping process.

    Finally, these "pieces" make up a profile that, although it has to be sent to each of a user's contacts, must only be sent once. This approach means that an unlimited number of expressions can be added to the system without increasing the file size or requiring any additional pictures to be taken.

    Li says that preliminary evaluations carried out on eight subjects viewing hundreds of faces showed that the warped expressions are easily identifiable. The results of the evaluations are published in the current edition of the Journal of Visual Languages and Computing.

    Continued in article

    Bob Jensen's threads on visualization ---
    http://faculty.trinity.edu/rjensen/352wpvisual/000datavisualization.htm


    Medicare Fraud --- https://en.wikipedia.org/wiki/Medicare_fraud

    Types of Medicare Fraud

    Medicare fraud is typically seen in the following ways:

    1. Phantom Billing: The medical provider bills Medicare for unnecessary procedures, or procedures that are never performed; for unnecessary medical tests or tests never performed; for unnecessary equipment; or equipment that is billed as new but is, in fact, used.
    2. Patient Billing: A patient who is in on the scam provides his or her Medicare number in exchange for kickbacks. The provider bills Medicare for any reason and the patient is told to admit that he or she indeed received the medical treatment.
    3. Upcoding scheme and unbundling: Inflating bills by using a billing code that indicates the patient needs expensive procedures.

    A 2011 crackdown on fraud charged "111 defendants in nine cities, including doctors, nurses, health care company owners and executives" of fraud schemes involving "various medical treatments and services such as home health care, physical and occupational therapy, nerve conduction tests and durable medical equipment."[3]

    The Affordable Care Act of 2009 provides an additional $350 million to pursue physicians who are involved in both intentional/unintentional Medicare fraud through inappropriate billing. Strategies for prevention and apprehension include increased scrutiny of billing patterns, and the use of data analytics. The healthcare reform law also provides for stricter penalties; for instance, requiring physicians to return any overpayments to CMS within 60 days time

     

    In recent years regulatory requirements tightened and law enforcement has stepped up.]

    Columbia/HCA fraud case

    The Columbia/HCA fraud case is one of the largest examples of Medicare fraud in U.S. history. Numerous New York Times stories, beginning in 1996, began scrutinizing Columbia/HCA's business and Medicare billing practices. These culminated in the company being raided by Federal agents searching for documents and eventually the ousting of the corporation's CEO, Rick Scott, by the board of directors.[9] Among the crimes uncovered were doctors being offered financial incentives to bring in patients, falsifying diagnostic codes to increase reimbursements from Medicare and other government programs, and billing the government for unnecessary lab tests,[10] though Scott personally was never charged with any wrongdoing. HCA wound up pleading guilty to more than a dozen criminal and civil charges and paying fines totaling $1.7 billion. In 1999, Columbia/HCA changed its name back to HCA, Inc.

    In 2001, HCA reached a plea agreement with the U.S. government that avoided criminal charges against the company and included $95 million in fines.[11] In late 2002, HCA agreed to pay the U.S. government $631 million, plus interest, and pay $17.5 million to state Medicaid agencies, in addition to $250 million paid up to that point to resolve outstanding Medicare expense claims.[12] In all, civil lawsuits cost HCA more than $1.7 billion to settle, including more than $500 million paid in 2003 to two whistleblowers.

    The above modules from Wikipedia miss some of the most common ploys for committing Medicare and Medicaid fraud. Many of these are more difficult to detect, prove, and dispute. One of the most common ploys for physicians is to make fleeting visits to rooms in nursing homes (Medicaid fraud) and therapy hospitals (Medicaid fraud). Especially rewarding are the dementia cases that sleep day and night. The physician walks down the hall looks in the open doors and bills for room visits that each take less than a minute but bills like these were consultations.

    Another common fraud, especially in small hospitals needing more expensive intensive care billings, is for emergency room doctors to recommend a night in ICU when a regular hospital room would suffice. These types of judgment calls are very difficult to dispute for some ER cases.

    In other instances patients without insurance are treated and billed as other patients. My wife noticed that our (then) family physician had billed a rather large charge for a procedure that was not performed on my wife. We informed the physician that this must have been a billing error. They physician told us it would not matter since Medicare would be billed in either case. We later discovered that the woman who was treated had no medical insurance. We get a ton of feedback in the mail from Medicare regarding billings. I wonder how many patients really look at those billings and/or become concerned when there are billing errors that don't affect their own out-of-pocket costs.

    "Seniors Need to be Wary of Medicare Fraud," by Bernard A. Krooks, Forbes, October 4, 2012 ---
    http://www.forbes.com/sites/bernardkrooks/2012/10/04/seniors-need-to-be-wary-of-medicare-fraud/

    Probably the most common types of Medicare and Medicaid fraud entail running tests and conducting a series of examinations that are really not necessary. Once again these are judgment calls that are really difficult to dispute except when whistleblowers come forward to reveal egregious violations.

    From the CFO Journal's Morning Ledger on December 18, 2015

    Cancer-care giant to pay $19.75 million to settle Medicare billing probe
    Cancer-care giant 21st Century Oncology Holdings Inc. agreed to pay $19.75 million to settle civil allegations by the Justice Department that its doctors performed a bladder-cancer test on Medicare patients more often than medically necessary.

    National health care may increase rather than decrease medical fraud, in part, because payments are views as stingy. Consider Canada ---
    http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3537805/
    Erika's relatives in Germany tell us that physicians expect side payments for better services if patients do not have additional private sector insurance (that Germany allows).

    Bob Jensen's Fraud Updates ---
    https://en.wikipedia.org/wiki/Medicare_fraud#Types_of_Medicare_fraud

     




     

    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

    G-20 Leaders Set to Approve Overhaul of Corporate-Tax Rules
    by: Paul Hannon and Richard Rubin
    Nov 14, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, International Business, International Taxation

    SUMMARY: A push to close international corporate-tax loopholes is expected to spur competition for lower rates overseas and increase pressure in Washington for a bipartisan deal to revamp the corporate-tax code. Leaders from the Group of 20 largest economies are set to give their final stamp of approval to a major overhaul of the international rules governing corporate taxes. The change is aimed at preventing companies from using myriad tactics to shift profits among different jurisdictions to avoid taxation. Such practices cost governments between $100 billion to $240 billion in lost revenue each year. The new rules apply only to companies that operate in more than one country. Nations aren't required to adopt them, though they are expected to be put in place widely, given the support from G-20 leaders.

    CLASSROOM APPLICATION: This article is useful for a corporate tax class as it impacts how multinational corporations are taxed and it could cause a change in U.S. corporate taxes.

    QUESTIONS: 
    1. (Introductory) What is the G-20 meeting? What countries are involved?

    2. (Advanced) What area of corporate taxation is the focus of the G-20 vote? Why are these leaders making this decision? What is the need for this vote?

    3. (Advanced) What kind of impact could this vote have on U.S. companies? How could it affect U.S. tax law? Why?

    4. (Advanced) Why do some parties favor corporate tax cuts? Why are some parties against them? How do corporate tax rates in other countries affect rates in the U.S.?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "G-20 Leaders Set to Approve Overhaul of Corporate-Tax Rules," by Paul Hannon and Richard Rubin, The Wall Street Journal, November 14, 2015 ---
    http://www.wsj.com/articles/g-20-leaders-set-to-approve-overhaul-of-corporate-tax-rules-1447452996?mod=djem_jiewr_AC_domainid

    A push to close international corporate-tax loopholes is expected to spur competition for lower rates overseas and increase pressure in Washington for a bipartisan deal to revamp the corporate-tax code.

    Leaders from the Group of 20 largest economies, meeting in Turkey on Sunday and Monday, are set to give their final stamp of approval to a major overhaul of the international rules governing corporate taxes.

    The change is aimed at preventing companies from using myriad tactics to shift profits among different jurisdictions to avoid taxation. Such practices cost governments between $100 billion to $240 billion in lost revenue each year, according to the Organization for Economic Cooperation and Development.

    The new rules apply only to companies that operate in more than one country. Nations aren’t required to adopt them, though they are expected to be put in place widely, given the support from G-20 leaders.

    Stricter tax collection would mean governments could vie for investment and jobs mainly by lowering corporate tax rates—potentially shining a spotlight on the U.S. rate, which at 39% is much higher than that of other developed countries.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

    Jury Says Ernst & Young Liable for Madoff Investor's Losses
    by: Jacqueline Palank
    Nov 14, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Auditing, Auditor Liability, Forensic Accounting, Fraud

    SUMMARY: A Washington state court jury found Ernst & Young liable for millions of dollars in losses a Washington investment firm took from the collapse of Bernard Madoff's Ponzi scheme. Steven W. Thomas, attorney for FutureSelect Portfolio Management Inc., said the jury found the Big Four auditing firm was negligent in its work as auditor for a feeder fund that pooled investors' cash and funneled it Mr. Madoff's way. FutureSelect claimed that Ernst & Young, as auditor, supplied false information that FutureSelect Portfolio Management Inc. relied on to invest with the feeder fund. "EY was not the auditor of any Madoff entity; we were among the many auditors of funds that chose to use Madoff as their investment adviser. While we regret the investors' losses, no audit of a Madoff-advised fund could have detected this Ponzi scheme," Ernst & Young's Amy Call Well.

    CLASSROOM APPLICATION: This article is an excellent development to use in an auditing class, as well as for forensic accounting. It will be interesting to see if audit firms will be held liable for fraud in entities other than those they audited, as is the case here. This could be an expensive problem for audit firms, and if it continues and grows, could raise the fees firms would have to charge.

    QUESTIONS: 
    1. (Introductory) What are the facts of this case? Who are the parties to the case? What was the jury's verdict?

    2. (Introductory) What is a Big Four accounting firm? What do they do? Why are they called the Big Four?

    3. (Advanced) Who is Bernard Madoff? For what actions is he famous? How did he cause damage to some people? Where is he now?

    4. (Advanced) What is Ernst & Young's connection to Mr. Madoff? How could the firm be liable for some of the damages resulting from Mr. Madoff?

    5. (Advanced) What are some potential ripple effects that could result from the outcome of this lawsuit? How could this verdict change the way firms do business? How could it affect what firm's charge for their work?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Investor Seeks to Hold Ernst & Young Liable for Madoff Losses
    by Jacqueline Palank
    Oct 15, 2015
    Online Exclusive

    "Jury Says Ernst & Young Liable for Madoff Investor's Losses," by Jacqueline Palank, The Wall Street Journal, November 14, 2015 ---
    http://www.wsj.com/articles/jury-says-ernst-young-liable-for-madoff-investors-losses-1447453162?mod=djem_jiewr_AC_domainid

    A Washington state court jury on Friday found Ernst & Young liable for millions of dollars in losses a Washington investment firm took from the collapse of Bernard Madoff’s Ponzi scheme.

    Steven W. Thomas, attorney for FutureSelect Portfolio Management Inc., said the jury found the Big Four auditing firm was negligent in its work as auditor for a feeder fund that pooled investors’ cash and funneled it Mr. Madoff’s way. FutureSelect claimed that Ernst & Young, as auditor, supplied false information that FutureSelect Portfolio Management Inc. relied on to invest with the feeder fund.

    FutureSelect, of Redmond, Wash., invested approximately $200 million in a feeder fund that sent its money to Mr. Madoff, whose 2008 arrest exposed a massive Ponzi scheme in which investors lost more than $17 billion. In 2010, FutureSelect sued Ernst & Young, accusing it of negligence and seeking to recover its losses.

    While FutureSelect had sought damages for the full amount of its investment, Mr. Thomas said the jury awarded total damages of $20.3 million, which the firm lost during the time in which Ernst & Young was the feeder fund’s auditor. FutureSelect accepted some responsibility for the losses, so the jury split those damages 50/50 between it and the auditing firm, Mr. Thomas said, although he said prejudgment interest pushes Ernst & Young’s liability above $20 million.

    Reached Friday, an Ernst & Young spokeswoman said the firm is considering an appeal and doesn’t believe it was responsible for the investors’ losses.

    “EY was not the auditor of any Madoff entity; we were among the many auditors of funds that chose to use Madoff as their investment adviser. While we regret the investors’ losses, no audit of a Madoff-advised fund could have detected this Ponzi scheme,” Ernst & Young’s Amy Call Well said in an email.

    The case was the first suit against an auditor of one of the Madoff feeder funds, which funneled billions of dollars from investors all over the world to Mr. Madoff. Mr. Madoff is currently serving a 150-year prison sentence, and his investment firm is liquidating.

    “They are the first auditor to be found liable in the Madoff case,” Mr. Thomas said. “We are incredibly grateful to this jury for listening to the evidence and finding that auditors are the gatekeepers, and where the financial statements are fraudulent, it’s their job to say whether they’re real or fake before they get to investors.”

    At the start of the trial last month, Mr. Thomas said the Big Four auditing firm failed to perform such essential auditing tasks as confirming the existence of the securities Mr. Madoff purported to trade for investors, which didn’t exist. Instead, he said Ernst & Young relied on information provided by Mr. Madoff or his firm when it approved financial statements as containing accurate information, according to a video feed of the trial provided by Courtroom View Network.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Kinder Morgan Deal Risks Big Tax Bills for Investors
    by Laura Saunders, Alison Sider, and Russell Gold
    Aug 12, 2014
    Online Exclusive

    Q&A: How the Kinder Morgan Deal Affects Investors' Taxes
    by Laura Saunders
    Aug 12, 2014
    Online Exclusive 

    "Thousands Hit With Surprise Tax Bill on Income in IRAs," by Laura Saunders, The Wall Street Journal, November 14, 2015 ---
    http://www.wsj.com/articles/thousands-hit-with-surprise-tax-bill-on-income-in-iras-1447427436?mod=djem_jiewr_AC_domainid

    On Oct. 13, two days before the final 2014 tax-filing deadline, investor Steve Goldston of Phoenix received a surprise tax bill for $24,321. It was for units of a master limited partnership affiliated with Kinder Morgan Inc. that Mr. Goldston held in his Roth individual retirement account. The total included nearly $6,000 of late-filing penalties and interest.

    “I was outraged,” says Mr. Goldston. “Here was a tax form, completely filled out and signed on my behalf, saying that I owed this money and it was coming out of my IRA—but that was the first I heard.”

    Mr. Goldston wasn’t alone. According to Pershing, the custodian of Mr. Goldston’s Roth IRA, it filed such forms for about 5,000 people who held Kinder Morgan MLP units in IRAs. Pershing is a unit of BNY Mellon and serves as a clearinghouse for about 800 financial firms. Kinder Morgan is a pipeline firm based in Houston.

    Master limited partnerships typically transport, store, produce and refine energy and pass the bulk of their earnings to shareholders.

    Thousands of investors holding MLPs in IRAs at other firms may owe similar taxes that they aren’t aware of, experts say.

    The unexpected bills are painful reminders that even widely held investments such as MLPs can contain tax traps, experts say.

    “People need to understand what they are investing in, especially the taxes and fees,” says Don Williamson, an accountant who heads the Kogod Tax Center at American University.

    In this case, the traps have ensnared advisers and brokerage firms as well as investors. Here’s why, and what investors need to know.

    The rules

    Under the tax code, IRAs and Roth IRAs have significant benefits—such as tax-free growth—but they come with limits. When owners use IRA funds to invest in partnerships, as opposed to stocks, bonds and funds, they owe tax on certain annual income from the partnership exceeding $1,000 because of an antiabuse provision. This levy is known as Unrelated Business Income Tax, or UBIT, and its top rate of 39.6% can take effect at about $12,000 of taxable income.

    A further, unique twist is that when this tax is due, the IRA custodian or trustee—such as Pershing or Charles Schwab —is responsible for obtaining a special tax ID number and then filing and signing an IRS Form 990-T reporting the income. The IRA owner is typically responsible for paying the tax.

    Because of this complexity, experts often caution investors to avoid putting publicly traded partnerships into IRAs. But many, including Mr. Goldston, were unaware of this advice.

    What happened at Pershing

    The 5,000 late 990-T filings by Pershing, including Mr. Goldston’s, involved highly popular MLPs controlled by Kinder Morgan. The largest, Kinder Morgan Energy Partners (KMP), had 465 million units with a market value of $47 billion last year. Individual investors liked its high payouts and that taxes were deferred.

    In 2014, the parent firm did a roll-up of the MLPs that triggered long-postponed taxes for many holders and generated UBIT for many investors holding units in IRAs. Mr. Goldston’s 1,365 units of KMP, for example, generated net income of nearly $52,000 and tax of $18,484.

    According to Pershing’s spokesman, its tax adviser found that Kinder Morgan’s K-1 forms for investors didn’t have enough information to determine their taxes. By the time Pershing learned this, it didn’t have time to file for six-month automatic extension requests.

    Continued in article


     

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

    Be very careful when making up your own figures to try to explain your business to shareholders—but maybe international rules should be allowed as a supplement. That was the two-pronged message Securities and Exchange Commission Chairwoman Mary Jo White offered during a conference held by the American Institute of CPAs in Washington.

    Yet at the same time, Ms. White said the SEC will be considering the recommendation of its chief accountant, James Schnurr, that U.S. firms be allowed to use international accounting rules as an add-on to their main financial statements, the WSJ’s Michael Rapoport reports. It has “the potential to be a useful next step” in considering how the U.S. should approach the global rules, Ms. White said.She didn’t give a timetable for when the commission might reach a decision on the issue. But if the SEC implements Mr. Schnurr’s recommendation, U.S. companies could provide financial data calculated using the global rules, which differ in some respects from U.S. rules, to supplement the main financial statements they provide.

    Jensen Comment
    I don't know if she what all she intended by stating "making up your own figures." But one interpretation is that IFRS international standards replace a lot of white line rules with concept-based standards that allow for more fudge factoring.

    One of the moral hazards in James Schnurr's recommendatin is that firms will provide supplemental IFRS statements when they look better but not when they look worse.


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

    Top SEC Accountant Urges Supplemental Use of Global Rules for U.S. Companies
    by: Michael Rapoport
    Nov 18, 2015
    Click here to view the full article on WSJ.com

    TOPICS: GAAP, IFRS

    SUMMARY: The Securities and Exchange Commission's top accountant said he has recommended U.S. companies be allowed to use global accounting rules to supplement their main financial statements calculated under U.S. regulations. The recommendation to the commission by Chief Accountant James Schnurr could help resolve a long-standing debate over whether and how the U.S. should use the global rules, known as International Financial Reporting Standards, or IFRS. If Mr. Schnurr's recommendation is implemented, U.S. companies could provide financial data calculated using IFRS, which differs in some respects from U.S. rules, as an add-on to the main financial statements they provide. Those financial statements would continue to be calculated under current U.S. rules, known as generally accepted accounting principles, or GAAP.

    CLASSROOM APPLICATION: This update regarding use of IFRS in the U.S. can be used in a financial accounting class.

    QUESTIONS: 
    1. (Introductory) What is IFRS? Who uses it? What is GAAP? Who uses it?

    2. (Advanced) How do IFRS and GAAP differ? What does the U.S. use? Why does the U.S. choose that particular one instead of the other?

    3. (Advanced) What did the SEC Chief Accountant recommend regarding U.S. accounting rules? Is this recommendation significant? How will U.S. financial statements change? Will it bring great change in U.S. accounting rules? Why or why not?

    4. (Advanced) What is the current outlook for changes in the accounting rules in U.S.? Are the rules expected to change in the near future? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    U.S. Companies May Gain Ability to Reconcile to IFRS Accounting
    by Emily Chasan
    May 07, 2015
    Online Exclusive

    "Top SEC Accountant Urges Supplemental Use of Global Rules for U.S. Companies," by Michael Rapoport, The Wall Street Journal, November 18, 2015 ---
    http://www.wsj.com/articles/top-sec-accountant-urges-supplemental-use-of-global-rules-for-u-s-companies-1447780897?mod=djem_jiewr_AC_domainid

    The Securities and Exchange Commission’s top accountant said he has recommended U.S. companies be allowed to use global accounting rules to supplement their main financial statements calculated under U.S. regulations.

    The recommendation to the commission by Chief Accountant James Schnurr could help resolve a long-standing debate over whether and how the U.S. should use the global rules, known as International Financial Reporting Standards, or IFRS.

    If Mr. Schnurr’s recommendation is implemented, U.S. companies could provide financial data calculated using IFRS, which differs in some respects from U.S. rules, as an add-on to the main financial statements they provide. Those financial statements would continue to be calculated under current U.S. rules, known as generally accepted accounting principles, or GAAP.

    Mr. Schnurr has publicly floated the idea in recent months, as a middle-ground approach between a full U.S. adoption of the global rules and no U.S. use of them at all. He said Tuesday he has now made the idea the substance of his recommendation to SEC Chairwoman Mary Jo White about what the commission should do about U.S. use of IFRS.

    “It’s going through the rule-making process,” Mr. Schnurr told reporters at an accounting conference in New York. The recommendation is being subjected to an economic analysis, he said, and he had no timetable about when or whether the SEC might propose any new regulations based on it.

    The IFRS system is now in use in more than 100 countries, and accounting-industry leaders and international rule makers have long urged the U.S. to adopt IFRS as well, saying a single world-wide set of accounting rules would benefit companies and investors. But the U.S. has retained GAAP in part because of concerns over the costs and implementation of a switch, and Mr. Schnurr has said there is little or no support among U.S. companies for a wholesale changeover.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 8, 2015

     Google Parent to Ask Subsidiaries to Pay for Corporate Services
    by: Alistair Barr
    Nov 23, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Activity-Based Costing, Financial Accounting, Managerial Accounting, Responsibility Accounting

    SUMMARY: Google parent Alphabet Inc. is moving to make its disparate parts more accountable internally for spending in an effort to ensure that its more speculative projects are self-sustaining. Under the new system, "bet" companies such as Google X, Google Fiber and Google Life Sciences will be charged for using corporate services such as computing, recruiting and marketing. Under Alphabet's new system, leaders of the bet companies will have more freedom to develop their own services in areas like recruiting and marketing. The companies will still be able to tap Alphabet's services, but they will have to bear the cost internally.

    CLASSROOM APPLICATION: This is a great article to use for coverage of activity-based costing and responsibility accounting because it involves a company very familiar to our students.

    QUESTIONS: 
    1. (Introductory) What is Alphabet Inc.? What types of businesses does it own?

    2. (Advanced) What is Alphabet doing regarding the spending of its individual companies? What is included in its plan? What are the reasons for these changes?

    3. (Advanced) What is responsibility accounting? How can it benefit companies? How can Alphabet use responsibility accounting tools to successfully implement this plan?

    4. (Advanced) What is activity-based costing? What are the advantages of using this tool? How could it be used by Alphabet to manage costs and to develop internal and external reporting?

    5. (Advanced) How will Alphabet's changes positively affect the company? What other businesses or industries could be benefited by similar changes?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Google Parent to Ask Subsidiaries to Pay for Corporate Services," by Alistair Barr, The Wall Street Journal, November 23, 2015 ---
    http://www.wsj.com/articles/google-parent-to-ask-subsidiaries-to-pay-for-corporate-services-1448325619?mod=djem_jiewr_AC_domainid

    Google parent Alphabet Inc. is moving to make its disparate parts more accountable internally for spending, according to people familiar with the matter, in an effort to ensure that its more speculative projects are self-sustaining.

    Under the new system, “bet” companies such as Google X, Google Fiber and Google Life Sciences will be charged for using corporate services such as computing, recruiting and marketing, the people familiar with the matter said.

    The changes are part of Google’s transformation into a conglomerate, which took effect in August but won’t be reflected in financial statements until next year. The people familiar with the matter said executives hope to make the bet companies more accountable for their costs, which may lead to more caution on spending.

    The reorganization has two goals. Alphabet Chief Executive Larry Page wants to boost spending on new technologies that will take the company into areas such as transportation, communications and health care. At the same time, Mr. Page and other executives want to assure Wall Street that Alphabet is spending responsibly.

    “After a period of big expense build up, there was an appreciation that we needed to manage the cadence of spend,” Chief Financial Officer Ruth Porat told investors in an October earnings call. Ms. Porat has been instrumental in efforts to curb spending since joining the company in May.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 8, 2015

    Expiring Tax Breaks Face Another Nail-Biter This Year
    by: Richard Rubin
    Nov 23, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Tax Planning, Individual Taxation, Corporate Taxation

    SUMMARY: Dozens of tax breaks are caught in an annual Washington ritual of Congress waiting until the last possible minute to revive a tax break that lapsed at the end of 2014. The breaks, known as "tax extenders," include the individual deduction for state and local sales taxes and business tax credits for wind energy and research and development. Companies rally each fall to prod Congress to act, and cynics see little rationale in the annual exercise beyond a steady flow of lobbyists' expenses and campaign contributions.

    CLASSROOM APPLICATION: This is an excellent tax-planning article for individual and corporate taxation classes.

    QUESTIONS: 
    1. (Introductory) What tax provisions discussed in the article have expired? When did they expire? What are the prospects for extensions of those tax provisions? How could they be extended?

    2. (Advanced) Why does Congress approach some tax breaks in this way? How does it impact business and individual taxpayers? How does it impact tax planning?

    3. (Advanced) What tax breaks are at issue? Should these tax breaks be extended? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Expected Tax Breaks Don't Go Far Enough for Some Small Firms
    by Angus Loten
    Dec 11, 2015
    Online Exclusive

    "Expiring Tax Breaks Face Another Nail-Biter This Year," by Richard Rubin, The Wall Street Journal, November 23, 2015 ---
    http://www.wsj.com/articles/expiring-tax-breaks-face-another-nail-biter-this-year-1448230404?mod=djem_jiewr_AC_domainid

    The slow pace of legislative sausage-making in Congress is causing problems for Dan Glier’s actual sausage-making in Kentucky.

    Mr. Glier’s ability to deduct the costs of new grinders, smokehouses and emulsifiers depends on Congress’s ability to revive a small-business tax break that lapsed at the end of 2014. At this point, with the 2015 tax year almost over, the president of Glier’s Meats Inc. doesn’t know whether he can deduct as much as $500,000 in capital costs or $25,000—or have any idea what his taxes will look like in 2016.

    “It gives me stomach cramps, I’ll tell you,” Mr. Glier said of the inaction in Washington. “At least by law my product has to list exactly what’s in it, in the order of predominance. Laws are anything but that. They’re dishonest, they’re disorganized.”

    The small-business write-off is among the least controversial of dozens of tax breaks caught in an annual Washington ritual of waiting until the last possible minute—and then some. The breaks, known as “tax extenders,” include the individual deduction for state and local sales taxes and business tax credits for wind energy and research and development. Companies rally each fall to prod Congress to act, and cynics see little rationale in the annual exercise beyond a steady flow of lobbyists’ expenses and campaign contributions.

    On Dec. 19, 2014, President Barack Obama signed a law extending the breaks only through the end of 2014, and lawmakers in both parties vowed they wouldn’t wait so long again. Now, in late-November, bipartisan talks are just getting started.

    “The whole point of tax policy is to ensure that you make decisions that guide future behavior,” said Oregon Sen. Ron Wyden, the top Democrat on the Senate Finance Committee. “We’ve already seen close to a year’s worth of behavior. And you’re in effect passing tax laws to provide incentives, purportedly, for behavior that already took place.”


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 8, 2015

    Is the Surge in Stock Buybacks Good or Evil?
    by: E.S. Browning
    Nov 23, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Stock Buybacks

    SUMMARY: This year isn't on pace to surpass 2007 in total buybacks. But data show that announcements of planned future buybacks are the highest for any year's first 10 months, more even than in 2007. Some analysts have said for years that the buyback pace will slow, but there is little sign of that. With corporate cash levels near records and interest rates low, use of cash or debt to finance buybacks is becoming widespread. Stock repurchases boost earnings per share, even if total earnings don't change, by reducing the number of shares. Analysts and investors typically track per-share earnings, not overall earnings.

    CLASSROOM APPLICATION: This is a good article about the current trends in stock buybacks, as well as their impact on a company and its financial statements.

    QUESTIONS: 
    1. (Introductory) What is a stock buyback? Why do some companies choose to participate in stock buybacks?

    2. (Advanced) How do stock buybacks affect a company's financial statements? How is the transaction entered into the company's financial records? What accounts are affected?

    3. (Advanced) How is a business affected by the stock buyback? How does it affect the company's stock price? How does it affect the company's strategies and options for growth?

    4. (Advanced) Why are stock buybacks so common now? Are certain economic conditions encouraging this behavior at this particular time? Are there other factors?

    5. (Advanced) Why are some parties against stock buybacks? What are possible disadvantages or negative ramifications?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Beware the Stock-Buyback Craze
    by John Waggoner
    Jun 19, 2015
    Online Exclusive

    "Is the Surge in Stock Buybacks Good or Evil?" by E.S. Browning, The Wall Street Journal, November 26,2015 ---
    http://www.wsj.com/articles/is-the-surge-in-stock-buybacks-good-or-evil-1448188684?mod=djem_jiewr_AC_domainid

    Corporate stock buybacks are climbing toward a post-financial-crisis high this year, furthering the debate about the use of hundreds of billions of dollars in company cash to enhance quarterly earnings reports.

    Stock repurchases boost earnings per share, even if total earnings don’t change, by reducing the number of shares. Analysts and investors typically track per-share earnings, not overall earnings.

    Buybacks have drawn criticism from some fund managers including Larry Fink, chief executive of BlackRock Inc., which oversees $4.5 trillion in assets. He has said some companies invest too much in buybacks and too little in longer-term business growth. Repurchases also have become a political issue. Democratic presidential candidate Hillary Clinton has called for more-frequent and fuller disclosure of them by the companies involved, even as some activist investors push for more buybacks as a way of returning cash to investors.

    In the year’s first nine months, U.S. companies spent $516.72 billion buying their own shares, with third-quarter reports still not complete, according to Birinyi Associates. That is the highest amount for the first three quarters since the record year of 2007, the year before the financial crisis. It leaves this year on track for a post-2007 high if fourth-quarter buybacks hold up.

    Buybacks can have a significant impact on earnings, as was illustrated this quarter by companies including Microsoft Corp. MSFT -0.52 % , Wells Fargo WFC 0.28 % & Co., Pfizer Inc. PFE -0.25 % and Express Scripts Holding Co. ESRX 0.24 % Microsoft turned a decline in total earnings into a per-share gain by repurchasing a little more than 3% of its shares in the past 12 months. Its total third-quarter earnings were down 1.3% from a year earlier, but per-share earnings rose 3.1%, according to FactSet.

     


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 8, 2015

    U.S. Unveils Rules to Make Corporate Inversions More Difficult
    by: Richard Rubin
    Nov 20, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, Inversions

    SUMMARY: The Treasury Department released new rules to restrain U.S. companies from putting their addresses in foreign countries to reduce their tax bills. The changes will make it harder for U.S. companies to buy a company in one foreign country and locate the combined entity's address in a different country. They also would limit companies' maneuvers before a merger to make a foreign company look bigger and thus escape existing U.S. tax restrictions.

    CLASSROOM APPLICATION: This is an excellent update regarding tax inversion law for corporate tax classes.

    QUESTIONS: 
    1. (Introductory) What is a tax inversion? Who chooses to participate in inversions? Why would a party make this choice?

    2. (Advanced) What are the details regarding the new rules issued by the Treasury Department? How comprehensive are the new rules?

    3. (Advanced) How do corporate tax rates affect inversions? Were tax rates changed by the new rules? Why or why not?

    4. (Advanced) What tax-planning options do corporations have to reduce taxes other than the type of inversions that have been popular recently?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    'Inversion' Rule Changes Appear Minor
    by Liz Hoffman
    Nov 21, 2015
    Online Exclusive

    "U.S. Unveils Rules to Make Corporate Inversions More Difficult," by Richard Rubin, The Wall Street Journal, November 20, 2015 ---
    http://www.wsj.com/articles/u-s-unveils-rules-to-make-corporate-inversions-more-difficult-1447970935?mod=djem_jiewr_AC_domainid

    The Treasury Department on Thursday released new rules to restrain U.S. companies from putting their addresses in foreign countries to reduce their tax bills.

    The changes will make it harder for U.S. companies to buy a company in one foreign country and locate the combined entity’s address in a different country. They also would limit companies’ maneuvers before a merger to make a foreign company look bigger and thus escape existing U.S. tax restrictions.

    The new rules could have immediate implications for Pfizer Inc. ’s attempt to merge with Allergan PLC.

    One aspect of the rules, which limit companies’ ability to transfer foreign operations to a new foreign parent company, will apply to future transactions by all companies that completed inversions since Sept. 22, 2014, potentially causing problems for those such as Medtronic PLC and Mylan NV that have already completed their inversions.

    The Treasury’s actions mark the government’s latest attempt to deter companies from considering corporate inversions, deals in which U.S. businesses typically put their tax addresses in a foreign country but continue U.S. operations and management with few or any changes.

    Inversions have helped drive mergers-and-acquisitions activity to record highs as companies, particularly those in health care, have looked to foreign deal making for tax savings.

    “It’s Treasury’s responsibility to protect the U.S. tax base,” said Treasury Secretary Jack Lew. “These actions further reduce the benefits of inversion and make these transactions even more difficult to achieve.”

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 8, 2015

    The Big Number: Total value of goodwill write-downs in 2014
    by: Emily Chasan
    Nov 25, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Goodwill, Goodwill Impairments, Financial Accounting

    SUMMARY: U.S. public companies recorded $25.7 billion in goodwill impairments, or write-downs, last year, according to a study of more than 8,700 firms. The figure is up from $21.7 billion in 2013 but still less than levels in 2012, when impairments topped $50 billion.

    CLASSROOM APPLICATION: This is good information for coverage of goodwill and goodwill impairments in financial accounting classes.

    QUESTIONS: 
    1. (Introductory) What is goodwill? What type of account is it? How does a company acquire goodwill?

    2. (Advanced) What are goodwill impairments? What does the article report regarding goodwill and goodwill impairments? What are the associated trends? Why is this happening?

    3. (Advanced) How do goodwill impairments appear on the financial statements? Are they improvements or problems for a company's financial condition?

    4. (Advanced) What is the forecast for impairments in the future? What conditions could affect them?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "The Big Number: Total value of goodwill write-downs in 2014," by Emily Chasan, The Wall Street Journal, November 25, 2015 ---
    http://www.wsj.com/articles/the-big-number-1448342937?mod=djem_jiewr_AC_domainid

    $25.7B

    Total value of goodwill write-downs in 2014.

    Corporate acquisitions that haven’t worked out are taking a toll on balance sheets.

    U.S. public companies recorded $25.7 billion in goodwill impairments, or write-downs, last year, according to a study of more than 8,700 firms from corporate financial adviser Duff & Phelps. The figure is up from $21.7 billion in 2013 but still less than levels in 2012, when impairments topped $50 billion.

    The biggest number of companies in at least five years took hits to goodwill, or intangible assets, in 2014, with 341 companies reporting write-downs, up from 274 in 2013.

    “The trend is moving toward bigger impairments,” said Greg Franceschi, a managing director at Duff & Phelps.

    The energy sector, hurt by the decline in oil prices, dominated goodwill write-downs last year with 32 companies, or 23% of the industry, reporting charges to goodwill, according to the study. The sector tallied $5.8 billion in goodwill write-downs in 2014, up from $2.1 billion in 2013.

    Devon Energy Corp. recorded the largest goodwill write-down last year, according to Duff & Phelps. The firm took a $1.9 billion fourth-quarter charge on a decade-old Canadian acquisition of gas assets. Devon Energy said at the time that the noncash charge was “related to the recent drop in oil prices.”

    On average, individual companies took charges to goodwill of about $75 million last year, down 5% from the average in 2013, according to Duff & Phelps.


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 11, 2015

     

    FASB Issues ASU on Balance Sheet Classification of Deferred Taxes
    by: Deloitte Risk Journal Editor
    Dec 04, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Deferred Taxes, FASB

    SUMMARY: A new Accounting Standards Update (ASU) issued by FASB requires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as noncurrent in a classified balance sheet. Stakeholder feedback indicated that the separate presentation of deferred taxes as current or noncurrent provided little useful information to financial statement users and resulted in additional costs to preparers. Therefore, the FASB issued the ASU to simplify the presentation of deferred taxes in a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction will still be required under the new guidance.

    CLASSROOM APPLICATION: This is a good update in the new Accounting Standards Update regarding deferred tax assets and liabilities for financial accounting classes.

    QUESTIONS: 
    1. (Introductory) What are deferred taxes? What are deferred tax assets? What are deferred tax liabilities?

    2. (Advanced) What is an ASU? Who issues ASUs? Why?

    3. (Advanced) What is FASB? What is its area of authority? How does it affect accounting in the U.S.?

    4. (Advanced) What are the details of the recent ASU issued by FASB? What are the reasons for the new rules?

    5. (Advanced) How will the changes affect each of a company's financial statements?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "FASB Issues ASU on Balance Sheet Classification of Deferred Taxes," by Deloitte Risk Journal Editor, The Wall Street Journal, December 4, 2015 ---
    http://deloitte.wsj.com/riskandcompliance/2015/12/04/heads-up-fasb-issues-asu-on-balance-sheet-classification-of-deferred-taxes/?mod=djem_jiewr_AC_domainid

    A new Accounting Standards Update (ASU) issued by FASB requires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as noncurrent in a classified balance sheet. ASU 2015-17¹, issued on November 20, simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current and noncurrent in a classified balance sheet. Deloitte’s “Heads Up” newsletter provides details on key provisions of the ASU as well as an illustrative example comparing the current and new guidance.

    Background and Key Provisions

    Under current guidance (ASC 740-10-45-4²), entities “shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting.” Stakeholder feedback indicated that the separate presentation of deferred taxes as current or noncurrent provided little useful information to financial statement users and resulted in additional costs to preparers. Therefore, the FASB issued the ASU to simplify the presentation of deferred taxes in a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction will still be required under the new guidance.

    Noncurrent balance sheet presentation of all deferred taxes eliminates the requirement to allocate a valuation allowance on a pro rata basis between gross current and noncurrent DTAs, which constituents had also identified as an issue contributing to complexity in accounting for income taxes.

    Editor’s Note: The ASU will align with the current guidance in IAS 12³, which requires entities to present DTAs and DTLs as noncurrent in a classified balance sheet.

    The example below compares the classification of DTAs and DTLs under current U.S. GAAP with their classification under the new guidance.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 11, 2015

    Finance Chiefs Get Ready for New Rules
    by: James Willhite
    Dec 08, 2015
    Click here to view the full article on WSJ.com

    TOPICS: and Corporate Tax, Financial Accounting, Insurance Contracts, Lease Accounting, Revenue Recognition

    SUMMARY: Finance chiefs will be busy in 2016, as they gear up for key changes in regulations in the U.S. and abroad. From corporate tax plans to revenue from insurance contracts, chief financial officers will need to make sure their departments are nimble to cope with the next wave of compliance demands. While some new accounting rules are past the development process, other compliance issues may be pegged to court cases or government action. Companies will have a few years to become fully compliant in some cases, but it doesn't leave time for foot-dragging. Topics include revenue recognition, lease accounting, insurance contracts, and corporate tax.

    CLASSROOM APPLICATION: This is a good summary of some of the accounting updates in financial and tax accounting.

    QUESTIONS: 
    1. (Introductory) What is a CFO? What are the duties of that position? What experience and qualifications would be good for an aspiring CFO?

    2. (Advanced) What is FASB? What is its area of authority? What is IASB? What is its area of authority?

    3. (Advanced) What updates apply to revenue recognition? What is the potential impact on financial statements in the short-term and the long-term?

    4. (Advanced) What changes are coming for lease accounting? What are the reasons for those changes? How will the changes affect company financial statements?

    5. (Advanced) What are insurance contracts? What changes are happening for insurance contracts? Why? How will insurance companies be affected by the new rules?

    6. (Advanced) What challenges are companies facing related to tax law? What are tax extenders? Why do they exist? How do they affect tax planning?

    Reviewed By: Linda Christiansen, Indiana University Southeast

     

    "Finance Chiefs Get Ready for New Rules," by ames Willhite, The Wall Street Journal, December 8, 2015 ---
    http://www.wsj.com/articles/finance-chiefs-get-ready-for-new-rules-1449533017?mod=djem_jiewr_AC_domainid

    Finance chiefs will be busy in 2016, as they gear up for key changes in regulations in the U.S. and abroad.

    From corporate tax plans to revenue from insurance contracts, chief financial officers will need to make sure their departments are nimble to cope with the next wave of compliance demands.

    While some new accounting rules are past the development process, other compliance issues may be pegged to court cases or government action. Companies will have a few years to become fully compliant in some cases, but it doesn’t leave time for foot-dragging.

    Here are some issues that will be a priority for CFOs in the coming year.

    Revenue Recognition

    CFOs received some breathing room when the Financial Accounting Standards Board disclosed it would allow companies to wait an until 2018—instead of 2017—to adopt rules governing how they account for deferred revenue from everything from cellphone contracts to car sales to software. U.S. companies have hundreds of billions of dollars of deferred revenue on their books and the rules will determine how much moves the top line, and when, on a case-by-case basis.

    Still, many large firms say they have been preparing parallel books in preparation for the rule changes, and a delay would be costly and unnecessary. Some indicated in comment letters to FASB that they would adopt the rule early, which FASB will allow.

    Lease Accounting

    Companies in the U.S. and abroad will need to begin bringing their leases for offices and equipment onto their books in 2016, even though mandatory compliance is unlikely before 2019. Both the FASB in the U.S. and the overseas rule-maker the International Accounting Standards Board will publish their final standard early next year.

    The new rules are aimed at better reflecting a company’s financial condition by including lease obligations, but it will also have the effect of making companies appear deeper in debt. CFOs will need to explain to shareholders why debt loads will seem bigger.

    R. Harold Schroeder, a FASB member, said that shouldn’t pose a huge problem, as most investors already calculate those obligations on their own. “The benefit here is that instead of a back-of-the-envelope number, you’re going to get a figure that’s much more accurate,” he said.

    Leases on balance sheets could cause some companies to violate debt covenants, but Mr. Schroeder said companies will have time to renegotiate those agreements. “Banks have made it clear they’re not going to kick out good customers just because of an accounting change,” he said.

    Insurance Contracts

    It’s unusual for accounting standard setters to target a specific industry, but both IASB and FASB are in the midst of adjustments to standards specifically for insurance contracts. Companies across several sectors could feel the effect of those changes.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 11, 2015

    Mark Zuckerberg Tests New Philanthropic Model
    by: Richard Rubin, Laura Saunders, and Deepa Seetharaman
    Dec 03, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Business Organizations, LLC, Taxation

    SUMMARY: Facebook Inc. founder Mark Zuckerberg is giving away his $45 billion fortune in a way that allows him also to invest in companies and influence public policy, while pursuing broader philanthropic aims. By creating a limited-liability company rather than a foundation, Mr. Zuckerberg and his wife, Priscilla Chan, can support their goals of promoting "personalized learning, curing disease, connecting people and building strong communities," while sidestepping some limits of tax law and public-disclosure rules.

    CLASSROOM APPLICATION: This article is a very interesting example of how the choice of the form of business organization affects many aspects of that organization.

    QUESTIONS: 
    1. (Introductory) What are the details of Mark Zuckerberg's announcement? What are he and his wife's goals?

    2. (Advanced) What are the options for forms of doing business? What are the features of each? What are the advantages and disadvantages of each type?

    3. (Advanced) What form of business did they choose? Did they offer a reason for choosing this form of business? How will their chosen option help them? Why weren't other options as attractive to them?

    4. (Advanced) What are the financial reporting and public-disclosure differences of the options? Why did they choose this particular business form considering those factors?

    5. (Advanced) What are the tax implications for and differences among each of the forms of business? Could those factors have impacted the decision in this case? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Mark Zuckerberg and Priscilla Chan to Give 99% of Facebook Shares to Charity
    by Deepa Seetharaman and Anupreeta Das
    Dec 03, 2015
    Online Exclusive

    "Mark Zuckerberg Tests New Philanthropic Model," by Richard Rubin, Laura Saunders, and Deepa Seetharaman, The Wall Street Journal, December 3, 2015 ---
    http://www.wsj.com/articles/zuckerberg-tests-new-philanthropic-model-1449105918?mod=djem_jiewr_AC_domainid

    By creating an LLC rather than a foundation, Facebook founder and his wife can support their goals while sidestepping some rules.

    Facebook Inc. founder Mark Zuckerberg is giving away his $45 billion fortune in a way that allows him also to invest in companies and influence public policy, while pursuing broader philanthropic aims.

    By creating a limited-liability company rather than a foundation, Mr. Zuckerberg and his wife, Priscilla Chan, can support their goals of promoting “personalized learning, curing disease, connecting people and building strong communities,” while sidestepping some limits of tax law and public-disclosure rules.

    The move highlights an emerging model of philanthropy that extends beyond grant-making foundations. The fusion of corporate and philanthropic goals and structures “reflects part of the Silicon Valley ethos,” said Amir Pasic, dean of the Lilly Family School of Philanthropy at Indiana University. “There is an impatience with established forms of philanthropy.”

    One model, Mr. Pasic said, is the Omidyar Network created by eBay Inc. founder Pierre Omidyar, which combines a limited-liability company and a foundation. Will Fitzpatrick, the former general counsel of the network, said Mr. Omidyar started with only a foundation and changed his approach because of the limits of that model. Among other things, the network invests in both nonprofit and for-profit groups, he said.

    The foundation model is “the most deeply treaded path, but it’s not the only way,” Mr. Fitzpatrick said.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 18, 2015

    The move highlights an emerging model of philanthropy that extends beyond grant-making foundations. The fusion of corporate and philanthropic goals and structures “reflects part of the Silicon Valley ethos,” said Amir Pasic, dean of the Lilly Family School of Philanthropy at Indiana University. “There is an impatience with established forms of philanthropy.”

    One model, Mr. Pasic said, is the Omidyar Network created by eBay Inc. founder Pierre Omidyar, which combines a limited-liability company and a foundation. Will Fitzpatrick, the former general counsel of the network, said Mr. Omidyar started with only a foundation and changed his approach because of the limits of that model. Among other things, the network invests in both nonprofit and for-profit groups, he said.

    on December 18, 2015

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 18, 2015

    The move highlights an emerging model of philanthropy that extends beyond grant-making foundations. The fusion of corporate and philanthropic goals and structures “reflects part of the Silicon Valley ethos,” said Amir Pasic, dean of the Lilly Family School of Philanthropy at Indiana University. “There is an impatience with established forms of philanthropy.”

    One model, Mr. Pasic said, is the Omidyar Network created by eBay Inc. founder Pierre Omidyar, which combines a limited-liability company and a foundation. Will Fitzpatrick, the former general counsel of the network, said Mr. Omidyar started with only a foundation and changed his approach because of the limits of that model. Among other things, the network invests in both nonprofit and for-profit groups, he said.

    on December 18, 2015

    Continued in article


    Teaching Case
    From The Wall Street Journalharge of Corporate Audits

    by: Michael Rapoport
    Dec 16, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Auditing, PCAOB

    SUMMARY: Beginning with audits performed in 2017, audit firms will have to name their "engagement partner" in charge of each audit in a new form to be filed with the Public Company Accounting Oversight Board. Supporters of the idea say it will make auditors more accountable and give investors more information about who is responsible for auditing the companies whose shares they hold. Audit firms balked at that idea, saying their partners would be exposed to lawsuits and that there would be complications and delays in the disclosure if the names were included in an SEC filing. Once enough information has been gathered, investors will be able to check an audit partner's track record by looking at whether there have been any problems at the companies a partner has audited in the past.

    CLASSROOM APPLICATION: This article offers an update for auditing courses.

    QUESTIONS: 
    1. (Introductory) What is the PCAOB? What is it purpose? What is it area of authority?

    2. (Advanced) What new rule is the PCAOB implementing? When will it begin? What is the purpose of the rule?

    3. (Advanced) Why are supporters in favor of the new rule? What are the critics concerns? Which position is stronger? Do the benefits outweigh the potential issues?

    4. (Advanced) What is the SEC's involvement with this rule? Why is the SEC involved?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Name That Auditor: Regulators Close to Requiring Individuals' Names on Corporate Audits
    by Michael Rapoport
    Dec 10, 2015
    Online Exclusive

    "Regulator Approves Naming of Audit-Firm Partners in Charge of Corporate Audits," by Michael Rapoport, The Wall Street Journal, December 16, 2015 ---
    http://www.wsj.com/articles/regulator-approves-naming-of-audit-firm-partners-in-charge-of-corporate-audits-1450198985?mod=djem_jiewr_AC_domainid

    The government’s audit regulator on Tuesday approved a long-in-the-works move to require audit firms to identify their partners in charge of each company’s audit.

    Beginning with audits performed in 2017, audit firms will have to name their “engagement partner” in charge of each audit in a new form to be filed with the Public Company Accounting Oversight Board. The PCAOB voted unanimously Tuesday to enact the proposal, which is still subject to Securities and Exchange Commission approval.

    Supporters of the idea say it will make auditors more accountable and give investors more information about who is responsible for auditing the companies whose shares they hold. Many other countries already require audit partners to be identified.

    Once enough information has been gathered, investors will be able to check an audit partner’s track record by looking at whether there have been any problems at the companies a partner has audited in the past.

    The fact that the partner’s name will be publicly disclosed should give audit firms a further incentive “to organize the audit team conscientiously to give investors comfort that it is reliable,” PCAOB Chairman James Doty said before the vote. The engagement partner’s role is “of singular importance” to the reliability of the audit, and investors deserve to know who that person is, he said.

    In addition, the new rule approved Tuesday will require audit firms to disclose any other firms that contributed significant amounts of work to an audit. In many cases, firms that audit U.S.-traded multinational companies have their foreign affiliates perform some of the work in audits, but that involvement doesn’t have to be disclosed under current rules.

    Continued in article

    EY:  PCAOB adopts final rules to disclose name of partner and others on new form ---
    http://www.pwc.com/us/en/cfodirect/publications/in-brief/pcaob-finalizes-rules-disclose-engagement-partner-accounting-firms-new-form.html

    On December 15, 2015, the Public Company Accounting Oversight Board (“PCAOB”) adopted new rules and amendments to its auditing standards requiring disclosure of the name of the engagement partner and information about other accounting firms that took part in the audit, including other firms within the same network as the group auditor. This information will be filed with the PCAOB on a new PCAOB form, Auditor Reporting of Certain Audit Participants (“Form AP”) and will be searchable on the PCAOB’s website.

    The rules and amendments to the auditing standards require disclosure for all audits of issuers, including employee stock purchase, savings, and similar plans that file annual reports on Form 11-K. At this time, the PCAOB is not extending the Form AP requirements to audits of brokers and dealers unless the broker or dealer is an issuer required to file audited financial statements. Additionally, the PCAOB is recommending the rules and amendments to its auditing standards apply to emerging growth companies, which will be subject to a separate determination by the Securities and Exchange Commission (the “SEC”), pursuant to the JOBS Act.

    Disclosure requirements and effective dates

    The rules require disclosure of:

    The name of the engagement partner;

    The names, locations, and extent of participation of other accounting firms that took part in the group audit, if their work constituted 5 percent or more of the total group audit hours; and

    The number and aggregate extent of participation of all other accounting firms that took part in the group audit whose individual participation was less than 5 percent of the total group audit hours.

    Subject to SEC approval, disclosure of the engagement partner will be required for audit reports issued on or after January 31, 2017 (or three months after SEC approval, whichever is later), while disclosure of information about other accounting firms that took part in the audit will be required for audit reports issued on or after June 30, 2017.

    Form AP

    The filing deadline for Form AP will be 35 days after the date the auditor’s report is first included in a document filed with the SEC, with a shorter filing deadline of 10 days for initial public offerings.

    The filing of Form AP is required the first time an audit report is included in a document filed with the SEC. Subsequent inclusion of precisely the same audit report in other documents filed with the SEC does not give rise to a requirement to file another Form AP. Conversely, any changes to the auditor’s report, including if it is dual-dated, requires a new Form AP even when no information on the form, other than the date of the report, changes.

    Continued in article

    Jensen Comment
    This is probably a tempest in a tea pot. Audit firms have been naming engagement partners for years in Europe. Has anybody noticed?

    Bob Jensen's threads on professionalism in audits ---
    http://faculty.trinity.edu/rjensen/Fraud001c.htm


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 18, 2015

    Financial Gifts for the Kids These Holidays...Or a Present for the IRS?
    by: Laura Saunders
    Dec 12, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Individual Taxation

    SUMMARY: Congress enacted the kiddie tax in 1986 to prevent people from putting assets in their children's names to reap tax savings, as children often have far lower tax rates than their parents. Under its rules, a child's "unearned" investment income, such as dividends, interest, and capital gains above a certain amount - $2,100 in 2015 - is taxed at the parents' top rate. So if the parents' dividends are taxable at 23.8%, the child's dividends are as well, even if the child's rate would otherwise be 0%. Originally the kiddie tax applied to children under age 14. Over time lawmakers have expanded it to cover virtually all children under 18 and many who are older, including full-time students up to age 24 if they can be claimed as dependents on a parent's return.

    CLASSROOM APPLICATION: This is a good discussion of the "kiddie tax" for use in an individual income tax class.

    QUESTIONS: 
    1. (Introductory) What is the kiddie tax? When was it enacted? What is the premise of the rule?

    2. (Advanced) How have the kiddie tax rules changed since enactment? Why was it changed?

    3. (Advanced) How can parents minimize the kiddie tax? What tax planning ideas could you share with clients?

    Reviewed By: Linda Christiansen, Indiana University Southeast

     "Financial Gifts for the Kids These Holidays...Or a Present for the IRS?" by Laura Saunders, The Wall Street Journal, December 22, 2015 ---
    http://www.wsj.com/articles/financial-gifts-for-the-kids-these-holidays-or-a-present-for-the-irs-1449829803?mod=djem_jiewr_AC_domainid

    With the holidays here and year-end in sight, it is a good time to think about the “kiddie tax,” Uncle Sam’s extra levy on investment income earned by people up to 24 years old. For those making financial gifts to children and grandchildren, these rules present both perils and planning opportunities.

    Congress enacted the kiddie tax in 1986 to prevent people from putting assets in their children’s names to reap tax savings, as children often have far lower tax rates than their parents. Under its rules, a child’s “unearned” investment income, such as dividends, interest, and capital gains above a certain amount—$2,100 in 2015—is taxed at the parents’ top rate. So if the parents’ dividends are taxable at 23.8%, the child’s dividends are as well, even if the child’s rate would otherwise be 0%.

    Originally the kiddie tax applied to children under age 14. Over time lawmakers have expanded it to cover virtually all children under 18 and many who are older, including full-time students up to age 24 if they can be claimed as dependents on a parent’s return. For more details on who’s affected, see the instructions for IRS Form 8615.

    This levy isn’t just on the very wealthy, says Mark Nash, a partner with PricewaterhouseCoopers LLP in Dallas: “Folks doing tax returns see it all the time.” In 2013, the latest year for which data are available, more than 333,000 tax returns owed the tax, totaling about $1 billion.

    To avoid pitfalls and maximize the exemptions, here’s what to know.

    (1) The kiddie tax doesn’t affect a child’s “earned” income, such as wages from a job. In addition, it generally doesn’t apply to a child’s investment income if the child provides more than half his or her own support. But note that the latter test is a tough one to meet, and the Internal Revenue Service is alert to abuses.

    (2) Under the rules, the first $1,050 of a child’s investment income is effectively exempt from income tax, says Troy Lewis, a certified public accountant who heads Lewis & Associates in Draper, Utah. The next $1,050 of investment income is taxed at the child’s rate, which is often very low or even zero. That $2,100 limit can go a long way in current markets, as it is roughly what $100,000 invested in either the S&P 500 or a 10-year Treasury security would produce in annual income.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 18, 2015

    SEC to Consider Letting U.S. Companies Use Global Accounting Rules as Add-On
    by: Michael Rapoport
    Dec 10, 2015
    Click here to view the full article on WSJ.com

    TOPICS: GAAP, IFRS, SEC

    SUMMARY: A recommendation to allow U.S. companies to use international accounting rules as an add-on to their main financial statements has "the potential to be a useful next step" in considering how the U.S. should approach the global rules, Securities and Exchange Commission Chairwoman Mary Jo White said. The U.S. has stuck with its own rules-known as U.S. generally accepted accounting principles, or GAAP-because of concerns over the costs and implementation of a switch. There is little or no support among U.S. companies for a wholesale changeover.

    CLASSROOM APPLICATION: This update regarding use of IFRS in the U.S. can be used in a financial accounting class.

    QUESTIONS: 
    1. (Introductory) What is IFRS? Who uses it? What is GAAP? Who uses it?

    2. (Advanced) How do IFRS and GAAP differ? Which does the U.S. use? Why does the U.S. use it?

    3. (Advanced) What did the SEC's chief accountant recommend regarding U.S. accounting rules? Is this recommendation significant? How could U.S. financial statements change? Would the change in U.S. accounting rules be minor or substantial?

    4. (Advanced) What is the current outlook for changes in the accounting rules in U.S.? Are the rules expected to change in the near future? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Top SEC Accountant Urges Supplemental Use of Global Rules for U.S. Companies
    by Michael Rapoport
    Nov 18, 2015
    Online Exclusive

    QUESTIONS: 
    1. (Introductory) What is IFRS? Who uses it? What is GAAP? Who uses it?

    2. (Advanced) How do IFRS and GAAP differ? Which does the U.S. use? Why does the U.S. use it?

    3. (Advanced) What did the SEC's chief accountant recommend regarding U.S. accounting rules? Is this recommendation significant? How could U.S. financial statements change? Would the change in U.S. accounting rules be minor or substantial?

    4. (Advanced) What is the current outlook for changes in the accounting rules in U.S.? Are the rules expected to change in the near future? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Top SEC Accountant Urges Supplemental Use of Global Rules for U.S. Companies
    by Michael Rapoport
    Nov 18, 2015
    Online Exclusive

    QUESTIONS: 
    1. (Introductory) What is IFRS? Who uses it? What is GAAP? Who uses it?

    2. (Advanced) How do IFRS and GAAP differ? Which does the U.S. use? Why does the U.S. use it?

    3. (Advanced) What did the SEC's chief accountant recommend regarding U.S. accounting rules? Is this recommendation significant? How could U.S. financial statements change? Would the change in U.S. accounting rules be minor or substantial?

    4. (Advanced) What is the current outlook for changes in the accounting rules in U.S.? Are the rules expected to change in the near future? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    U.S. Companies May Gain Ability to Reconcile to IFRS Accounting
    by Emily Chasan
    May 07, 2015
    Online Exclusive

    "SEC to Consider Letting U.S. Companies Use Global Accounting Rules as Add-On," by Michael Rapoport, The Wall Street Journal, December 10, 2015 ---
    http://www.wsj.com/articles/sec-to-consider-letting-u-s-companies-use-global-accounting-rules-as-add-on-1449673126?mod=djem_jiewr_AC_domainid

    A recommendation to allow U.S. companies to use international accounting rules as an add-on to their main financial statements has “the potential to be a useful next step” in considering how the U.S. should approach the global rules, Securities and Exchange Commission Chairwoman Mary Jo White said Wednesday.

    Speaking at an accounting conference in Washington, Ms. White said the SEC and its staff will be discussing the recommendation by James Schnurr, the SEC’s chief accountant, “so that we can determine the path forward.” She didn’t give a timetable for when the commission might reach a decision on the issue.

    If the SEC implements Mr. Schnurr’s recommendation, U.S. companies could provide financial data calculated using the global rules, which differ in some respects from U.S. rules, to supplement the main financial statements they provide. Those financial statements would continue to be calculated under current U.S. rules.

    Mr. Schnurr said last month that he had made the recommendation to Ms. White. The proposal is a middle-ground approach between a full U.S. adoption of the global rules—known as International Financial Reporting Standards, or IFRS—and no U.S. use of them. Accounting-industry leaders and international rule makers have long urged the U.S. to adopt IFRS, now in use in more than 100 countries.

    But the U.S. has stuck with its own rules—known as U.S. generally accepted accounting principles, or GAAP—because of concerns over the costs and implementation of a switch. Mr. Schnurr has said there is little or no support among U.S. companies for a wholesale changeover.

    In other matters, Ms. White also expressed concern about companies’ use of their own tailored financial measures that make their earnings look better by stripping out a variety of expenses.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 18, 2015

    U.S. Corporations Increasingly Adjust to Mind the GAAP
    by: Theo Francis and Kate Linebaugh
    Dec 15, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Ebitda, Financial Reporting, GAAP, Regulation G

    SUMMARY: Hundreds of U.S. companies are trumpeting adjusted net income, adjusted sales and "adjusted EBITDA." These adjusted measures paint a rosier picture of corporate earnings. About one in 10 major securities filings this year used the term adjusted EBITDA-or adjusted earnings before interest, taxes, depreciation and amortization-up from one in 40 a decade ago. About a quarter of earnings-related filings this year included figures that don't comply with generally accepted accounting principles, or GAAP, as well as more standard measures.

    CLASSROOM APPLICATION: This article addresses the issue of companies using non-GAAP measures in their financial reporting in attempt to better explain their situation could be confusing users of the financial information. It includes discussions of "adjusted EBITDA" and Regulation G.

    QUESTIONS: 
    1. (Introductory) What is a non-GAAP measure? Why do companies use them?

    2. (Advanced) What is adjusted EBITDA? How is it calculated? What value does it offer to investors and other users of the financial statements? What potential problems or confusion could it cause?

    3. (Advanced) What is Regulation G? Why was it created? What is its purpose? How does it address non-GAAP reporting?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Non-GAAP Numbers May Confuse Investors: SEC Chair
    by Richard Teitelbaum
    Dec 09, 2015
    Online Exclusive

    "U.S. Corporations Increasingly Adjust to Mind the GAAP," by Theo Francis and Kate Linebaugh, The Wall Street Journal, December 15, 2015 ---
    http://www.wsj.com/articles/u-s-corporations-increasingly-adjust-to-mind-the-gaap-1450142921?mod=djem_jiewr_AC_domainid

    A financial obfuscation of the dot-com era is making a comeback: Hundreds of U.S. companies are trumpeting adjusted net income, adjusted sales and “adjusted Ebitda.”

    These adjusted measures paint a rosier picture of corporate earnings. Without them, third-quarter earnings per share fell 13% for the biggest U.S. companies, according to Deutsche Bank research, instead of falling 0.1% with them.

    About one in 10 major securities filings this year used the term adjusted Ebidta—or adjusted earnings before interest, taxes, depreciation and amortization—up from one in 40 a decade ago. About a quarter of earnings-related filings this year included figures that don’t comply with generally accepted accounting principles, or GAAP, as well as more standard measures, according to a Wall Street Journal analysis of 10-K, 10-Q and 8-K filings.

    The terms now crop up in quarterly earnings releases and securities filings for companies as varied as Grape-Nuts-maker Post Holdings Inc., chemical company Dow Chemical Co. , wireless operator AT&T Inc. and hamburger chain Wendy’s Co.

    United Technologies Corp. last week was the latest big company to embrace adjusted earnings measures. By adhering to accounting rules, “we’re actually confusing people more than we were helping people understand what’s going on in the business,” said CEO Greg Hayes. “This is a simplification and really allows the investors to more easily understand what the businesses are doing.”

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on December 18, 2015

    Boards Face Recruiting Challenges
    by: Richard Teitelbaum and Kimberly S. Johnson
    Dec 15, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Audit Committees, Auditing, Corporate Governance, Sarbanes Oxley

    SUMMARY: As the responsibilities of audit committees continue to mount, boards may be finding it more challenging to find candidates with the talent, skills and time to fulfill the increasingly critical role. Since the implementation of the Sarbanes-Oxley Act in 2002, audit committees have taken on more responsibility, including for such issues as whistle-blowing, legal compliance, and cybersecurity.

    CLASSROOM APPLICATION: This is an excellent article to use in auditing and financial accounting classes when covering the function of an audit committee.

    QUESTIONS: 
    1. (Introductory) What is an audit committee? What is its area of responsibility? Why is the work of audit committees important?

    2. (Advanced) What challenges are boards facing regarding audit committees? What are the reasons for those challenges?

    3. (Advanced) How could the challenges be alleviated? Could the job be changed or adjusted? How could supply of viable candidates be increased?

    4. (Advanced) What is Sarbanes-Oxley? How does it affect the work of and challenges surrounding audit committees?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Boards Face Recruiting Challenges," by Richard Teitelbaum and Kimberly S. Johnson, The Wall Street Journal, December 15, 2015 ---
    http://www.wsj.com/articles/boards-face-recruiting-challenges-1450148436?mod=djem_jiewr_AC_domainid

    As the responsibilities of audit committees continue to mount, boards may be finding it more challenging to find candidates with the talent, skills and time to fulfill the increasingly critical role.

    Since the implementation of the Sarbanes-Oxley Act in 2002, audit committees have taken on more responsibility, including for such issues as whistle-blowing, legal compliance, and cybersecurity. “We wind up loading almost everything onto the audit committee,” said Jeffrey Sonnenfeld, a management professor at the Yale School of Management. This is helping to make it more difficult to find qualified candidates for audit committees.

    A spotlight was thrown on the subject last Wednesday when Securities and Exchange Commission chairwoman Mary Jo White gave a keynote address at the American Institute of CPAs in Washington, D.C., in which she spoke about the increased complexity of the audit committee members’ responsibilities.

    “Just meeting the technical requirements of financial literacy may not be enough to fully understand the financial reporting requirements or to challenge senior management on major, complex decisions,” she said. “I have growing concerns about the amount of work required of some audit committees.”

    “It’s becoming increasingly difficult,” said Robert Swieringa, professor emeritus of accounting at Cornell University’s Johnson Graduate School of Management. “Boards are using search firms to find them.”

    The supply of qualified individuals has shrunk, he added, as the requirements for the job have grown apace. Since audit committee workloads have risen, candidates are increasingly loathe to commit to serving on multiple boards as they have in the past.

    Being an audit committee member has become less attractive because of increased responsibilities and legal risks associated with the position, said Robert Willens, president of an accounting and tax consulting firm of the same name.

    “I think tThere is a relatively shallow pool of qualified individuals from which to select audit committee candidates,” he said. “The more demanding the job becomes and the more risky the job is perceived to be, the more difficult it will become to entice qualified candidates to perform this important function.”

    The difficulty in finding qualified audit committee candidates could have a salutary effect, if it encourages boards to think outside the box. Too often boards look for bold faced names, such as retired chief executive officers or chief financial officers.

    “There is a vast sea of people if they get beyond the usual suspects,” Mr. Sonnenfeld said. “Many times on boards, the people who ask the best questions are the ones who are not experts.”

    If boards are being forced to look beyond the more obvious prospective candidates, that could bring greater diversity. “I believe in diversification, diverse backgrounds and skill sets as well as gender and ethnicities,” said Barbara Hackman Franklin, founder of Barbara Franklin Enterprises, a Washington, D.C., consulting firm and a former U.S. Commerce Secretary under George H.W. Bush who has served on six audit committees, including Aetna Inc. and Dow Chemical Co. She believes there are sufficient numbers of qualified people to serve on audit committees, but it may take efforts to find them. “It may take a search firm to find them,” she said.

    As it stands, the usual suspects make up a big percentage of audit committee directors. According to James Drury III, head of executive search firm JamesDrury Partners, chief financial officers and accountants made up 29% of audit committee memberships in 2013, the latest year for which numbers are available. But the figures are rising.

    According to Ernst & Young LLP’s Center for Board Matters, there is an average of three “officially designated financial experts” on large company boards today. That is up from 2.7 in 2012.

    Continued in article

     




    Humor for December 2015

    Dave Barry’s 2015 Year in Review --- http://www.miamiherald.com/living/liv-columns-blogs/dave-barry/article51119880.html
    Not quite as good as the old Dave Barry

    The 7 worst 'Shark Tank' pitches of 2015 ---
    http://www.businessinsider.com/the-worst-shark-tank-pitches-of-2015-2015-12

    The Ultimate Guide To Winning Your White Elephant Gift Exchange Using Game Theory ---    
    http://fivethirtyeight.com/features/white-elephant-yankee-swap-game-theory/

    Casablanca’s Hilarious Alternative Final Scene Featuring Saturday Night Live’s Kate McKinnon: Pragmatism Carries the Day!
    http://www.openculture.com/2015/12/casablancas-hilarious-alternative-final-scene.html

    Buster Keaton: The Wonderful Gags of the Founding Father of Visual Comedy ---
    http://www.openculture.com/2015/11/buster-keaton-the-wonderful-gags-of-the-founding-father-of-visual-comedy.html

    Dad Jokes
    https://www.facebook.com/Postize/photos/pcb.1020015178030536/1020014358030618/?type=3
    Thank you Jason Hardin for the heads up.

    Steve Martin Writes a Hymn for Hymn-Less Atheists ---
    http://www.openculture.com/2015/12/steve-martin-writes-a-hymn-for-hymn-less-atheists.html

    Read the CIA’s Simple Sabotage Field Manual: A Timeless, Kafkaesque Guide to Subverting Any Organization with “Purposeful Stupidity” (1944) ---
    http://www.openculture.com/2015/12/simple-sabotage-field-manual.html


    Forwarded by Paula

    A new business was opening, and one of the owner’s friends sent flowers for the occasion. But when the owner read the card with the flowers, it said “Rest in Peace”.

    The owner was a little upset and called the florist to complain. After he had told the florist about the obvious mistake, the florist said, “Sir, I’m really sorry for the mistake, but rather than getting angry, you should imagine this: Somewhere there is a funeral taking place today, and they have flowers with a note saying, “Congratulations on your new location.”


    CHRISTMAS WITH LOUISE
    Written by Jeff Foxworthy - 1996

    As a joke, my brother used to hang a pair of panty hose over his fireplace before Christmas. He said all he wanted was for Santa to fill them. What they say about Santa checking the list twice must be true because every Christmas morning, although Jay's kids' stockings were overflowed, his poor pantyhose hung sadly empty. 
    One year I decided to make his dream come true. I put on sunglasses and went in search of an inflatable love doll. They don't sell those things at Walmart. I had to go to an adult bookstore downtown. 

    If you've never been in an X-rated store, don't go. 

    You'll only confuse yourself. I was there an hour saying things like, "What does this do? You're kidding me! Who would buy that?" Finally, I made it to the inflatable doll section. I wanted to buy a standard, uncomplicated doll that could also substitute as a passenger in my truck so I could use the car pool lane during rush hour. Finding what I wanted was difficult. Love Dolls come in many different models. The top of the line, according to the side of the box, could do things I'd only seen in a book on animal husbandry. I settled for Lovable Louise. She was at the bottom of the price scale. To call Louise a doll took a huge leap of imagination. 
    On Christmas Eve and with the help of an old bicycle pump, Louise came to life. My sister-in-law was in on the plan and let me in during the wee morning hours. Long after Santa had come and gone, I filled the dangling pantyhose with Louise's pliant legs and bottom. I also ate some cookies and drank what remained of a glass of milk on a nearby tray. I went home, and giggled for a couple of hours. 

    The next morning my brother called to say that Santa had been to his house and left a present that had made him VERY happy but had left the dog confused. She would bark, start to walk away, then come back and bark some more. 

    We all agreed that Louise should remain in her panty hose so the rest of the family could admire her when they came over for the traditional Christmas dinner. 
    My grandmother noticed Louise the moment she walked in the door. "What the hell is that?" she asked. 
    My brother quickly explained, "It's a doll."

    "Who would play with something like that?" Granny snapped. 

    I had several candidates in mind, but kept my mouth shut. 
    "Where are her clothes?" Granny continued. 

    "Boy, that turkey sure smells nice Gran" Jay said, to steer her into the dining room. 
    But Granny was relentless. "Why doesn't she have any teeth?" 

    Again, I could have answered, but why would I? It was Christmas and no one wanted to ride in the back of the ambulance saying, "Hang on Granny, hang on!" 
    My grandfather, a delightful old man with poor eyesight, sidled up to me and said, "Hey, who's the naked gal by the fireplace?" 
    I told him she was Jay's friend. A few minutes later I noticed Grandpa by the mantel, talking to Louise. Not just talking, but actually flirting. It was then that we realized this might be Grandpa's last Christmas at home. 

    The dinner went well. We made the usual small talk about who had died, who was dying, and who should be killed, when suddenly Louise made a noise like my father in the bathroom in the morning. Then she lurched from the panty hose, flew around the room twice, and fell in a heap in front of the sofa. The cat screamed. I passed cranberry sauce through my nose, and Grandpa ran across the room, fell to his knees, and began administering mouth-to-mouth resuscitation. My brother fell back over his chair and wet his pants. Granny threw down her napkin, stomped out of the room, and sat in the car. 

    It was indeed a Christmas to treasure and remember. 
    Later in my brother's garage, we conducted a thorough examination to decide the cause of Louise's collapse. We discovered that Louise had suffered from a hot ember to the back of her right thigh. Fortunately, thanks to a wonder drug called duct tape, we restored her to perfect health!


    An awful one forwarded by Paula

    A tourist in Vienna is going through a graveyard when, all of a sudden, he hears music. No one is around, so he starts searching for the source.

    He finally locates the origin and finds it is coming from a grave with a headstone that reads: "Ludwig van Beethoven, 1770- 1827".

    Then he realizes that the music is Beethoven's Ninth Symphony and it is being played backwards!

    Puzzled, he leaves the graveyard and persuades a friend to return with him.

    By the time they arrive back at the grave, the music has changed. This time, it is the Seventh Symphony, but like the previous piece, it is being played backwards.

    Curious, the men agree to consult a music scholar. When they return with the expert, the Fifth Symphony is playing, again backwards.

    The expert notices that the symphonies are being played in the reverse order in which they were composed . . . the 9th, then the 7th, then the 5th.

    By the next day the word style="font-size: 12.0pt; font-family: 'Times New Roman',serif; color: black"> --- http://faculty.trinity.edu/rjensen/book15q1.htm#Humor022815

    Humor January 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q1.htm#Humor013115

     

     

    http://faculty.trinity.edu/rjensen/book10Q1_files/image001.jpg

     




    And that's the way it was on December 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/

     

     

     


     

     

    November 30, 2015

     

    Bob Jensen's New Bookmarks for November 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




    History Corner
    History of the DuPont ROI Formula

    "DONALDSON BROWN (1885-1965): THE POWER OF AN INDIVIDUAL AND HIS IDEAS OVER TIME
    http://umiss.lib.olemiss.edu:82/articles/1038724.7471/1.PDF
    Scroll down to Page 79

    Authors

    Dale L. Flesher UNIVERSITY OF MISSISSIPPI
    Gary John Previts CASE WESTERN RESERVE UNIVERSITY

    Abstract

    Donaldson Brown developed the expanded Return on Investment (ROI) measure, or DuPont formula, in l914. However ROI was not Brown’s only contribution to financial management. His dealer ten-day reporting system was widely and rapidly adopted throughout the auto industry. His ideas to support a variety of forecasting and planning techniques supported decentralized corporate management and his pricing processes were cutting-edge developments that others tried to emulate. Flexible budgeting at General Motors, frequently unrecognized, also was in place during his financial administration in the early l920s. ROI remains Brown’s most prominent contribution and the technique achieved status as a dominant approach to financial management in industrial corporations by the l950s. As a national standard-ofperformance measure, it was supported by varying sources including the American Management Association as well as in the teaching materials of academics, especially Robert N. Anthony of the Harvard Business School. The impact of these forms of dissemination led to ROI being adopted eventually at the Ford Motor Company when its previously autocratic centralized style of Ford family management was replaced by a team known as the Whiz Kids, led by Harvard Business School alumnus Robert McNamara and a former GM vice president, Earnest Breech. This paper asserts the significance of the innovations developed by Brown as being among the most important of those initiated in 20th century corporate America, and thus among the most important in the development of 20th century accounting and financial management thought.

    Jensen Comment
    I really liked the following "classic" article by Selling and Stickney:
    A New Approach," by T.I. Selling and C.P.  Stickney, Accounting Horizons, December 1990, pp. 9-17. 

    "Goldman Sachs Explains The 'Return On Equity' Formula That Every CFA Test Taker Needs To Know," by Sam Ro, Business Insider, May 26, 2014 ---
     http://www.businessinsider.com/cfa-dupont-roe-model-2014-5

    For investors, one of the most important metrics of a company is return on equity (ROE), which can be calculated by taking net income and dividing it by equity.

    "The decision to expand into the market of a competitor and seek additional return is not a decision driven by the expected profit margin, the expected return relative to the anticipated quantity of sales," said Jesse Livermore, the pseudonymous author of the Philosophical Economics blog. "Rather, it’s a decision driven instead by the expected ROE, the expected return relative to the amount of capital that will have to be invested, put at risk, in order to earn it."

    Unfortunately, ROE alone doesn't tell you much about a company's operating or capital structure. That's why analysts decompose the ROE into multiple components, including a measure of profit margin (see article).

    The Chartered Financial Analyst (CFA) exam, which will be administered on June 7, is among the advanced Wall Street exams that tests test-takers on at least two decompositions of ROE.  The more complicated one is the DuPont model. Goldman Sachs' Stuart Kaiser recently included the formula for reference in an April 2 note sent out to its clients.

    [Exhibit not shown here]

    Continued in article

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


    Accounting History Corner
    Digital Accounting Collection at Ole Miss. --- http://umiss.lib.olemiss.edu:82/

    Accounting Historians Notebook --- http://www.olemiss.edu/depts/general_library/dac/files/ahn.html

    Syllabus
    The University of Mississippi Patterson School of Accountancy
    ACCOUNTANCY 607 ACCOUNTING RESEARCH SEMINAR Fall, 2012
    Dr. Dale L. Flesher
     

    TEXTBOOKS:
    Writing the Doctoral Dissertation, by Davis and Parker.
    A History of Accounting in the USA, by Previts & Merino

    Jensen Comment


    Question
    Does anybody else see the irony of this article on Day 911 of the IRS Scandal --- I mean the number 911 that is the universal emergency help phone number in the USA?

    "The IRS Scandal, Day 911," by Paul Caron, TaxProf Blog, November 6, 2015 ---
    http://taxprof.typepad.com/taxprof_blog/2015/11/the-irs-scandal-day-911.html

    Washington Post op-ed:  The Supreme Court’s Opportunity to Tackle Sinister Trends, by George Will:

    The IRS scandal the denial of essential tax-exempt status to conservative advocacy groups, thereby effectively suppressing the groups’ activities — demonstrates this: When government is empowered to regulate advocacy, it will be tempted to suppress some of it. And sometimes government will think like Oscar Wilde: “The only way to get rid of temptation is to yield to it.”

    These truths should be on the Supreme Court’s nine fine minds on Friday when they consider whether to hear a challenge to a lower court’s decision that disregards some clear Supreme Court pronouncements pertaining to the First Amendment. The amendment says there shall be no laws abridging freedom of speech, but various governments are persistently trying to regulate, and perhaps chill, advocacy. The most recent wrinkle in this disreputable project comes from California.

    Continued in article


    The BBA, unique in Australia, is specifically designed for Aboriginal and Torres Strait Islander professionals wishing to gain a degree qualification to maximise their career options.
    Applications open for new business degree for Indigenous students
    http://www.uts.edu.au/about/uts-business-school/news/applications-open-new-business-degree-indigenous-students


    CORRECT THE SYNTAX ERRORS
    "How to debug Excel spreadsheets," Rayman Meservy and Marshall Romney, Journal of Accountancy, November 1, 2015 ---
    http://www.journalofaccountancy.com/issues/2015/nov/how-to-debug-excel-spreadsheets.html


    The average federal employee earned $84,153 in 2014—roughly 50% more than the average worker in the private economy

    How to Mislead With Statistics
    From a Wall Street Journal newsletter on November 20, 2015

    Mac Zimmerman cites a Cato Institute report showing that “the average federal employee earned $84,153 in 2014—roughly 50% more than the average worker in the private economy. When you include benefits like health care and pensions nearly 80% higher than everyone else.

    The Editorial --- http://www.wsj.com/articles/the-sweet-gig-of-being-a-bureaucrat-1447978181?mod=djemMER&alg=y

    Jensen Comment
    Comparisons like this should contrast differences in public sector versus private sector distributions of income. Relative to the public sector the private sector has a much larger standard deviation in a distribution that is not at all normal (think of the millions of minimum wage workers in contrast to a much smaller number of overpaid corporate executives). The public sector nearly always pays more than minimum wage but even the USA President Obama's salary is paltry compared to the highly paid corporate CEOs with all sorts of side deals like bonus plans and stock options.

    In comparison to the public sector, many private sector employees are on potentially lucrative pay-for-performance plans such as performance commissions and bonuses.  And there are usually more overtime opportunities in the public sector.

    Anecdotally, most graduates from accounting masters degree programs are seeking to pass the CPA examination and make a career in the private sector. There must be a reason. A few might seek to become glamorous pistol-packing FBI agents but most of the relatively small number of graduates looking for public sector jobs (like joining the IRS as a staff accountant) do so because they were passed over by the private sector.  Many of those in the public sector like those who become IRS agents are seeking opportunities to break into higher paying jobs in the private sector.

    A huge lure of the private sector is the possibility (however remote) of rising to compensation levels well above opportunities for above-average compensation in the public sector.

     


    Dutch Treats Aren't What They Used to Be
    http://neurope.eu/article/the-european-commission-steps-up-campaign-against-double-dutch-tax-avoidance/

    Dutch media reported on Monday that the European Commission is probing Dutch government deals with several multinational companies including Apple, Starbucks, Pfizer, GlaxoSmithKline, Microsoft, and Kraft Foods.

    The Commission has already proclaimed the deal with Starbucks an illegal state subsidy, ordering the Dutch government to claim back an estimated €30 million. On Wednesday, October 21s, commissioner Margrethe Vestager specified that deals designed to encourage tax avoidance were illegal, including that made between the Netherlands and Starbucks. The Dutch government was “surprised” by the ruling.

    Continued in article


    Laffer Curve --- https://en.wikipedia.org/wiki/Laffer_curve

    Between 1979 and 2002, more than 40 other countries, including the United Kingdom, Belgium, Denmark, Finland, France, Germany, Norway, and Sweden cut their top rates of personal income tax. In an article about this, Alan Reynolds, a senior fellow with the right-libertarian think tank Cato Institute, wrote, "Why did so many other countries so dramatically reduce marginal tax rates? Perhaps they were influenced by new economic analysis and evidence from... supply-side economics. But the sheer force of example may well have been more persuasive. Political authorities saw that other national governments fared better by having tax collectors claim a medium share of a rapidly growing economy (a low marginal tax) rather than trying to extract a large share of a stagnant economy (a high average tax)."[38]

    Japanese government raised the sales tax in 1997 for the purpose of balancing its budget, but the government revenue decreased by 4.5 trillion yen because consumption stumbled. The country recorded a GDP growth rate of 3 percent in 1996, but after the tax hike the economy sank into recession (although this was also the time period of the 1997 Asian Financial Crisis.)[39] The tax revenue reached a peak of 53 trillion yen in FY 1997, and declined in subsequent years, being still 42 trillion yen[40] (537 billion US dollars) in 2012.

    Continued in article

    "Israel, the Laffer Curve, and Market-Based Reform," by Daniel J. Mitchell, Townhall, November 17, 2015 ---
    http://finance.townhall.com/columnists/danieljmitchell/2015/11/17/israel-the-laffer-curve-and-marketbased-reform-n2081727

    Since I’m a big fan of the Laffer Curve, I’m always interested in real-world examples showing good results when governments reduce marginal tax rates on productive activity.

    Heck, I’m equally interested in real-world results when governments do the wrong thing and increase tax burdens on work, saving, investment, and entrepreneurship (and, sadly,these examples are more common).

    My goal, to be sure, isn’t to maximize revenue for politicians. Instead, I prefer the growth-maximizing point on the Laffer Curve.

    In any event, my modest hope is that politicians will learn that higher tax rates lead to less taxable income. Whether taxable income falls by a lot or a little obviously depends on the specific circumstance. But in either case, I want policy makers to understand that there are negative economic effects.

    Writing for Forbes, Jeremy Scott of Tax Notes analyzes the supply-side policies of Israel’s Benjamin Netanyahu

    Netanyahu…argued that the Laffer curve worked, and that his 2003 tax cuts had transformed Israel into a market economy and an engine of growth. …He pushed through controversial reforms… The top individual tax rate was cut from 64 percent to 44 percent, while corporate taxes were slashed from 36 percent to 18 percent. …Netanyahu credits these reforms for making Israel’s high-tech boom of the last few years possible. …tax receipts did rise after Netanyahu’s tax cuts. In fact, they were sharply higher in 2007 than in 2003, before falling for several years because of the global recession. …His tax cuts did pay for themselves. And he has transformed Israel into more of a market economy…In fact, the prime minister recently announced plans for more cuts to taxes, this time to the VAT and corporate levies.

    Pretty impressive.

    Though I have to say that rising revenues doesn’t necessarily mean that the tax cuts were completely self-financing. To answer that question, you have to know what would have happened in the absence of the tax cut. And since that information never will be available, all we can do is speculate.

    That being said, I have no doubt there was a strong Laffer Curve response in Israel. Simply stated, dropping the top tax rate on personal income by 20 percentage points creates a much more conducive environment for investment and entrepreneurship.

    And cutting the corporate tax rate in half is also a sure-fire recipe for improved investment and job creation.

    Continued in article

    Jensen Comment
    Note that there's likely to be a relatively long lag between tax cuts and increases in tax revenues even in circumstances that are likely to have a Laffer Curve impact. For example, Bill Clinton allegedly was able to balance the budget due to lags in the Regain tax cuts.

    The circumstances were not decent for the George W. Bush tax cuts because he was the most spendthrift president in USA history. Tax cuts do not necessarily have a Laffer Curve impact when spending is significantly increased alongside the tax cuts. The George W. Bush veto pen was still full of ink at the end of his term of office as President of the USA.

    The circumstances of Laffer Curve impact are also not good if the economy is heading for a deep recession. Too many other variables come into play, especially global variables.

    The Miracle of Chile --- https://en.wikipedia.org/wiki/Miracle_of_Chile


    Major IRS Policy Change
    "Tax ID theft victims may obtain copies of fraudulent returns," by Paul Bonner, Journal of Accountancy, November 12, 2015 --- 
    http://www.journalofaccountancy.com/news/2015/nov/tax-id-theft-victims-may-obtain-bogus-returns-201513385.html#sthash.Sp4xnRjI.dpuf

    The IRS posted instructions on its website for taxpayers or their CPA or other authorized representative to obtain copies of returns filed by thieves using the taxpayers’ stolen identification. The new procedures represent a change of policy for the Service, which previously had refused to release fraudulent returns due to privacy concerns. Acknowledging that taxpayers victimized by stolen identification tax refund fraud may have a compelling concern to determine just what information about them was stolen and how it was used, the IRS said it will provide copies of fraudulent returns for the current tax year and up to six previous tax years. However, requests for the returns must meet strict requirements, and certain information will be redacted from the copies provided. Also, the IRS must have resolved the underlying identity theft case before it will provide a copy of any affected return. For now, only individual returns in the 1040 series may be requested. -

    See more at:
    http://www.journalofaccountancy.com/news/2015/nov/tax-id-theft-victims-may-obtain-bogus-returns-201513385.html#sthash.Sp4xnRjI.dpuf

    Instructions ---
    https://www.irs.gov/Individuals/Instructions-for-Requesting-Copy-of-Fraudulent-Returns


    From the CPA Newsletter on November 18, 2015

    How to find talent when accounting graduates are in short supply
    The ongoing shortage of accounting graduates in Australia is creating opportunities for job candidates with nontraditional backgrounds to join the profession.
    InTheBlack ---
    http://intheblack.com/articles/2015/11/05/the-diversity-challenge-in-todays-accounting-practices

    The answer is not to hire a job-hopping kangaroo!


    "U of Montana Will Cut 201 Positions,"  Inside Higher Ed, November 18, 2015 ---
    https://www.insidehighered.com/quicktakes/2015/11/18/u-montana-will-cut-201-positions?utm_source=Inside+Higher+Ed&utm_campaign=9f5b680bec-DNU20151118&utm_medium=email&utm_term=0_1fcbc04421-9f5b680bec-197565045
    Not in accounting! The faculty cuts are mostly in liberal arts programs with declining numbers of majors.

    Jensen Comment
    Rolling Stone labeled the university the "most scenic campus in America." One drawback as far as state flagship universities are concerned, this university has never been rated very high by Princeton Review as a flagship party school. In my days of dreaming of skiing and horse wrangling I seriously considered an offer to be on the faculty of this university. If I had accepted the offer I probably would never have left Missoula.


    Pension Benefit Guaranty Corporation (PBGC) --- https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation

    If this  shortfall is happening in relatively good economic times, think of the deficits in an economic crash!
    The deficit for the single-employer program rose 25% this year to $24.1 billion, and the deficit for the multiemployer program climbed 23% this year to reach $52.3 billion.

    PBGC deficits rise in fiscal year 2015, annual report says ---
    http://www.pionline.com/article/20151117/ONLINE/151119879/pbgc-deficits-rise-in-fiscal-year-2015-annual-report-says

    Is this just another big government program cash pinata?


    'CPA Pleads Guilty in Accounting Fraud Scheme," by Michael Cohn, Accounting Today, November 20, 2015 ---
    http://www.accountingtoday.com/news/audit-accounting/cpa-pleads-guilty-in-accounting-fraud-scheme-76480-1.html

    A partner at a New York CPA firm has pleaded guilty to participating in a multimillion-dollar accounting fraud scheme.

    Marc Wieselthier, 57, a shareholder of Curcio, Wieselthier & Cohen CPAs, pleaded guilty Wednesday to participating in a scheme to obtain millions of dollars in loans by making false statements and providing false and fraudulent documents to two unidentified commercial banks in New York concerning the financial condition of an unidentified Florida-based cosmetics company that was one of Wieselthier’s clients. 

    Wieselthier, a licensed CPA in Plainview, N.Y., has been a partner at the firm since 2009. The cosmetics company and its CEO were clients of Wieselthier, who performed, among other things, year-end audits of financial statements for the company.

    Continued in article

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


    CNBC:  Is this the end of the E.U.?
    http://www.cnbc.com/2015/11/17/this-is-what-will-kill-the-eu.html

    The direct cause is actually an extremely divisive and growing dispute about open borders, immigration, and refugee resettlement. But that conflict just became a lot more serious thanks to the horrific ISIS terrorist attacks in Paris Friday night. Now, this discussion has grown and migrated, (pun intended), from a political debate among E.U. elites to the #1 pressing issue on the streets of Europe. When relatively smaller economic nations like Hungary began closing their borders to migrants and Syrian refugees last month, it could be written off as perhaps an isolated incident. But all bets are off now that France is closing its borders in response to the attacks, even if it is just temporarily. That's because in so doing, President Francois Hollande has unambiguously connected the border issue with the effort to fight the spread of terror. It's so obvious that even the most politically uninterested person can see what it means. And just in case the message still isn't entirely clear to everyone, one of the major stories in Europe today is about how the alleged mastermind of the Paris attacks, Abdelhamid Abaaoud, boasted in videos about how easily he crisscrossed the borders of the E.U. for years.

    Continued in article

    Jensen Comment
    It might be time to think about accounting and business scenarios if there is a breakup.

    For example, how will this affect the IASB that depends heavily upon EU revenue for its operations? In fact the heart, soul, and leadership if the IASB historically has been in the EU.

    What will be the impact on accounting standards? Will some nations unhappy with IFRS go their own way?


    KPMG's 2015 PCAOB Inspection Report Is Out and It's Not Good ---
    http://goingconcern.com/post/kpmgs-pcaob-inspection-report-out-and-its-not-good

    The 28 deficient audits were out of 52 KPMG audits and partial audits reviewed by the Public Company Accounting Oversight Board in its annual inspection report issued Tuesday, for a deficiency rate of 54%. That is up from a year ago, when PCAOB inspectors found 23 deficient audits out of 50 reviewed, for a rate of 46%.

    Continued in article

    KPMG's 2014 PCAOB Inspection Report Is Out and It's Not Good
    Teaching Case from The Wall Street Journal Weekly Accounting Review on October 31, 2014

    KPMG Audits Had 46% Deficiency Rate in PCAOB Inspection

    by: Michael Rapoport
    Oct 24, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Accounting Firms, Auditing, Deficiencies, PCAOB

    SUMMARY: The 23 deficient audits the Public Company Accounting Oversight Board found in its 2013 inspection of the firm, were out of 50 audits or partial audits conducted by KPMG that the PCAOB evaluated - a deficiency rate of 46%. In the previous year's inspection, the PCAOB found deficiencies in 17 of 50 KPMG audits inspected, or 34%. The report spotlights the PCAOB's continuing concerns about audit quality. Overall, 39% of audits inspected in the latest evaluations of the Big Four firms - KPMG, PricewaterhouseCoopers LLP, Deloitte & Touche LLP and Ernst & Young LLP - were found to have deficiencies, compared with 37% the previous year.

    CLASSROOM APPLICATION: This is useful for an auditing class to present recent results of PCAOB inspections.

    QUESTIONS: 
    1. (Introductory) What is the PCAOB? What is its function?

    2. (Advanced) What are the "Big Four" accounting firms? What are the results of the annual inspections of the Big Four accounting firms? Did one firm perform better than others?

    3. (Advanced) What is the purpose of these inspections? What do the inspectors do? What is a deficiency? What do the firms do with the inspection results?

    4. (Advanced) What happens once these results are determined? Are the financial statements changed as a result of these inspections? Are the firms sanctioned?

    5. (Advanced) The article notes that the PCAOB has made public what was previously secret criticism of the firms. Why were those previous results secret? Should this information be secret? Why or why not?

    6. (Advanced) Should these results impact the reputations of the Big Four firms? Why or why not? How should the firms handle these public revelations?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast
     

    RELATED ARTICLES: 
    Inspection Finds Defects in 19 PricewaterhouseCoopers Audits
    by Michael Rapoport
    Jun 30, 2014
    Online Exclusive

    Regulator Finds Deficiencies in 15 Deloitte & Touche Audits
    by Michael Rapoport
    Jun 02, 2014
    Online Exclusive

    Ernst & Young 2013 Audit Deficiency Rate 49%, Regulators Say
    by Michael Rapoport
    Aug 28, 2014
    Online Exclusive

    "KPMG Audits Had 46% Deficiency Rate in PCAOB Inspection," Michael Rapoport, The Wall Street Journal, October 24, 2014 ---
    http://online.wsj.com/articles/kpmg-audits-had-46-deficiency-rate-in-pcaob-inspection-1414093002?mod=djem_jiewr_AC_domainid

    Audit regulators found deficiencies in 23 of the KPMG LLP audits they evaluated in their latest annual inspection of the Big Four accounting firm’s work.

    The 23 deficient audits the Public Company Accounting Oversight Board found in its 2013 inspection of the firm, released Thursday, were out of 50 audits or partial audits conducted by KPMG that the PCAOB evaluated—a deficiency rate of 46%. In the previous year’s inspection, the PCAOB found deficiencies in 17 of 50 KPMG audits inspected, or 34%.

    In a statement responding to the PCAOB inspection, KPMG said, “We are always mindful of our responsibility to the capital markets, and we are committed to continually improving our firm and to working constructively with the PCAOB to improve audit quality.”

    The 23 deficiencies were significant enough that it appeared KPMG hadn’t obtained sufficient evidence to support its audit opinions that a company’s financial statements were accurate or that it had effective internal controls, the PCAOB said. A deficiency in the audit doesn’t mean a company’s financial statements were wrong, however, or that the problems found haven’t since been addressed.

    Still, the report spotlights the PCAOB’s continuing concerns about audit quality. Overall, 39% of audits inspected in the latest evaluations of the Big Four firms—KPMG, PricewaterhouseCoopers LLP, Deloitte & Touche LLP and Ernst & Young LLP—were found to have deficiencies, compared with 37% the previous year.

    In addition, all of the Big Four have now seen the PCAOB make public some of its previously secret criticisms of the firms. Separately from the latest report, the PCAOB on Thursday unsealed previously confidential criticisms of KPMG’s quality controls it had made in 2011 and 2012, mirroring previous moves the board had made with regard to PwC, E&Y and Deloitte. The unsealing amounts to a public rebuke to KPMG for not acting quickly enough to fix quality-control problems, in the regulator’s view.

    In the unsealed passages, the board said some of the firm’s personnel had failed to sufficiently evaluate “contrary evidence” that seemed to contradict its audit conclusions.

    In the latest inspection report, among the areas in which the PCAOB found audit deficiencies at KPMG were failure to sufficiently test companies’ loan-loss reserves, testing of companies’ valuations of hard-to-value securities, and audits of certain kinds of derivatives transactions.

    The PCAOB didn’t identify the clients involved in the deficient audits, in accordance with its usual practice.

    PCAOB inspectors evaluate a sample of audits every year at each of the major accounting firms—focused on those the board believes are at highest risk for problems. Because of that focus, the PCAOB says the inspection results may not reflect how frequently a firm’s overall audit work is deficient. The inspections are intended only to evaluate the firms’ performance and highlight areas for potential improvement, so the firms aren’t subject to any penalties.

    Only part of the inspection reports typically becomes public. A separate portion, with the PCAOB’s criticisms of the firm’s quality controls, is kept confidential to give the firm an opportunity to address any concerns. If the firm does so, that portion of the report stays sealed permanently.

    If the firm doesn’t do enough to satisfy the PCAOB within a year, however, the board makes the concerns public. Again, though, the unsealing doesn’t carry any formal penalties for the firms.

     

    Bob Jensen's threads on the "Two Faces" of KPMG ---
    http://faculty.trinity.edu/rjensen/Fraud001.htm

    Jensen Comment
    I keep recalling the 1990s when KPMG Executive Partner and AICPA President Bob Elliott more than any other accountant made a public pitch that the big accounting firms could expand their services beyond auditing (remember Elder Care and SysTrust) because the auditing profession more than any other profession had a reputation for competence, quality, and integrity. The Big Four firms, especially KPMG, have nearly destroyed that reputation.
    http://faculty.trinity.edu/rjensen/Fraud001.htm

    Maybe audit quality really hasn't declined so much. Instead it may be that no regulatory agencies really investigated audit firm quality controls before the PCAOB was created. In the good old days audit quality was mostly regulated by separate professional boards in the 50 states. For example, the New York Society of CPAs only suspended the licenses for auditors convicted of drunk driving. The same state agency that regulated audit firms in Florida also regulated funeral parlors and para psychologists.

     

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

    . . .

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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


    Question
    What is an "earnings add-back?" and why should this concept be included in advanced accounting and financial statement analysis courses?

    "The Accounting Technique Valeant Used to Help It Buy Company After Company," by Tracy Alloway, Bloomberg, November 5, 2015 ---
    http://www.bloomberg.com/news/articles/2015-11-05/the-accounting-technique-valeant-used-to-help-it-buy-company-after-company

    “In Valeant, a financialized age has produced a financialized pharma company,” Jim Grant, legendary contrarian investor, wrote in March of last year. More than a year later, the wider markets are only just beginning to unpick the complicated underpinnings behind Valeant’s stunning run.

    As the assumptions bolstering Valeant’s growth story quickly unravel, attention has turned to the company’s deviation from standardized accounting measures known as generally accepted accounting principles, or GAAP. Writing for the New York Times over the weekend, Gretchen Morgenson is the latest in a long line to underscore controversies in Valeant’s accounting methods.

    The flattery of Valeant’s bottom line arguably helped it do two things essential to its growth: borrow billions of dollars from bond markets at a lower cost, and continue the acquisition spree that lay at the heart of its business model.

    Nowhere was this dynamic more pronounced than in the pharmaceutical giant’s use of earnings adjustments known as add-backs. And while Morgenson rightly focuses on certain expenses Valeant has subtracted from earnings, it’s also worth looking at the items the drugmaker has added back.

    Such add-backs allow companies to include expected savings or extra revenue in their adjusted, or pro forma, earnings numbers. They are often deployed before transformational M&A deals, and Valeant has, to put it mildly, had a few of those. As others have pointed out, accounting conventions assume that big deals are a rare occurrence; in Valeant’s case they were the norm.

    When Valeant agreed to buy Bausch & Lomb for $8.7 billion in 2013, for instance, it estimated that add-backs and synergies would increase its adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, from $2.035 billion to $2.468 billion. The $433 million boost to earnings had the effect of dampening Valeant’s leverage, or indebtedness, to 4.6 times earnings, according to Standard & Poor’s LCD unit.

    That was crucial, since Valeant’s lenders had placed a limit on its debt load of 5.25 times earnings. “Valeant has some room to issue additional debt now; the current incurrence tests allow for up to 2.5 times senior secured debt and 5.25 times total, but that’s not sufficient for the large fundraising contemplated here without being able to lump in Bausch’s cash flow,” LCD reported at the time.

    Continued in article


    The Sarbanes-Oxley Act greatly increased to cost of auditing internal controls in the private sector.
    No such luck in the public sector.

    GAO: IRS Lacks Adequate Internal Controls ---
    http://taxprof.typepad.com/taxprof_blog/2015/11/gao-irs-lacks-adequate-internal-controls.html


    Question
    What does the scholarly magazine called The Economist claim is the top career choice on average in terms of salaries ten years down the road?

    Answer
    http://www.businessinsider.com/highest-salaries-10-years-after-entering-college-2015-10

    Jensen Comment
    Personally I'm still in favor of accounting for a career choice because of the varied opportunities down the road. Entry-level jobs with great training and experience are readily available. The reason I prefer accounting is that there are so many varied career tracks in public accounting, business, and government. Also accounting is one of the best tracks toward top management and highest paying professorships ---
    http://faculty.trinity.edu/rjensen/bookbob1.htm#careers
    There is such a dire shortage of accounting professors, accounting Ph.D. programs are free in terms of tuition, living expenses, and other perks.

    Of course the world needs more of a lot of specialists including teachers, doctors, nurses, many types of scientists, engineers, etc. There are usually advantages and disadvantages to any type of career.

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


    For a list of job boards for accountants see http://maaw.info/AccountingJobBoards.htm


    The Updated COSO Internal Control Framework:  Frequently Asked Questions, Third Edition
    http://www.protiviti.com/en-US/Documents/Resource-Guides/Updated-COSO-Internal-Control-Framework-FAQs-Third-Edition-Protiviti.pdf


    "Jury Says Ernst & Young Liable for Madoff Investor’s Losses:  E&Y found negligent in role as auditor for feeder fund," by Jacquiline Palank, The Wall Street Journal, November 13, 2015 ---
    http://www.wsj.com/articles/jury-says-ernst-young-liable-for-madoff-investors-losses-1447453162?alg=y#livefyre-comment 
    Thank you Tom Selling for the heads up.

    Reply from Bob Jensen on November 15, 2015
    Hi Tom,

    What I find somewhat worrisome in the article is the following quotation from EY:

    EY was not the auditor of any Madoff entity; we were among the many auditors of funds that chose to use Madoff as their investment adviser. While we regret the investors’ losses, no audit of a Madoff-advised fund could have detected this Ponzi scheme,” Ernst & Young’s Amy Call Well said in an email.

    This settlement could be a point at which an audit firm ceases to be an audit fir firm and commences to be a financial guarantee insurance company.

    The problem is that most insurance companies deal with risks estimated by actuarial science. Actuarial science is not much help in the area of financial forecasting --- largely because actuarial science is built upon stationary states.

    This raises questions about the extent to which an auditor must verify third party investment, insurance, and deposit quality. Consider a hypothetical example. When EY auditors receive a verification that their client does indeed have casualty insurance in the amount of $10 million from Every State Life and Casualty Company to what extent is the auditor responsible to verify the quality of that insurance beyond verifying that Every State is indeed licensed in every state to sell life and casualty insurance and the auditor's reading of the insurance contract terms? The auditors might even go a step further to determine that Every State was indeed audited by KPMG. But KPMG is not likely to share inside working paper information with EY regarding Every State.

    To what extent is EY liable above an beyond the KPMG audit report on the financial statements of Every State?

    My guess is that EY would not be liable to FutureSelect Portfolio Management Fund for its Madoff Losses had the Madoff Fund been properly audited. But the Madoff Fund was not audited by a NY-licensed auditor where the fund was headquartered. Perhaps EY is more liable in cases where EY relied on investment verification that was not properly audited.

    I am not an expert on the fine print of the rules of auditing and never taught auditing. To what extent are auditors liable to verify the quality of deposits in banks, receivables from third parties, insurance coverage, etc.? Years ago, when I was a lowly staff auditor in the Denver Office of EY, I can't recall that we went beyond verifying that the client's accounts existed in the correct balances reported by the client.

    This touches on something that always made me uneasy about test checking inventory. One of our Denver Office audit clients was a piston manufacturer in Pueblo, Colorado. When we showed up on Sunday mornings to count pistons we found two types of containers at the end of each production line. The company said one container had pistons that met quality control standards. The other container was for rejects. But as an auditor I could not tell any difference between a good piston and a bad piston. We simply took the client's word that those pistons it called satisfactory were indeed satisfactory, including the pistons that were boxed up and purportedly ready to ship to customers. Fortunately our client was more honest than a well known manufacturer of salad oil at the time.

    It would really be interesting to know how this  FutureSelect case would have been decided for EY if the Madoff Fund had been audited by KPMG.

    Thanks,
    Bob Jensen

    Bob Jensen's threads on Ernst & Young ---
    http://faculty.trinity.edu/rjensen/Fraud001.htm


    KPMG and Forbes:  Audit 2020: A Focus on Change. Forbes insights in association with KPMG
    MAAW's Blog, November 5, 2015 ---
    http://maaw.blogspot.com/2015/11/audit-2020.html

    PwC:  FASB proposes a new definition of a business ---
    http://www.pwc.com/us/en/cfodirect/assets/pdf/in-brief/us-2015-38-fasb-proposes-new-definition-of-a-business.pdf

    PwC:  FASB finalizes effective date for the proposed impairment standard ---
    http://www.pwc.com/us/en/cfodirect/publications/in-brief/financial-instruments-impairment-standard-effective-date.html

    PwC:  Structured payables— could they be debt? ---
    http://www.pwc.com/us/en/cfodirect/assets/pdf/in-the-loop/structured-payable-programs-cash-flows-debt.pdf

    PwC:  Classification and measurement of financial instruments effective date set ---
    http://www.pwc.com/us/en/cfodirect/assets/pdf/in-brief/us-2015-35-financial-instrument-classification-measurement-effective-date.pdf

    PwC:  Transition Resource Group (TRG) discussed four implementation issues related to the new revenue standard ---
    http://www.pwc.com/us/en/cfodirect/publications/in-transition/revenue-recognition-optional-purchases-licenses-606.html

    PwC: The evolution of auditors - How skillsets are changing ---
    http://www.pwc.com/us/en/cfodirect/publications/point-of-view/evolution-of-auditor-skills-technology-accounting.html

    PwC:  Leading from the front: Redesigning finance for the digital age ---
    http://www.pwc.com/us/en/cfodirect/issues/strategy-operations/pwc-digital-finance-paper.html


    EY:  Consolidation and the Variable Interest Model ---
    http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_BB3099_VariableInterestEntities_23November2015/$FILE/FinancialReportingDevelopments_BB3099_VariableInterestEntities_23November2015.pdf

    To our clients and other friends

    This Financial reporting developments publication is designed to help you navigate through the Variable Interest Model.

    The Variable Interest Model is complex, and knowing when and how to apply it can be challenging. Consolidation evaluations always begin with the Variable Interest Model, which applies to all legal entities, with certain limited exceptions.

    This publication also includes an appendix on applying the Voting Model.

    The Variable Interest Model has evolved over the years in response to the needs of users of financial statements. The existing model, established in 2009 in FAS 167, focuses on identifying the reporting entity with power to make the decisions that most significantly impact an entity’s economic performance. That power may be exercisable through equity interests or other means. It also requires determining whether the reporting entity with power has benefits, that is, the obligation to absorb losses or the right to receive benefits from the entity that potentially could be significant to the entity.

    In February 2015, the FASB issued Accounting Standard Update (ASU) 2015-02, Amendments to the Consolidation Analysis, which makes changes to both the Variable Interest Model and the Voting Model including the following:

    • The elimination of the deferral of FAS 167, which allowed reporting entities with interests in certain investment funds to follow the consolidation guidance in FIN 46(R)

    • The removal of certain criteria used in the determination of whether fees paid to a decision maker or service provider are a variable interest

    • In the determination of whether an entity is a VIE, the evaluation of power changed when determining whether, as a group, the holders of the equity investment at risk lack the characteristics of a controlling financial interest

    • In the identification of the primary beneficiary, a reporting entity that is determining whether it satisfies the benefits criterion will now exclude most fees that are both customary and commensurate

    • The “related party tie-breaker” test will be used in fewer circumstances

    • The elimination of the presumption in today’s Voting Model that a general partner controls a limited partnership (although a general partner may consolidate a limited partnership under the Variable Interest Model).

     We have updated this edition for ASU 2015-02 and provided further clarifications and enhancements to our interpretative guidance. These changes are summarized in Appendix I. We hope this publication will help you understand and apply the consolidation models in ASC 810, as amended by ASU 2015-02. We are also available to discuss any particular questions that you may have.

    EY: Our recommendations for changing Regulation S-X disclosures about entities other than the registrant ---
    http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0429_DisclosureEffectivenessS-X_20November2015/$FILE/TothePoint_CC0429_DisclosureEffectivenessS-X_20November2015.pdf

    What you need to know

    • The SEC is seeking feedback about how it can enhance the effectiveness of disclosures required by Regulation S-X about acquired businesses, equity method investees and subsidiary issuers and guarantors.

    • In our comment letter, we suggest ways for the SEC to simplify the requirements and streamline the disclosures a registrant is required to make about other entities.

    • We recommend that the SEC enhance pro forma financial information and streamline the requirements for audited financial statements of acquired businesses.

    • We also recommend that the SEC expand the use of summarized financial information about equity method investees and subsidiary issuers and guarantors to eliminate complexity and focus disclosures on material information.

    • The comment period ends 30 November 2015. We encourage others to submit comments and believe the SEC will accept and consider them after the comment period

    EY:  EITF Update for November 2015 ---
    http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB3087_13November2015/$FILE/EITFUpdate_BB3087_13November2015.pdf

    EY:  SEC adopts crowdfunding rules ---
    http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0428_Crowdfunding_5November2015/$FILE/TothePoint_CC0428_Crowdfunding_5November2015.pdf

    What you need to know

    • The SEC adopted rules that will allow private companies to raise equity capital using crowdfunding.

    • The rules, which were mandated by the Jumpstart Our Business Startups Act, limit both the size of these offerings and the value of securities each investor can purchase. • The rules also require issuers to make certain disclosures and sell their securities through intermediaries that must register with the SEC.

    • The rules will be effective 180 days after they are published in the Federal Register.

    Continued in article


    From the CPA Newsletter on November 19, 2015

    US ranks 14th in world for financial literacy
    http://www.forbes.com/forbes/welcome/
    The US ranked 14th in a survey of global financial literacy that was conducted in more than 140 countries. The researchers asked multiple-choice questions about topics such as interest and diversification. Only 57% of Americans received a passing grade. Find the AICPA's financial education resources at 360financialliteracy.org. Forbes (11/18)

    Bob Jensen's personal finance helpers ---
    http://faculty.trinity.edu/rjensen/bookbob1.htm#InvestmentHelpers


    Despite an increase in revenue of $1.1 billion, the U.S. Postal Service reported a net loss of $5.1 billion for Fiscal Year 2015, which ended on September 30th. [...] ... "[C]ontrollable expenses" also increased $1.3 billion, from $66.4 billion in FY2014 to $67.7 billion in FY2015. That included a 21 million increase in workhours, even though total mail volume declined from 155.5 billion pieces in 2014 to 154.2 billion pieces in 2015. USPS explained that the increase in operating expenses "was the result of a combination of factors, including higher compensation costs attributable to increased benefits expenses and additional work...
    U.S. Postal Service Lost $5.1B in FY2015 --- http://www.cnsnews.com/news/article/barbara-hollingsworth/us-postal-service-loses-51b-fy2015-ends-9th-year-red


    When should universities discourage leaves of absence?

    Most universities discourage non-tenured faculty on tenure track from taking unpaid leaves, if they can afford to do so, since this almost certainly can become an advantage for added time to do research and get research journal publication hits relative to proletariat non-tenured peers who cannot afford to take the time off.

    The question I have is how to keep paid paternity and maternity leaves from creating the same unfairness relative to peers who do not get added time for publish or perish time deadlines?

    Of course the counter argument is that having children creates disadvantages in in the time-to-tenure deadlines.

    Any thoughts on this?
    Clearly it's not such an issue when leaves are short such as less than six months. However, leaves for 1-4 years are more controversial.

    In terms of game playing I know of one instance where the newly-minted Ph.D. just did not enter the job market until her children were school aged and her journal hits mounted up before entering the job market.

    The recent sex scandal of Stanford's business dean reveals that Stanford University has a policy that discourages tenured and untenured faculty for taking very long unpaid leaves. Presumably the reason is that it's too hard to keep a tenure slot open for a professor who is gone for a relatively long time (and may indeed not even return).

    Some universities like Harvard relax this policy when the leaves are for public service such as when Larry Summers became the top economic advisor to the president of the USA. In the Stanford incident mentioned above I think the woman's husband took extended leaves to work for a Silicon Valley company (Apple?) I think he now has a lawsuit pending against Stanford for firing him due to talking too many unpaid leaves (not because his wife had the extramarital liaisons with the dean during his absence from Stanford where she is still a business professor).

    What made me think about this is a link provided this morning by the Harvard Business Review Blog:
    "The Impact of Paternity Leave on Fathers' Future Earnings" ---
    http://www.researchgate.net/publication/258055635_The_Impact_of_Paternity_Leave_on_Fathers%27_Future_Earnings


    When First-Term Senator Orders Her Senior Senator Kneel and Roll Over
    Senator Warren trembles in fear that the US Tax Code might become more competitive than the corporate tax codes of Finland and the Rest of the EU

    "Elizabeth Warren’s Tax Warning:  She orders Democrats not to make the U.S. tax code more competitive," The Wall Street Journal, November 20, 2015 ---
    http://www.wsj.com/articles/elizabeth-warrens-tax-warning-1448061976?mod=djemMER

    Sen. Elizabeth Warren (D., Mass.) must be getting nervous about the chances of tax reform for U.S. businesses. On Wednesday she fired a shot across the bow of any Democrat tempted to consider lowering the highest corporate income-tax rate in the industrialized world. By “any” we mean Sen. Chuck Schumer. The New York Democrat has flirted with the idea of making the U.S. economy more competitive.

    Ms. Warren showed up at the National Press Club to pronounce that the idea that American companies are overtaxed is “not true.” In her prepared remarks she said the strategy of “giant corporations” is to “tell a story about high U.S. taxes, demand tax cuts from the U.S. Congress, and threaten to leave the U.S. for good if they don’t get what they want. I say it’s time to call their bluff.”

    Call their bluff? Their bluff has been called. They’ve shown their cards. And they’ve moved overseas. So many U.S. companies have been moving out so quickly that last year Treasury Secretary Jack Lew didn’t think he had time even to conduct a formal rule-making to stop them. So Treasury slapped together a quick and dubious reinterpretation of existing tax laws to try to bolt the door ahead of more corporate escapes.

    Continued in article

    Jensen Comment
    The term "moving overseas" is a bit misleading. Aren't profits earned in the USA subject to USA's corporate income tax? Exhibit A is Shell Oil; Exhibit B is British Petroleum. Profits parked outside the USA were earned outside the USA. Exhibit C is Starbucks; Exhibit D is Apple; Exhibit C is Microsoft. Foreign profits are parked where they're earned because the USA's corporate tax code is so much tougher than than of (gulp) Finland, Denmark, and the rest of the world.


    Bernie Sanders incorrectly calls Finland a socialist state ---
    https://en.wikipedia.org/wiki/Taxation_in_Finland

    Actually Finland is more of a capitalist nation that is easier on both its citizens and corporations in terms of taxes ---
    https://en.wikipedia.org/wiki/Taxation_in_Finland

    Comparing poverty in Finland and the USA ignores many things especially the almost non-existent flow of undocumented immigrants into Finland coupled with the absence of an underground economy that helps feed the poor in the USA to an estimated $2 trillion per year. Finland also does not have significant diversity issues that are a strength and a long-standing problem in the USA. The two economies are just not comparable due to diversity and immigration (legal and illegal) differences.

    Tertiary Education --- https://en.wikipedia.org/wiki/Tertiary_education

    Tertiary education, also referred to as third stage, third level, and post-secondary education, is the educational level following the completion of a school providing a secondary education. The World Bank, for example, defines tertiary education as including universities as well as institutions that teach specific capacities of higher learning such as colleges, technical training institutes, community colleges, nursing schools, research laboratories, centers of excellence, and distance learning centers.[1] Higher education is taken to include undergraduate and postgraduate education, while vocational education and training beyond secondary education is known as further education in the United Kingdom, or continuing education in the United States.

    Tertiary education generally culminates in the receipt of certificates, diplomas, or academic degrees.

     

    Finland has an outstanding education, but a fewer proportion of its citizens have tertiary degrees relative to the USA, Canada, and Japan --- 
    https://en.wikipedia.org/wiki/Finland#Education_and_science

    In tertiary education, two mostly separate and non-interoperating sectors are found: the profession-oriented polytechnics and the research-oriented universities. Education is free and living expenses are to a large extent financed by the government through student benefits. There are 20 universities and 30 polytechnics in the country. Helsinki University is ranked 75th in the Top University Ranking of 2010.[138] The World Economic Forum ranks Finland's tertiary education No. 1 in the world.[139] Around 33% of residents have a tertiary degree, similar to Nordics and more than in most other OECD countries except Canada (44%), United States (38%) and Japan (37%).[140] The proportion of foreign students is 3% of all tertiary enrollments, one of the lowest in OECD, while in advanced programs it is 7.3%, still below OECD average 16.5%.[141]

    Conclusions
    Bernie Sanders just does not know how to define socialism and makes biased political but not academic comparisons. All the Nordic nations can put more of their tax revenues into social benefits in large measure because they have minimal budgets for military services and have not become a world policing force like the USA with its gigantic navy and air force.

     


    Run these up the flag pole
    Ten management-speak phrases we love to hate ---
    https://www.icas.com/ca-today-news/ten-management-speak-phrases-we-love-to-hate

  • 1. Touching base

    A recent study found that “touching base” is one of the most overused pieces of office jargon. It means you want to make contact with someone or meet up, as in: “I just wanted to touch base with you so we can discuss that proposal."

    2. Look under the bonnet

    This example of office speak is used to communicate the need to uncover facts or find out more information. Used in sentences such as, “It could be a great funding opportunity, so let’s look under the bonnet and see what we discover”. It’s a close cousin of: “We need to peel back the onion."

    3. Don’t let the grass grow too long

    Used to politely tell people to work faster, get on with things, or take advantage of an opportunity. An example might be: “We’d better not let the grass too long on that project.”

    4. Low hanging fruit

    Meaning to take the easy or ‘quick wins’ at work. “Grabbing the low hanging fruit” is about doing the simple stuff first. While this can be all well and good, it’s important not to forget about the more complicated things, too.

    5. Idea shower

    The new term for having a brainstorming session and sharing ideas, but it is likely to get a few raised eyebrows if actually used in your morning catch-up.

    6. Eating your own dogfood

    Office speak that means to try something out that you have made yourself, such as using your own product to test it before you sell it. “We should be eating our own dogfood before we launch in September.”

    7. Solutionise

    ‘Solutionise’ is business-speak for solving problems, as in: “Let’s solutionise this problem over lunch.” Although it is a word, it actually refers to the heating of metal to form a homogeneous solid solution. We recommend you substitute this jargon for the perfectly adequate word “solve”.

    8. Give it to me in big handfuls

    Used to ask for a high-level summary of information, rather than the details, as in: “I don’t need to know the specifics, just give it to me in big handfuls.”

    9. Paradigm shift

    An overused phrase used to describe a change in business operations, such as: “Our business is going through a paradigm shift.” A word of caution with this one, as it has the potential to sound like you don’t really know what’s going on or what the future holds for your business.

    10. Run it up the flagpole

    This one means to try something out and see what the result is. As in, “Why don’t you run it up the flagpole and see what happens?” Similar to this lovely example of office jargon: “Put a record on and see who dances.”

    Jensen Comment
    These aren't so bad as the ones we use in the Academy that only small subsets of faculty and students can define.
    For example, "accountics scientists are in a cargo cult."
    The trouble is that most academics and nearly all the people in the world don't know what constitutes a "cargo cult."
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#CargoCult

    Web English Teacher: AP & IB Resources (literature and writing) --- http://www.webenglishteacher.com/ap.html

    Bob Jensen's helpers for writers are at http://faculty.trinity.edu/rjensen/Bookbob3.htm#Dictionaries

     


    "Over half of psychology studies fail reproducibility test." "Study delivers bleak verdict on validity of psychology experiment results." "Psychology is a discipline in crisis."
    "How to Fix Psychology’s Replication Crisis," by Brian D. Earp and Jim A.C. Everett, Chronicle of Higher Education, October 25, 2015 ---
    http://chronicle.com/article/How-to-Fix-Psychology-s/233857?cid=at&utm_source=at&utm_medium=en&elq=ffdd5e32cd6c4add86ab025b68705a00&elqCampaignId=1697&elqaid=6688&elqat=1&elqTrackId=ffd568b276aa4a30804c90824e34b8d9

    These and other similar headlines followed the results of a large-scale initiative called the Reproducibility Project, recently published in Science magazine, which appeared to show that a majority of findings from a sample of 100 psychology studies did not hold up when independent labs attempted to replicate them. (A similar initiative is underway in cancer biology and other fields: Challenges with replication are not unique to psychology.)

    Headlines tend to run a little hot. So the media’s dramatic response to the Science paper was not entirely surprising given the way these stories typically go. As it stands, though, it is not at all clear what these replications mean. What the experiments actually yielded in most cases was a different statistical value or a smaller effect-size estimate compared with the original studies, rather than positive evidence against the existence of the underlying phenomenon.

    This is an important distinction. Although it would be nice if it were otherwise, the data points we collect in psychology don’t just hold up signs saying, "there’s an effect here" or "there isn’t one." Instead, we have to make inferences based on statistical estimates, and we should expect those estimates to vary over time. In the typical scenario, an initial estimate turns out to be on the high end (that’s why it ends up getting published in the first place — it looks impressive), and then subsequent estimates are a bit more down to earth.

    . . .

    To make the point a slightly different way: While it is in everyone’s interest that high-quality, direct replications of key studies in the field are conducted (so that we can know what degree of confidence to place in previous findings), it is not typically in any particular researcher’s interest to spend her time conducting such replications.

    As Huw Green, a Ph.D. student at the City University of New York, recently put it, the "real crisis in psychology isn’t that studies don’t replicate, but that we usually don’t even try."

    What is needed is a "structural solution" — something that has the power to resolve collective-action problems like the one we’re describing. In simplest terms, if everyone is forced to cooperate (by some kind of regulation), then no single individual will be at a disadvantage compared to her peers for doing the right thing.

    There are lots of ways of pulling this off — and we don’t claim to have a perfect solution. But here is one idea. As we proposed in a recent paper, graduate students in psychology should be required to conduct, write up, and submit for publication a high-quality replication attempt of at least one key finding from the literature (ideally focusing on the area of their doctoral research), as a condition of receiving their Ph.D.s.

    Of course, editors would need to agree to publish these kinds of submissions, and fortunately there are a growing number — led by journals like PLoS ONE — that are willing to do just that.

    . . .

    Since our paper was featured several weeks ago in Nature, we’ve begun to get some constructive feedback. As one psychologist wrote to us in an email (paraphrased):

    Your proposed solution would only apply to some fields of psychology. It’s not a big deal to ask students to do cheap replication studies involving, say, pen-and-paper surveys — as is common in social psychology. But to replicate an experiment involving sensitive populations (babies, for instance, or people with clinical disorders) or fancy equipment like an fMRI machine, you would need a dedicated lab, a team of experimenters, and several months of hard work — not to mention the money to pay for all of this!

    That much is undoubtedly true. Expensive, time-consuming studies with hard-to-recruit participants would not be replicated very much if our proposal were taken up.

    But that is exactly the way things are now — so the problem would not be made any worse. On the other hand, there are literally thousands of studies that can be tested relatively cheaply, at a skill level commensurate with a graduate student’s training, which would benefit from being replicated. In other words, having students perform replications as part of their graduate work is very unlikely to make the problem of not having enough replications any worse, but it has great potential to help make it better.

    Beyond this, there is a pedagogical benefit. As Michael C. Frank and Rebecca Saxe have written: In their own courses, they have found "that replicating cutting-edge results is exciting and fun; it gives students the opportunity to make real scientific contributions (provided supervision is appropriate); and it provides object lessons about the scientific process, the importance of reporting standards, and the value of openness."

    At the end of the day, replication is indispensable. It is a key part of the scientific enterprise; it helps us determine how much confidence to place in published findings; and it will advance our knowledge in the long run.

    Continued in article

    Jensen Comments

    Accountics is the mathematical science of values.
    Charles Sprague [1887] as quoted by McMillan [1998, p. 1][NH1] 
    Accountics science publications are any publications that feature mathematics and/or statistical inference.

    In accountics science I'm not aware of a single exacting replication of the type discussed above of a published behavioral accounting research study. Whether those findings constitute "truth" really does not matter much because the practicing profession ignores accountics science behavior studies as irrelevant and academics are only interested in the research methodologies rather than the findings.

    For example, years ago the FASB engaged Tom Dyckman and Bob Jensen to work with the academic FASB member Bob Sprouse in evaluating research proposals to study (with FASB funding) the post hoc impact of FAS 13 on the practicing profession. In doing so the FASB said that both capital markets empiricism and analytical research papers were acceptable but that the FASB had no interest in behavioral studies. The implication was that behavioral studies were of little interest too the FASB for various reasons, the main reason is that the tasks in behavioral research were too artificial and removed from decision making in real-world settings.

    Interestingly both Tom and Bob had written doctoral theses that entailed behavioral experiments in artificial settings. Tom used students as subjects, and Bob used financial analysts doing, admittedly, artificial tasks. However, neither Dyckman nor Jensen had much interest in subsequently conducting behavioral experiments when they were professors. Of course in this FAS 13 engagement Dyckman and Jensen were only screening proposals submitted by other researchers.

    Accountics science research journals to my knowledge still will not publish replications of behavioral experiments that only replicate and do not extend the findings. Most like The Accounting Review, will not publish replications of any kind. Accountics scientists have never considered replication is indispensable at the end of the day.

    "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

    Bob Jensen's threads on the lack of replication in accountics science in general ---
    http://faculty.trinity.edu/rjensen/TheoryTar.htm


    From Quartz on October 29, 2015

    Deutsche Bank announced 29,000 job cuts and a $6.6 billion loss

      The German lender will also pull out from 10 countries and end 6,000 external contractor positions, after it posted a record €6-billion ($6.6-billion) third-quarter pre-tax loss. The loss was due to increased litigation and impairment charges; a 20% rise in bond trading revenue added a slight silver lining.  

    Jensen Comment
    This has not been a banner year for Germany. VW announced a $1 billion loss just for openers on its diesel engine scandal. This was followed by a $6.6 announced loss by Deutsche Bank, Then there are over a million new immigrants to shelter, feed, educate, train, and care for in the medical system.


    "Inside the Secretive World of Tax-Avoidance Experts," by Brooke Harrington, The Atlantic, October 26, 2015 ---
    http://www.theatlantic.com/business/archive/2015/10/elite-wealth-management/410842/

    A sociologist realized that if she were ever going to understand global inequality she would have to become one of the people who helps create it. So she trained to become a wealth manager to the ultra-rich.

    Shakespeare said that all the world’s a stage, but the sociologist Erving Goffman added that most of the interesting stuff lies behind the scenes, in what he called the “backstage” areas of everyday life.

    Having spent the past eight years doing research on the international wealth-management profession, I have to agree with Goffman: The most revealing information comes from the moments when people stop performing and go off-script. Like the time one of the wealth managers I interviewed in the British Virgin Islands lost his composure and threatened to have me thrown out of the country. His ire arose from an unexpected quarter: He took offense to my use of the term “socio-economic inequality” in the two scholarly articles I had published on the profession. I thought the articles were typically academic, which is to say, the opposite of sensationalizing and of little interest to anyone outside my field. But my suggestion that wealth managers might be connected to inequality in any way seemed alarmingly radical to this gentleman.

    I was lucky that he merely threatened me. A journalist from Newsweek actually was deported from a different tax-haven island (Jersey) for her reporting there, and was banned from re-entering the island, or any part of the U.K., for nearly two years. Even though her story was unrelated to the financial-services industry, it was expected to bring negative publicity to the island, threatening its reputation as a place to do business. The message was therefore quashed by banishment of the messenger. The wealth-management industry does not mess around.

    Wealth management is a profession on the defensive. Although many people have never heard of it, it is well known to both state revenue authorities and international agencies seeking to impose the rule of law on high-net-worth individuals. Those individuals—including the 103,000 people classified as “ultra-high-net-worth” based on having $30 million or more in investable assets—pay wealth-management professionals hefty fees to help them avoid taxes, debts, legal judgments, and other obligations the rest of the world considers part of everyday life. The general public doesn’t hear much about these professionals, since there are only a few of them worldwide (just under 20,000 belong to the main professional society) and they strive to keep a low profile, both for themselves and their clients.

    Continued in article

    "The Fake Fix for Disability Insurance," by Andy Koenig, The Wall Street Journal, November 11, 2015 ---
    http://www.wsj.com/articles/the-fake-fix-for-disability-insurance-1447285970?mod=djemMER&alg=y

    Judging by their rhetoric, you might think Republicans and Democrats have fixed Social Security. Describing the budget deal signed into law on Nov. 2, John Boehner said it secures “significant long-term savings from structural entitlement reform,” while President Obama lauded the agreement for reforming Social Security “in a responsible, balanced way.”

    None of this is true. The deal tweaks the soon-to-be-bankrupt Social Security Disability Insurance program—but only shaves off between 1% and 1.5% of the program’s long-term shortfall. All Congress really did was delay insolvency by siphoning money from the rest of Social Security. Put another way, lawmakers “solved” the problem by bailing out one failing program with money from another failing program.

    Created in 1956, Social Security Disability Insurance (SSDI) is supposed to provide monthly payments to workers with debilitating conditions. The repeated loosening of eligibility standards from the 1960s to the 1980s led to a rapid growth in SSDI’s participants and costs.

    Program rolls doubled between 1990 and 2008, growing another 18% during the Obama administration. More than 10 million Americans are now on SSDI. The number is certain to keep growing. But even now the American taxpayer can’t keep up. SSDI benefits cost a staggering $141.7 billion in 2014, up more than fivefold since 1990. Losing money for the past decade, SSDI was on track to mark its 60th birthday next year with bankruptcy.

    This crisis is what the budget deal purports to avoid. It laudably eliminates some loopholes and requires that disability reviews be conducted by medical professionals. However, the Congressional Budget Office estimates that the reforms will save $4.4 billion out of SSDI’s 10-year $340 billion projected shortfall.

    To cover up those structural problems, the budget deal transfers $117 billion from the Social Security Old Age and Survivors Insurance Trust Fund. This is a new twist on the government tradition of robbing Peter to pay Paul. It also hastens the retirement trust fund’s own insolvency, which was expected to happen in 2035.

    Lawmakers still need to reform the failing SSDI program. They should start with the administrative law judge system, where disability applicants seek to overturn earlier denials. According to recent research by Mark Warshawsky and Ross Marchand at the Mercatus Center, judges have issued wrongful decisions over the past decade that will cost taxpayers at least $72 billion.

    Continued in article

    Jensen Comment
    Disability insurance is probably the USA's largest government piñata, along with the Pentagon, for massive fraud originating between crooked claimants, crooked attorneys, and crooked physicians all working in conspiracy. In most instances claimants also get Medicare benefits sometimes decades ahead of the Medicare eligibility age of 65.

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



    Meaning of Net Income and Shareholders’ Equity (in Spanish)
    SSRN, October 22, 2015
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2676802

    Authors

    Pablo Fernandez University of Navarra - IESE Business School

    Isabel Fernández Acín University of Navarra

    Alberto Ortiz Pizarro University of Navarra, IESE Business School

    Abstract

    A version in Spanish of this document may be downloaded in: http://ssrn.com/abstract=2252485 

    The recent history of Madera Inc. makes us think about the meaning of shareholders´ equity and net income, and also about the impact of two different strategies on the cash flows and the financial statements of the company.

    10 issues that may change the net income in 2012 are presented. The reported net income for 2012 was $56 million, but it could have been $58.8 million higher or $112 million lower: net income for 2012 could have ranged between -$56 and $114,8 million.

    Similarly, the shareholders' equity reported in 2012 was $292 million, but could have ranged between $180 and $350.8 million.

    These accounting changes do not alter “cash and equivalents” nor the financial debt nor the cash flows of the company. It ends with the following questions: What is the net income? What is shareholders' equity? Do dividends come from the net income?

    Jensen Question
    Is there a materiality issue here?


    Commentaries on Big Data's Importance for Accounting and Auditing
    SSRN, October 25, 2015
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2679099
    Accounting Horizons, Vol. 29, No. 2, 2015

    Editors

    Paul A. Griffin University of California, Davis - Graduate School of Management

    Arnold Wright Northeastern University - Accounting Group

    Abstract

    The commentaries in this forum on Big Data confront one of our profession’s most pressing challenges. How should we respond to Big Data? Big Data and business analytics now permeate almost all aspects of major companies’ decision making and business strategies. A large U.S. company, for example, might process a billion data elements every day to understand its competitive environment. Moreover, by its very nature, Big Data cannot avoid running head-on into the traditional systems of accounting and auditing that have served our profession so well in the past. What are the threats and opportunities for accounting and auditing generated by this fundamentally different way of understanding information and reporting by business organizations? This issue presents eight commentaries by expert academics and business professionals who have studied and thought much about the core issues and challenges. Collectively, these commentaries not only define and frame the important issues for accounting and auditing but, also, they identify many feasible, yet difficult, pathways forward, wherein Big Data and traditional accounting and auditing might meld to better serve firms, stakeholders, and the public.


    Plenary Session Video:
    Building Bridges from the Academy to the Business Community
    Stanford University Professor Charles M. C. Lee
    American Accounting Association 2015 Annual Meetings
    http://commons.aaahq.org/posts/79da0665ee
    I suspect this video is available only to subscribers to the AAA Commons that is free only to members of the American Accounting Association

    Jensen Comment
    Actually this video is quite good about how academic accounting researchers should get closer to the real-world profession, a profession that he defines more broadly than the accounting profession. Much of the video is focused on the the profession of finance and its real world decision makers.

    The best quote in the video is a borrowed quote from Mark Wolfson.
    "Risky research is doing research that everybody else is doing."
    To this I might add "using tools, like some variation of regression research, that everybody else is using."|
    To this I might add is "using purchased databases that everybody else is doing." My limited study of this is that over 90% of the recent research in The Accounting Review entails using purchased databases that enable the accounting researcher to avoid having to creatively invent ways of collecting data. ---
    "A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsWorkingPaper450.06.pdf
     

    In his presentation Professor Lee shows a hilarious clip of accounting workers from the Broadway Play The Producers ---
    https://en.wikipedia.org/wiki/The_Producers_(musical)

    In the presentation reference is made to the book Escape from the Ivory Tower by Nancy Baron ---
    http://www.escapefromtheivorytower.com/

    One thing that Professor Lee failed to stress is that replication is a necessary condition for relevancy of scientific research findings. In the case of accountics science replication is such a rare event that we have to question the relevancy of nearly all the research findings ---
    http://faculty.trinity.edu/rjensen/TheoryTar.htm


    An Evaluation of the General vs. Specialist Nature of Top Accounting Journals
    SSRN, October 21, 2015
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2677443

    Authors

    Scott L. Summers Brigham Young University - School of Accountancy

    David A. Wood Brigham Young University - School of Accountancy

    Abstract

    Academic research has a role in advancing and enlightening society in broad areas of study. Many forces interact to influence the direction, topics, and methodologies used in research. In this paper, we explore and discuss the relationship between the “Top” general interest and specialist accounting journals. We test whether Top journals (e.g., Top 3 or Top 6), relative to a set of high quality but specialist journals, (1) are perceived to be general in what they will consider to publish, (2) have historically published a diverse set of articles, (3) have a diverse set of interests and skills on their editorial board, and (4) attract the most highly cited articles by topic area and methodology. The results suggest that some of the Top journals are not as general as their mission statements suggest and that the most highly cited articles in some topic areas and methodologies are not necessarily published in these Top journals. The results may help institutions consider whether “counting” only the Top journals is appropriate to judge their research and faculty. If they want to promote research in a broad range of accounting topics and issues in the profession, the results suggest that accepting articles in the Top journals alone will be problematic.

    Jensen Comment
    One of the myths about top academic accounting journals is that they are "too technical" for practitioners. This is so with respect to their many equations, mathematics, and statistical inferences. However, the accounting issues in those articles are often trivial and the outcomes of the research are of little, if any, interest to practitioners. Practitioners interested in technical accounting such as accounting for derivatives, real estate accounting, insurance accounting, foreign currency accounting, lease accounting, revenue accounting, etc. are almost certainly not going to eagerly await the next publication of TAR, JAE, or JAE.

    I experienced this years ago when I submitted two technical articles on SFAS 133 accounting to academic journals. The editors admittedly could not find any professors in their sets of referees who had the expertise to referee the papers. The editors flatly refused to even have the two papers refereed. A practitioner journal eventually refereed and published the papers.

    "The Application of SFAS 133, Paragraph 168 --- Using a Firm Commitment Hedged With a Forward Contract as an Example," (with Angela Huang), Derivatives Reports. 2005, See Case 3 at http://www.cs.trinity.edu/~rjensen/0000KPMG/ 

     ”Testing and Accounting for Hedge Ineffectiveness Under FAS 133, (with Angela L.J. Huang), Derivatives Report, February 2003, pp. 1-10. 
    http://www.riahome.com/estore/detail.asp?ID=TDVN

    In another instance I wrote a comment/amendment on a technical paper by Smith and Kohlbeck published in Issues in Accounting Education that had some errors. The IAE editor could not find any professors to referee the paper. He did send it out to two practitioners who recommended that my comment be published. However, the IAE editor, Kent St. Pierre, decided my comment/ammendment was too technical for an academic audience. He did, however, allow me to publish generous quotations of the of the original Smith and Kohlbeck article in my "amendment" published at my Website.

    Bob Jensen’s Amendment to the Teaching Note prepared by Smith and Kohlbeck for the following case:  “Accounting for Derivatives and Hedging Activities Comparisons of Cash Flow Versus Fair Value Accounting,” by Pamela A. Smith and Mark J. Kohlbeck
         Issues in Accounting Education, Volume 23, Number 1, February 2008, pp. 103-118
    Bob Jensen's Amendment is at http://faculty.trinity.edu/rjensen/CaseAmendment.htm

    My point is that the phrase "Specialist Nature of Top Accounting Journals" can be interpreted in various ways. There are academic journals that have "specialist nature" such as the AAA's Journal of Information Systems and the The Journal of the American Taxation Association. However, there are also hundreds of practitioner journals that sometimes have even more of a "specialist nature." See for example, the publications more of interest to practitioners that are mentioned at 
    https://tax.thomsonreuters.com/products/brands/checkpoint/ria-wgl/?ID=TDVN

    Also note where Ira Kawaller publishes his papers on derivatives risk strategies and accounting for derivatives. Ira teaches workshops for KPMG on accounting for derivatives and hedging activities, but his papers are too much of a "specialist nature" to appear in an academic journal. He writes for technical practitioners in accounting and finance ---
    http://kawaller.com/about/

    My criticism of the Summers and Wood SSRN paper is that these authors leave out the hundreds of what I would call truly "specialist" accounting journals that are mainly of interest to practitioners and are only occasionally (seldom?)  of interest to accounting students and faculty like me who mostly ignore those truly "specialist" journals.


    When cash is not a fungible item
    The last time I saw $2 bills was in the Navy. The Navy always paid us in cash even aboard our battleship (the USS Wisconsin). It was common in those days to have $2 bills alongside the piles of $1, $5, $10, and $20 bills. In those days each $2 bill was worth two $1 bills.
    Bob Jensen

    "Accounting class lesson on $2 bill leads to silver screen:  Fair-value accounting lesson at MIT has a starring role in upcoming documentary film," by Amy MacMillan Bankson, MIT Sloan School of Management October 28, 2015 ---
    http://news.mit.edu/2015/accounting-lesson-on-2-dollar-bill-leads-to-documentary-1028

    Typically, a student might answer — correctly — that the bill is worth $2. Noe will agree, but points out that his 1976 bill is nearly 40 years old.

    “By this time [in class], someone has looked it up on eBay, and will tell me that it’s worth about $8 as a collectible,” Noe says. “You can use the $2 value or the purported $8 value, but what’s more appropriate?”

    Jensen Comment
    It's probably a waste of time for auditors doing cash counts to have the added task of searching for most collectables. Usually the collectables like $2 bills and silver dollars will be filtered out long before the auditors do cash counts such as the pre-filtering done by knowledgeable bank tellers. The hardest thing to detect even for tellers are the rare coins such as those 1933 San Francisco-mint pennies. Searching every penny date and mint mark for this rare coin is wasted time even in a bank since the odds of finding one are less than epsilon.


    SEC ANNOUNCES ENFORCEMENT RESULTS FOR FY 2015 ---
    http://www.accountingeducation.com/index.cfm?page=newsdetails&id=153637

    The SEC has announced that in fiscal year 2015, it continued to build a strong record of first-of-their-kind cases that spanned the spectrum of the securities industry.

    In the fiscal year that ended in September, the SEC filed 807 enforcement actions covering a wide range of misconduct, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties. Of the 807 enforcement actions filed in fiscal year 2015, a record 507 were independent actions for violations of the federal securities laws and 300 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.

    In fiscal year 2014, the SEC filed 755 enforcement actions and obtained orders totaling $4.16 billion in disgorgement and penalties. Of the 755 enforcement actions filed in fiscal year 2014, 413 were independent actions for violations of the federal securities laws and 342 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.

    The agency’s first-of-their-kind cases included the first action involving: a private equity adviser for misallocating
    broken deal expenses; an underwriter for pricing-related fraud in the primary market for municipal securities; a “Big Three” credit rating agency; violations arising from a dark pool’s disclosure of order types to its subscribers; an FCPA action against a financial institution; an admissions settlement with an auditing firm; and an SEC rule prohibiting the use of confidentiality agreements to impede whistleblower communication with the SEC.

    “Vigorous and comprehensive enforcement protects investors and reassures them that our financial markets operate with integrity and transparency, and the Commission continues that enforcement approach by bringing innovative cases holding executives and companies accountable for their wrongdoing sending clear warnings to would-be violators,” said SEC Chair Mary Jo White. “The Enforcement Division’s leveraging of data, quantitative analytics and the expertise of our other divisions contributed significantly to this year’s very strong results.”

    “The Division’s hard work, tremendous energy, and efficiency uncovered significant misconduct during the past fiscal year, and helped bring a significant number of high-impact, first-of-their-kind actions,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division. “I continue to be proud of the Division’s record of accomplishments, and we have already continued to pave new ground in the new fiscal year.”

    Further details of the SEC enforcement actions are available in the
    press release.

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


    Secret IRS policy hides identity theft from victims ---
    http://www.wthr.com/story/30389540/secret-irs-policy-hides-identity-theft-from-victims-illegal-immigration

    Jensen Comment
    I agree. When I tried to file my 2014 tax return the IRS refused to accept it and indicated that my return had already been filed. However, out of fear I mailed in a paper copy of my return that had all the important 1099 forms attached. The IRS accepted this paper return and doubled my refund. Never once, however, did the IRS inform me that I was a victim of identity theft. Who knows for sure? I think an ID thief did steal my SS Number and IRS Pin in the big breach of 2013 Turbo Tax users who filed electronically via TurboTax in 2014.


    Misleading Statistics
    Top USA Business Schools That Are the Hardest to Get Into
     http://www.business2community.com/us-news/the-top-25-hardest-business-schools-to-get-into-rankings-01377924

    Jensen Comment
    Any rankings of schools based on acceptance rates among applicants are misleading
    without more detailed comparisons of applicants.

    For example, one obvious consideration is the pool of applicants between a very expensive program (Stanford) and an inexpensive program (Arizona State University). In fact the above article is now out of date since there is no data yet about the impact of the MBA program at Arizona State becoming tuition free. I suspect that ASU in the future will become the hardest MBA program in the world to get into based on its acceptance rate.

    There are other barriers to application that affect pools of applicants. One is living costs. Subsidized housing costs (such as affordable apartments for candidate families) may be limited, especially in some of the most expensive business programs and most expensive outside housing such as those business programs like Columbia, NYU, SMU, Harvard,  Babson, Bently, Stanford, Chicago, etc.
     

    Other barriers to application can be the spousal job market. Some business candidates will depend upon spousal income while in the business program. In some locales the job market is very good for most any spouse such as the job markets in New York City, Boston, Chicago, Dallas, Seattle, Phoenix, and Silicon Valley. The spousal job market is not so great in Hanover, Ithaca, Iowa City, East Lansing, Lincoln, etc.

    Other barriers to application are the job markets for business graduates. Some applicants will beg, borrow, and steal enormous amounts to get into the business programs like those of Harvard, Stanford, Chicago, Wharton, and Dartmouth having very high average salaries of business graduates. These top prospects may not even apply to business programs where the average salaries for business graduates are significantly lower.

    My point is that acceptance rate statistics based upon pools of applicants are misleading if those pools of applicants themselves differ greatly between programs.

    Make Your Own College Rankings ---
     http://chronicle.com/article/Make-Your-Own-College-Rankings/151473/?cid=inline-promo

    Bob Jensen's threads on ranking controversies in general are at
    http://faculty.trinity.edu/rjensen/HigherEdControversies.htm#BusinessSchoolRankings


    This is probably also true of some legal services, but we hope that medical clinics and hospitals are more consistent
    "Big Four Audit Quality Can Differ Widely- Even at the Same Firm," by Louis H. Ferguson, Marketwatch, November 17, 2015 ---
    http://www.marketwatch.com/story/big-four-audit-quality-can-differ-widely-even-at-the-same-firm-2015-11-17

  • Many investors around the world felt the economic losses associated with the accounting and auditing scandals 15 years ago at companies such as Enron, WorldCom and Adelphia. The fallout from these scandals included the failure of Arthur Andersen, one of the largest global accounting networks in the world. Some investors realized for the first time how much a bad audit could cost them.

    In response, the U.S. Congress created the Public Company Accounting Oversight Board to oversee the audits of all public companies trading on U.S. exchanges, whether those companies are domestic or foreign. A big part of our job at the PCAOB is inspecting the auditors of those companies.

    For global companies that make up most of the Dow Jones Industrial Average, S&P 500 and other indices, this can mean an audit is performed by many individual affiliates around the world in addition to the U.S.-based Big Four firm that signs the report.

    It would be a mistake to presume that an audit firm’s inspection results in the United States necessarily speak to the quality of its global network. There can be a real difference among audit deficiency findings for the firms in the United States and what we see at their affiliates around the globe.

    Sometimes even as we see inspection results improving at the U.S. firm, their affiliated firms around the world appear to be struggling, or vice versa.

    In my role as chair of the International Forum of Independent Audit Regulators (IFIAR), I oversaw the publication of three annual inspection reports on the compiled findings of IFIAR regulators in their national inspection regimes.

    It has been a very useful exercise to look at the aggregated information included in these reports and also a frustrating one. We find we have to put a lot of caveats around the information because members do not inspect the same audits of public companies or other issuers, or even audit firms, each year. Moreover, variations in members’ inspection methodologies and focus areas further complicate the comparability of the results.

    The survey is also a lagging indicator as it compiles the results of inspections of audits that were conducted as many as three years before the survey is published so it may not be a very accurate reflection of the state of the auditing profession at the current time.

    We caution each year when we publish the report that it is not really a good measure of year-over-year audit quality, at least not yet. But we do use the results to inform our thinking about which are the most common findings, and to confirm that rates of deficiencies are unacceptably high around the world.

    In my opinion, the PCAOB faces many similar challenges in drawing meaningful conclusions about its inspection findings year-over-year. Nonetheless, I believe the aggregated information is interesting and useful to review and consider.

    Further, I think investors and other stakeholders benefit from our efforts to be as transparent as possible about our work. That is why I want to present data on our inspections of the six largest network firms in the United States, and also for our inspections of those firms’ affiliates outside the United States.

    Continued in article

  • "An Analysis Of The 2012 Financial Performance Of The World’s Largest Accounting Firms," Big Four Blog, January 2013 ---
    http://www.big4.com/wp-content/uploads/2013/01/The-2012-Big-Four-Firms-Performance-Analysis.pdf

    EXECUTIVE SUMMARY

    Deloitte, Ernst & Young, KPMG and PwC: 2012 Revenues Increase to Historic Levels 2012 was a banner year for the Big Four accounting firms: Deloitte & Touche, Ernst & Young (E&Y), KPMG and PricewaterhouseCoopers (PwC) following strong growth in 2011, and erasing the impacts of subdued performance of 2009 and 2010. 2009 combined revenue for the four firms of $94 billion fell 7% from 2008’s record of $101 billion, but stabilized in 2010 as revenue increased 1.4% to $95 billion. 2011 revenue rose a further 9% to historic high levels of $103 billion, setting a new record.

    Another new record was set in 2012, with strong growth momentum in all service lines and geographies continuing from 2011, helped by emerging countries, improvements in global economic profiles and increased business deal activity. Combined 2012 revenue for the four firms rose to a record historic high level of $110 billion, up 6% from 2011. With all global economies, except those in Europe, showing continued growth in 2012, the Big Four firms had outstanding performance in 2012, with revenues rising in all geographies, service lines and industries. KPMG revenues grew the slowest at 1.4%, Ernst & Young at 6.7%, PwC increased 7.8% and

    Deloitte posted the highest rate at 8.6%. PwC grew slower than Deloitte yet reported 2012 revenues of $31.5 billion, just $200 million more than Deloitte, thus maintaining its leadership position as the largest accounting firm on the planet. KPMG’s modest growth is well out of line with peers. Our analysis shows three factors: Europe is 50% of global revenues and was negatively impacted by US dollar appreciation versus the Euro,

    Advisory service line had modest growth and Audit presumably lost some relative market share. In terms of geography, Americas have 40% and falling share of global combined revenues. From 2011 to 2012 however, Americas had a strong performance growth of 9.2%. Europe has 43% of combined firm revenues and increased 3.3% from 2011 to 2012, growing the slowest due to regional uncertainty. Asian revenues have more than doubled from $7 billion in 2004 to $18.5 billion in 2012, 17% of the total, and grew a strong 8.0% from 2011 to 2012.

    By service line, Audit accounts for 45% of total revenues and grew 2.9% from 2011 to 2012. Tax services are 23% of total revenues and also rose 5.6% from 2011 to 2012. Advisory services have been the fastest growing service line for several years increasing share from 22% of total revenues in 2004 to 33% in 2012. Advisory revenues grew a strong 12.2% from 2011 to 2012.

    The Big Four firms cumulatively employ more than 690,000 staff globally, with a total of 37,000 partners overseeing a steep pyramid of about 530,000 professionals. Net employment increased by 39,000 from 2011 to 2012.

    The outlook for 2013 and beyond is quite optimistic, revenue is expected to grow at a good pace, with help from strong emerging markets, Advisory services, Dodd-Frank and other regulations, conversions to IFRS and favorable economic conditions. 2013 will also prove whether PwC can continue to be the leader and whether KPMG can attempt to narrow its gap with E&Y.

    A detailed analysis can be downloaded at http://www.Big4.com/analysis .

    Auditing Bibliography by James Martin ---
    http://maaw.info/AuditingMain.htm

    Bob Jensen's threads on the largest accounting and auditing firms ---
    http://faculty.trinity.edu/rjensen/Fraud001.htm

    Bob Jensen's threads on audit firm professionalism ---
    http://faculty.trinity.edu/rjensen/Fraud001c.htm


    In Accounting We Call it EIEO --- Everything In, Everything Out

    "Cranking Out Credentials — but What About Quality?" by Katherine Mangan, Chronicle of Higher Education, November 17, 2015 ---
    http://chronicle.com/article/Cranking-Out-Credentials-/234228?cid=wc&utm_source=wc&utm_medium=en&elq=e04cc3e81c37409fa69422fd0133d152&elqCampaignId=1874&elqaid=6943&elqat=1&elqTrackId=befc899056144718b79a868368dc3c88

    Jensen Comment
    Exhibit A is comprised of all graduate programs that only give A or B grades to any student who makes an effort --- some B grades go to students who make an effort but would not have a chance in a competency-based examination. For example, increasingly law schools are now both admitting and graduating a large number of students who do not have a chance of passing the BAR examination. Many accounting graduates are afraid to even take the CPA examination. California's Two-Year Colleges now want to fire their accreditor and bring in an easier accrediting agency.

    The EIEO phenomenon is linked to grade inflation and the power students now have over teacher performance ratings ---
    http://faculty.trinity.edu/rjensen/assess.htm#RateMyProfessor


    Diploma Mill Fraud

    EDMC is the nation's second-largest for-profit college system and the parent company of four higher education systems: Argosy University, The Art Institutes, Brown Mackie College, and South University. It was acquired by Goldman Sachs in 2006, which retains 40% ownership in the company today.

    "College accused of being a 'high-pressure recruitment mill' agrees to a record $95.5 million settlement," by Abby Jackson, Business Insider, November 16, 2015 ---
    http://www.businessinsider.com/for-profit-college-edmc-settled-civil-lawsuit-for-955-million-2015-11

    Jensen Comment
    For-profit universities tend to have no admission standards.

    The good news is that any student who can pay the tuition has a chance, especially online alternatives for degrees.

    The bad news is that for-profit universities have had a race for the bottom in recruiting students who have little aptitude for higher education, little time to devote to learning (e.g. a parent with three pre-school toddlers), and an low prospects of ever completing a program.

    The bad news with the political plans for free undergraduate education for every student in the USA is that the non-profit colleges and universities may commence a scramble for government-paid tuition is that hey may commence a race for the bottom in recruiting students who have little aptitude for higher education, little time to devote to learning (e.g. a parent with three pre-school toddlers), and an low prospects of ever completing a program.

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


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

    How should a CFO fairly present a financial statement during periods of intense foreign-exchange volatility? That is the question faced by finance chiefs since the dollar surged after the yuan’s devaluation, CFO Journal’s Emily Chasan reports. Analysts, and some finance chiefs, argue that stripping out the impact of currency from corporate financial reports doesn’t tell the full story about the health of the business.

    “The reality is we’re getting a positively biased perspective,” said George Sutton, a stock analyst and co-director of research at Craig-Hallum Capital Group LLC in Minneapolis. “A few years ago, when the dollar was weak, it was fairly rare for companies to point out that they were doing so well because of the currency.”

    For companies reporting a currency impact on quarterly calls, about 48% fielded questions from analysts about their foreign-exchange strategy in the past six quarters, according to FiREapps, a currency risk consulting firm. That is up from about 26% in the prior six quarters. “This quarter isn’t an outlier—this is the new market we need to deal with,” said Wolfgang Koester, chief executive of FiREapps.


    Remember those old song lyrics:

    If you got it you don't need it
    If you need it you don't got it

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

    Ohio power companies, consumers spar over paying for spare electricity
    http://www.wsj.com/articles/ohio-power-companies-consumers-spar-over-who-pays-for-spare-electricity-1447701133?mod=djemCFO_h
    Ohio’s American Electric Power Co. and FirstEnergy Corp. have sparked criticism by proposing that consumers and businesses in the state should cover the cost of operating seven old, unprofitable plants to keep surplus power available.


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

    Revenue-recognition accounting changes could have long tentacles
    http://blogs.wsj.com/cfo/2015/11/16/revenue-recognition-accounting-changes-could-have-long-tentacles/?mod=djemCFO_h
    Sweeping revisions to revenue-recognition rules set to take effect in 2018 are already wreaking havoc in corporate finance departments. Corporate controllers and their financial staffs are re-evaluating everything from contracts to commission structures in anticipation of new rules that will change how companies report their top-line numbers.


    From the CFO Journal's Morning Ledger on November 18, 2015

  • Rivals take aim at UPS, FedEx with services focus
    http://www.wsj.com/articles/ups-fedex-rivals-take-services-focus-1447788645?mod=djemCFO_h&alg=y
    Online purchases of bulky items like furniture are up sharply, creating opportunities for delivery companies able to provide home dropoffs with services such as set up, installation and removal of old goods.


  • From the CFO Journal's Morning Ledger on November 18, 2015

  • House subcommittee testimony calls conflict minerals rule a failure
    http://blogs.wsj.com/cfo/2015/11/17/house-subcommittee-testimony-calls-conflict-minerals-rule-a-failure/?mod=djemCFO_h
    Rules regarding conflict minerals are “a failure,” according to a Tuesday hearing of the House Financial Services Monetary Policy and Trade Subcommittee. Emily Chasan reports that a Government Accountability Office report published for the hearing found that 67% of companies were unable to determine whether the minerals in their supply chain came from the Democratic Republic of the Congo and surrounding region.


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

    SEC commissioner blasts conflict minerals, pay ratio rules
    http://blogs.wsj.com/cfo/2015/11/16/sec-commissioner-blasts-conflict-minerals-pay-ratio-rules/?mod=djemCFO_h
    The U.S. corporate-disclosure regime “has been hijacked” by social activists, Securities and Exchange Commissioner Michael Piwowar charged on Monday. Emily Chasan reports that Mr. Piwowar cited recent mandates from Congress that focus more on thwarting social problems than assisting investors.


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

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

    Study: Clawback rules could influence restatements
    http://blogs.wsj.com/cfo/2015/11/10/coming-clawback-rules-may-influence-restatements-study/?mod=djemCFO_h
    As finance chiefs prepare for coming rules designed to claw back executive pay, a study suggests they will take a harder look at financial restatements that could force them to part with prior incentives, Maxwell Murphy reports.


    From the CFO Journal's Morning Ledger on November 12, 2015

  • Former SEC head: Investors want more from sustainability reports
    http://blogs.wsj.com/cfo/2015/11/12/investors-want-more-from-sustainability-reporting-says-former-sec-head/?mod=djemCFO_h
    It is still a challenge for investors to get the information they need on environmental, social and governance issues, said former SEC Chairman Mary Shapiro. Emily Chasan writes that investors who want to use such information say the information they are getting is often difficult to compare between companies and tough to incorporate into forecasts.

    Bob Jensen's threads on sustainability accounting ---
     


    Journal of Accountancy Summary of the FASB's New Leasing Standard --- 
    http://www.journalofaccountancy.com/news/2015/nov/fasb-leases-standard-201513356.html

    From the CFO Journal's Morning Ledger on November 12, 2015

    Investors may be in for a jolt once new lease-accounting rules take effect, the WSJ’s Michael Rapoport reports. That’s because the new requirement, agreed to in principle by rule makers Wednesday, will make many firms appear more indebted than they do right now. The change must still go through some technical and administrative steps, and it won’t take effect until 2019. But once lease obligations are added to the balance sheet, supporters say, investors will get a much fuller and more accurate portrait of companies’ true situation.

    The rule change doesn’t create any new obligations for companies, and ratings firms and investors who watch financial statements closely have long adjusted their numbers to account for companies’ leases. But putting leases on the balance sheet is expected to make it easier for the average investor to see the effect they have on a company’s finances. Some companies have tens of billions of dollars in lease-payment obligations, effectively akin to debt, but under current rules they aren’t carried on the balance sheet—they’re disclosed only out of the spotlight, in the footnotes to a company’s financial statements.

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

    Some of America’s best-known companies likely will soon have to effectively boost the debt they report on their balance sheets by tens of billions of dollars, the WSJ’s Michael Rapoport reports. The total possible impact for all companies: as much as $2 trillion. Within a few years, companies may have to add to their books the cost of many leases for real estate, aircraft and other items that aren’t already carried there.

    U.S. rule makers are set to vote Wednesday on whether to approve in principle long-awaited new rules requiring companies to make that addition, though the move wouldn’t take effect until at least 2018. Once the rules are finalized, companies are likely to get a better handle on what their balance sheets might look like going forward.

    Drugstores, large retailers, restaurants and supermarkets are likely to be most affected under the rules because of significant real-estate leases. But lease-accounting changes will also have a big impact on banks that lease space for their retail branches, airlines that lease planes and shipping and utilities companies that lease their vehicle fleets

    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

    From the CPA Newsletter on March 23, 2015

    Profits may look higher under IASB's lease accounting model
    http://r.smartbrief.com/resp/gBhNBYbWhBCNxqePCidKtxCicNTVMx?format=standard
    The International Accounting Standards Board's forthcoming model for lease accounting will make companies with material off-balance sheet leases look more profitable compared with the Financial Accounting Standards Board's model, according to an IASB comparison. Companies will amortize leased assets differently under the two models. "Accordingly, the IASB expects the carrying amount of lease assets, as well as reported equity, to be higher under the FASB model than under the IASB model, although those effects are not expected to be significant for most entities," the IASB found. Compliance Week/Accounting & Auditing Update blog (3/20)

    Bob Jensen's threads on lease accounting ---
    http://faculty.trinity.edu/rjensen/theory02.htm#Leases


    LIBOR and the LIBOR Scandal --- https://en.wikipedia.org/wiki/Libor

    From the CFO Journal's Morning Ledger on November 6, 2015

    Jury delivers first U.S. Libor manipulation convictions
    http://www.wsj.com/articles/new-york-jury-convicts-former-rabobank-traders-in-libor-trial-1446742694?mod=djemCFO_h&alg=y
    The first U.S. jury to hear evidence about a sprawling scheme to manipulate a key benchmark interest rate convicted two former Rabobank traders.

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


    Sustainability Accounting --- http://en.wikipedia.org/wiki/Sustainability_accounting  

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

    Stock exchange group sets guidelines for sustainability disclosures
    http://blogs.wsj.com/cfo/2015/11/04/stock-exchange-group-sets-guidelines-for-sustainability-disclosures/?mod=djemCFO_h

    A group of the world’s largest stock exchanges, on Wednesday, released guidelines for the types of environmental, social, and governance-related metrics it says are important for companies to release to investors, Emily Chasan reports. The guidelines could push stock exchanges to require listed companies to report on more than 30 metrics, such as energy consumption, employee turnover, human rights, and gender and board diversity, though exchanges can voluntarily choose to adopt some, if any, of these standards.

     "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


    From the CFO Journal's Morning Ledger on October 29, 2015

    The House passed a two-year budget deal that would extend the government’s borrowing limit less than a week before the Treasury risks being unable to pay its bills. But companies with corporate pensions will end up paying a price if it becomes law, Vipal Monga reports. According to the proposed budget, companies that have defined-benefit pension plans would have to increase the fees they pay to the Pension Benefit Guaranty Corp. by about 25%. Companies with pensions will pay $80 per person in their plans by 2019, up from $64 in 2016. Those fees will apply to companies regardless of funded status.

    Meanwhile, companies that are underfunded, meaning the value of the assets in their plans doesn’t match the expected liabilities, will have to pay a penalty that jumps to 4% in 2019 from 3% today. The increases come on top of regular increases that are tied to inflation. That means a company with a pension that is $100 million underfunded would pay at least $4 million in penalties in 2019.

    “The total PBGC fees that a pension plan sponsor is facing over the life of the fund, is now material,” said Caitlin Long, head of the pension solutions group at Morgan Stanley. “Most executives do not expect that this is the last increase.”

     


    From the CFO Journal's Morning Ledger on October 29, 2015

    IASB offers new draft guidance on materiality
    http://blogs.wsj.com/cfo/2015/10/28/international-accounting-regulator-offers-new-guidance-on-materiality/?mod=djemCFO_h
    The International Accounting Standards Board, or IASB, on Wednesday published draft guidance that aims to help companies understand when a piece of information qualifies as material. The deadline for comments is Feb. 26.

    International accounting rules require firms to disclose any “material” information, but they also factor in the idea that what counts as material varies from situation to situation and company to company. That can leave finance departments scratching their heads over when to talk or keep quiet.

    In an effort to clarify matters, the International Accounting Standards Board, or IASB, which sets International Financial Reporting Standards, or IFRS, today is publishing draft guidance that aims to help companies understand when a piece of information qualifies as material.

    The draft guidance is intended to complement an amendment made in 2014. The deadline for comments is Feb. 26, 2016.

    “Financial statements are meant to be a means of communication, and should not be viewed as a mere compliance exercise,” said IASB Chairman Hans Hoogervorst in a press release. “Management needs to take a step back and consider whether they are providing the right level of information in the financial statement and whether it is useful.”

    A spokeswoman said the draft guidance is part of a larger effort on IASB’s part to improve disclosures, and that the input received until the deadline in February will be factored in to their final form.

     


    From the CFO Journal's Morning Ledger on October 29, 2015

    LifeLock reaches agreements to settle lawsuits
    In its suit, the Federal Trade Commission alleged identity-theft-protection provider LifeLock Inc. failed to establish a comprehensive security program, didn’t meet record-keeping requirements and made false advertisements about its services. LifeLock’s subscription services provide features such as identity alerts, surveillance of criminal websites and remediation services. The proposed FTC settlement doesn’t require any changes to the company’s products, services or business practices, including marketing and advertising. Neither settlement is final yet.


    From the CFO Journal's Morning Ledger on October 29, 2015

    LifeLock reaches agreements to settle lawsuits (the one that advertises a lot on television)
    In its suit, the Federal Trade Commission alleged identity-theft-protection provider LifeLock Inc. failed to establish a comprehensive security program, didn’t meet record-keeping requirements and made false advertisements about its services. LifeLock’s subscription services provide features such as identity alerts, surveillance of criminal websites and remediation services. The proposed FTC settlement doesn’t require any changes to the company’s products, services or business practices, including marketing and advertising. Neither settlement is final yet.


    Factoring of Accounts Receivable --- https://en.wikipedia.org/wiki/Factoring_(finance)  

    Questions
    How does "supply chain financing" as described below differ from factoring of accounts receivable?
    Is there a difference in the bookkeeping that we learned years ago as accounting for factored receivables?

    From the CFO Journal's Morning Ledger on October 27, 2015

    Big companies often started taking longer to pay their suppliers in the years after the recession, as a way to help them manage their cash flow. That left the smaller suppliers in a lurch as they waited longer for payments to arrive. But more banks are stepping in to fill that gap with a roundabout method of providing cash known as supply-chain financing, Vipal Monga and Ruth Simon report. Though the banks have shown a limited appetite for making small loans in a direct fashion, supply-chain financing lets the banks earn some interest, while the smaller companies are able to receive payments more quickly.

    Here’s how it works: A bank buys the receivables of a company’s smaller supplier, and then pays those bills early. The supplier might get its cash in 30 days, for example, for bills due in 60 days. The bank charges the supplier interest in exchange for the early payment, but at a preferential rate. With the cooperation of the bigger company, the bank bases the interest charge on that company’s credit rating, rather than on that of the supplier.


    "What is the Difference between Morals and Ethics?" by Steven Mintz, Ethics Sage, October 27, 2015 ---
    http://www.ethicssage.com/2015/10/what-is-the-difference-between-morals-and-ethics.html

    Many people bristle at the word “morality” but are quite comfortable using the term “ethical”, and insist there’s some crucial difference between the two. For instance, some people say ethics are about external, socially imposed norms, while morality is about individual conscience. Others say ethics is concrete and practical while morality is more abstract, or is somehow linked to religion. Among philosophers there’s no clear agreed distinction, and most philosophers use the two terms more or less interchangeably.

    I like to think about it this way: Morals is about how we deal with people we know while ethics is about how we deal with people we do not know. The Golden Rule is instructive and applies to both: We should treat others the way we want to be treated. For those we know, we expect to be treated with respect and with empathy. For those we don’t know we expect to be treated fairly, a more subjective standard of behavior.

    Now, there is no question that morality and ethics cross paths and intersect at integrity. That is, if we are moral and ethical people we will act based on principled behavior following virtues such as honesty, respect, responsibility, and loyalty to the truth as we see it; not so much to a person who might ask us to do something we sense is wrong but to an objective sense of what is right and what is wrong in a particular circumstance.

    Moral questions tend to deal with issues such as abortion, capital punishment, and the like that pertain to how we view others’ behavior. Our morals are formed by core values such as how we see the right to life or the right of a woman to choose what she does with her body.

    Ethical questions tend to deal with deciding correct conduct. For example, let’s assume your neighbor is growing organic vegetables and has more land than the eye can see. You think about “harvesting” some of these vegetables for your own use. Now, if you decide to stay off your neighbor’s land, you have acted ethically. You considered the interests of your neighbor and acted based on the universal ethical principle known as the Categorical Imperative. It holds that we should act in a way that we would want others to act if faced with similar conditions. In other words, I wouldn’t want my neighbor to use my property and what I grow for her own selfish needs so I should not do that to my neighbor. Thus, ethical action takes on a universal appeal; however we can imagine all kinds of "moral" viewpoints on the right to life versus a woman’s right to choose.

    Continued in article


    "SAT's Racial Impact," by Scott Jaschik, Inside Higher Ed, October 27, 2015 ---
    https://www.insidehighered.com/news/2015/10/27/study-finds-race-growing-explanatory-factor-sat-scores-california?utm_source=Inside+Higher+Ed&utm_campaign=9100c271bb-DNU201510027&utm_medium=email&utm_term=0_1fcbc04421-9100c271bb-197565045

    Large and growing gaps in SAT scores, by race and ethnicity, are nothing new. The College Board and educators alike have acknowledged these gaps and offered a variety of explanations, with a focus on the gaps in family income (on average) and the resources at high schools that many minority students attend. And indeed there is also a consistent pattern year after year on SAT scores in that the higher the family income, on average, the higher the scores.

    But a new, long-term analysis of SAT scores has found that, among applicants to the University of California's campuses, race and ethnicity have become stronger predictors of SAT scores than family income and parental education levels.

    . . .

    The solution, for Geiser, is to go back to what the University of California did when it adopted the SAT, but which the state's voters have barred it from doing today: considering race in admissions. He writes that if public universities are going to consider SAT scores in a serious way, they should also consider race and ethnicity.

    Continued in article

    California's school test scores reveal gaping racial achievement gap," by Sharon Noguchi, San Jose Mercury News, September 9, 2015 ---
    http://www.mercurynews.com/california/ci_28782503/califs-test-scores-reveal-yawning-achievement-gap

    The first results of a new test on student performance in California schools revealed a majority of students failed to meet state standards in math and English -- with a stark racial achievement gap despite decades of efforts to close it.

    Of more than 3.1 million public school students tested in English statewide, only 44 percent met or exceeded standards; in math, only 33 percent met that threshold, according to the state Department of Education, which released the new scores. Scores at Bay Area schools generally mirrored the statewide results, as performance correlated with family and community wealth, language ability and ethnicity.

    Continued in article

    Jensen Comment
    Asians now outscore whites on SAT and ACT examinations. Also there are now more Hispanics in California than whites among the younger generations. There is also a very large and growing Asian population all along the Pacific-bounded states. Times are changing in terms of white dominance on most anything with Californians leading the way.  Affirmative action based on racial quotas may eventually benefit whites in California, Oregon, and Washington.

    Vancouver is now the most expensive city in all of North America mainly due to wealthy Chinese buying up of real estate. San Francisco is right behind. More Chinese wealth is pouring into Canada, however, due to the Canadian policy of selling citizenship.

    Bob Jensen's threads on affirmative action ---
    http://faculty.trinity.edu/rjensen/HIGHerEdControversies2.htm#AcademicStandards

     

    Kickback (bribery) --- https://en.wikipedia.org/wiki/Kickback

    "U.S. Sen. Warren: ‘Kickbacks’ Create Conflicts for Annuity Sales Agents," by Leslie Scism, The Wall Street Journal, October 27, 2015 ---
    http://www.wsj.com/articles/u-s-sen-warren-kickbacks-create-conflicts-for-annuity-sales-agents-1445961871?mod=djemCFO_h

    Jensen Comment
    I always thought that "kickback" was a form of bribery to non-employees such as kickbacks to customers and government agents such as bribing a government agent or paying or paying a customer's purchasing agent under the table to agree to make a purchase. Kickbacks are common, albeit often illegal, when vendors pay under-the-table to sell such things as military equipment and supplies to the Pentagon. A common and illegal or unethical type of kickback arises when pharmaceutical companies off free cruises and condos as incentives for physicians to prescribe branded merchandise that is usually overpriced relative to generic alternatives.

    In this context, what Sen. Warren calls "kickbacks" to employees really are just other forms of compensation such as giving out prizes in lieu of cash bonuses to sales employees for outstanding performances. Such prizes are taxable to employees and must be reported at fair values to the IRS. There are some advantages to paying non-cash prizes such as vacation hotel rooms. Employers can often negotiate lower prices for such prizes due to such deals as volume discounts from hotel chains and block purchases of cruise liner tickets. By "lower price" I mean less that an employee would pay for such a prize if purchased separately out of a cash bonus. It'sis quite traditional to give non-cash prizes to sales staff in most industries.

    As long as this non-cash compensation is all above board and satisfies IRS requirements I see nothing unethical or illegal about it.
    The risk lies more with incentives the employees have to act unethically when selling products and services that are overpriced and/or inferior. However, such risk is perhaps even greater if the compensation is in the form of cash bonuses rather than non-cash prizes to employees.

    Sometimes non-cash prizes become hedonistic with lavish parties in luxury hotels where premium whiskey and wine encourages inebriation while very expensive bands and singers perform, Sometimes things get out of hand with added alternatives for prostitutes that are not likely to be reported on W-2 forms. Perhaps Sen. Warren is being influenced by reported hedonism of non-cash prizes to annuity sales agents.

    When I bought various lifetime annuities from TIAA I was not even offered a free lunch, and the TIAA representative was a young mother who did not seem likely to be wanting  lavish parties and prostitutes.


    "FASB’s Proposed Materiality “Clarifications” are Backfiring," by Tom Selling, The Accounting Onion, October 25, 2015 ---
    http://accountingonion.com/2015/10/fasbs-proposed-materiality-clarifications-are-backfiring.html

    Jensen Comment
    Tom has never made it clear, at least to me, what he thinks would be a better solution.


     




    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on October 23, 2015

    As Conservation Cuts Electricity Use, Utilities Turn to Fees
    by: Rebecca Smith
    Oct 20, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Cost Behavior, Degree of Operating Leverage, Fixed Costs, Pricing, Variable Costs

    SUMMARY: Electric utilities across the country are trying to change the way they charge customers, shifting more of their fixed costs to monthly fees. Traditionally, charges for generating, transporting and maintaining the grid have been wrapped together into a monthly cost based on the amount of electricity consumers use each month. Some utilities also charge a basic service fee of $5 or so a month to cover the costs of reading meters and sending out bills. Now, many utility companies are seeking to increase their monthly fees by double-digit percentages, raising them to $25 or more a month regardless of the amount of power consumers use. The utilities argue that the fees should cover a bigger proportion of the fixed costs of the electric grid, including maintenance and repairs.

    CLASSROOM APPLICATION: This is an interesting example of cost behavior and degree of operating leverage for a managerial accounting class. Utility companies are in an industry with high fixed costs, and pricing is changing in response to increasing energy conservation.

    QUESTIONS: 
    1. (Introductory) What is cost behavior? What are fixed costs and what are variable costs? What is a mixed cost? How are these various costs analyzed differently?

    2. (Advanced) How are many electric utility companies attempting to change their pricing structure? What are the reasons for these changes?

    3. (Advanced) What would be the impact of the proposed changes on customers? How do the pricing changes affect a customer's fixed and variable expenses?

    4. (Advanced) What is degree of operating leverage (DOL)? How is it calculated? How does DOL affect how a company plans and how it analyzes financial information?

    5. (Advanced) Relative to other industries, what do you think the DOL is for the power industry - high or low? How does that affects the pricing, analysis, and planning the companies do?

    6. (Advanced) What other companies and industries have cost structures similar to the power industry?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Utilities' Profit Recipe: Spend More
    by Rebecca Smith
    Apr 20, 2015
    Online Exclusive

    "As Conservation Cuts Electricity Use, Utilities Turn to Fees," by Rebecca Smith, The Wall Street Journal, October 20, 2015 ---
    http://www.wsj.com/articles/as-conservation-cuts-electricity-use-utilities-turn-to-fees-1445297729?mod=djem_jiewr_AC_domainid

    Double-digit percentage increases for distribution, maintenance anger power consumers

    Electric utilities across the country are trying to change the way they charge customers, shifting more of their fixed costs to monthly fees, raising the hackles of consumer watchdogs and conservation advocates.

    Traditionally, charges for generating, transporting and maintaining the grid have been wrapped together into a monthly cost based on the amount of electricity consumers use each month. Some utilities also charge a basic service fee of $5 or so a month to cover the costs of reading meters and sending out bills.

    Now, many utility companies are seeking to increase their monthly fees by double-digit percentages, raising them to $25 or more a month regardless of the amount of power consumers use. The utilities argue that the fees should cover a bigger proportion of the fixed costs of the electric grid, including maintenance and repairs.

    “The [electricity] grid is becoming a more complex machine, and there needs to be an equitable sharing of its costs,” said Lisa Wood, a vice president of the Edison Foundation, the nonprofit arm of the utility industry’s trade group Electric Electric Institute. A typical American household pays $110 a month for electricity, she said; more than half goes to cover fixed costs.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on October 23, 2015

    Investor Seeks to Hold Ernst & Young Liable for Madoff Losses
    by: Jacqueline Palank
    Oct 15, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Auditing, Fraud

    SUMMARY: In 2010, FutureSelect, which lost all of its investment, filed suit in a court in Washington state against Ernst & Young, one of the feeder funds' auditors, alleging negligence and seeking to recover millions of dollars in losses. The plaintiff alleges the Big Four auditing firm failed to perform such essential auditing tasks as confirming the existence of the securities Mr. Madoff purported to trade for investors. Nor did it look at the credentials of Mr. Madoff's auditor, "one man in a little office."

    CLASSROOM APPLICATION: This article is good for use in an auditing class or a forensic accounting class regarding the issue of auditor responsibilities for detecting fraud and possible liability.

    QUESTIONS: 
    1. (Introductory) What are the facts of the case featured in the article? Who is the plaintiff and who is the defendant?

    2. (Advanced) What are the Big Four accounting firms? What are their areas of business? Why are they called the Big Four?

    3. (Advanced) How was Ernst & Young involved in Madoff's case? How was the firm connected to FutureSelect? How could the firm be liable in this case?

    4. (Advanced) What responsibility do auditors have to detect fraud? Should accounting firms have exposure to liability in these kinds of cases? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Investor Seeks to Hold Ernst & Young Liable for Madoff Losses," by Jacqueline Palank. The Wall Street Journal, October 15, 2015 ---
    http://www.wsj.com/articles/investor-seeks-to-hold-ernst-young-liable-for-madoff-losses-1444854695?mod=djem_jiewr_AC_domainid

    Court papers show FutureSelect invested about $200 million

    Ernst & Young failed to serve as a gatekeeper for a Washington investment firm that sank millions of dollars into Bernard Madoff’s investment firm and should be held liable for its losses, the firm’s lawyer told a jury Wednesday.

    “I’m going to prove to you that Ernst & Young had a job. I’m going to prove to you that Ernst & Young didn’t do their job,” said Steven W. Thomas, a lawyer representing FutureSelect Portfolio Management Inc.

    Court papers show FutureSelect, of Redmond, Wash., invested approximately $200 million in feeder funds that pooled investors’ cash and funneled it Mr. Madoff’s way, until his arrest in 2008 exposed a massive Ponzi scheme in which investors lost some $17 billion.

    In 2010, FutureSelect, which lost all of its investment, filed suit in a court in Washington state against Ernst & Young, one of the feeder funds’ auditors, alleging negligence and seeking to recover millions of dollars in losses.

    James Bennett, an attorney for Ernst & Young, on Wednesday told the jury that “Ernst & Young did its job, full stop,” according to a video feed of the trial’s first day provided by Courtroom View Network.

    “We regret, we sympathize with anybody who lost money as a result of that fraud. But Ernst & Young is not the cause of those losses,” Mr. Bennett said.

    In his opening statement to the jury, Mr. Thomas said the Big Four auditing firm failed to perform such essential auditing tasks as confirming the existence of the securities Mr. Madoff purported to trade for investors.

    Nor did it look at the credentials of Mr. Madoff’s auditor, “one man in a little office,” said Mr. Thomas.

    Instead, Mr. Thomas said Ernst & Young relied on statements from Mr. Madoff, who is serving a 150-year prison sentence, or his investment firm, which is liquidating, when it blessed various financial statements related to investments overseen by Mr. Madoff as containing accurate information.

    “Ernst & Young should have never signed its name and issued that opinion,” Mr. Thomas said.

    Mr. Bennett said the fraud went undetected by regulators, banks, sophisticated investors and multiple auditors for several decades. He said the onus was on investors like FutureSelect to research its investments, and he said they could have concluded that the returns that Mr. Madoff’s firm offered “were too good to be true.”

    Continued in article

    "Jury Says Ernst & Young Liable for Madoff Investor’s Losses:  E&Y found negligent in role as auditor for feeder fund," by Jacquiline Palank, The Wall Street Journal, November 13, 2015 ---
    http://www.wsj.com/articles/jury-says-ernst-young-liable-for-madoff-investors-losses-1447453162?alg=y#livefyre-comment 
    Thank you Tom Selling for the heads up.

    Reply from Bob Jensen on November 15, 2015
    Hi Tom,

    What I find somewhat worrisome in the article is the following quotation from EY:

    EY was not the auditor of any Madoff entity; we were among the many auditors of funds that chose to use Madoff as their investment adviser. While we regret the investors’ losses, no audit of a Madoff-advised fund could have detected this Ponzi scheme,” Ernst & Young’s Amy Call Well said in an email.

    This settlement could be a point at which an audit firm ceases to be an audit fir firm and commences to be a financial guarantee insurance company.

    The problem is that most insurance companies deal with risks estimated by actuarial science. Actuarial science is not much help in the area of financial forecasting --- largely because actuarial science is built upon stationary states.

    This raises questions about the extent to which an auditor must verify third party investment, insurance, and deposit quality. Consider a hypothetical example. When EY auditors receive a verification that their client does indeed have casualty insurance in the amount of $10 million from Every State Life and Casualty Company to what extent is the auditor responsible to verify the quality of that insurance beyond verifying that Every State is indeed licensed in every state to sell life and casualty insurance and the auditor's reading of the insurance contract terms? The auditors might even go a step further to determine that Every State was indeed audited by KPMG. But KPMG is not likely to share inside working paper information with EY regarding Every State.

    To what extent is EY liable above an beyond the KPMG audit report on the financial statements of Every State?

    My guess is that EY would not be liable to FutureSelect Portfolio Management Fund for its Madoff Losses had the Madoff Fund been properly audited. But the Madoff Fund was not audited by a NY-licensed auditor where the fund was headquartered. Perhaps EY is more liable in cases where EY relied on investment verification that was not properly audited.

    I am not an expert on the fine print of the rules of auditing and never taught auditing. To what extent are auditors liable to verify the quality of deposits in banks, receivables from third parties, insurance coverage, etc.? Years ago, when I was a lowly staff auditor in the Denver Office of EY, I can't recall that we went beyond verifying that the client's accounts existed in the correct balances reported by the client.

    This touches on something that always made me uneasy about test checking inventory. One of our Denver Office audit clients was a piston manufacturer in Pueblo, Colorado. When we showed up on Sunday mornings to count pistons we found two types of containers at the end of each production line. The company said one container had pistons that met quality control standards. The other container was for rejects. But as an auditor I could not tell any difference between a good piston and a bad piston. We simply took the client's word that those pistons it called satisfactory were indeed satisfactory, including the pistons that were boxed up and purportedly ready to ship to customers. Fortunately our client was more honest than a well known manufacturer of salad oil at the time.

    It would really be interesting to know how this  FutureSelect case would have been decided for EY if the Madoff Fund had been audited by KPMG.

    Thanks,
    Bob Jensen

    Bob Jensen's threads on Ernst & Young ---
    http://faculty.trinity.edu/rjensen/Fraud001.htm

     


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on October 23, 2015 ---

    Beware of Tax Surprises Lurking in Mutual Funds
    by: Laura Saunders
    Oct 17, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Capital Gains, Individual Taxation, Mutual Funds, Tax Planning

    SUMMARY: Investors who holds mutual funds in a taxable account could be in for a nasty shock next year at tax time. By law, each year mutual funds must pay out to investors nearly all their income, which includes interest, dividends and net realized capital gains - in short, the profits on their trades minus offsetting losses. These annual payouts can bring surprise tax bills for investors holding funds in taxable accounts. The tax surprises are usually caused by the funds' capital-gains payouts, which can vary greatly from year to year.

    CLASSROOM APPLICATION: This is a good article to illustrate tax planning issues related to capital gains from mutual funds.

    QUESTIONS: 
    1. (Introductory) What are capital gains? How are they taxed?

    2. (Advanced) How can ownership of mutual funds result in surprises for taxpayers? How can investors prepare for those surprises? What should investors do to plan for tax liability in those cases?

    3. (Advanced) How does owning mutual funds result in different tax issues, as opposed to owning individual stocks? Which investment option offers more tax certainty? What are the non-tax investment benefits of owning mutual funds vs. individual stocks?

    4. (Advanced) How can investors split investments between taxable accounts and retirements accounts to reduce the impact of these tax issues?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    When Funds Insult Their Investors
    by Jason Zweig
    Dec 26, 2014
    Online Exclusive

    Mutual Fund's Overhaul Hits Investors With Big Tax Bill
    by Dasiy Maxey
    Oct 03, 2015
    Online Exclusive

    When Funds Insult Their Investors
    by Jason Zweig
    Dec 26, 2014
    Online Exclusive

    "Beware of Tax Surprises Lurking in Mutual Funds," by Laura Saunders, The Wall Street Journal, October 17, 2015 ---
    http://www.wsj.com/articles/beware-of-tax-surprises-lurking-in-mutual-funds-1444987800?mod=djem_jiewr_AC_domainid

    Capital-gains payouts could deliver a blow at tax time; what you can do now to blunt the pain

    If you’re an investor who holds mutual funds in a taxable account, you could be in for a nasty shock next year at tax time.

    Here’s why: By law, each year mutual funds must pay out to investors nearly all their income, which includes interest, dividends and net realized capital gains—in short, the profits on their trades minus offsetting losses.

    These annual payouts don’t pose a problem for millions of savers who hold mutual funds in tax-sheltered retirement accounts such as IRAs and 401(k) plans. But they can bring surprise tax bills for investors holding funds in taxable accounts. Just over 30% of mutual-fund assets are held by individuals in taxable accounts, according to the Investment Company Institute.

    The tax surprises are usually caused by the funds’ capital-gains payouts, which can vary greatly from year to year. In 2012, for example, mutual funds paid out only about $37 billion in capital gains to individuals with taxable accounts despite robust market growth, because fund managers still had losses from the financial crisis to offset many gains.

    But in 2014, these capital-gains payouts more than tripled to $132 billion, as the market rose and there were fewer losses to offset them. Investors at the time had to pay Uncle Sam his due—even if they were recent buyers who didn’t own the fund when some of the gains occurred.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on October 23, 2015

    FASB Simplifies Accounting for Business Combination Adjustments
    by: Deloitte Risk Journal Editor
    Oct 16, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Business Combination, FASB, Financial Accounting

    SUMMARY: As part of the FASB's simplification initiative, it has issued an accounting standards update related to measurement-period adjustments recorded for business combinations. ASU 2015-16 responds to stakeholder feedback that restating prior periods to reflect adjustments made to provisional amounts recognized in a business combination adds cost and complexity to financial reporting but does not significantly improve the usefulness of the information provided to users.

    CLASSROOM APPLICATION: This article is appropriate for use in a financial accounting class when covering business combinations.

    QUESTIONS: 
    1. (Introductory) What is FASB? What is its purpose and area of authority?

    2. (Advanced) What are business combinations? What is a measure-period adjustment? How is the accounting treatment addressed in this ASU?

    3. (Advanced) What benefits does this ASU provide to the accounting for business combinations? Why did FASB make these changes?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "FASB Simplifies Accounting for Business Combination Adjustments," vy Deloitte Risk Journal Editor. The Wall Street Journal, October 16, 2015 ---
    http://deloitte.wsj.com/riskandcompliance/2015/10/16/fasb-simplifies-accounting-for-business-combination-adjustments/?mod=djem_jiewr_AC_domainid

    As part of the FASB’s simplification initiative,¹ it has issued an accounting standards update related to measurement-period adjustments recorded for business combinations. ASU 2015-16² responds to stakeholder feedback that restating prior periods to reflect adjustments made to provisional amounts recognized in a business combination adds cost and complexity to financial reporting but does not significantly improve the usefulness of the information provided to users.

    Key Provisions of the ASU

    Under the ASU, issued on September 25, 2015, an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation or amortization, or other income effects (if any) as a result of the change to the provisional amounts, calculated as if the accounting had been completed as of the acquisition date, must be recorded in the reporting period in which the adjustment amounts are determined rather than retrospectively.

    The ASU also requires that the acquirer present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The appendix below illustrates the application of accounting for measurement-period adjustments under the ASU.

    Continued in article

    Also see Tom Selling's post ---
    http://accountingonion.com/2015/06/what-is-the-fasbs-simplification-initiative-really.html 


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on October 23, 2015

    How to Address FCPA Risks in Emerging Market M&A Deals
    by: Deloitte CFO Journal Editor
    Oct 19, 2015
    Click here to view the full article on WSJ.com

    TOPICS: FCPA, Foreign Corrupt Practices Act, Mergers and Acquisitions

    SUMMARY: Foreign Corrupt Practices Act risks, such as successor liability, do not automatically translate into deal-breakers for M&A transactions. However, potential buyers still need to exercise caution when it comes to foreign acquisitions, performing thorough due diligence and making careful decisions regarding disclosures to the U.S. Department of Justice.

    CLASSROOM APPLICATION: This article can be used in class during coverage of mergers and acquisitions.

    QUESTIONS: 
    1. (Introductory) What is the FCPA? What does it prohibit?

    2. (Advanced) How does the FCPA relate to accounting? How could accountants be punished under this law?

    3. (Advanced) How can the accounting system and internal controls be used to prevent and detect violations of the FCPA?

    4. (Advanced) How can the FCPA negatively affect a merger or acquisition deal? What does the article recommend to potential buyers in these types of situations?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "How to Address FCPA Risks in Emerging Market M&A Deals," Deloitte CFO Journal Editor, The Wall Street Journal, October 19, 2015 ---
    http://deloitte.wsj.com/cfo/2015/10/19/how-to-address-fcpa-risks-in-emerging-market-ma-deals/?mod=djem_jiewr_AC_domainid

    Foreign Corrupt Practices Act (FCPA) risks, such as successor liability, do not automatically translate into deal-breakers for M&A transactions. However, potential buyers still need to exercise caution when it comes to foreign acquisitions, performing thorough due diligence and making careful decisions regarding disclosures to the U.S. Department of Justice (DOJ).

    Every year, a number of potential buyers abandon what might appear to be promising deals in emerging markets due to hints of FCPA infractions, such as questionable payments to third parties, entertainment of government officials or donations to government entities. After all, unaddressed FCPA exposures may subject a buyer to successor liability for the seller’s prior violations, which may create negative publicity and reputation damage, and diminish the value of the acquired company. The purchaser may also have to investigate and remediate corruption issues at significant costs and sometimes under the watchful eye of U.S. or foreign regulators.

    “Whether the potential buyer is a corporation or a private equity firm, they do not want to deal with a reputation issue,” says Hernan Marambio, Deloitte Advisory partner in Deloitte & Touche LLP. “This regulatory roadblock is increasingly hard to avoid since everyday business functions in all industries, from building warehouses to exporting goods, typically involve government touch points,” Mr. Marambio adds.

    DOJ Opinion Procedure Release 14-02: A Case Study

    One recent example of this conundrum: A U.S.-based company planned to acquire a foreign manufacturer and distributor. Working with an experienced forensic accounting team, the U.S. buyer discovered more than $100,000 in suspicious payments to government officials at the target company, and recordkeeping deficiencies that made it impossible to determine the actual purpose of these payments.

    When the U.S. buyer sought an opinion on its potential FCPA liability from the DOJ, it learned that it would not be subject to successor liability. In fact, in the DOJ Opinion Procedure Release No. 14-02, the DOJ concluded that the potentially improper payments were not subject to U.S. jurisdiction. The end result: The company had to establish policies and processes to ensure the target company’s FCPA compliance post-acquisition, but was able to purchase the target with no fear of FCPA-related repercussions resulting from the target company’s historical activities.

    While FCPA violations are a serious issue, DOJ Opinion 14-02 indicates that FCPA successor liability depends on the facts and circumstances, and violations may not always be as problematic as they might seem. In addition, DOJ Opinion 14-02 suggests that proactive and forthright acquirers may be able to avoid successor liability even when the DOJ does have jurisdiction over the target company.

    DOJ Opinion 14-02 also highlighted a long-standing but often-forgotten fact: The DOJ generally does not have authority over companies that do not operate or issue securities in the U.S. In the case referenced previously, DOJ Opinion 14-02 states that none of the payments occurred in the U.S., and no U.S. person or securities issuer was identified as being involved. Additionally, no bribery tainted contracts or assets would remain in operation post-acquisition to potentially benefit the U.S. acquirer.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on October 30, 2015

    IRS Would More Easily Audit Large Partnerships Under Proposal
    by: Richard Rubin
    Oct 27, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Partnership Taxation, Partnerships, Tax

    SUMMARY: The Internal Revenue Service would have an easier time auditing large partnerships, including private-equity firms and hedge funds, with proposed legislation. The proposal would revamp a 33-year-old law that sets the rules for partnership audits and requires the IRS to pass additional taxes to each of the partners. That task has proven difficult for the IRS and has made the biggest and most complex multitiered partnerships extremely tough to audit.

    CLASSROOM APPLICATION: This is a good update for partnership taxation.

    QUESTIONS: 
    1. (Introductory) In general, how are partnerships taxed? How does this compared with the taxing of other forms of doing business?

    2. (Advanced) What proposal did members of Congress make regarding taxation? How will this impact the IRS? How will it impact partnerships? How will it impact individual taxpayers?

    3. (Advanced) What is tax compliance? What are the IRS challenges regarding compliance? How do those challenges affect collections of taxes? How can changes in the law and the IRS increase compliance?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Budget Deal Stirs Anger on the Right
    by Kristina Peterson and Nick Timiraos
    Oct 28, 2015
    Online Exclusive

    "IRS Would More Easily Audit Large Partnerships Under Proposal," by Richard Rubin, The Wall Street Journal, October 29, 2015 ---
    http://www.wsj.com/articles/irs-would-more-easily-audit-large-partnerships-under-proposal-1445962611?mod=djem_jiewr_AC_domainid&alg=y

    The Internal Revenue Service would have an easier time auditing large partnerships, including private-equity firms and hedge funds, under a provision in the bipartisan budget deal announced late Monday night.

    The proposal, built on ideas from both parties, would revamp a 33-year-old law that sets the rules for partnership audits and requires the IRS to pass additional taxes to each of the partners. That task has proven difficult for the IRS and has made the biggest and most complex multitiered partnerships extremely tough to audit.

    A Government Accountability Office study last year found the IRS audited just 0.8% of large partnerships—those with at least 100 partners and $100 million in assets—compared with a 27.1% audit rate for corporations with at least $100 million in assets. Most of those partnership audits resulted in no additional taxes, and the GAO said it wasn’t sure whether that was because of high compliance or the agency’s inability to find noncompliance.

    Under the bill, the IRS would apply changes in audits to the partnership itself, not individual partners. Small partnerships with fewer than 100 partners could exempt themselves from the new regime, which would begin in 2018.

    The tax-compliance measures in the budget bill—this and one other item—would raise $11.2 billion over the next decade, according to the Congressional Budget Office.

    “It looks at this point like a meaningful improvement on current law” that would limit “sleight of hand” by sophisticated taxpayers and include procedural fairness, Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, said in an interview.

    Republicans generally oppose tax increases to pay for additional spending, but they’re more open to measures that raise revenue by enhancing tax compliance.

    There were versions of the partnership audit proposal in former Ways and Means Chairman Dave Camp’s tax plan last year and in the Obama administration’s budget. The latest version was introduced earlier this year by Rep. Jim Renacci, an Ohio Republican who complained in a statement Tuesday about “legislative commandeering” that short-circuited discussion of his plan by forgoing hearings and appending it to a deal written in secret by congressional leaders.

    Continued in article

     


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on October 30, 2015

    Don't Overlook Employees When Evaluating Supply Chain Fraud, Abuse
    by: Deloitte CFO Journal Editor
    Oct 22, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Forensic Accounting, Fraud, Internal Controls, Supply Chain

    SUMMARY: Employees were identified as the top source of supply chain fraud risk, followed by vendors and other third parties, including subcontractors and their vendors. The article includes warning signs for supply chain fraud, waste and abuse.

    CLASSROOM APPLICATION: This is a good article for any classes covering internal controls and fraud.

    QUESTIONS: 
    1. (Introductory) What is supply chain fraud? Please provide some examples.

    2. (Advanced) What are the top sources of this type of fraud? What is surprising about the top source of supply chain fraud? What can companies to reduce, prevent, or detect that kind of fraud?

    3. (Advanced) What are internal controls? What are the purposes of internal controls? Please provide some examples of internal controls.

    4. (Advanced) What are some warning signs of supply chain fraud? How can internal controls address these issues?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Don't Overlook Employees When Evaluating Supply Chain Fraud, Abuse," by Deloitte CFO Journal Editor, The Wall Street Journal, October 22, 2015 ---
    http://deloitte.wsj.com/cfo/2015/10/22/dont-overlook-employees-when-evaluating-supply-chain-fraud-abuse/?mod=djem_jiewr_AC_domainid

    Employees (22.9%) were identified as the top source of supply chain fraud risk, followed by vendors (17.4%) and other third parties (20.1%), including subcontractors and their vendors, according to a poll conducted by Deloitte Financial Advisory Services LLP among 2,060 professionals from the banking and securities, technology, retail and distribution, process and industrial products and consumer products sectors.*

    “Although it might be hard to believe that the source of supply chain fraud could come from inside a company, outside forces aren’t always to blame. Employees often leverage transactions involving vendors and third parties to their own benefit via supply chain fraud—and when collusion is involved, detection and prevention are quite difficult,” notes Mark Pearson, Deloitte Advisory principal with Deloitte Financial Advisory Services LLP.

    In addition, more than one-quarter of professionals polled (28.9%) also say their organizations experienced supply chain fraud, waste or abuse during the past 12 months, yet nearly as many (26.8%) have no program currently in place to prevent and detect those risks.

    “When we ask executives overseeing supply chains why fraud risk management isn’t more top of mind, we’re consistently told that compliance resource constraints are to blame,” says Larry Kivett, Deloitte Advisory partner in Deloitte Financial Advisory Services LLP. “With reputational, litigation and regulatory repercussions hanging in the balance, companies can’t afford to dismiss supply chain fraud prevention and detection. Schemes constantly evolve and come from every direction, making vigilance crucial,” he adds.

    Warning signs for supply chain fraud, waste and abuse can include:

    —Bidding and/or procurement processes that are not robust or independent;

    —Lack of sufficient clarity in third-party invoice details;

    —Poor or strained relationships with certain third parties;

    —Infrequent or non-existent “right-to-audit” assessments of suppliers and licensees’ practices;

    —Little-to-no oversight into proper administration of agreements with third parties; and

    —Use of third-party agreements that are sole-sourced without a clear explanation or are constructed as cost-plus agreements without clear definitions of cost and other relevant terms.

    About two-thirds (65.3%) of respondents reported their company conducts at least some due diligence on their third parties. Nearly half as many (29%) evaluate the supply chain fraud risks that third parties present on an annual or more frequent basis.

    Continued in article

     


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on October 30, 2015

    UPS Plans to Avoid the Holiday Blues
    by: Laura Stevens
    Oct 28, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Business Segments, Cost Management, Managerial Accounting, Mixed Costs

    SUMMARY: United Parcel Service Inc. says this holiday season will be different. UPS is under pressure to prove to Wall Street this year that it can better manage the holidays. UPS spent about $200 million more than it expected in each of the last two years; first as it was deluged with unexpected packages in 2013 and then as it spent to overhire and overcompensate last year, during periods that turned out to be slower than expected. Its plans include last-minute hiring-bringing workers on just days before they're needed, dubbed "just-in-time labor." UPS also said it would eliminate some package sorting shifts. At the same time, the company reported a slight dip in third-quarter revenue due to lower fuel surcharge revenues, currency effects and a weaker economy. Yet it posted a 3.5% increase in profit due, in part, to growth in its international segment.

    CLASSROOM APPLICATION: This article would be good for a managerial or cost accounting class. It show how a company can use important factors of cost management to contain costs and improve profitability.

    QUESTIONS: 
    1. (Introductory) What challenges did UPS face in the past two holiday seasons? What were the causes of those challenges? What did the company do to address those challenges?

    2. (Advanced) What is the company planning to do for the 2015 holiday season to address these challenges? How do these plans differ from its previous plans?

    3. (Advanced) What is cost behavior? How can analysis using cost behavior help management run a company and increase profitability?

    4. (Advanced) What are business segments? What is segment analysis? How can they be used by management?

    5. (Advanced) How is UPS using cost behavior analysis to manage the company? How is management using segment analysis? How are they segmenting the business? What other types of managerial analysis could they use?

    Reviewed By: Linda Christiansen, Indiana University Southeas

    "UPS Plans to Avoid the Holiday Blues," by Laura Stevens, The Wall Street Journal, October 28, 2015 ---
    http://www.wsj.com/articles/ups-reports-surprise-revenue-dip-1445947423?mod=djem_jiewr_AC_domainid

    On Tuesday the Atlanta-based package delivery giant said it expects a 10% increase in packages over the holidays, but outlined how it will handle the surge this time without another overrun on costs or being caught short-handed.

    Its plans include last-minute hiring—bringing workers on just days before they’re needed, dubbed “just-in-time labor.” UPS also said it would eliminate some package sorting shifts.

    At the same time, the company reported a slight dip in third-quarter revenue due to lower fuel surcharge revenues, currency effects and a weaker economy. Yet it posted a 3.5% increase in profit due, in part, to growth in its international segment.

    UPS is under pressure to prove to Wall Street this year that it can better manage the holidays. UPS spent about $200 million more than it expected in each of the last two years; first as it was deluged with unexpected packages in 2013 and then as it spent to overhire and overcompensate last year, during periods that turned out to be slower than expected.

    This year, UPS said it expects to deliver more than 630 million packages between Black Friday and New Year’s Eve, compared with about 572 million a year ago.

    “In regards to cost containment in the fourth quarter, we’re certain that we can adjust the network and be flexible enough to take the cost out,” said Myron Gray, head of U.S. operations, on an earnings call with analysts.

    UPS is reducing the number of special holiday-season package sorting shifts to 40 from 49 and starting some later due to a 6% increase in capacity this year as it added new hubs and technology. It also plans to bring its 95,000 seasonal hires on just two or three days before they’re needed instead of for the full peak season, CFO Richard Peretz said in an interview.

    “We’ll bring the labor on as we need it and not all at one time,” Mr. Peretz said.

    UPS is again working with customers to try to predict and control volume, something it likens to running a control tower at an airport. If the package isn’t urgent, for example, it might be shipped Tuesday instead of Monday, when packages have built up over the weekend.

    It’s a gamble. A harsh winter storm or an unexpected surge in online sales could throw UPS’s delicately balanced plan off kilter. Add to that, a storm usually keeps more consumers in their homes, fueling online sales.

    The company has a special team in place it will send out to tackle weather or other emergencies, Mr. Peretz said.

    Both UPS and rival FedEx Corp. —which said Monday it expects holiday volumes will increase by 12% this year to 317 million deliveries—are casting votes of confidence in the U.S. economy and consumers at a time when retailers are sitting on high levels of inventory and other freight companies have reported weak demand for shipments leading up to the holidays.

    Some of that is due to the strong growth projected for e-commerce, which may come at the cost of traditional brick-and-mortar retail, Mr. Peretz said.

    “Obviously the economic news has been mixed, but at the end of the day—even on the consumer side—you see a larger, faster paced strength in the e-commerce space as compared to retail,” Mr. Peretz said. “Every online survey shows again that that’s going to be high demand and all the online commerce companies are planning for that.”

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on October 30, 2015

    IBM Says SEC Investigating Accounting of Some Revenue
    by: Chelsey Dulaney
    Oct 28, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Financial Accounting, Revenue Recognition, SEC, Stock Buybacks

    SUMMARY: International Business Machines Corp. disclosed that the Securities and Exchange Commission is investigating how it accounts for certain revenue from transactions in the U.S., U.K. and Ireland. Companies that sell a wide variety of technology services like IBM can find it difficult to allocate revenue appropriately. "You're selling, in effect, multiple services, and the accounting says that you need to do the best you can to break out those services and recognize it."

    CLASSROOM APPLICATION: This article on revenue recognition and stock buybacks could be used in a financial accounting class.

    QUESTIONS: 
    1. (Introductory) What are the facts of the IBM disclosure? What issues is IBM facing?

    2. (Advanced) What is the SEC? What is its area of authority? Why is it involved in investigating IBM?

    3. (Advanced) What aspect of IBM's business model adds additional challenges to revenue recognition? How can the company address these challenges?

    4. (Advanced) What is a stock buyback? Why do companies do them? How does a company book such a transaction? How does the transaction affect a company's financial statements?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "IBM Says SEC Investigating Accounting of Some Revenue," by Chelsey Dulaney, The Wall Street Journal, October 28, 2015 ---
    http://www.wsj.com/articles/ibm-adds-4-billion-to-stock-buyback-program-1445962013?mod=djem_jiewr_AC_domainid

    International Business Machines Corp. disclosed Tuesday that the Securities and Exchange Commission is investigating how it accounts for certain revenue from transactions in the U.S., U.K. and Ireland.

    IBM said it learned of the investigation in August. The news was disclosed in the quarterly report IBM filed with the SEC on Tuesday. IBM said it is cooperating with the SEC.

    The Armonk, N.Y., company said it was confident that its results had been reported properly according to accounting rules. “IBM has a rigorous and disciplined process for the preparation of its financial statements and the reporting of revenue,” the company said Tuesday.

    IBM shares ended the day down 4% at $137.85.

    An SEC spokesman declined to comment.

    Two years ago, the SEC opened an investigation into IBM’s cloud computing revenue recognition. It was dropped a year later with no enforcement action by the SEC.

    Companies that sell a wide variety of technology services like IBM can find it difficult to allocate revenue appropriately, said Norman J. Bartczak, an adjunct professor at Columbia University who teaches and writes about financial regulations. “You’re selling, in effect, multiple services, and the accounting says that you need to do the best you can to break out those services and recognize it.”

    Separately on Tuesday, IBM said it added $4 billion to its stock-buyback program, bringing its total authorization to $6.4 billion. IBM has long been one of the most active corporate-share repurchasers.

    Through Sept. 30, IBM had bought back $3.85 billion in shares this year, including $1.54 billion in the third quarter.

    IBM is struggling with declines in hardware sales and the stronger dollar. The company has been shedding unprofitable hardware businesses as it reorganizes itself around a set of emerging cloud, security and data-analytics businesses that Chief Executive Virginia Rometty has dubbed the company’s “strategic imperatives.”

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on October 30, 2015

    International Accounting Regulator Offers New Guidance on Materiality
    by: James Willhite
    Oct 28, 2015
    Click here to view the full article on WSJ.com

    TOPICS: IASB, IFRS, International Accounting, Materiality

    SUMMARY: International accounting rules require firms to disclose any "material" information, but they also factor in the idea that what counts as material varies from situation to situation and company to company. That can leave finance departments scratching their heads over when to talk or keep quiet. In an effort to clarify matters, the International Accounting Standards Board, or IASB, which sets International Financial Reporting Standards, or IFRS, is publishing draft guidance that aims to help companies understand when a piece of information qualifies as material.

    CLASSROOM APPLICATION: This article is appropriate for coverage of materiality.

    QUESTIONS: 
    1. (Introductory) What is the IASB? What is its area of responsibility?

    2. (Advanced) What is IFRS? What counties use IFRS? What does the U.S. use? How does IFRS relate to accounting in the U.S.?

    3. (Advanced) What is materiality? Why is materiality important in accounting? How does it help accountants? How does it affect users of the financial statements?

    4. (Advanced) What is the IASB doing regarding materiality? Why?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "International Accounting Regulator Offers New Guidance on Materiality," by James Willhite, The Wall Street Journal, October 28, 2015 ---
    http://blogs.wsj.com/cfo/2015/10/28/international-accounting-regulator-offers-new-guidance-on-materiality/?mod=djem_jiewr_AC_domainid

    International accounting rules require firms to disclose any “material” information, but they also factor in the idea that what counts as material varies from situation to situation and company to company. That can leave finance departments scratching their heads over when to talk or keep quiet.

    In an effort to clarify matters, the International Accounting Standards Board, or IASB, which sets International Financial Reporting Standards, or IFRS, today is publishing draft guidance that aims to help companies understand when a piece of information qualifies as material.

    The draft guidance is intended to complement an amendment made in 2014. The deadline for comments is Feb. 26, 2016.

    “Financial statements are meant to be a means of communication, and should not be viewed as a mere compliance exercise,” said IASB Chairman Hans Hoogervorst in a press release. “Management needs to take a step back and consider whether they are providing the right level of information in the financial statement and whether it is useful.”

    A spokeswoman said the draft guidance is part of a larger effort on IASB’s part to improve disclosures, and that the input received until the deadline in February will be factored in to their final form.

     


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 6, 2015

    Taxes Drive Potential Merger of Pfizer, Allergan
    by: Liz Hoffman, Richard Rubin, and Jonathan D. Rockoff
    Oct 30, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, Tax Inversions

    SUMMARY: Pfizer is in early talks to acquire Ireland's Allergan PLC, a $100 billion-plus pursuit. The deal could be structured as a so-called inversion, in which a U.S. company buys a smaller foreign rival to move its legal home to a lower-tax jurisdiction abroad. American firms have seized on these transactions, drawing a regulatory crackdown last year and widespread political opposition. Pfizer Chief Executive Ian Read was unapologetic about his desire to reduce Pfizer's tax rate, saying that U.S. corporate tax rates have put the company at a disadvantage to its foreign rivals. Pfizer's pursuit places it squarely at the center of an intensifying debate over the U.S. corporate tax rates, among the highest in the world.

    CLASSROOM APPLICATION: This is an excellent update on the use of tax inversions to reduce corporate taxes.

    QUESTIONS: 
    1. (Introductory) What is an inversion? How are inversion structured?

    2. (Advanced) Why are inversions attractive to U.S. companies? Why are some parties against inversions?

    3. (Advanced) Why do tax rates vary so much across countries? What impact does that have on corporate plans and strategies?

    4. (Advanced) Should U.S. corporate tax rates be changed? Why or why not?

    5. (Advanced) What are the facts of the Pfizer deal? What are the benefits of the merger? What are the differences in tax rates?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    U.S. Treasury Moves to Curb Inversions
    by Sarah Krouse and Maureen Farrell
    Sep 23, 2015
    Online Exclusive

    New Tax Rules Will Slow, Not Halt, Inversion Deals
    by John D. McKinnon, Liz Hoffman, and Hester Plumridge
    Sep 25, 2014
    Online Exclusive

    New U.S. Inversion Rules Drag Down Shares of Deal Targets
    by Hester Plumridge, Shayndi Raice, and Alex MacDonald
    Sep 22, 2014
    Online Exclusive

    Obama Administration Issues New Rules to Combat Tax Inversions
    by John D. McKinnon, Damian Paletta
    Sep 22, 2015
    Online Exclusive

    Foreign Takeovers See U.S. Losing Tax Revenue
    by Liz Hoffman and John D. McKinnon
    Mar 06, 2015
    Online Exclusive

    Taxes Drive Potential Merger of Pfizer, Allergan," by Liz Hoffman, Richard Rubin, and Jonathan D. Rockoff, The Wall Street Journal, October 30, 2015
    http://www.wsj.com/articles/allergan-confirms-pfizer-talks-1446126062?mod=djem_jiewr_AC_domainid

    Pfizer Inc. is pursuing what could be the biggest overseas takeover to lower U.S. corporate tax liability, showing that efforts in Washington to stem such deals have amounted to little.

    Company officials confirmed Thursday a Wall Street Journal report that it was in early talks to acquire Ireland’s Allergan PLC, a $100 billion-plus pursuit that thrusts Pfizer, the maker of Advil and Viagra, into the rancorous debate over corporate taxes.

    It isn’t clear what terms New York-based Pfizer has in mind, but the deal could be structured as a so-called inversion, in which a U.S. company buys a smaller foreign rival to move its legal home to a lower-tax jurisdiction abroad. American firms have seized on these transactions, drawing a regulatory crackdown last year and widespread political opposition.

    Pfizer Chief Executive Ian Read was unapologetic about his desire to reduce Pfizer’s tax rate, saying Thursday that U.S. corporate tax rates have put the company at a disadvantage to its foreign rivals.

    “We’re fighting with one hand tied behind our back,” Mr. Read said in an interview. While declining to comment on the Allergan talks, he said Pfizer was “doing what we need to do to ensure that we can continue to innovate.”

    Such a takeover would create a pharmaceutical colossus, with a market value likely exceeding $300 billion. It would rank as one of the largest corporate mergers ever and push this year’s deal-making further into record territory.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 6, 2015

    Samsung Sells More Phones - But For Less Money
    by: Jonathan Cheng
    Nov 01, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Business Segments, Financial Accounting, Managerial Accounting, Margin, Profitability

    SUMMARY: Samsung Electronics Co. is selling more smartphones than it was this time last year, but there are fewer reasons to celebrate. Samsung has been selling more cheaper smartphones, and fewer high-end premium devices, than it did even compared to Samsung's rocky 2014.

    CLASSROOM APPLICATION: This article offers a good example of how change in sales among business segments can impact profitability.

    QUESTIONS: 
    1. (Introductory) What is the good news and the bad news does this article report for Samsung Electronics? How does this news affect the companies net income?

    2. (Advanced) What is business segment analysis and reporting? Why is it a valuable tool for management to use in business planning, strategy, and analysis?

    3. (Advanced) What Samsung segments are discussed in the article? What are the differences between the segments? How have sales of the segments changed? How do those changes affect the company's profitability?

    4. (Introductory) What can Samsung do to increase profitability? How could the company make changes to the segments? What other actions could the company take?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Samsung Says Mobile Is on the Mend
    by Jonathan Cheng and Min-Jeong Lee
    Oct 30, 2015
    Online Exclusive

    "Samsung Sells More Phones - But For Less Money," by Jonathan Cheng, The Wall Street Journal, November 1, 2015 ---
    http://blogs.wsj.com/digits/2015/11/01/samsung-sells-more-phones-but-for-less-money/?mod=djem_jiewr_AC_domainid

    Samsung Electronics Co. is selling more smartphones than it was this time last year. But under the hood, there are fewer reasons to celebrate.

    Last week, the South Korean smartphone giant celebrated its first quarter of year-on-year mobile profit growth since 2013.

    Samsung has been selling more cheaper smartphones, and fewer high-end premium devices, than it did even compared to Samsung’s rocky 2014, according to numbers from data firm Counterpoint Technology Market Research.

    Samsung doesn’t separately disclose smartphone sales numbers.

    Samsung shipped 84 million smartphones in the third quarter of 2015, 6.3% more than during the same stretch last year and more than the No. 2 and No. 3 players, Apple Inc. and Huawei Technologies Co., combined, according to Counterpoint.

    But while 55% of its smartphones were priced at $301 per unit or more at this time last year, that high-end segment has fallen to just 40% of Samsung’s overall smartphone sales, Counterpoint said.

    Phones priced $200 or below now account for 38% of total units shipped at Samsung, versus 30% this time last year.

    So while Samsung is indeed shipping more smartphones, it isn’t charging as much for them — or making as much money from them as it may have during the salad days of 2012 and 2013.

    But the numbers also suggest that Samsung is willing and able to take the fight to the low-cost Chinese competitors that emerged in 2013 and 2014, eating away at its market share and profits.

    Initially, some analysts and market watchers expressed concern that Samsung wasn’t slashing its prices on mid- and lower-end phones enough to face up to Xiaomi Corp., Huawei, Lenovo Group Ltd. and other Chinese companies who were offering competitive handsets at lower prices.

    But the numbers suggest that Samsung is willing to get its hands dirty. Much of the credit goes to the new Galaxy J series of low-end phones, which Samsung priced aggressively and packed with decent features and specifications, and which has been selling well, according to Counterpoint.

    According to Tom Kang, an analyst at Counterpoint, the Galaxy J series outsold any other lineup of Samsung phones in the third quarter of the year, including the flagship Galaxy S6, the popular and pricey Galaxy Note series or the mid-range Galaxy A series.

    Indeed, the Galaxy J5 was one of the bestsellers for Samsung in September, which “helped Samsung recover market share in markets like India where it had been experiencing market share loss,” Mr. Kang says.

    The success of the J series also underlines the company’s formidable strength in the traditional offline distribution channels that it has been nurturing for years — in contrast to some of its upstart Chinese rivals who, like Xiaomi, have famously stuck to an online-only strategy to sell to customers.

    But it’s not clear how long this low-end resurgence will last for Samsung. Adds Mr. Kang’s colleague Neil Shah, “Chinese brands are already hitting very hard in this price segment in online channels.”

    Samsung’s success, Mr. Shah says, “could become a temporary uptick… It remains to be seen if Samsung can continue volume momentum in next few quarters to translate these shipments into sales consistently in this highly price-competitive segment.”

    Of course, even if Samsung is successful in hanging on to its market share in the mid- and low-tier price segment, it’s not clear this would be any more than a hollow victory.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 6, 2015

    Shift to Benefits From Pay Helps Explain Sluggish Wage Growth
    by: Eric Morath and Jeffery Sparshott
    Nov 02, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Cost Behavior, Financial Accounting, Managerial Accounting, payroll, Taxation

    SUMMARY: The move toward benefits over pay provides a few clues that help explain a chief mystery of the current expansion: the unusually sluggish growth in wages. Some of the move toward benefits reflects a workforce that puts a high value on flexibility, health insurance, time off and other things besides wages. The share of worker compensation that comes in the form of wages or salaries has slipped over the past decade, with the decline accelerating since the recession ended. In the second quarter, 31% of total compensation came in the form of benefits such as vacation time, health insurance and bonuses, up from 29% a decade earlier.

    CLASSROOM APPLICATION: This article is appropriate for several areas of accounting - financial, managerial, and tax - and would be helpful for our students to see how all areas of accounting and business are interrelated. It is also good to show how accounting information can be used by management to make wise strategic decisions.

    QUESTIONS: 
    1. (Introductory) What does the article offer as reasons for sluggish wage growth? How does that affect employees?

    2. (Advanced) What journal entry would a company use to record paid compensation? What is the journal entry to record employee benefits? What journal entry is used to record employment taxes?

    3. (Advanced) What is cost behavior? Why is cost behavior analysis an important and valuable tool for management? Which types of compensation and benefits are fixed costs? Which are variable? Which are one-time costs, rather than continuing or reoccurring? How should these factors influence management's compensation decisions?

    4. (Advanced) How does tax law impact the various forms of compensation? Why types of compensation (of any kind) are deductible for the employer? What type of compensation are taxable for the employee? What types are not taxable? How could the Affordable Care Act affect the taxation of compensation and benefits? How does all of these tax influences cause incentives and disincentives of various types of compensation?

    5. (Advanced) What are employment taxes? What types of compensation and benefits are subject to employment taxes? How could this factor impact compensation decisions?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    U.S. Employment Costs Rise 0.6%, Suggesting New Wage Pressure
    by Kate Davidson
    Nov 01, 2015
    Online Exclusive

    "Shift to Benefits From Pay Helps Explain Sluggish Wage Growth," by Eric Morath and Jeffery Sparshott, The Wall Street Journal, November 2, 2015 ---
    http://www.wsj.com/articles/shift-to-benefits-from-pay-helps-explain-sluggish-wage-growth-1446406818?mod=djem_jiewr_AC_domainid

    U.S. employers, slow to reward workers with higher pay, have been quicker in recent years to offer signing bonuses, more paid time off and other perks.

    The move toward benefits over pay provides a few clues that help explain a chief mystery of the current expansion: the unusually sluggish growth in wages.

    Some of the move toward benefits reflects a workforce that puts a high value on flexibility, health insurance, time off and other things besides wages.

    But the shift also highlights the fragility of an expansion in which employers remain hesitant to commit to higher wages and are turning instead to more revocable perks. That could have broader repercussions if consumers aren’t able to tap bigger paychecks and boost their spending.

    The share of worker compensation that comes in the form of wages or salaries has slipped over the past decade, with the decline accelerating since the recession ended. In the second quarter, 31% of total compensation came in the form of benefits such as vacation time, health insurance and bonuses, up from 29% a decade earlier.

    “It’s a structural shift that is going on,” said Andrew Chamberlain, chief economist at recruiting website Glassdoor.com. “Across the labor market, it’s pretty significant shift of dollars from wages to benefits.”

    Companies began offering health insurance to skirt wage controls during World War II. Now they are getting more creative, offering gym memberships, cappuccino machines, free cellphones and dog-friendly workplaces.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 6, 2015

    The Big Number: 24% Share of S&P 500 companies that discussed criteria used to evaluate auditors this year
    by: Maxwell Murphy
    Nov 03, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Auditing, Audit Committees

    SUMMARY: Corporate audit committees are providing more details about how they evaluate their auditing firms. And that's a good thing for shareholders and boards of directors. Nearly a quarter, or 24%, of S&P 500 companies detailed in their proxy statements the criteria they use to judge their outside auditors.

    CLASSROOM APPLICATION: This article can be used in an auditing class when covering audit committees and selection of auditing firms.

    QUESTIONS: 
    1. (Introductory) What is auditing? Why do companies hire firms to audit?

    2. (Advanced) What is an audit committee? What is its area of responsibility? Why is the work of audit committees important?

    3. (Advanced) What does the article report regarding the trends in company reporting? Why is this considered to be a positive trend? Should this reporting be a requirement for all public companies? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    :"The Big Number: 24% Share of S&P 500 companies that discussed criteria used to evaluate auditors this year," by Maxwell Murphy, The Wall Street Journal, November 3, 2015 ---
    http://www.wsj.com/articles/the-big-number-1446502915?mod=djem_jiewr_AC_domainid

    24%

    Share of S&P 500 companies that discussed criteria used to evaluate auditors this year.

    Corporate audit committees are providing more details about how they evaluate their auditing firms.

    And that’s a good thing for shareholders and boards of directors.

    Nearly a quarter, or 24%, of S&P 500 companies detailed in their proxy statements the criteria they use to judge their outside auditors, says a coming study from the Center for Audit Quality, a nonpartisan public policy group, and research firm Audit Analytics.

    That’s triple the percentage that did so last year.

    The spike is “one part of a broader, positive trend,” said Cindy Fornelli, the center’s executive director.

    “Audit committees are working harder than ever at financial reporting systems, and that includes enhanced efforts to work with the external auditors and improve transparency,” said Michael Young, a partner with law firm Willkie Farr & Gallagher LLP and chairman of its securities-litigation and enforcement practice.

    Eli Lilly & Co., Archer Daniels Midland Co., McGraw Hill Financial Inc. and Vertex Pharmaceuticals Inc., are among the companies that added the information to this year’s proxies.

    McGraw Hill Chief Financial Officer Jack Callahan said his company holds “management, internal and external audit to a very high standard,” and the board’s audit committee is in frequent contact with its outside accountants.

    A spokesman for Lilly said the company reviews its audit disclosures annually, and added more information about its review of outside auditors to this year’s proxy because it “believed the information was important to shareholders.”

    ADM and Vertex declined to comment.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 6, 2015

    Firms, Regulators Try to Sort Out What's Worth Disclosing to Investors
    by: Emily Chasen and Samuel Rubenfeld
    Nov 03, 2015
    Click here to view the full article on WSJ.com

    TOPICS: FASB, Financial Accounting, IASB, Materiality

    SUMMARY: Finance chiefs are preparing for changes in one of their most fundamental tasks: figuring out what's important enough to tell shareholders. Regulators in the U.S. and abroad are tinkering with the concept of "materiality," or how to determine what information is necessary for companies to disclose publicly. For companies, the sorting process is costly and complex, partly because what's considered "material" varies from regulator to regulator. Congress and the Supreme Court also have their own ideas.

    CLASSROOM APPLICATION: This article offers an excellent look at the different definitions of materiality and the challenges associated with determining what is material.

    QUESTIONS: 
    1. (Introductory) What is materiality? What are some examples of situations in which materiality would apply?

    2. (Advanced) Why is materiality important in accounting? How does it help accountants? How does it affect users of the financial statements?

    3. (Advanced) Why are companies so challenged in determining what is material? What parties or organizations have determined a definition of materiality and what are the various definitions in each of those cases? How do the definitions differ?

    4. (Advanced) Why have so many parties defined materiality? Why do those definitions vary?

    5. (Advanced) What could be done to create more consistency between the materiality definitions? What party or parties could work to unify the definition?

    6. (Advanced) What is the IASB? What is its area of responsibility? What is FASB? What is its purpose? What are its areas of authority? Why are these parties involved in the defining materiality?

    7. (Advanced) How has preparation of financial statements changed in recent years? How has the use of financial statements by outside parties changed? How does this affect materiality?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Definition of Materiality Depends Who You Ask
    by Emily Chasan
    Nov 03, 2015
    Online Exclusive

    International Accounting Regulator Offers New Guidance on Materiality
    by James Willhite
    Oct 28, 2015
    Online Exclusive

    FASB Proposes Changes to 'Materiality'
    by Emily Chasan
    Sep 24, 2015
    Online Exclusive

    "Firms, Regulators Try to Sort Out What's Worth Disclosing to Investors," by Emily Chasen and Samuel Rubenfeld, The Wall Street Journal, November 3, 2015 ---
    http://www.wsj.com/articles/firms-regulators-try-to-sort-out-whats-worth-disclosing-to-investors-1446511890?mod=djem_jiewr_AC_domainid

    Finance chiefs are preparing for changes in one of their most fundamental tasks: figuring out what’s important enough to tell shareholders.

    Regulators in the U.S. and abroad are tinkering with the concept of “materiality,” or how to determine what information is necessary for companies to disclose publicly.

    For companies, the sorting process is costly and complex, partly because what’s considered “material” varies from regulator to regulator. Congress and the Supreme Court also have their own ideas.

    “A lot of [companies] find it difficult to work with the concept of materiality,” said Hans Hoogervorst, chairman of the London-based International Accounting Standards Board. Last week the board proposed allowing corporate executives to exercise more of their own judgment on what’s crucial to include in public filings.

    At least a half-dozen standard setters, including accounting rule makers, the Securities and Exchange Commission and various stock exchanges, have guidelines on the subject. Some of them want companies to sharpen their focus to avoid overwhelming investors with useless information.

    The U.S. Financial Accounting Standards Board announced plans in September to do away with its own standard and instead defer to one set by the U.S. Supreme Court in 1976. The board said it wanted to clarify that “materiality is a legal concept.” The SEC is also working on its own project to improve the usefulness of corporate disclosures and is seeking input from the public through the end of November.

    Business groups including the U.S. Chamber of Commerce say they plan to press the issue this year because of the growing complexity of deciding what information is crucial to keeping shareholders in the loop.

    “Disclosure may be straying from its core purpose,” said John Hayes, chief executive of packaging company Ball Corp, who heads the Business Roundtable’s corporate governance group. “If we thought these things were material to having our investors make informed decisions, we’d be talking about them already. But it actually gets in the way.”

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 13, 2015

  • News Corp Earnings Boosted by Tax Benefit
    by: Lukas I. Alpert
    Nov 06, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, Financial Accounting, Financial Reporting, Foreign Currency Reporting

    SUMMARY: News Corp boosted its net income for the September quarter because of a one-time tax benefit related to the sale of its digital-education business, but revenue fell 4% due to foreign currency fluctuations and print advertising weakness. Income from continuing operations rose to $143 million, or 22 cents a share, from $109 million, or 15 cents a share, in the year-ago period.

    CLASSROOM APPLICATION: This article offers examples regarding how a one-time tax benefit and accounting for foreign currency fluctuations, among other issues, appear in corporate financial reporting.

    QUESTIONS: 
    1. (Introductory) What are the facts regarding News Corp's most recent quarterly financial reports? Is the company's financial situation improving?

    2. (Advanced) The article mentions a one-time tax benefit. What is that? How are they treated for financial accounting purposes?

    3. (Advanced) What transaction caused News Corp's one-time tax benefit? How did it affect the company's financial results?

    4. (Advanced) What are continuing operations? Why is income from continuing operations reported on the income statement? What value does it add for the users of the financial statements? Why was News Corp's income from continuing operations reported in this article?

    5. (Advanced) The article reports News Corp's earnings before interest, taxes, depreciation and amortization. How valuable information does that provide? What did the article say about News Corp's earnings before interest, taxes, depreciation and amortization? What was the reason for the drop? Should investors and creditors be concerned? What can management do to address this issue?

    6. (Advanced) How do companies account for foreign currency fluctuation? How do those fluctuations affect a company's financial statements?

    7. (Advanced) How have News Corp's financial statements been affected by foreign currency fluctuations? Is it a favorable or unfavorable affect? What could News Corp do to minimize this impact?

    Reviewed By: Linda Christiansen, Indiana University Southeast

     "News Corp Earnings Boosted by Tax Benefit," by Lukas I. Alpert, The Wall Street Journal, November 6, 2015 ---
    http://www.wsj.com/articles/news-corp-earnings-boosted-by-tax-benefit-1446761584?mod=djem_jiewr_AC_domainid

    News Corp boosted its net income for the September quarter because of a one-time tax benefit related to the sale of its digital-education business, but revenue fell 4% due to foreign currency fluctuations and print advertising weakness.

    Income from continuing operations rose to $143 million, or 22 cents a share, from $109 million, or 15 cents a share, in the year-ago period, the media company said. Excluding certain items, adjusted earnings were 5 cents a share in the latest period.

    Revenue declined to $2.01 billion from $2.11 billion a year earlier as the company saw an 11% drop in revenue at the news and information services segment, which accounts for two-thirds of News Corp’s total revenue.

    Analysts polled by Thomson Reuters had expected total revenue of $2.09 billion in the quarter and adjusted per-share earnings of 6 cents.

    “While we have experienced understandable challenges in a couple of our businesses this quarter, we remain confident in our overall plans for digital and global expansion,” News Corp Chief Executive Robert Thomson said on a call with analysts.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 13, 2015

  •  Michael Kors Reports Higher Retail Sales
    by: Suzanne Kapner
    Nov 05, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Business Segments, Managerial Accounting, Segment Analysis

    SUMMARY: Michael Kors Holdings Ltd. reported higher retail sales helped by new store openings, but it lowered growth forecasts for sales and profit as shoppers turn to smaller handbags that cost less. Sales were hurt by a trend toward purchasing smaller handbags, such as cross-body satchels that are less expensive. Mr. Idol also said the company's watch business had suffered and fewer shoppers were going to stores, in part due to a falloff in tourists visiting the U.S. in the face of a strong greenback.

    CLASSROOM APPLICATION: This article offers a good example of how changes in profitability of certain segments of a business impact profitability of the company. This particular article offers a variety of business segments, including small vs. large handbags, handbags vs. watches and other items, and types of customers.

    QUESTIONS: 
    1. (Introductory) What did Michael Kors Holdings Ltd. report regarding its recent retail sales? What was its report regarding its forecast for sales and profit?

    2. (Introductory) What reasons did the company offer for the changes in its forecasts? Is this impacting only Kors, or are other companies affected by the conditions as well?

    3. (Advanced) What is a business segment? What is segment analysis? What tools can management use to analyze segments? What information can that provide? What is the value of that information? What can management do with it? What benefits could result?

    4. (Advanced) What business segments of Kors were addressed in the article? Name as many as possible. How have conditions changed for these segments? How are these changes affecting the company?

    5. (Advanced) Use business segmenting tools to analyze and address changes in Kors' business and financial reporting. What can management do to address this situation? How can the company improve forecasts and profitability?

    Reviewed By: Linda Christiansen, Indiana University Southeast 

    "Michael Kors Reports Higher Retail Sales," by Suzanne Kapner, The Wall Street Journal, November 5, 2015 ---
    http://www.wsj.com/articles/michael-kors-beats-expectations-as-revenue-rises-1446642705?mod=djem_jiewr_AC_domainid

  • Michael Kors Holdings Ltd. on Wednesday reported higher retail sales helped by new store openings, but it lowered growth forecasts for sales and profit as shoppers turn to smaller handbags that cost less.

    Its retail sales in the latest quarter rose 7.5% from a year earlier to $532.8 million. Kors opened 116 new stores in the past 12 months, bringing its total to 589 locations around the world. Excluding store openings and closings, retail sales fell 8.5%.

    Kors Chief Executive John Idol said sales were hurt by a trend toward purchasing smaller handbags, such as cross-body satchels that are less expensive. Mr. Idol also said the company’s watch business had suffered and fewer shoppers were going to stores, in part due to a falloff in tourists visiting the U.S. in the face of a strong greenback.

    Handbag makers like Kors and Coach have faced a slowing market as consumers spend more money on restaurants, travel and entertainment as opposed to goods like accessories and handbags. Growth in handbags sales has been decelerating in the past few years, according to Barclays.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 13, 201

     

    Pfizer Piles Profits Abroad
    by: Richard Rubin
    Nov 09, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, Effective Tax Rate, Financial Accounting, Financial Reporting

    SUMMARY: Pfizer Inc. told investors it had a 25.5% global tax rate in 2014. The company could have cut that rate to 7.5% if it reported its foreign earnings the way most U.S. corporations do. Pfizer's accounting methods raise its reported tax rate, without increasing the actual taxes the company pays. More than two-thirds of the company's 2014 tax expense - $2.2 billion out of $3.1 billion - was money the company will actually pay only if and when it chooses to repatriate foreign profits. Pfizer's case shows how the effective tax rates reported to investors can be of limited use in analyzing what a company actually pays to governments. It also complicates the company's claim that it is suffering under the U.S. tax system. Corporate tax returns are private, and securities filings don't show explicitly how much each company paid each government for each tax year. Companies based in the U.S. must pay the full 35% corporate tax on the profits they earn around the world. However, they get tax credits for payments to foreign governments, and they don't have to pay the U.S. until they bring the money home.

    CLASSROOM APPLICATION: This is an interesting article about how income taxes are presented for corporate financial reporting purposes.

    QUESTIONS: 
    1. (Introductory) What is an effective tax rate? What is the basic calculation? The article discusses a corporate effective tax rate. Do individuals also have them?

    2. (Advanced) What did Pfizer report as its effective tax rate? Why is that number particularly important at this time? What plans does the company have that impacts its tax rates?

    3. (Advanced) What is the law regarding tax liability for U.S. companies earning foreign income? What are the rules regarding income earned in other countries?

    4. (Advanced) What choices does Pfizer have for calculating its effective tax rate? Which option does the company choose to report? Why?

    5. (Advanced) Why do companies disclose effective tax rates? What are the benefits of calculating them using Pfizer's method? What are potential problems? What are the benefits of using the other options? Should one of the methods be required? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Taxes Drive Potential Merger of Pfizer, Allergan
    by Liz Hoffman, Richard Rubin, and Joanthan D. Rokoff
    Oct 30, 2015
    Online Exclusive

     "Pfizer Piles Profits Abroad," by Richard Rubin, The Wall Street Journal, November 9, 2015 ---
    http://www.wsj.com/articles/pfizer-piles-profits-abroad-1447031546?mod=djem_jiewr_AC_domainid

     Pfizer Inc. told investors it had a 25.5% global tax rate in 2014. The company could have cut that rate to 7.5% if it reported its foreign earnings the way most U.S. corporations do.

    The pharmaceutical company, which is exploring a merger with Allergan PLC that could put the combined company’s legal address outside the U.S., has been complaining that the U.S. tax system hobbles its ability to compete globally. But Pfizer’s accounting methods raise its reported tax rate, without increasing the actual taxes the company pays. More than two-thirds of the company’s 2014 tax expense—$2.2 billion out of $3.1 billion—was money the company will actually pay only if and when it chooses to repatriate foreign profits.

    “It gives a distorted picture of how much tax they’re paying,” said Marty Sullivan, chief economist at Tax Analysts, the nonprofit publisher of Tax Notes. “Their tax situation is one of the most advantageous of any major U.S. corporation.”

    Joan Campion, a spokeswoman for Pfizer, said the company complies with rules and regulations. “Our aim is to level the playing field with foreign competitors and to have more resources to accomplish our purpose of bringing more innovative therapies to patients,” she said. “We are focused on continually improving the way we do business while maintaining the highest standards of compliance.”

    Continued in article

     


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 13, 2015

     

    What Is the Interest Coverage Ratio?
    by: Simon Constable
    Nov 09, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Financial Statement Analysis, Interest Coverage Ratio

    SUMMARY: The interest coverage ratio is a measure of how affordable a company's debt is given the company's earnings. Or put another way, how much cushion a firm has to withstand hiccups in the business and still make its debt payments-an important consideration for investors. The ratio can be calculated by dividing operating income-typically defined as earnings before interest and taxes, or EBIT-by its interest expense. (There are variations, but this is the simplest.) Higher interest rates for corporate borrowing will push coverage ratios down unless profits increase.

    CLASSROOM APPLICATION: Coverage of this ratio is particularly timely, given the looming increase in interest rates, Use this article to show students how the markets, regulation, and other external forces impact a company's financial reporting, financial condition, and strategy.

    QUESTIONS: 
    1. (Introductory) How is the interest coverage ratio calculated? What does it communicate?

    2. (Advanced) Why is the interest coverage ratio a valuable part of financial statement analysis? What strengths can it show about a business? What problems can it expose?

    3. (Advanced) Why is it important for investors to consider the interest coverage ratio at this particular time? What coming changes could negatively impact some businesses?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Fed's Williams: Next Step for Fed Is to Raise Rates, Data Decides When
    by Michael S. Derby
    Nov 09, 2015
    Online Exclusive

     "What Is the Interest Coverage Ratio?" by Simon Constable, The Wall Street Journal, November 9, 2015 ---
    http://www.wsj.com/articles/what-is-the-interest-coverage-ratio-1447038108?mod=djem_jiewr_AC_domainid

     What is the interest coverage ratio, and why might it matter for investors?

    The interest coverage ratio is a measure of how affordable a company’s debt is given the company’s earnings. Or put another way, how much cushion there is for a firm to withstand hiccups in the business and still make its debt payments—an important consideration for investors.

    The ratio can be calculated by dividing operating income—typically defined as earnings before interest and taxes, or EBIT—by its interest expense. (There are variations, but this is the simplest.)

    Journal Report Insights from The Experts Read more at WSJ.com/WealthReport

    More in Investing in Funds & ETFs A Year-End Game Plan for Investors How to Be Smarter With a ‘529’ Check Your 401(k) Fees Want to Be a Sustainable Investor? U.S.-Stock Funds Rose 6.2% in Month . “If your coverage ratio is 1, then you have no cushion,” says Dan Gode, accounting professor at the New York University Stern School of Business. Simply: When a company’s operating earnings are equal to its borrowing costs (giving it a coverage ratio of 1.0), there is no margin for error. If the business meets a rough patch and earnings drop, then the company might not be able to pay the interest on its loans. “If the ratio is north of 3 or 4, then you have some cushion,” Prof. Gode adds.

    Speculation over the Federal Reserve’s interest-rate intentions comes into play. Higher interest rates for corporate borrowing will push coverage ratios down unless profits increase. For some companies, that won’t matter much; for others, it will make an already heavy debt burden harder to bear.

    “Overall corporate debt might not be high, but that masks great variation” among firms, Prof. Gode says. He points to Apple Inc. as a cash-rich company with relatively little debt. “And then there are plenty that have huge levels of debt,” including some energy companies and hospitals.

    Continued in article

     


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 13, 2015

     

    U.S. Targets Pharmacies Over Soaring Claims to Military Health Program
    by: Joseph Walker
    Nov 09, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Forensic Accounting, Fraud, Internal Controls

    SUMMARY: Federal prosecutors in at least four states are mounting investigations into what they describe as widespread fraud by compounding pharmacies in claims to the health-insurance program that covers 9.5 million U.S. military members and their families. In the latest move, four Florida pharmacies agreed to pay $12.8 million combined to settle civil allegations that they falsely billed the insurance program Tricare for expensive pharmaceutical creams and gels to treat pain, scars and other ailments. Some prescriptions in the Tricare case were illegitimate because they weren't based on genuine doctor-patient relationships, a violation of the federal False Claims Act.

    CLASSROOM APPLICATION: This article can be used as an example of fraud, as well as to show how internal controls and fraud analysis can be instituted for fraud prevention and/or detection.

    QUESTIONS: 
    1. (Introductory) What are the facts of the cases presented in the article? Who are the parties involved in these cases? What are the estimated losses?

    2. (Advanced) What laws could apply to fraudulent activities? What laws are involved in the cases detailed in the article? What are some potential penalties for these activities?

    3. (Advanced) What are internal controls? What are the purposes of internal controls?

    4. (Advanced) What internals controls were in place in these situations? What fraudulent actions were they able to prevent or detect? What internal controls were not in place but should have been? What should be added to prevent and/or detect this kind of fraud in the future?

    Reviewed By: Linda Christiansen, Indiana University Southeast

     "U.S. Targets Pharmacies Over Soaring Claims to Military Health Program," by Joseph Walker, The Wall Street Journal, November 9, 2015 ---
    http://www.wsj.com/articles/u-s-targets-pharmacies-over-soaring-claims-to-military-health-program-1447032619?mod=djem_jiewr_AC_domainid

     Federal prosecutors in at least four states are mounting investigations into what they describe as widespread fraud by compounding pharmacies in claims to the health-insurance program that covers 9.5 million U.S. military members and their families.

    In the latest move, four Florida pharmacies last month agreed to pay $12.8 million combined to settle civil allegations that they falsely billed the insurance program Tricare for expensive pharmaceutical creams and gels to treat pain, scars and other ailments, according to A. Lee Bentley III, the U.S. attorney for the Middle District of Florida.

    Two of the compounding pharmacies, which make customized medicines by mixing pharmaceutical ingredients, employed salespeople who paid doctors to write prescriptions to Tricare beneficiaries, prosecutors said. In some cases, doctors would conduct telephone consultations with beneficiaries and then write them prescriptions, despite having not met with the beneficiaries in person, prosecutors said. Those prescriptions were illegitimate because they weren’t based on genuine doctor-patient relationships, a violation of the federal False Claims Act, the prosecutors said.

    One of the pharmacies had paid commissions of up to 58% of the amount paid by Tricare to marketers who promoted their drugs to physicians, prosecutors alleged in settlement agreements. The commissions amounted to improper kickbacks in exchange for referring business to a government agency, the prosecutors said.

    Continued in article


     

    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

  • Coming to a Balance Sheet Near You: $2 Trillion in Leases
    by: Michael Rapoport
    Nov 11, 2015
    Click here to view the full article on WSJ.com

    TOPICS: FASB, Financial Accounting, Lease Accounting

    SUMMARY: Accounting rule makers agreed in principle to require companies to add to the balance sheet most of the leases they use, a long-awaited move that could swell balance sheets by as much as $2 trillion and make some companies look more leveraged to the average investor than they do now. The vote by the Financial Accounting Standards Board, which sets accounting rules for U.S. companies, will affect any company that pays to lease real estate, office equipment, aircraft or other items. It is expected to have the biggest impact on companies that use lease financing as a key part of their business, like airlines that lease the planes they use, and retailers and restaurant chains that lease real estate for their locations.

    CLASSROOM APPLICATION: These articles and the following questions offer lease accounting updates for financial accounting classes.

    QUESTIONS: 
    1. (Introductory) What changes did FASB make to lease accounting? How does this differ from the previous accounting treatment for leases?

    2. (Advanced) How will each of the four financial statements be affected by the changes in lease accounting? What types of companies will have improved financial results? Companies in what situations will have less favorable financial results under the new rules?

    3. (Advanced) What is FASB? Why did it have the authority to make this change?

    4. (Advanced) The article states rating firms and investors have long adjusted corporate numbers to take into account companies off-the-book lease obligations. What does that mean? What adjustments would that require? How will this change in lease accounting affect the actions of these rating firms and investors?

    5. (Advanced) How will cash flows be affected by the rule change? Why?

    6. (Advanced) What are the concerns of those critical of the new rules? Are these concerns legitimate? Should the rule have been changed? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

  • "Coming to a Balance Sheet Near You: $2 Trillion in Leases," by Michael Rapoport, The Wall Street Journal, November 11, 2015 ---
    http://www.wsj.com/articles/leases-to-put-new-weight-on-corporate-balance-sheets-1447200831?mod=djem_jiewr_AC_domainid

     Some of America’s best-known companies—names such as AT&T Inc., CVS Health Corp. and Delta Air Lines Inc. —likely will soon have to effectively boost the debt they report on their balance sheets by tens of billions of dollars. The total possible impact for all companies: as much as $2 trillion.

    Within a few years, companies may have to add to their books the cost of many leases for real estate, aircraft and other items that aren’t already carried there. U.S. rule makers are set to vote Wednesday on whether to approve in principle long-awaited new rules requiring companies to make that addition, though the move wouldn’t take effect until at least 2018.

    If approved, as many observers expect, that change could dramatically boost the reported leverage for retailers, restaurant chains, airlines, package-delivery companies and other companies that use leases heavily. Companies must already disclose their lease obligations, but it is done in the footnotes to their financial statements; they aren’t included in the balance-sheet numbers to which investors pay the most attention.

    The proposed move by the Financial Accounting Standards Board could help investors more clearly see the true health of companies that owe a lot of money through lease commitments but currently don’t have to reflect those commitments in their balance-sheet numbers, said FASB Chairman Russell Golden. It “will give investors, lenders and others a more accurate picture of the financial condition of the companies to which they provide capital.”

    The change won’t create any new obligations for companies, and it isn’t expected to drastically change companies’ earnings or book value. But it could change some financial ratios, such as return on assets. That is because companies will be adding assets to their balance sheets as well as obligations to reflect the impact of the leases. As assets rise, the return as a percentage of those assets would decline.

    The proposed rules have been in the works for a decade, and are “very much needed,” said J. Edward Ketz, an associate professor of accounting at Penn State University. Companies have often structured the terms of their leases to enable them to keep from officially counting many leases on their books, regulators and critics have said.

    Ratings firms and investors who closely watch balance sheets have long adjusted their reading of corporate numbers to take into account companies’ off-the-books lease obligations. But the average small investor could be in for a surprise when companies start officially counting billions of dollars in leases on their balance sheet, Mr. Ketz said.

    “You have sophisticated people, knowledgeable people in the area who have been doing it. The small investors do not,” he said.

    AT&T had $31 billion in operating-lease obligations—those not currently carried on the balance sheet—as of the end of 2014, according to its latest annual report. Adding those obligations to the balance sheet would significantly increase its liabilities; the company has long-term debt of $76 billion.

    An AT&T spokesman noted the company’s leases are already disclosed in its annual report’s footnotes, and he said the new rule would simply “change the presentation of this information without giving investors and analysts significant new information beyond what we already provide.”

    Continued in article

     


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

    Some of America’s best-known companies—like AT&T, CVS and Delta—likely will soon have to effectively boost the debt they report on their balance sheets

    Some of America’s best-known companies—names such as AT&T Inc., CVS Health Corp. and Delta Air Lines Inc. —likely will soon have to effectively boost the debt they report on their balance sheets by tens of billions of dollars. The total possible impact for all companies: as much as $2 trillion.

    Within a few years, companies may have to add to their books the cost of many leases for real estate, aircraft and other items that aren’t already carried there. U.S. rule makers are set to vote Wednesday on whether to approve in principle long-awaited new rules requiring companies to make that addition, though the move wouldn’t take effect until at least 2018.

    If approved, as many observers expect, that change could dramatically boost the reported leverage for retailers, restaurant chains, airlines, package-delivery companies and other companies that use leases heavily. Companies must already disclose their lease obligations, but it is done in the footnotes to their financial statements; they aren’t included in the balance-sheet numbers to which investors pay the most attention.

    The proposed move by the Financial Accounting Standards Board could help investors more clearly see the true health of companies that owe a lot of money through lease commitments but currently don’t have to reflect those commitments in their balance-sheet numbers, said FASB Chairman Russell Golden. It “will give investors, lenders and others a more accurate picture of the financial condition of the companies to which they provide capital.”

    The change won’t create any new obligations for companies, and it isn’t expected to drastically change companies’ earnings or book value. But it could change some financial ratios, such as return on assets. That is because companies will be adding assets to their balance sheets as well as obligations to reflect the impact of the leases. As assets rise, the return as a percentage of those assets would decline.

    The proposed rules have been in the works for a decade, and are “very much needed,” said J. Edward Ketz, an associate professor of accounting at Penn State University. Companies have often structured the terms of their leases to enable them to keep from officially counting many leases on their books, regulators and critics have said.

    Ratings firms and investors who closely watch balance sheets have long adjusted their reading of corporate numbers to take into account companies’ off-the-books lease obligations. But the average small investor could be in for a surprise when companies start officially counting billions of dollars in leases on their balance sheet, Mr. Ketz said.

    “You have sophisticated people, knowledgeable people in the area who have been doing it. The small investors do not,” he said.

    AT&T had $31 billion in operating-lease obligations—those not currently carried on the balance sheet—as of the end of 2014, according to its latest annual report. Adding those obligations to the balance sheet would significantly increase its liabilities; the company has long-term debt of $76 billion.

    Continued in article

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


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

    G-20 Leaders Set to Approve Overhaul of Corporate-Tax Rules
    by: Paul Hannon and Richard Rubin
    Nov 14, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, International Business, International Taxation

    SUMMARY: A push to close international corporate-tax loopholes is expected to spur competition for lower rates overseas and increase pressure in Washington for a bipartisan deal to revamp the corporate-tax code. Leaders from the Group of 20 largest economies are set to give their final stamp of approval to a major overhaul of the international rules governing corporate taxes. The change is aimed at preventing companies from using myriad tactics to shift profits among different jurisdictions to avoid taxation. Such practices cost governments between $100 billion to $240 billion in lost revenue each year. The new rules apply only to companies that operate in more than one country. Nations aren't required to adopt them, though they are expected to be put in place widely, given the support from G-20 leaders.

    CLASSROOM APPLICATION: This article is useful for a corporate tax class as it impacts how multinational corporations are taxed and it could cause a change in U.S. corporate taxes.

    QUESTIONS: 
    1. (Introductory) What is the G-20 meeting? What countries are involved?

    2. (Advanced) What area of corporate taxation is the focus of the G-20 vote? Why are these leaders making this decision? What is the need for this vote?

    3. (Advanced) What kind of impact could this vote have on U.S. companies? How could it affect U.S. tax law? Why?

    4. (Advanced) Why do some parties favor corporate tax cuts? Why are some parties against them? How do corporate tax rates in other countries affect rates in the U.S.?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "G-20 Leaders Set to Approve Overhaul of Corporate-Tax Rules," by Paul Hannon and Richard Rubin, The Wall Street Journal, November 14, 2015 ---
    http://www.wsj.com/articles/g-20-leaders-set-to-approve-overhaul-of-corporate-tax-rules-1447452996?mod=djem_jiewr_AC_domainid

    A push to close international corporate-tax loopholes is expected to spur competition for lower rates overseas and increase pressure in Washington for a bipartisan deal to revamp the corporate-tax code.

    Leaders from the Group of 20 largest economies, meeting in Turkey on Sunday and Monday, are set to give their final stamp of approval to a major overhaul of the international rules governing corporate taxes.

    The change is aimed at preventing companies from using myriad tactics to shift profits among different jurisdictions to avoid taxation. Such practices cost governments between $100 billion to $240 billion in lost revenue each year, according to the Organization for Economic Cooperation and Development.

    The new rules apply only to companies that operate in more than one country. Nations aren’t required to adopt them, though they are expected to be put in place widely, given the support from G-20 leaders.

    Stricter tax collection would mean governments could vie for investment and jobs mainly by lowering corporate tax rates—potentially shining a spotlight on the U.S. rate, which at 39% is much higher than that of other developed countries.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

    Jury Says Ernst & Young Liable for Madoff Investor's Losses
    by: Jacqueline Palank
    Nov 14, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Auditing, Auditor Liability, Forensic Accounting, Fraud

    SUMMARY: A Washington state court jury found Ernst & Young liable for millions of dollars in losses a Washington investment firm took from the collapse of Bernard Madoff's Ponzi scheme. Steven W. Thomas, attorney for FutureSelect Portfolio Management Inc., said the jury found the Big Four auditing firm was negligent in its work as auditor for a feeder fund that pooled investors' cash and funneled it Mr. Madoff's way. FutureSelect claimed that Ernst & Young, as auditor, supplied false information that FutureSelect Portfolio Management Inc. relied on to invest with the feeder fund. "EY was not the auditor of any Madoff entity; we were among the many auditors of funds that chose to use Madoff as their investment adviser. While we regret the investors' losses, no audit of a Madoff-advised fund could have detected this Ponzi scheme," Ernst & Young's Amy Call Well.

    CLASSROOM APPLICATION: This article is an excellent development to use in an auditing class, as well as for forensic accounting. It will be interesting to see if audit firms will be held liable for fraud in entities other than those they audited, as is the case here. This could be an expensive problem for audit firms, and if it continues and grows, could raise the fees firms would have to charge.

    QUESTIONS: 
    1. (Introductory) What are the facts of this case? Who are the parties to the case? What was the jury's verdict?

    2. (Introductory) What is a Big Four accounting firm? What do they do? Why are they called the Big Four?

    3. (Advanced) Who is Bernard Madoff? For what actions is he famous? How did he cause damage to some people? Where is he now?

    4. (Advanced) What is Ernst & Young's connection to Mr. Madoff? How could the firm be liable for some of the damages resulting from Mr. Madoff?

    5. (Advanced) What are some potential ripple effects that could result from the outcome of this lawsuit? How could this verdict change the way firms do business? How could it affect what firm's charge for their work?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Investor Seeks to Hold Ernst & Young Liable for Madoff Losses
    by Jacqueline Palank
    Oct 15, 2015
    Online Exclusive

    "Jury Says Ernst & Young Liable for Madoff Investor's Losses," by Jacqueline Palank, The Wall Street Journal, November 14, 2015 ---
    http://www.wsj.com/articles/jury-says-ernst-young-liable-for-madoff-investors-losses-1447453162?mod=djem_jiewr_AC_domainid

    A Washington state court jury on Friday found Ernst & Young liable for millions of dollars in losses a Washington investment firm took from the collapse of Bernard Madoff’s Ponzi scheme.

    Steven W. Thomas, attorney for FutureSelect Portfolio Management Inc., said the jury found the Big Four auditing firm was negligent in its work as auditor for a feeder fund that pooled investors’ cash and funneled it Mr. Madoff’s way. FutureSelect claimed that Ernst & Young, as auditor, supplied false information that FutureSelect Portfolio Management Inc. relied on to invest with the feeder fund.

    FutureSelect, of Redmond, Wash., invested approximately $200 million in a feeder fund that sent its money to Mr. Madoff, whose 2008 arrest exposed a massive Ponzi scheme in which investors lost more than $17 billion. In 2010, FutureSelect sued Ernst & Young, accusing it of negligence and seeking to recover its losses.

    While FutureSelect had sought damages for the full amount of its investment, Mr. Thomas said the jury awarded total damages of $20.3 million, which the firm lost during the time in which Ernst & Young was the feeder fund’s auditor. FutureSelect accepted some responsibility for the losses, so the jury split those damages 50/50 between it and the auditing firm, Mr. Thomas said, although he said prejudgment interest pushes Ernst & Young’s liability above $20 million.

    Reached Friday, an Ernst & Young spokeswoman said the firm is considering an appeal and doesn’t believe it was responsible for the investors’ losses.

    “EY was not the auditor of any Madoff entity; we were among the many auditors of funds that chose to use Madoff as their investment adviser. While we regret the investors’ losses, no audit of a Madoff-advised fund could have detected this Ponzi scheme,” Ernst & Young’s Amy Call Well said in an email.

    The case was the first suit against an auditor of one of the Madoff feeder funds, which funneled billions of dollars from investors all over the world to Mr. Madoff. Mr. Madoff is currently serving a 150-year prison sentence, and his investment firm is liquidating.

    “They are the first auditor to be found liable in the Madoff case,” Mr. Thomas said. “We are incredibly grateful to this jury for listening to the evidence and finding that auditors are the gatekeepers, and where the financial statements are fraudulent, it’s their job to say whether they’re real or fake before they get to investors.”

    At the start of the trial last month, Mr. Thomas said the Big Four auditing firm failed to perform such essential auditing tasks as confirming the existence of the securities Mr. Madoff purported to trade for investors, which didn’t exist. Instead, he said Ernst & Young relied on information provided by Mr. Madoff or his firm when it approved financial statements as containing accurate information, according to a video feed of the trial provided by Courtroom View Network.

    Continued in article

    "Jury Says Ernst & Young Liable for Madoff Investor’s Losses:  E&Y found negligent in role as auditor for feeder fund," by Jacquiline Palank, The Wall Street Journal, November 13, 2015 ---
    http://www.wsj.com/articles/jury-says-ernst-young-liable-for-madoff-investors-losses-1447453162?alg=y#livefyre-comment 
    Thank you Tom Selling for the heads up.

    Reply from Bob Jensen on November 15, 2015
    Hi Tom,

    What I find somewhat worrisome in the article is the following quotation from EY:

    EY was not the auditor of any Madoff entity; we were among the many auditors of funds that chose to use Madoff as their investment adviser. While we regret the investors’ losses, no audit of a Madoff-advised fund could have detected this Ponzi scheme,” Ernst & Young’s Amy Call Well said in an email.

    This settlement could be a point at which an audit firm ceases to be an audit fir firm and commences to be a financial guarantee insurance company.

    The problem is that most insurance companies deal with risks estimated by actuarial science. Actuarial science is not much help in the area of financial forecasting --- largely because actuarial science is built upon stationary states.

    This raises questions about the extent to which an auditor must verify third party investment, insurance, and deposit quality. Consider a hypothetical example. When EY auditors receive a verification that their client does indeed have casualty insurance in the amount of $10 million from Every State Life and Casualty Company to what extent is the auditor responsible to verify the quality of that insurance beyond verifying that Every State is indeed licensed in every state to sell life and casualty insurance and the auditor's reading of the insurance contract terms? The auditors might even go a step further to determine that Every State was indeed audited by KPMG. But KPMG is not likely to share inside working paper information with EY regarding Every State.

    To what extent is EY liable above an beyond the KPMG audit report on the financial statements of Every State?

    My guess is that EY would not be liable to FutureSelect Portfolio Management Fund for its Madoff Losses had the Madoff Fund been properly audited. But the Madoff Fund was not audited by a NY-licensed auditor where the fund was headquartered. Perhaps EY is more liable in cases where EY relied on investment verification that was not properly audited.

    I am not an expert on the fine print of the rules of auditing and never taught auditing. To what extent are auditors liable to verify the quality of deposits in banks, receivables from third parties, insurance coverage, etc.? Years ago, when I was a lowly staff auditor in the Denver Office of EY, I can't recall that we went beyond verifying that the client's accounts existed in the correct balances reported by the client.

    This touches on something that always made me uneasy about test checking inventory. One of our Denver Office audit clients was a piston manufacturer in Pueblo, Colorado. When we showed up on Sunday mornings to count pistons we found two types of containers at the end of each production line. The company said one container had pistons that met quality control standards. The other container was for rejects. But as an auditor I could not tell any difference between a good piston and a bad piston. We simply took the client's word that those pistons it called satisfactory were indeed satisfactory, including the pistons that were boxed up and purportedly ready to ship to customers. Fortunately our client was more honest than a well known manufacturer of salad oil at the time.

    It would really be interesting to know how this  FutureSelect case would have been decided for EY if the Madoff Fund had been audited by KPMG.

    Thanks,
    Bob Jensen

    Bob Jensen's threads on Ernst & Young ---
    http://faculty.trinity.edu/rjensen/Fraud001.htm

     


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

    Thousands Hit With Surprise Tax Bill on Income in IRAs
    by: Laura Saunders
    Nov 14, 2015
    Click here to view the full article on WSJ.com

    TOPICS: Individual Taxation, Master Limited Partnerships, Roth IRA, UBIT, Unrelated Business Income Tax

    SUMMARY: Under the tax code, IRAs and Roth IRAs have significant benefits-such as tax-free growth - but they come with limits. When owners use IRA funds to invest in partnerships, as opposed to stocks, bonds and funds, they owe tax on certain annual income from the partnership exceeding $1,000 because of an antiabuse provision. This levy is known as Unrelated Business Income Tax, or UBIT, and its top rate of 39.6% can take effect at about $12,000 of taxable income. A further, unique twist is that when this tax is due, the IRA custodian or trustee - such as Pershing or Charles Schwab - is responsible for obtaining a special tax ID number and then filing and signing an IRS Form 990-T reporting the income. The IRA owner is typically responsible for paying the tax. Because of this complexity, experts often caution investors to avoid putting publicly traded partnerships into IRAs.

    CLASSROOM APPLICATION: This is a good cautionary tale for individual tax classes.

    QUESTIONS: 
    1. (Introductory) What is a Roth IRA? In general, what is the tax treatment of income generated in a Roth IRA?

    2. (Introductory) What is a master limited partnership? How is income from an MLP taxed?

    3. (Advanced) What is unrelated business income tax? What is the reason for this tax? How is the tax calculated?

    4. (Advanced) Why does the UBIT sometimes catch investors by surprise? What can investors do to avoid that tax surprise?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Kinder Morgan Deal Risks Big Tax Bills for Investors
    by Laura Saunders, Alison Sider, and Russell Gold
    Aug 12, 2014
    Online Exclusive

    Q&A: How the Kinder Morgan Deal Affects Investors' Taxes
    by Laura Saunders
    Aug 12, 2014
    Online Exclusive
     

    "Thousands Hit With Surprise Tax Bill on Income in IRAs," by Laura Saunders, The Wall Street Journal, November 14, 2015 ---
    http://www.wsj.com/articles/thousands-hit-with-surprise-tax-bill-on-income-in-iras-1447427436?mod=djem_jiewr_AC_domainid

    On Oct. 13, two days before the final 2014 tax-filing deadline, investor Steve Goldston of Phoenix received a surprise tax bill for $24,321. It was for units of a master limited partnership affiliated with Kinder Morgan Inc. that Mr. Goldston held in his Roth individual retirement account. The total included nearly $6,000 of late-filing penalties and interest.

    “I was outraged,” says Mr. Goldston. “Here was a tax form, completely filled out and signed on my behalf, saying that I owed this money and it was coming out of my IRA—but that was the first I heard.”

    Mr. Goldston wasn’t alone. According to Pershing, the custodian of Mr. Goldston’s Roth IRA, it filed such forms for about 5,000 people who held Kinder Morgan MLP units in IRAs. Pershing is a unit of BNY Mellon and serves as a clearinghouse for about 800 financial firms. Kinder Morgan is a pipeline firm based in Houston.

    Master limited partnerships typically transport, store, produce and refine energy and pass the bulk of their earnings to shareholders.

    Thousands of investors holding MLPs in IRAs at other firms may owe similar taxes that they aren’t aware of, experts say.

    The unexpected bills are painful reminders that even widely held investments such as MLPs can contain tax traps, experts say.

    “People need to understand what they are investing in, especially the taxes and fees,” says Don Williamson, an accountant who heads the Kogod Tax Center at American University.

    In this case, the traps have ensnared advisers and brokerage firms as well as investors. Here’s why, and what investors need to know.

    The rules

    Under the tax code, IRAs and Roth IRAs have significant benefits—such as tax-free growth—but they come with limits. When owners use IRA funds to invest in partnerships, as opposed to stocks, bonds and funds, they owe tax on certain annual income from the partnership exceeding $1,000 because of an antiabuse provision. This levy is known as Unrelated Business Income Tax, or UBIT, and its top rate of 39.6% can take effect at about $12,000 of taxable income.

    A further, unique twist is that when this tax is due, the IRA custodian or trustee—such as Pershing or Charles Schwab —is responsible for obtaining a special tax ID number and then filing and signing an IRS Form 990-T reporting the income. The IRA owner is typically responsible for paying the tax.

    Because of this complexity, experts often caution investors to avoid putting publicly traded partnerships into IRAs. But many, including Mr. Goldston, were unaware of this advice.

    What happened at Pershing

    The 5,000 late 990-T filings by Pershing, including Mr. Goldston’s, involved highly popular MLPs controlled by Kinder Morgan. The largest, Kinder Morgan Energy Partners (KMP), had 465 million units with a market value of $47 billion last year. Individual investors liked its high payouts and that taxes were deferred.

    In 2014, the parent firm did a roll-up of the MLPs that triggered long-postponed taxes for many holders and generated UBIT for many investors holding units in IRAs. Mr. Goldston’s 1,365 units of KMP, for example, generated net income of nearly $52,000 and tax of $18,484.

    According to Pershing’s spokesman, its tax adviser found that Kinder Morgan’s K-1 forms for investors didn’t have enough information to determine their taxes. By the time Pershing learned this, it didn’t have time to file for six-month automatic extension requests.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

    Top SEC Accountant Urges Supplemental Use of Global Rules for U.S. Companies
    by: Michael Rapoport
    Nov 18, 2015
    Click here to view the full article on WSJ.com

    TOPICS: GAAP, IFRS

    SUMMARY: The Securities and Exchange Commission's top accountant said he has recommended U.S. companies be allowed to use global accounting rules to supplement their main financial statements calculated under U.S. regulations. The recommendation to the commission by Chief Accountant James Schnurr could help resolve a long-standing debate over whether and how the U.S. should use the global rules, known as International Financial Reporting Standards, or IFRS. If Mr. Schnurr's recommendation is implemented, U.S. companies could provide financial data calculated using IFRS, which differs in some respects from U.S. rules, as an add-on to the main financial statements they provide. Those financial statements would continue to be calculated under current U.S. rules, known as generally accepted accounting principles, or GAAP.

    CLASSROOM APPLICATION: This update regarding use of IFRS in the U.S. can be used in a financial accounting class.

    QUESTIONS: 
    1. (Introductory) What is IFRS? Who uses it? What is GAAP? Who uses it?

    2. (Advanced) How do IFRS and GAAP differ? What does the U.S. use? Why does the U.S. choose that particular one instead of the other?

    3. (Advanced) What did the SEC Chief Accountant recommend regarding U.S. accounting rules? Is this recommendation significant? How will U.S. financial statements change? Will it bring great change in U.S. accounting rules? Why or why not?

    4. (Advanced) What is the current outlook for changes in the accounting rules in U.S.? Are the rules expected to change in the near future? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    U.S. Companies May Gain Ability to Reconcile to IFRS Accounting
    by Emily Chasan
    May 07, 2015
    Online Exclusive

    "Top SEC Accountant Urges Supplemental Use of Global Rules for U.S. Companies," by Michael Rapoport, The Wall Street Journal, November 18, 2015 ---
    http://www.wsj.com/articles/top-sec-accountant-urges-supplemental-use-of-global-rules-for-u-s-companies-1447780897?mod=djem_jiewr_AC_domainid

    The Securities and Exchange Commission’s top accountant said he has recommended U.S. companies be allowed to use global accounting rules to supplement their main financial statements calculated under U.S. regulations.

    The recommendation to the commission by Chief Accountant James Schnurr could help resolve a long-standing debate over whether and how the U.S. should use the global rules, known as International Financial Reporting Standards, or IFRS.

    If Mr. Schnurr’s recommendation is implemented, U.S. companies could provide financial data calculated using IFRS, which differs in some respects from U.S. rules, as an add-on to the main financial statements they provide. Those financial statements would continue to be calculated under current U.S. rules, known as generally accepted accounting principles, or GAAP.

    Mr. Schnurr has publicly floated the idea in recent months, as a middle-ground approach between a full U.S. adoption of the global rules and no U.S. use of them at all. He said Tuesday he has now made the idea the substance of his recommendation to SEC Chairwoman Mary Jo White about what the commission should do about U.S. use of IFRS.

    “It’s going through the rule-making process,” Mr. Schnurr told reporters at an accounting conference in New York. The recommendation is being subjected to an economic analysis, he said, and he had no timetable about when or whether the SEC might propose any new regulations based on it.

    The IFRS system is now in use in more than 100 countries, and accounting-industry leaders and international rule makers have long urged the U.S. to adopt IFRS as well, saying a single world-wide set of accounting rules would benefit companies and investors. But the U.S. has retained GAAP in part because of concerns over the costs and implementation of a switch, and Mr. Schnurr has said there is little or no support among U.S. companies for a wholesale changeover.

    Continued in article


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on November 20, 2015

     

     

     

     




    Humor for October 2015

    From the Harvard Business Review
    Strategic Humor: Cartoons from the December 2015 Issue ---
    https://hbr.org/2015/11/strategic-humor-cartoons-from-the-december-2015-issue
     

    The 10 funniest 'Dilbert' comic strips about idiot bosses ---
    http://www.businessinsider.com/dilbert-comics-on-bosses-2015-10

    'Calvin and Hobbes' just turned 30 — here's the history of the strip and its mysterious creator Bill Watterson ---
    http://www.businessinsider.com/calvin-and-hobbes-just-turned-30-heres-the-history-of-the-strip-and-its-mysterious-creator-bill-watterson-2015-11

    "Stealing is punishable by the law," the sign reads. "If you are caught stealing the bathroom tissue from dispenser, you will be barred permanently from all New York Public Libraries."
    http://lisnews.org/attention_library_toilet_paper_thieves_youve_been_warned
    Unless you're visiting from Venezuela --- then God Bless You!
    Jensen's Advice --- Bring your own from the hotel

    There should not be protests on this campus since administrators have heavier loads
    Ryerson U students reveal that administrators' bathrooms feature two-ply, while everyone else has one-ply
    https://www.insidehighered.com/news/2015/11/02/student-newspaper-reveals-inequitable-toilet-paper-distribution?utm_source=Inside+Higher+Ed&utm_campaign=a93b96438a-DNU20151102&utm_medium=email&utm_term=0_1fcbc04421-a93b96438a-197565045
    Jensen Question
    Did one of the administrators leak this?

    21 Badly Placed Advertisements ---
    http://www.lifedaily.com/21-badly-placed-adverts-guaranteed-to-make-you-chuckle/#utm_medium=referral&utm_source=yahoo&utm_campaign=YH-BadAdvert


    When a middle aged couple named Stake had an unexpected son was the choice of the the name Michael Irwin Stake intentional?
    Bob Jensen


    A computer made up stories about these 13 photos and the results are hilarious ---
    http://www.businessinsider.com/robot-wrote-hilarious-love-stories-about-internet-images-2015-11
    I don't think this writer is ready for the big time.

     

     

     

     


    Forwarded by Paula

    The Irish Furniture Dealer

    Murphy, a furniture dealer from Dublin, decided to expand the line of furniture in his store, so he decided to go to Paris to see what he could find.

    After arriving in the ‘City of Lights’, he visited with some manufacturers and selected a line that he thought would sell well back home.

    To celebrate the new acquisition, he decided to visit a small bistro and have himself a nice glass of wine. As he sat enjoying his drink, he noticed that the small place was actually quite crowded and that the other chair at his table was the only vacant seat in the house.

    Before long a very attractive young Parisienne walked up to his table and asked him something in French. Murphy did not understand a word, but anyway pointed to the vacant chair and invited her to sit down. He tried to communicate with her in English, but she did not speak his language. After a couple of hapless minutes, he took a napkin and drew a picture of a wine glass and showed it to her. She nodded, so he ordered some wine for her. After sitting together at the table for a while, he took another napkin, and drew a picture of a plate with food on it and she nodded once again.

    They left the bistro and found a quiet cafe that featured a trio playing romantic music. They ordered dinner, after which he took another napkin and drew a picture of a couple dancing. She nodded, and they got up to dance They danced until the cafe closed and the band was packing up.

    Back at their table, the woman, with a sensual smile on her lips took a napkin and drew a picture of a four-poster bed. To this day, Murphy has no idea how she figured out he was in the furniture business.


    Bob Hope quotations forwarded by James Don Edwards

    ON TURNING 70  
    'I still chase women, but only downhill.' 

    ON TURNING 80  
    'That's the time of your life when even your birthday suit needs pressing.' 

    ON TURNING 90  
    'You know you're getting old when the candles cost more than the cake.' 

    ON TURNING 100  
    'I don't feel old. In fact,
          I don't feel anything until noon. Then it's time for my nap.' 

    ON GIVING UP HIS EARLY CAREER, BOXING  
    'I ruined my hands in the ring. The referee kept stepping on them.' 

    ON NEVER WINNING AN OSCAR  
    'Welcome to the Academy Awards, or, as it's called at my home, 'Passover.' 

    ON GOLF  
    'Golf is my profession. Show business is just to pay the green fees.' 

    ON PRESIDENTS  
    'I have performed for 12 presidents but entertained only six.'
         

    ON WHY HE CHOSE SHOWBIZ FOR
    HIS CAREER
     
    'When I was born, the doctor said to my mother,
    Congratulations, you have an eight pound ham.'
         

    ON RECEIVING THE
    CONGRESSIONAL GOLD MEDAL
     
    'I feel very humble, but I think I have the strength of character to fight it.' 

    ON HIS FAMILY'S EARLY POVERTY  
    'Four of us slept in the one bed. When it got cold, mother threw on another brother.' 

    ON HIS SIX BROTHERS  
    'That's how I learned to dance. Waiting for the bathroom.' 

    ON HIS EARLY FAILURES  
    'I would not have had anything to eat if it wasn't for the stuff the audience threw at me.' 

    ON GOING TO HEAVEN  
    'I've done benefits for ALL religions.
    I'd hate to blow the hereafter on a technicality.'


    Forwarded by Paula

    Ramblings of a Retired Mind

    I found this timely, because today I was in a store that sells sunglasses, and ONLY sunglasses. A young lady walks over to me and asks, "What brings you in today?" I looked at her, and said, "I'm interested in buying a refrigerator". She didn't quite know how to respond. Am I getting to be that age?

    I was thinking about how a status symbol of today is those cell phones that everyone has clipped onto their belt or purse. I can't afford one. So I'm wearing my garage door opener.

    You know, I spent a fortune on deodorant before I realized that people didn't like me anyway.

    I was thinking that women should put pictures of missing husbands on beer cans!

    I was thinking about old age and decided that old age is when you still have something on the ball but you are just too tired to bounce it.

    I thought about making a fitness movie for folks my age and call it 'Pumping Rust'.

    When people see a cat's litter box they always say, "Oh, have you got a cat?" Just once I want to say, "No, it's for company!"

    Employment application blanks always ask who is to be called in case of an emergency. I think you should write, "An ambulance."

    I was thinking about how people seem to read the Bible a whole lot more as they get older. Then it dawned on me: They were cramming for their finals.

    As for me, I'm just hoping God grades on a curve.

    Birds of a feather flock together and then poop on your car.

    The older you get the tougher it is to lose weight because by then your body and your fat have gotten to be really good friends.

    The easiest way to find something lost around the house is to buy a replacement.

    Did you ever notice: The Roman Numerals for forty (40) are XL.

    The sole purpose of a child's middle name is so he can tell when he's really in trouble..

    Did you ever notice: When you put the 2 words 'The' and 'IRS' together it spells 'Theirs...'

    Aging: Eventually you will reach a point when you stop lying about your age and start bragging about it.

    Some people try to turn back their "odometers." Not me. I want people to know 'why' I look this way. I've traveled a long way and some of the roads weren't paved.

    You know you are getting old when everything either dries up or leaks.

    Ah! Being young is beautiful but being old is comfortable.

    And finally: "Lord, please keep your arm around my shoulder and your hand over my mouth."

     

     




    Humor September 1-30, 2015 --- http://faculty.trinity.edu/rjensen/book15q4.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 November 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/

     

     

     

    October 31, 2015

     

     

    Bob Jensen's New Bookmarks for October 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 

    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


    Arizona State University School Offers a Free Full-Time, Two Year Onsite MBA to All Students Who are Admitted
    "This School Will Give You a Completely Free MBA," by Sarah Grant, Bloomberg, October 15, 2015 ---
     http://www.bloomberg.com/news/articles/2015-10-15/this-school-will-give-you-a-completely-free-mba?cmpid=BBD101515_BIZ

     
    Students who applied to Arizona State University’s W.P. Carey School of Business will be pleasantly surprised to hear that the school is making its two-year, full-time MBA program completely free.

    Thanks to a $50 million gift from the W.P. Carey Foundation, Arizona State's business school is awarding up to 120 scholarships to students accepted into its full-time MBA program—which amounts to a tuition-free MBA for at least one class of students. Arizona State is one of the highest-ranked (No. 67) and largest business schools in the U.S., according to Bloomberg’s Business School Rankings.

    "This is risk-taking," said W.P. Carey Dean Amy Hillman. "The more conservative thing would have been to name some scholarships that look for a specific type of applicant, but our fear was that we wouldn't have the kind of impact we're able to have with this. While helping a few individuals is important, this is more important."

    Any chance at a free MBA is noteworthy considering the increased cost of business school. This fall, some top MBA programs raised tuition as much as 10 percent. Among top 20 schools surveyed by Bloomberg Business last year, University of Maryland's Smith School of Business had the biggest tuition jump, 9.9 percent for out-of-state residents.

    Arizona State's business school is in the midlevel price category for MBA programs, ranging from $54,000 for in-state students to $90,000 for international ones, according to a spokesperson for the school. Prior to this year, the school awarded 17 full-tuition scholarships per class.

    Continued in article

    Jensen Comment
    This should not be confused with the Thunderbird International School of Global Management that, following a financial crisis, is now a part of Arizona State University in 2015 ---
    https://en.wikipedia.org/wiki/Thunderbird_School_of_Global_Management
    Thunderbird focuses more on international management and international students.

    The School of Accountancy and other "business programs" have various top onsite and online undergraduate and masters degrees that are not free. ASU is a very large university with multiple campuses  ---
    https://students.asu.edu/colleges

    Starbucks employees get huge discounts when taking ASU online courses (not just in business) ---
    http://chronicle.com/article/A-Year-After-Starbucks-Offered/233415?cid=wc&utm_source=wc&utm_medium=en&elq=7e720a49b36e406998c4b99364a0cf9a&elqCampaignId=1625&elqaid=6593&elqat=1&elqTrackId=5e64efce97544f2aa2e60bbc0a82df71


    WileyCPAExamExcel:  Free CPA Lesson: Types and Principles of Accounting Controls from Dan Stone at the University of Kentucky ---
    http://blog.efficientlearning.com/cpa/free-cpa-lesson-types-principles-accounting-controls

    WileyCPAExamExcel:  CPA Exam Students’ Study Tips ---
    http://blog.efficientlearning.com/cpa/cpa-exam-stories/cpa-exam-study-tips

    We’ve devoted a lot of our recent video lectures to the FAR section of the CPA Exam because, as you know, it covers an unbelievable amount of information. Second only to FAR in terms of breadth is BEC. So, this time we’re featuring a great Deep Dive video lecture on the crucial topic of Cost Concepts.
    WileyCPAExamExcel: Cost Concepts http://blog.efficientlearning.com/cpa/cpa-exam-deep-dive-cost-concepts

    "Comparing CPA Review Courses," by Junior Deputy Accountant Adrienne Gonzalaz ---
    http://goingconcern.com/2011/03/comparing-cpa-review-courses/#more-27710

    How a 17-Year-Old Female Passed the CPA Exam ---
    http://blog.efficientlearning.com/cpa/cpa-exam-stories/17-year-old-passed-cpa-exam

    Bob Jensen's CPA Exam Helpers ---
    http://faculty.trinity.edu/rjensen/bookbob1.htm#010303CPAExam


    October 21, 2015 message from Glen Gray

    This was in InformationWeek Daily. An interesting selection of books. One book is: Friggin' Beancounters: Navigating the BS Infested Cubicles of the Accounting Department

     

    10 Books To Turn IT Pros Into Business Pros

    Nobody doubts that as an IT professional you know your field. But how much do you know about business? If the answer is "not enough," it's time to start learning. Here are 10 books to help turn IT pros into business ninjas.

     

    http://www.informationweek.com/it-life/10-books-to-turn-it-pros-into-business-pros/d/d-id/1322440?_mc=NL_IWK_EDT_IWK_daily_20151020&cid=NL_IWK_EDT_IWK_daily_20151020&elq=f21f8c2f5dcd43129117095706657177&elqCampaignId=17278&elqaid=64574&elqat=1&elqTrackId=15f2864a81594bf7af10c0b750b161ac

     

    Glen L. Gray, PhD, CPA

    Dept. of Accounting & Information Systems

    David Nazarian College of Business & Economics

    California State University, Northridge

    18111 Nordhoff ST

    Northridge, CA 91330-8372

    818.677.2461

    http://www.csun.edu/~vcact00f


    How to Mislead With Statistics
    "
    Women with MBAs face a gender-based pay divide that starts as soon as they graduate, and plagues them throughout their careers," by Natalie Kitroeff   and Jonathan Rodkin, Bloomberg, October 20, 2015 ---
    http://www.bloomberg.com/news/articles/2015-10-20/the-real-cost-of-an-mba-is-different-for-men-and-women?cmpid=BBWGP102115_BIZ 

    As far as investments go, business school is an unimpeachable bet for young professionals who can muster $100,000. MBAs, who are typically in their early 30s and have already spent a few years in the workforce, saw their salaries triple within eight years of graduation. They also report consistently high levels of job satisfaction and career growth, according to a survey of thousands of alumni conducted by Bloomberg Businessweek as part of the magazine’s annual ranking of business schools. But that general contentment hides a troubling divide: Within a few years of graduation, women with MBAs earn lower salaries, manage fewer people, and are less pleased with their progress than men with the same degree.

    Each year, we rank business schools by polling students on topics such as academics, career services, and campus climate. We also ask employers about skills they seek in MBA hires and which schools best prepare their graduates. This year, for the first time, we surveyed alumni who graduated six to eight years ago, asking them how well their degrees had delivered on the promise of a fulfilling, well-paid job. The 12,773 responses we collected offer a wealth of salary information and other data on MBAs working in a variety of industries.

    The inclusion of the alumni responses helped propel Harvard Business School to the top of the 2015 rankings. HBS alums reported the largest gains in compensation and many attributed their success to their alma mater. Last year’s No. 1, Duke Fuqua School of Business, slipped to eighth overall, partly because of a comparatively lackluster job placement rate of 86.1 percent, which is below the 87.9 percent rate overall.

    Women and men start their post-MBA careers earning almost the same money—$98,000 for women and $105,000 for men—according to our survey of those who graduated from 2007 through 2009. But the gap then widens sharply. By 2014 men hauled in a median of $175,000 and women, $140,000. That means employers pay women 80 percent of what men with the same degree take home.

    Continued in article

    Jensen Comment
    I want to start out by saying that I believe there are differences in compensation levels by gender. However, the article above, and virtually every other related article I've ever encountered, does not probe very deep to uncover possible reasons for the so-called gender salary gap. First I want to compliment the authors for using medians rather than mean averages. This is the first thing I look for because means can be skewed by outliers more easily than medians.

    Let me begin by noting that what are outliers in smaller populations can also be outliers in large populations but there are randomly more such outliers in large populations. It was always surprising in the NBA when the Houston Rockets imported Yao Ming, a 7-foot 6 inch Chinese center. In both the USA and China Yao Ming is an outlier in terms of height ---
    https://en.wikipedia.org/wiki/Yao_Ming

    In terms of population the USA has an estimated population of slightly over 320 million people.  China has an estimated 1,376 million people. People over seven feet tall are outliers in both the USA and China. However, the odds of having many more people over seven feet tall are much greater in China than the USA due to the sheer difference in the populations of these two nations.

    In a random sample of 320 female MBA graduates and a random sample of 1,376 male graduates one would expect that the mean and median salaries of the men would be higher than the women due to random chance because there are many more high-salaried outliers in the larger sample of males. Since the lower salaried men and women are bounded by zero the means and medians of the random samples are driven upward by the higher salaried men and women. Suppose we designated a high salary as anything over $200,000. One would expect more high salaried men than women in these two samples due to the difference in the sample sizes.

    It's the bottom part of the salary distribution where gender analysis becomes more complicated. In a random world one would expect to find more zero-salaried men than women in the above samples due to the sample size differences. However, here is where the real world is not random because statistically female MBA graduates in reality have a higher probability of not entering or soon dropping out of the work force to devote full time or nearly full time to mothering their new babies.

    As a result statistical analysis showing higher mean or median salaries among the 1,376 males is not probably as much due to hiring and promotion bias due to gender as it is to such complications as having more male MBA graduates than female graduates and the higher probability that a female will leave the full-time work force at least during the early years of raising children.

    Of course all of this becomes more complicated when the number of female graduates becomes larger relative to male graduates. I think there are still more male MBA graduates, but in terms of accounting graduates the number of females now exceeds the number of male graduates. Also the large public accounting firms are hiring more female than male graduates. Carried to extremes suppose that we randomly sample 1,376 female accounting graduates and 321 male accounting graduates. My hypothesis is that the mean and median salaries of the females will exceed those of the males after five years of employment. Of course these averages may differ for the entire populations of accounting graduates because the gender differences among all accounting graduates is closer to 50/50 than 1,376/321.

    There are other complications in this analysis. My opinion is that newly-hired male and female graduates joining a given local office of a Big Four firm will earn the same starting compensation. However, the new hires in the San Francisco local office will have higher salaries than the San Antonio office of a given firm based upon huge differences in costs of living in these two cities. To do a complete gender analysis we would have to factor in whether there are gender differences based upon cost of living in local offices. Do mothers tend to prefer or avoid San Francisco vis-a-vis San Antonio? It's certainly more complicated to both work full time and raise young children in San Francisco where rents are now higher than anywhere in the USA. Hence one would expect mothers to prefer San Antonio relative to San Francisco. One would expect more females moving away from the San Francisco office once they became mothers.

    My point is that one has to be very careful when it comes to inferring gender bias causality in most any type of statistical analysis beyond the usual problem of spurious correlation. I think most studies of gender differences in salaries do not delve deeply enough into the really complicated factors affecting statistical analysis outcomes.

    But I do still believe there is gender bias against mothers of young children in terms of employment and compensation. I'm not convinced there's such a degree of bias against those women who are not mothers of young children.

    "The 100 Best Companies For Working Moms," by Jacquelyn Smith, Working Mothers Magazine via Business Insider, September 16, 2014 ---
    http://www.businessinsider.com/best-companies-for-working-moms-2014-9 
    The largest CPA firms are among the best places for moms to be employed.

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

    Bob Jensen's threads on the histories of women in the professions ---
    http://faculty.trinity.edu/rjensen/Bookbob2.htm#Women


    "38 Percent Of Women Earn More Than Their Husbands," by Mona Chalabi, NPR via Nate Silver's 5:38 Blog, February 8, 2015 ---
    http://fivethirtyeight.com/datalab/38-percent-of-women-earn-more-than-their-husbands/

    Times are changing for professional women at work. The big CPA firms now hire more female accounting graduates than male accounting graduates. There are also cracks in the glass ceiling. Deloitte, one of the top Big Four firms, just appointed a woman CEO.


    Ole yust does not yet vant Lena to be da boss
    Women CEOs are rare in Norway and Sweden even though these nations are highest in terms of gender equality on other criteria

    Chief Executive Officer (CEO) ---
    http://en.wikipedia.org/wiki/Chief_executive_officer

    . . .

    In some European Union countries, there are two separate boards, one executive board for the day-to-day business and one supervisory board for control purposes (selected by the shareholders). In these countries, the CEO presides over the executive board and the chairman presides over the supervisory board, and these two roles will always be held by different people. This ensures a distinction between management by the executive board and governance by the supervisory board. This allows for clear lines of authority. The aim is to prevent a conflict of interest and too much power being concentrated in the hands of one person.

    Women on Board The Norwegian Experience (June 2010) ---