Bob Jensen's Addutuins ti New Bookmarks

In 2017 my Website was migrated to the clouds and reduced in size.
Hence some links below are broken.
One thing to try if a “www” link is broken is to substitute “faculty” for “www”
For example a broken link http://faculty.trinity.edu/rjensen/Pictures.htm
can be changed to corrected link http://faculty.trinity.edu/rjensen/Pictures.htm
However in some cases files had to be removed to reduce the size of my Website
Contact me at rjensen@trinity.edu if you really need to file that is missing

New Bookmarks
Year 2016 Quarter 3: July 1 - September 30 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

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

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

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

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

Choose a Date Below for Additions to the Bookmarks File

2016

September 2016

August 2016

July 2016

September 2016

Bob Jensen's New Additions to Bookmarks

September 2016

Bob Jensen at Trinity University

For earlier editions of Fraud Updates go to http://faculty.trinity.edu/rjensen/FraudUpdates.htm
For earlier editions of Tidbits go to http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to http://faculty.trinity.edu/rjensen/bookurl.htm
Bookmarks for the World's Library --- http://faculty.trinity.edu/rjensen/bookbob2.htm

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

Bob Jensen's Blogs --- http://faculty.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called New Bookmarks --- http://faculty.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called Tidbits --- http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called Fraud Updates --- http://faculty.trinity.edu/rjensen/FraudUpdates.htm

Bob Jensen's Pictures and Stories
http://faculty.trinity.edu/rjensen/Pictures.htm

All my online pictures --- http://www.cs.trinity.edu/~rjensen/PictureHistory/

David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
Bob Jensen
February 19, 2014
SSRN Download: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296

Scholarpedia (a cross between Wikipedia and Google Scholar) --- http://www.scholarpedia.org

Google Scholar --- https://scholar.google.com/

Wikipedia --- https://www.wikipedia.org/

Bob Jensen's search helpers --- http://faculty.trinity.edu/rjensen/searchh.htm

Bob Jensen's World Library --- http://faculty.trinity.edu/rjensen/Bookbob2.htm

Accounting History Corner
Richard Mattessich --- https://en.wikipedia.org/wiki/Richard_Mattessich

Jensen Comment
When I was a doctoral student UC Berkeley's Richard Mattessich occasionally visited Stanford to discuss his current research and writings. I always thought Mattessich was incapable of writing a working paper with less than 150 pages. He spent much of his life studying history and philosophy, and when reading one of his papers it was easy to get bogged down in the verbiage and hundreds of references and endless quotations. I kept thinking "get to the point."

I never in my life, until now, associated Professor Mattessich with anything practical. But today I read where he's given credit for a practical idea in the "invention" of a spreadsheet.

MIT: Why Big Companies Can't Invent ---
https://www.technologyreview.com/s/402693/why-big-companies-cant-invent/

Jensen Comment
A lot depends upon what we mean by "invent?" Companies are often very good at development and improvements that take a lot of "invention" for progress along this path. For example, Microsoft did not invent the spreadsheet but there are hundreds of subsequent Microsoft inventions that allowed Excel to become a dominant force in spreadsheet software. Actually until I went to the following Wikipedia module this morning I was not even aware that an acquaintance of mine (Richard Mattessich) years ago is given some credit in the spreadsheet "invention."_
https://en.wikipedia.org/wiki/Spreadsheet#Paper_spreadsheets
There were many "inventions" regarding spreadsheets in the years that followed, including all the inventions Microsoft kept adding to Excel. I'm absolutely certain that Richard Mattesich was incapable of developing Excel software even though he made a seminal contribution to the concept of a "spreadsheet."

The above article overlooks some major inventions and developments that were corporate-based. For example, note the inventions credited to Xerox Parc:

Xerox PARC has been the inventor and incubator of many elements of modern computing in the contemporary office work place:

Laser printers,

Computer-generated bitmap graphics

The graphical user interface, featuring windows and icons, operated with a mouse

The WYSIWYG text editor

Interpress, a resolution-independent graphical page-description language and the precursor to PostScript

Ethernet as a local-area computer network

Fully formed object-oriented programming in the Smalltalk programming language and integrated development environment.

Model–view–controller software architecture

The computer mouse was an enormous invention leading to development of Apple computers. However, the mouse was actually rooted in a "trackball" invention of the British Navy ---
https://en.wikipedia.org/wiki/PARC_(company)#Accomplishments

The developments of a spreadsheet and a computer mouse illustrate how difficult it is to pinpoint where invention takes place. Most inventions are rooted in other inventions that are rooted in other inventions. There may be something innovative about each "invention" but there's usually something borrowed as well.

Nobel prizes and patents are awarded for "seminal discoveries" that almost always had roots in earlier research and invention. For example, Watson and Crick got the Nobel Prize for the seminal discovery of DNA structure, but their discovery depended a lot on the earlier findings of such researchers as Pauling, Franklin, etc.

My point is that big companies often are not the source of primitive ideas and findings that led to corporate research projects. These companies do not usually focus on the most primitive findings upon which funded projects are later built. Universities are best suited for primitive research. This is mainly due to the freedom afforded by universities for faculty just to think and work on things that interest them (the faculty) rather than the university not motivated by a profit bottom line. Often the university is not even aware of what faculty are spending a lot of time thinking about and tinkering with in labs and in their wanderings through libraries and the Internet.

Companies are not as good at primitive level research because their employees are usually more directed in terms of what to think about.

Primitive discovery is usually the result of freedom and lack of employer control on how time is spent by workers. Companies do not usually allow the same freedoms afforded college faculty and the unemployed of the world.

Conclusion
Back in the 1960s professors were not held accountable for publication counts like they are today. They were expected to write and speak about what they were thinking, but Richard Mattessich could build a reputation on working papers without an annual journal hit list. In important ways professors were more "free to be" in those days than today where the hit list of refereed journal articles makes or breaks scholarly reputations. In some ways it's sad that universities are no longer willing to give tenure for primitive thinking instead of research journal hit lists.

How much do you know about the next CPA exam?
http://www.journalofaccountancy.com/issues/2016/sep/new-cpa-exam-quiz.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=19Sep2016
Click on "Submit" to get to the next question.

Here's the list of K-Mart stores that will be closing ---
http://www.businessinsider.com/kmart-is-closing-64-stores-full-list-2016-9

Excel Errors in Science Papers ---
http://www.economist.com/blogs/graphicdetail/2016/09/daily-chart-3?fsrc=scn/fb/te/bl/ed/excelerrorsandsciencepapers

Jensen Comment
In the case of accounting research the software tends to be statistical packages like SAS or SPSS. Where errors arise is that most of the data comes from purchased databases like CRSP, Compustat, and AuditAnalytics. The sad news is that academic accounting research is almost never replicated. Even more sad news is that when replicated errors in the data are rarely discovered because both researchers and the replicators use the same databases. Checking for errors in purchased databases is almost unheard of among accounting researchers. This is why accounting research is almost always considered truth the instant it's published. We really don't want to find errors in academic accounting research because nobody cares if there are errors --- certainly not practitioners who have no interest in the fun and games of academic accounting research.

Bob Jensen's threads on the sad state of academic accounting research ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
Also see
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong

PS
Excel errors are more apt to arise in accounting practice where Excel dominates many accounting tasks, especially in auditing.

IRS Warning: New cyberattacks threaten tax professionals ---
http://www.journalofaccountancy.com/news/2016/sep/new-cyberattacks-threaten-tax-professionals-201615112.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=06Sep2016

Jensen Comment
This can also be a threat to customers of tax professional by putting their privacy information stored in tax professional firm databases at risk. For example, if your tax professional is attacked worry about your IRS Pin number and credit card information. If you are an employer using your tax professional for accounting services such as payrolls you my be putting your employees at risk. Not long ago, an enormous number of physician's in New England (including my doctor) had their privacy information stolen by what we think was a hack into hospital databases in New England.

If It Were Only True and Not Just Wishful Thinking on the Part of the Pathways Commission

The accounting scholars program claims that professional/practical experience is taking on greater importance ---
http://www.adsphd.org/?utm_source=mnl:cpald&utm_medium=email&utm_campaign=08Sep2016

Jensen Comment
If it were only true. In my opinion the most important criteria for admission into the very top doctoral programs as students or faculty is still exceptional demonstration of accountics skills in mathematics, statistics, and econometrics. Times may be changing in the lower-ranked programs.

Evidence is partly in the admission of foreign applicants to our top doctoral programs who have exceptional accountics backgrounds and virtually no professional accountancy credentials. And yes when they graduate from our most prestigious university accountancy doctoral programs there's very little that they can teach other than doctoral seminars.

In my opinion accounting doctoral programs and out top academic journals are still in a very sad state ---
http://faculty.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

Accounting History Corner

The Keepers Registry (back issues of journals in large libraries) --- http://thekeepers.org
For example search for "Accounting"

USA Income Taxes Are Very Progressive

Tax Policy Center's researchers and staff: USA Taxes are Very Progressive ---
http://www.taxpolicycenter.org/taxvox/federal-taxes-are-very-progressive

The USA tax code is highly progressive with the top 50% of taxpayers paying 97.2% of the income tax collected in 2013 ---
http://taxfoundation.org/article/summary-latest-federal-income-tax-data-2015-update

In 2013, the bottom 50 percent of taxpayers (those with AGIs below $36,841) earned 11.49 percent of total AGI. This group of taxpayers paid approximately $34 billion in taxes, or 2.78 percent of all income taxes in 2013.

What is really misleading is all of this is that an estimated $2 trillion (USA Today very rough estimate) unreported on tax returns from the underground economy, and much of that income goes to the low-end of income spectrum for house cleaners, child care workers, prostitutes, construction workers, landscapers, yard workers, farm hands, etc. Of course some high earners also share in the underground economy

Earned Income Tax Credit (EITC) ---
https://en.wikipedia.org/wiki/Earned_income_tax_credit#Households.27_average_taxes_and_income

And the lowest 40% of taxpayers do very well when Federal transfers are added to their incomes ---
https://en.wikipedia.org/wiki/Earned_income_tax_credit#Households.27_average_taxes_and_income

At a cost of $56 billion in 2013, the EITC is the third-largest social welfare program in the United States after Medicaid ($275 billion federal and $127 billion state expenditures) and food stamps ($78 billion).[31] Almost 27 million American households received more than $56 billion in payments through the EITC in 2010. These EITC dollars had a significant impact on the lives and communities of the nation's lowest-paid working people largely repaying any payroll taxes they may have paid. The Census Bureau, using an alternative calculation of poverty, found that EITC lifted 5.4 million

Bloomberg: Why They Did It: Madoff and Enron’s Fastow Explain the Biggest Frauds in U.S. History ---
http://www.bloomberg.com/news/articles/2016-08-29/why-they-did-it-madoff-and-enron-s-fastow-explain-the-biggest-frauds-in-u-s-history?cmpid=BBD082916_BIZ
Jensen Comment
When con artists explain why they committed fraud can you believe them?
Con artists are so convincing even when they are lying?

PS
Some public sector frauds were bigger than these private sector frauds
And some bigger frauds are joint public and private sector frauds (think Pentagon spending)

Bob Jensen's threads on Fastow and Enron ---
http://faculty.trinity.edu/rjensen/FraudEnron.htm
By the way Andy Fastow was only one of the many fraudsters among Enron's executives and not the only one to go to prison

What Andy does not confess is how, before the scandal broke, virtually all employees of Enron who knew him hated the "arrogant little bastard"
"The confessions of Andy Fastow," by Peter Elkind, Fortune, July 1, 2013 ---
http://features.blogs.fortune.cnn.com/2013/07/01/the-confessions-of-andy-fastow/

Bob Jensen's threads on Madoff ---
http://faculty.trinity.edu/rjensen/FraudRottenPart2.htm#Ponzi

Are high school counselors overselling careers in science?

Why ‘Alternative’ Careers in STEM Aren’t ‘Alternative’ ---
https://chroniclevitae.com/news/1549-why-alternative-careers-in-stem-aren-t-alternative?cid=at&utm_source=at&utm_medium=en&elqTrackId=ff777a5b693b4c9aa558e08b72af2aff&elq=045c6cfdcd26488389974e647a9b7107&elqaid=10791&elqat=1&elqCampaignId=4093#sthash.Rwl9pAxv.dpuf

Jensen Comment
I don't think I oversold careers in accounting. I did repeatedly caution many of my advisees early on that they may not get those sought-after offers from the multinational accounting firms.

However, I probably did oversell ultimate career alternatives for becoming an accounting professor. It was easy to show my masters students statistics on the excess of demand for tenure-track accounting professors versus supply. It was easy to point out the starting salary differences between an accounting Ph.D. versus a humanities Ph.D.

However, what I did not perhaps stress hard enough was the shortage of capacity in North American accounting Ph.D. programs accredited by the AACSB (which is the only route for a career in North American accounting academia). Whereas there are 27,000+ accounting masters degree graduates in the USA each year, there are fewer than 200 accounting Ph.D. graduates each year, significantly down from the 1980s. The reason is that the large accounting Ph.D. mills of the 1980s (e.g., Illinois, Texas, and some of the Big 10 universities) cut back greatly on the number of admissions to their Ph.D. programs. For example, Illinois and Texas graduating over 15 accounting Ph.Ds per year in the 1980s sometimes now graduate zero or one per year.

In the 1980s there were over 220 accounting Ph.D. graduates per year in the USA whereas in 2015 there were only 174 Ph.D. graduates in the USA ---
http://www.jrhasselback.com/AtgDoct/XDocChrt.pdf

Promising our masters students in accounting wonderful careers in academe is misleading with such low odds of getting into a program, especially amidst the increasing highest quality global competition (mathematics geniuses) from Asia trying to get into USA accounting doctoral programs.

David Giles's September Readings in Econometrics ---
http://davegiles.blogspot.com/2016/08/september-reading.html

Esquivel, M.L., P.P. Mota, & J.T. Mexia, 2016. On some statistical models with a random number of observations. Journal of Statistical Theory and Practice, online.

Gorroochurn, P., 2015. On Galton's change from "reversion" to "regression". American Statistician, in press.

Kourtellos, A., T. Stengos, & C.M. Tan, 2016. Structural threshold regression. Econometric Theory, 32,827-860.

Jandhyala, V., S. Fotopoulos, I. MacNeill, & P. Liu, 2016. Inference for single and multiple change-points in time series. Journal of Time Series Analysis, in press.

Malloch, H., R. Philip, & S. Satchell, 2016. Decomposing the bias in time-series estimates of CAPM betas. Applied Economics, 28, 4291-4298.

Xu, J. & P. Perron, 2016. Forecasting in the presence of in and out of sample breaks. Mimeo.

529 Plan --- https://en.wikipedia.org/wiki/529_plan

New York Times: How to Pay for College With Less Stress ---
http://www.nytimes.com/2016/09/24/your-money/paying-for-college/how-to-pay-for-college-with-less-stress.html?_r=0

Jensen Comment
College costs 10-20 years from now are a great unknown. Even today much varies with race, level of family income, and admission qualifications of an applicant.
Although there is greater value and inflation risks, you may want to consider a tax-exempt bond fund as opposed to a 529 plan having greater tax uncertainties (such as when it will not be used for college expenses) ---
https://en.wikipedia.org/wiki/529_plan#Disadvantages .
The great unknown is what inflation will be over the next 10-20 years. An advantage of a tax-exempt bond fund is that as inflation risks increase you can bail out of the tax-exempt fund at any time (usually) and invest the proceeds where they are more hedged for inflation.

Bob Jensen's Personal Finance Helpers ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

Early Labor Market and Debt Outcomes for Bachelor's Degree Recipients (PDF) ---
http://ccrc.tc.columbia.edu/media/k2/attachments/early-labor-market-debt-outcomes-bachelors-recipients.pdf

Thanks in large part to Obama policies, only 37% of student borrowers are paying down their student loans ---
http://www.wsj.com/articles/writing-off-student-loans-is-only-a-matter-of-time-1471303339?mod=djemMER

Inside the Secretive World of Tax Avoidance Experts (who protect the 1%) ---
http://taxprof.typepad.com/taxprof_blog/2016/09/capital-without-borders-wealth-managers-and-the-one-percent.html

Earnings Quality and IFRS Research in Africa: Recent Evidence, Issues and Future Direction
SSRN
August 31, 2016

Author

P. K. Ozili
Essex Business School (University of Essex)

Abstract

This paper review the recent empirical research on IFRS and earnings quality among African studies and show mixed conclusions regarding the impact of IFRS on earnings quality and financial reporting quality in the region. Also, some discussions on factors that led to the growth in the earnings quality African literature over the last decade as well as some challenges in the recent literature, are provided. Also, the study makes several observations regarding IFRS and earnings quality research in Africa and suggests potential directions for future research. The need to (i) understand the recent direction of earnings quality research in Africa, (ii) understand the interaction between policy and earnings quality research, if any, in the African region, and (iii) the need to maintain high-level rigour in earnings quality research while ensuring greater interaction between policy and research, makes this study important. Given the paucity of research on earnings quality in developing countries, this study contributes to the broader earnings quality literature by providing a review of the African earnings quality literature; hence, conclusions based on empirical studies in this review are not intended to be generalised to developed countries but only to developing countries. Finally, while insights in this paper may be informative to the reader, the intended objective is to stimulate debates that would improve the outputs of earnings quality research and the overall quality of accounting disclosure among firms in Africa.

Jensen Comment
I would rather this research focused on financial reporting quality than earning quality. I think earnings quality was pretty well destroyed when the IASB teamed up with the FASB to combine realized and unrelized revenues (from financial instrument value changes) ---
http://faculty.trinity.edu/rjensen/Theory02.htm#FairValueFails

Convergent Evolution in Accounting Conceptual Framework: Barker and Penman (2016) and ASBJ (2006)
SSRN, August 18, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2824845

Authors

Shizuki Saito University of Tokyo

Yoshitaka Fukui Aoyama Gakuin University

Abstract

Criticizing the IASB’s Conceptual Framework project based on the balance sheet approach, Barker and Penman (2016) have been advocating a mixed balance sheet and income statement approach. Although they do not seem to have noticed, their approach is quite similar to that of the Japanese accounting standard setter promulgated in ASBJ (2006). We will explicate the basic similarity as well as some differences between these two approaches.

Are Activist Investors Good or Bad for Business? Evidence from Capital Market Prices, Informed Traders, and Firm Fundamentals
SSRN, August 10, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2823067

Authors

Edward P. Swanson Texas A&M University - Mays Business School; Mays Business School, Texas A&M University

Glen Young Texas A&M University

Abstract

We provide new evidence on the important and contentious question of whether interventions by activist investors add value to the targeted companies. Our large sample covers two decades and includes interventions in which the five-percent-ownership threshold for filing SEC Schedule 13D requires too much capital. We find that short-window returns around the public announcement are significantly positive and do not reverse in the post-intervention period; analyst recommendations decline prior to the intervention but increase significantly afterward; and short interest declines significantly in the post-intervention period. These favorable reactions are supported by significant improvements in target firms’ accounting fundamentals. Finally, ownership by long-term (“dedicated”) institutional investors increases after the intervention, and ownership by short-term (“transient”) investors decreases. Taken together, actions by informed market participants and accounting fundamentals provide consistent, strong evidence that investor activism strengthens the prospects of target firms.

Jensen Comment
It's probably best to download this one before it gets accepted by a journal.

International Accounting Standards: Historical and Rational Perspectives
SSRN. 2005
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2826079
The Accountant’s Journal, 2005, 54(1), 23-30

Author

Rufo R. Mendoza Asian Institute of Management

Abstract

This paper explores the historical development of international accounting standards (IAS) and the initiatives of the prominent organizations involved in international standard setting. It also explains why countries differ in national standards, why the process of harmonization of standards among countries has been slow, and why countries should now converge their accounting standards.

Many papers on IAS generally deal with the contents of the individual standards. This writer, however, believes that accountants, as social scientists, are also interested in tracing the development of social forms over time and comparing those developmental processes across cultures. Thus, this paper addresses the interest of accountants to learn how some contemporary events or institutions—like the IAS—came into being. In like manner, accountants are interested in finding out the varied reasons why the issue of coming up with a global set of accounting standards has taken a long while. Indeed, these are perspectives that substantially differ from those commonly presented in professional forum and scholarly exercises

Jensen Comment
This author is part of a growing trend of re-publishing older published abstracts to SSRN that are not current and may not be even updated. It seems to be a publicity stunt. Makes me wonder if this a way of getting old research onto current performance reports. However, in fairness I did not compare the older version of the paper with the new SSRN posting. In this case there may have been some updating since the current SSRN posting can be downloaded.

Jensen Comment
Although it's expensive Steve Zeff's 2001-2015 update is more detailed and up to date ---
Aiming for Global Accounting Standards: The International Accounting Standards Board, 2001-2011 ---
https://www.amazon.com/Aiming-Global-Accounting-Standards-International/dp/0199646317/ref=sr_1_1?s=books&ie=UTF8&qid=1473258970&sr=1-1&keywords=Stephen+Zeff
Perhaps your campus library has a copy.

Readings And Notes On Financial Accounting: Issues and Controversies, 1996
by Stephen A Zeff and Bala G Dharan

Jensen Comment
I just bought a copy of this book for a penny from Amazon (plus shipping).
Perhaps you might like to grab up one of these before it goes out of print.

Ranking Accounting-Education Authors from Four Countries: A 20-Year Study from 1993 Through 2012
SSRN, December 31, 2014
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2832979
Global Perspectives on Accounting Education, Volume 11, p. 65-76, 2014

Taylor L. Delande Roger Williams University

Richard A. Bernardi Roger Williams University - Gabelli School of Business

Kimberly M. Zamojcin Roger Williams University - Gabelli School of Business

Abstract

This paper ranks accounting education authors from Australia, New Zealand, the Republic of Ireland, and the United Kingdom. We include eight journals whose mission was to publish accounting-education papers. While prior studies provide rankings of authors in accounting-education, these rankings are limited to authors located in the United States and Canada. This research ranks the top-10 authors by country and ranks the top 50 authors for two periods – 1993 through 2012 and 2003 through 2012. For those authors who were not included in the top-50 rankings, we also provide a distribution of authors by the number of publications for benchmarking purposes.

Jensen Comment
These authors are part of a growing trend of re-publishing older published abstracts to SSRN that are not current and not updated since the papers themselves cannot be downloaded from SSRN. It seems to be a publicity stunt. Makes me wonder if this a way of getting old research onto current performance reports.

Trends in Accounting-Education Publications by Authors from the United States between 1966 and 2012
SSRN. December 31, 2013
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2832968

Authors

Richard A. Bernardi Roger Williams University - Gabelli School of Business

Kimberly M. Zamojcin Roger Williams University - Gabelli School of Business

Abstract

The purpose of this study is to chronicle the increased level of accounting research published in 14 accounting-education journals authored by accounting doctoral classes from 1966 through 2012. The data indicate that the increase in the number of graduates from our accounting doctoral programs positively associated with the growth in the number of accounting-education journals, the number of coauthor-adjusted accounting publications, the average number of coauthor-adjusted articles for each year group, and the level of coauthoring. We found that the increase in the number of AACSB accredited institutions positively associated with the increase in the number of authors who had an accounting education publication within 10 years after graduating. However, the increase in the number of AACSB accredited institutions negatively associated with the number of coauthor-adjusted articles over time and the average number of coauthor-adjusted articles for each year group. From a research perspective, these results challenge Fogarty and Markarian’s finding about the accounting-education profession being in a state of decline

Enterprise Resource Planning (ERP software and systems) ---

Jensen Comment
One of the biggest deficiencies in Accounting Information Systems (AIS) curricula is often the lack of available experts to teach the complexities of ERP systems that is designed to integrate older information systems smokestacks (marketing, finance, accounting, production, etc.) into integrated information systems across an entire enterprise ---
http://faculty.trinity.edu/rjensen/245glosap.htm

Implementing Enterprise Resource Planning Education in a Postgraduate Accounting Information Systems Course
SSRN, September 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2796792
Business Education & Accreditation, v. 8 (1) p. 27-37 (2016)

Author

Kishore Singh
Griffith University - Griffith Business School

Abstract

The importance of Enterprise Resource Planning (ERP) systems education, its inclusion and evaluation in a university teaching context are the subjects of this article. As the importance of ERP systems has increased in the corporate world, so too has its importance increased in education. Many universities have recognized this need and the potential for using ERP systems software to teach business concepts. In this paper, the approach adopted is to develop a course that integrates theoretical accounting and business concepts together with a hands-on practical component. The course aims to empower postgraduate accounting students with knowledge regarding the process of adopting and exploiting ERP systems software to develop and maintain competitive advantage for organizations in a global marketplace

Japanese Management Accounting: An Overview of Current Methods and Practices
SSRN, August 28, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2831068

Authors

Susumu Ueno Management and Accounting Research Institute, Japan; Konan University-Graduate School of Business and Accounting, Japan

D. Paul Scarbrough Goodman School of Business - Accounting

Abstract

This paper provides scholars and practicing accountants a comprehensive and objective picture of current Japanese management accounting methods and practices. The picture is comprised of discussions of three fields related to specific aspects of organizations (corporate-level management methods and practices, front-line management accounting methods and practices and management accounting methods and practices at small and medium-sized enterprises), as well as the pervasive changes to all organizations due to information and communication technology (ICT) and disclosure rule changes.

Firstly, we discuss the development and status of corporate-level management methods and practices used by large Japanese companies. Corporate-level management accounting methods and practices discussed include planning and budgeting, hoshin kanri, the balanced scorecard, performance management, and compensation management. Second, we move to topics of front-line management accounting methods and practices often observed in Japan. The topics include the relationship between management accounting and Cost Accounting Standards, JIT production and business continuity management (BCM) and quality control. Third, since a majority of companies in Japan are small and medium-sized enterprises (SMEs), we discuss current use of management accounting methods and practices at SMEs.

In the past decades, management accounting practices in Japan have changed markedly by adapting to innovations in information and communication technology (ICT). More recently, revised disclosure rules also caused significant changes to Japanese management accounting practices. Thus, throughout this paper, we examine the impacts of ICT and new disclosure rules to Japanese management accounting practices.

The knowledge and analysis in this study provide an insightful basis for the improvement and development of managerial accounting methods and practices.

St. Petersburg Paradox --- https://en.wikipedia.org/wiki/St._Petersburg_paradox

Does the Shadow of the St. Petersburg Paradox Fall Upon Poverty Indices?
SSRN, August 27, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2830945

Author

Rajaram Gana Georgetown University - School of Medicine

Abstract

The lessons I (Gana 2014) have learned from the vivid contrast between the mean and median fair values (Hayden and Platt 2009) of the game (Bernoulli 1738) underlying the St. Petersburg Paradox (SPP) are applied, by implicating the median, to modify two unidimensional poverty indices: the Sen (1976, 1979) index and the Palma (2011) ratio. By implicating the median in economic analysis when necessary, the SPP urges us to consider the economic and ethical consequences of our interpretation of the complex idea called “probability” (Ergodos 2014) in the pursuit of the political end which Aristotle (circa 350 BC), at the very beginning of his Nicomachean Ethics, defined as the “good for man”.

The seminal Sen index, as modified by Shorrocks (1995) and decomposed by Osberg and Xu (2000), is S_P = H_poor × |P| × (1 plus G_poor), where H_poor is the proportion of the population (the “poor”) with incomes below a poverty line, P is the average income gap ratio (< 0) of the poor relative to the poverty line, and G_poor is the Gini (1912, 1921) coefficient of the censored poverty gap ratios for the population. Analogously, S_R = H_rich × R × (1 plus G_rich), where H_rich is the proportion of the population (the “rich”) with incomes above a wealth line, R is the average income gap ratio (> 0) of the rich relative to the wealth line, and G_rich is the Gini coefficient of the censored wealth gap ratios for the population. S_P and S_R are modified, to S_P* and S_R*, respectively, by replacing |P| and R by P* ≡ |min {P, P_med}| and R* ≡ min {R, R_med}, respectively; where P_med and R_med are the median poverty and wealth gap ratios, respectively. The modified indices are used to modify the Palma ratio to S_R* / S_P*. Economic policies targeting these modified indices may benefit the “missing poor” living in the shadows of society incompletely touched by indices that only take mean values as inputs. That is, only accounting for mean poverty gaps may well benefit the “richer” among the poor at the expense of the “poorer” among the poor. Furthermore, because it is better to be rich than poor (S_R* / S_P* > 1), alleviation of poverty may well dependent on also targeting the contrast between the rich and the poor. Using the modified indices to alleviate poverty will be a bit more in line with the critically important moral heuristics, and demands, of Rawls (1971, 2001) and Sen (1992), because the modifications give greater weight to the poorest of the poor.

EY: FASB aims to more clearly portray entities’ hedging activities in the financial statements ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_02783-161US_Hedging_8September2016/$FILE/TothePoint_02783-161US_Hedging_8September2016.pdf

What you need to know

• The FASB proposed a number of targeted amendments to its hedge accounting guidance aimed at more clearly portraying the economics of an entity’s risk management activities in its financial statements.

• The proposal would eliminate the need to separately measure and report hedge ineffectiveness and generally require the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item.

• The proposal would permit entities to hedge contractually specified risk components in cash flow hedges of variable-rate financial instruments and forecasted transactions involving nonfinancial items.

• Certain documentation and assessment requirements would be relaxed and aspects of the long-haul method for fair value hedges of interest rate risk would be simplified.

• Comments are due by 22 November 2016.

Hedge Ineffectiveness --- Scroll down at http://faculty.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#I-Terms
The ineffective portion of a hedge is the part that is financial speculation instead of hedging.

Hedge Effectiveness Under Required Disclosures: A Study of the Impact of Hedging on Capital Investment of Derivatives Users
SSRN.June 30, 2016 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2830632

Author

Hong V. Nguyen University of Scranton

Abstract

The purpose of this paper is to study the impact of hedging on corporate capital expenditures by utilizing the changes in hedge effectiveness following the disclosure requirements of the Statement of Financial Accounting Standards 133 (SFAS 133). The standard requires firms to recognize and report the use of derivatives in their financial statements, including the purpose of use and the extent of hedge effectiveness. The greater transparency that comes with the standard is expected to incentivize firms toward demonstrating greater effectiveness in their hedging activities. Since effective hedging, by reducing risk exposure, can lower the costs of financial distress, it can raise the level of capital investment. The literature on the real consequences of hedging is limited despite the prevalence of corporate use of derivatives for hedging. The research in this paper contributes to this literature by examining the impact of hedging on capital investment. It also provides evidence on the relation between risk exposure and capital investment when a link can be established between hedge effectiveness and risk exposure, as it is the case under required disclosures.

EY: How the new revenue recognition standard will affect homebuilders ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_02740-161US_RevRecHomebuilding_7September2016/$FILE/TechnicalLine_02740-161US_RevRecHomebuilding_7September2016.pdf

What you need to know

• Homebuilders will apply the new revenue recognition standard to revenue from sales of completed homes and residential units to customers. The standard will supersede today’s guidance in ASC 360-20, Real Estate Sales.

• Homebuilders will need to consider a number of changes in the new standard, including how they identify the customer in an arrangement, evaluate collectability of the transaction price, determine how and when revenue should be recognized, recognize costs incurred to obtain a contract and provide certain new disclosures.

• We don’t anticipate further significant changes to the recognition and measurement principles in the new standard, so homebuilders should focus on implementation. Many entities are finding that implementation requires significantly more effort than they expected.

Crude Inventory Accounting and Speculation in the Physical Oil Market
SSRN, August 25, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2829420

Authors

Ivan Diaz-Rainey University of Otago - School of Business

Helen Roberts University of Otago

David H. Lont University of Otago - Department of Accountancy and Finance

Abstract

This paper uses inventory data from financial accounts to explore whether companies involved in the physical oil market were speculating in the run-up to 2008. Using quarterly inventory data over the period 1990Q4 to 2012Q1 and a sample of 15 of the largest listed oil companies in the world, we derive an Index of Scaled Physical Inventories (ISPI). We find declining ISPI up to the early 2000s is consistent with firms minimizing inventory for efficiency sake; then ISPI starts to increase, suggesting physical inventories could have contributed to the run-up in oil prices between 2003 and 2008. Highlighting heterogeneity in inventory behaviors amongst the large oil companies, the structural break test on the ratio of inventory to sales and the days to sales for individual companies shows that five companies had positive structural breaks during the speculation period, while the other companies had no or negative structural breaks. Contrary to declining inventory expectations due to a tightening oil market, the positive structural breaks suggest speculative behavior. We also examine the relationship between changes in profitability and changes in oil inventory over the pre-speculation and speculation period. Though some coefficients for inventory do switch from negative to positive over the two periods as hypothesized, they are only significant in a few cases. However, aggregate measures of inventory do switch and are significant, suggesting that, on average, inventory holdings negatively affected profitability in the pre-speculation period and positively affected profitability in the speculation

What is Your EPS? Issues in Computing and Interpreting Earnings Per Share
SSRN, August 15, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2827796

Authors

Jeffrey Jay Jewell and Jeffrey A. Mankin
Lipscomb University and Lipscomb University - Department of Accounting, Finance & Economics

Abstract

This paper examines several problematic issues in the presentation of information related to earnings per share (EPS) that are common to college textbooks and popular investment websites. U.S. generally accepted accounting principles (GAAP) require disclosure of EPS for all publicly listed firms. In fact, EPS is the only financial ratio required by GAAP and it is the only financial ratio with a formula specified by GAAP. Despite these facts, many college textbooks and investment websites present incorrect formulas for the computation of EPS. Furthermore, many textbooks and investment websites either explicitly or implicitly encourage students and investors to interpret EPS incorrectly. This paper discusses these issues and contrasts proper EPS computation and interpretation with the most common errors in computation and interpretation.

Jensen Comment
EPS is usually computed so it can be compared with itself over time and/or with other companies. An enormous problem is that neither the IASB nor the FASB can define earnings. A second huge problem when compairing it with itself over time is that the rules of accounting often change regarding its underlying components. For example in the USA under the FASB and internationally under the IASB the rules have changed significantly on how to book revenues.

Do you think financial analysts and investors are going to make measurement adjustments for pre-2016 revenue recognition rules versus post 2015 revenue recongnition rules? Dream on. Mostly they will just compare apples with oranges when examining EPS trend lines by assuming they are all peaches and cream.

Obtaining Informationally Consistent Decisions When Computing Costs with Limited Information
SSRN, August 18, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2827089

Authors

Vic Anand Emory University - Goizueta Business School

Ramji Balakrishnan University of Iowa - Department of Accounting

Eva Labro University of North Carolina Kenan-Flagler Business School

Abstract

We demonstrate the need to view in a dynamic context any decision based on limited information. We focus on the use of product costs in selecting the product portfolio. We show how ex post data regarding the actual costs from implementing the decision leads to updating of product cost estimates and potentially trigger a revision of the initial decision. We model this updating process as a discrete dynamical system (DDS). We define a decision as informationally consistent if it is a fixed-point solution to the DDS. We employ numerical analysis to characterize the existence and properties of such solutions. We find that fixed points are rare, but that simple heuristics find them often and quickly. We demonstrate the usefulness and robustness of our methodology by examining the interaction of limited information with multiple decision rules (heuristics) and problem features (size of product portfolio, profitability of product markets). We discuss implications for research on cost systems.

Jensen Comment
Given the inevitable arbitrariness of estimating product costs questions are often raised about why accountants are so obsessed with measuring product costs. Actually it's their bosses (all the way to the CEO level) who are obsessed with needing product costs to set or justify pricing. The controversy is in the media a lot lately regarding pricing by the pharmaceutical industry.

Activity Based Management and Costing --- http://maaw.info/ABMMain.htm

Jensen Comment
Business executives seem to be less and less interested in ABC Costing after its rise to fame in the 1990s. Cost/Managerial accounting teachers seeking more current examples may find the following study useful in forthcoming classes. Most textbooks seem to have at least one chapter left on ABC costing.

An Application of Activity-Based Costing to Intercollegiate Athletics: A Response to the Call for Accounting Reform
SSRN, August 15, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2823936

Authors

E. Ann Gabriel Ohio University - School of Accountancy

Heather Jane Lawrence Ohio University - College of Business, Department of Sports Administration

Elizabeth A Wanless Ball State University

Abstract

Data on financial challenges in intercollegiate athletics consistently show that expenses are outpacing new revenues. Since 2004, National Collegiate Athletic Association (NCAA) Football Bowl Subdivision (FBS) institutions’ median revenues increased 94 percent while expenses increased 120 percent during the same time period (Fulks, 2015). As such, institutions face tough decisions about the possible elimination of sport teams to control costs. Current accounting methods in intercollegiate athletics, however, make it difficult for leaders to deliver informed decisions concerning sport sponsorship, Title IX compliance, and overall program operations. Institutional leaders, the NCAA, reform groups such as the Knight Commission, and the federal government, are calling for athletic departments to report more consistent and accurate financial data. The purpose of this paper is to respond to the call for accounting reform in intercollegiate athletics; specifically, to create a better representation of the costs associated with each sport and to show how accurate costing provides insight for Title IX compliance. By applying activity-based costing (ABC) to a budget from one NCAA FBS university, this research revealed the accurate cost of sport sponsorship varied greatly in comparison with institutional reporting. ABC application eliminated the expense category of unallocated (i.e., marketing, compliance, general administration, etc.) and distributed expenses back to each sport. Results showed women’s sports increased from 24 percent of total costs to 32 percent of total costs within the activity-based costing application (data relevant to prong three of Title IX). Institutional leaders should be encouraged to use ABC to better understand department operational costs.

September 5, 2016 reply from Steve Markoff

Bob: Good that you point out the increasing irrelevance of ABC. Despite that, instructors continue to follow along chapter by chapter from the books, which make it seem as though ABC is some kind of mega-critical study topic that is commonly used in practice. Fact is - it's not.

The textbooks mostly want to make you believe that companies are using activity-based costing as their primary manner for applying overhead and various other product-costing related areas. Page after page of problems and exercises follow in the books that all start with something like this: "Jensen Corporation is considering converting to Activity-Based Costing for their manufacturing operations" and then the student goes on and on with determining activity cost pools, drivers, activity rates, etc etc. Sorry - but this aint happening. Many reasons for this, not the least of which is that companies have found that numerous other multi-pool costing methods can give them similar results.

In fact, the biggest benefit of ABC is not from the costing itself, but rather, the activity study that is undertaken to determine drivers... but seriously, you don't need to be doing activity-based costing to get this. Any company that is seriously trying to value engineer will find itself determining costs and their causes anyway, but I digress.

I teach only Managerial and Cost. Last research I saw - and it could be different now - was I think like 2009 -- and it confirmed that only about 15% of companies use ABC for anything related to product costing period. The most significant applications are 1)allocation of shared costs and, 2) customer costing. Also, supplier costing is an area too, but I think that would be part of the 15% of product costing. That's it.

Do I cover it? Yes ...in Cost. But we DON'T sit there running through all kinds of problems on manufacturing overhead. We look at the more common applications that they might face -- Allocation of Shared or Common Costs, and Customer Profitability Analysis.

Steve

September 6, 2016 reply from David Johnstone

I used to teach ABC and did many exec programs in Asia when it was at its zenith in about 1990. I remember being astonished with how the ABC zealots wanted to treat fixed costs as variable, even for decision making purposes, thus contradicting all the emphasis that there had long been in Management Acctg on “relevant” or incremental costs.

It struck me that this was a fad driven by consultants who were making lots of money out of pretence. I seem to remember phrases like “broken cost systems are sending America broke”. I also remember how in teaching people from corporations about ABC, but in being less than a believer (for reasons well put in Steve’s message), the corporate types in the exec classes were very hostile (I suspected at the time they wanted ABC “skills” and language to give them a big say and a lot of importance back in their companies).

DJ

AccountingWeb's Senior Client Issues: Catastrophic Medical Expenses
http://www.accountingweb.com/practice/clients/senior-client-issues-catastrophic-medical-expenses?source=pe090916

Jensen Comment
Medicare does not cover all the bills even with supplemental Medicare insurance. The big worry is devastating cost of extended care outside the hospital. Hospitals are required to dump patients rather quickly to medical facilities not covered by Medicare. Don't just think that you or a loved one will pull the plug. For one thing after a stroke you may be to gaga to help end your own helpless life.

All too often Medicaid ends up with your enormous tab.

Taxing Tattoos and Other Fine Arts ---
http://www.bna.com/sales-tax-slice-b73014447392/

Jensen Comment
I'll resist commenting further on a tattoo of one's cat (mentioned in the article)
I guess that beats making a tattoo of one's significant other who could become insignificant most any time.
Accountants might consider a forehead tattoo of a green eyeshade.
But that might lead to lonely times in singles bars.

I think I'll get a tattoo that reads "Test Checker for Your Inventory"

Any better suggestions?

FASB Looks to Amend Amortization Period for Callable Debt Securities ---
http://www.accountingweb.com/aa/standards/fasb-looks-to-amend-amortization-period-for-callable-debt-securities?source=ei092816

An interesting illustration where the IRS loses one in Tax Court ---
http://rothcpa.com/2016/09/tax-roundup-92716-99-owner-made-off-with-5-million-madoff-deduction-also-lots-of-debate-links-today-and-more/

Transfer Mispricing As an Argument for Corporate Social Responsibility
SSRN, August 31, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2832655

Authors

Simplice A. Asongu African Governance and Development Institute

Jacinta C Nwachukwu Coventry University

Abstract

This article presents a case for transfer mispricing as an argument for Corporate Social Responsibility (CSR). The argument builds on the position that in order to compensate for potential loss of brand image and reputation, Multinational Companies (MNCs) would be more socially responsible when they are operating in countries where the legislation and laws in place are not effective at identifying and sanctioning transfer mispricing. We first discuss the dark side of transfer pricing (TP), next we present the nexus between TP and poverty and finally we advance arguments for CSR in transfer mispricing. While acknowledging that TP is a legal accounting practice, we argue that in view of its poverty and underdevelopment externalities, the practice per se should be a solid justification for CSR because it is also associated with schemes that deprive developing countries of capital essential for investments in health, education and development programmes. Therefore CSR owing to TP cannot be limited to a strategic management approach, but should also be considered as some kind of social justice because of associated transfer mispricing practices. We further argue that, CSR by multinational corporations could incite domestic companies to comply more willingly with their tax obligations and/or engage in similar activities. Whereas, traditional advocates of CSR have employed concepts such as reputation, licence-to-operate, sustainability, moral obligation and innovation to make the case for CSR, the present inquiry extends this stream of literature by arguing that TP and its externalities are genuine justifications for CSR. We consolidate our arguments with a case study of Glencore and the mining industry in the Democratic Republic of Congo.

Transfer Pricing Challenges in the Cloud ---
http://taxprof.typepad.com/taxprof_blog/2016/09/mazur-transfer-pricing-challenges-in-the-cloud.html

Jensen Comment
This is probably a good topic wherever transfer pricing is taught in accounting courses.

Pamplin Definitions for use with AACSB 2013 Faculty Classifications ---
http://www.pamplin.vt.edu/wp-content/uploads/2016/02/415-Faculty-Definitions-for-use-with-AACSB-2013-Faculty-Classifications.pdf

September 13, 2016 reply from Barbara Scofield

AACSB emphasizes that the definitions are institution-specific, so different institutions will have different definitions that fit its mission.

I doubt that size of CPA firm would be a factor. Instead the emphasis is on the degree of responsibility in the professional practice. Thus a smaller firm could easily provide deeper, more strategic planning experience than a larger firm.

Generally, the responsibility would need to be full-time or equivalent to count for PA at my institution, which is hard for a full-time academic to meet. However, one could imagine another institution designating a partnership or equivalent position that is more than half-time as meeting the practice requirements for a PA.

The idea is that "SA" is more to be desired, so that someone who begins working at a school upon retirement and holds a PhD will be PA for the 5 years that his or her prior experience counts. During that time the faculty member is expected to begin producing research and his or her category will switch to SA and stay at SA due to continued research productivity.

Moving in the opposite direction is not really expected. An academic who produces no research because he or she is involved in practice is probably not working at a high enough level for long enough while he or she is teaching. So when the faculty member's qualifications as SA runs out due to lack of research productivity, it is unusual for the person to qualify as PA.

Why is St Louis such a great place to start an entrepreneurship?
http://fivethirtyeight.com/features/st-louis-is-the-new-startup-frontier/

Jensen Comment
Given all the racial turmoil in and around St Louis this is both surprising and good news.
This proves that it takes more than no sales tax and no income tax to attract startups.

It could be that real estate (renting and purchasing) is just too high priced in competing cities like San Francisco, NYC, Boston, Seattle, Miami, Atlanta, and LA.
But it takes more than cheap real estate --- New England has half empty former mill towns that are going nowhere.

I doubt that St. Louis is competing on the basis of quality public schools. Here San Francisco would have an edge.

2016 Regulatory Trends: Revenue recognition, disclosure effectiveness, internal control over financial reporting, and lease accounting ---
https://info.workiva.com/advertisement-2016-regulatory-trends-white-paper-SEC.html?publication=0830-accountingweb&utm_campaign=20160830-advertisement-sec-pu-2016-regulatory-trends-whitepaper&utm_medium=email&utm_source=accounting-web

IRS issues 2016–2017 special per-diem rates for travel ---
http://www.journalofaccountancy.com/news/2016/sep/irs-per-diem-rates-travel-2016-2017-201615260.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=28Sep2016#sthash.GUY2KmzI.dpuf

SEC's Relatively New Whistleblowing Rewards Program is a Game Changer

The Securities and Exchange Commission's 5-year-old whistleblower program has obtained more than 14,000 tips, including nearly 4,000 in 2015. Officials call the program a game changer that has had a "transformative impact" on how the SEC pursues misconduct.
Peter J. Henning, New York Times, September 6, 2016
http://www.nytimes.com/2016/09/07/business/dealbook/whistle-blowing-insiders-game-changer-for-the-sec.html?_r=0

Jensen Comment
External auditors are not very good at detecting frauds. Typically insiders expose frauds, although whistle blowing is controversial and often more damaging to the whistleblower than rewarding ---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

"SEC Probes Companies’ Treatment of Whistleblowers: Agency Officials Concerned About Corporate Backlash Against Whistleblowers," by Rachel Louise Ensign, The Wall Street Journal, February 25, 2015 ---
http://www.wsj.com/articles/sec-probes-companies-treatment-of-whistleblowers-1424916002?tesla=y

The Securities and Exchange Commission is probing whether companies are muzzling corporate whistleblowers.

In recent weeks the agency has sent letters to a number of companies asking for years of nondisclosure agreements, employment contracts and other documents, according to people familiar with the matter and an agency letter viewed by The Wall Street Journal. The inquiries come as SEC officials have expressed concern about a possible corporate backlash against whistleblowers.

Some of these types of documents sometimes include clauses that impede employees from telling the government about wrongdoing at the company or other potential securities-law violations, according to lawyers who handle whistleblower cases and some members of Congress. In some cases, the firms require employees to agree to forgo any benefits from government probes, effectively removing the financial incentive for participating in the SEC program.

In a separate January letter to Rep. Maxine Waters (D., Calif.) that was reviewed by the Journal, SEC Chairman Mary Jo White said she was concerned about the agreements.

The SEC has made a push to bring more whistleblower cases since the 2010 passage of the Dodd-Frank financial-reform bill, which created the agency’s whistleblower program.

Whistleblowers have flocked to the SEC program, with the number of tips increasing each year. The agency fielded 3,620 tips on potential securities-law violations in the 2014 fiscal year, up 21% from two years before.

As part of the program, tipsters can get between 10% and 30% of the sum of penalties collected if their information leads to an SEC enforcement action with sanctions of more than $1 million. The program handed out an award for more than $30 million last year to an undisclosed foreign tipster, which was its largest ever.

Dodd-Frank regulations prohibit companies from interfering with employees reporting potential securities-law violations to the agency.

An SEC spokesman declined to comment.

Continued in article

From the CFO Journal's Morning Ledger on February 20, 2015

A whistleblower’s horror story
Recent exposés of less than proprietary behavior in government and in business has led Rolling Stone Magazine to call this era the age of the whistleblower. As Matt Taibbi writes, “whistleblowers are becoming to this decade what rock stars were to the Sixties — pop culture icons, global countercultural heroes.” But today’s whistleblowers tend to partake in little of the spoils and almost none of the glamour. In fact their lives are very often almost destroyed in the process.

Bob Jensen's threads on other whistleblower horror stories ---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

Six executives are on trial for a small business scam that cost Halifax Bank of Scotland £245 million ---
http://www.businessinsider.com/trial-over-hbos-fraud-dispute-starts-in-london-2016-9

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

Canadian Mint employee accused of smuggling $180K of gold in his rectum ---
http://ottawacitizen.com/news/local-news/egan-170k-in-mint-gold-allegedly-smuggled-in-body-cavity-judge-hears

Jensen Comment
This is the one and only time it might be very interesting to be a proctologist.

Johnny Cash's Cadillac could not top this one ---
https://www.youtube.com/watch?v=rWHniL8MyMM&list=RDrWHniL8MyMM

Tim Duncan --- https://en.wikipedia.org/wiki/Tim_Duncan

Tim Duncan's Former Financial Advisor Who Hoodwinked Him Out Of Millions Is Getting Indicted ---
https://www.yahoo.com/news/tim-duncans-former-financial-advisor-132519302.html

Jensen Comment
Tim's 2013 divorce was quite messy with most of the sympathy pointed toward nice-guy Tim ---
http://deadspin.com/tim-duncan-is-in-the-middle-of-a-remarkably-messy-divor-510172889

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

A massive pay-to-play scheme involving alleged bid rigging of state contracts involving hundreds of millions of dollars in taxpayer money was outlined by federal prosecutors Thursday in a case that targets longtime advisers and major donors of Gov. Andrew M. Cuomo ---
http://politicsnow.buffalonews.com/2016/09/22/nine-charged-bombshell-state-corruption-case/
September 23, 2016

Not Long Ago Another Scandal
Top-level orruption in NY State. Former NY Senate Speaker Sheldon Silver sentenced to 12 yeas in prison. Another dozen state lawmakers have plead guilty ---
http://www.nytimes.com/2015/12/01/nyregion/sheldon-silver-guilty-corruption-trial.html?_r=0

Second Circuit Affirms Paul Daugerdas' Conviction And Sentence For Tax Shelter Fraud ---
http://taxprof.typepad.com/taxprof_blog/2016/09/second-circuit-affirms-paul-daugerdas-conviction-and-sentence-for-tax-shelter-fraud.html
Jensen Comment
Daugerdas was an Andersen Partner who sold illegal tax shelters. It's too bad he's in Club Fed rather than a state penitentiary.

Miami Accounting Vice (the title is a takeoff on the popular TV show Miami Vice)---
http://www.wsj.com/articles/miami-accounting-vice-1474329195?mod=djemMER

Sen. Elizabeth Warren is still angry that more financiers weren’t thrown in prison after the 2008 financial crisis. Last Thursday—the eighth anniversary of the collapse of Lehman Brothers—the Massachusetts Democrat wrote to FBI Director James Comey and Justice Department Inspector General Michael Horowitz to demand an accounting. But instead of urging Justice to revisit its cold-case files on banksters, perhaps she should focus on the disturbing news on financial fraud in municipal government.

Last Wednesday a federal jury found that the city of Miami defrauded bond investors by misleading them about the city’s declining financial condition. Specifically, Miami moved funds earmarked for specific purposes into its General Fund to hide fiscal deficits and pretend the city was maintaining robust reserves. The scheme allowed the city to gain favorable grades from credit-ratings firms, which later downgraded Miami after an auditor forced the city to reverse the illegal fund transfers.

Wednesday’s loss in a civil case brought by the Securities and Exchange Commission wasn’t the first time Miami has been caught cooking the books. In 2003 the SEC instituted a cease-and-desist order against the sunny paradise for violating anti-fraud provisions of federal law in a 1995 bond issuance. And it’s more than a Miami problem. The Journal reports that last month the SEC settled civil cases with no fewer than 71 municipal issuers. Yet we haven’t heard a peep from the progressive left about jailing government officials who mislead investors.

As for Ms. Warren, we have to give her credit for including abuses by government-backed Fannie Mae and Freddie Mac in her list of crisis-era outrages she sent to the Justice IG on Thursday. And if she’s looking for potential areas of investigation, we suggest she spend even more time examining government disclosures.

Continued in article

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

H&R Block: The H Stands for “Inaccurate” (Deep Undercover Part 3) ---
https://thriveal.com/2016/09/12/hr-block-the-h-stands-for-inaccurate-deep-undercover-part-3/

Jensen Comment
No H&R stands for Horrible and Regrettable

Archival documents reveal how the sugar industry secretly funded heart disease research by Harvard professors
How the Sugar Lobby Skewed Health Research ---
http://time.com/4485710/sugar-industry-heart-disease-research/

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

Wells Fargo Fined $185 Million for Creating Fake Accounts ---
http://time.com/money/4484208/wells-fargo-fined-cfpb-185-million/?xid=newsletter-brief

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

Austin IRS facility to close; union says 2,400 jobs at stake ---
http://www.mystatesman.com/news/business/austin-irs-facility-to-close-union-says-2400-jobs-/nsZSC/

Jensen Comment
This will almost certainly cause delays in refunds for taxpayers who do not file electronically. For those who shift from paper to electronic filing the risk of ID theft is much greater. I will never file electronically again as long as paper filing is an alternative.

How to stop expense reimbursement fraud ---
http://www.cgma.org/Magazine/News/Pages/how-to-stop-expense-reimbursement-fraud-201614675.aspx?utm_source=mnl:cpald&utm_medium=email&utm_campaign=30Aug2016

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

GASB proposal seeks uniformity in accounting for early debt extinguishment ---
http://www.journalofaccountancy.com/news/2016/aug/gasb-accounting-early-debt-extinguishment-201615098.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=30Aug2016#sthash.ClKWAGbf.dpuf

The next frontier in data analytics ---
http://www.journalofaccountancy.com/issues/2016/aug/data-analytics-skills.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=31Aug2016
Note the Four Types of Data Analytics

Jensen Comment
I remember the that Andersen's audits became more and more disreputable as they replaced detailed test checking with what was then called "analytical review." For example, after the collapse of WorldCom (which was when Andersen perhaps conducted the worst audit in the history of the world) the Purchasing Department purportedly had not seen an Andersen auditor in years. Every respectable audit firm knows the that detailed test checking is extremely important in inventory auditing and purchasing department auditing (where kickbacks from suppliers are the juiciest).

Perhaps the most common complaint in PCAOB inspections of audit firms is the cutting back of detailed test checking in favor of lower cost analytical reviews.

On Application of Accounting Data Analytics in the Accounting Curriculum
SSRN, June 28, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2840455

Authors

Saeed J. Roohani, Bryant University

Ariel J. Markelevich, Suffolk University

Abstract

There is a debate as to where should be the focus of analytics in accounting curriculum. While some emphasize mastery of certain tools and propriety data set, others suggest focusing on statistical tools and data crunching. We believe in accounting we have a vast resource of company data to use to improve analytical thinking of students in various accounting courses by encouraging students to ask “interesting” questions now that we have all the data and tools. As there is limited history of applying accounting big data analytics in the accounting curriculum, this paper reports on some experiences of authors using analytics in accounting courses. We utilized publicly available accounting data products/services in the classroom and developed a series of questions for students that require accounting big data analytics. These questions are carefully designed to relate to the course subject matter, and require quick responses, given data services/tools available in class. Overall such products/services seem to help students to apply classroom learning to the real world, and therefore make learning more effective. Too often the entire focus on textbook materials could get boring without any “action” or live data analytics demonstration regarding the topic of interest. We have not collected objective data on incremental benefits of the use of accounting big data and analytics; as such there has not been a formal survey of students on this topic and tools utilized. However, the anecdotal evidence suggests that accounting could be more interesting if students in the classroom can quickly analyze a scenario and come up with potential answers. We have developed and explained in this paper various scenarios for different accounting courses that use data services/tools freely available to academics.

What is the relative priority of auditing services to Deloitte?

September 7, 2016 Quotation from Caleb Newquist ---
http://goingconcern.com/post/accounting-news-roundup-deloittes-revenue-and-apples-tax-returns-090716

. . .

That's not to say that there isn't telling information about the firm's priorities. Here's a good selection:

Deloitte's ability to deliver value for clients across all geographies and service areas led to growth in each of its five core businesses—Audit, Consulting, Financial Advisory, Risk Advisory and Tax & Legal. All advisory businesses posted double-digit growth globally. Highlights include:

Risk Advisory grew the most at 22.5 percent, driven by high demand for cyber and regulatory services.

Consulting grew at 10.8 percent, fueled by increasing demand for integrated services supporting large-scale digital transformation, systems implementation, human resources and strategy projects.

Deloitte Tax & Legal grew at 10.0 percent in FY2016, the highest growth since FY2008. Growth was boosted in part by the sixth consecutive year of double-digit growth in Deloitte Legal.

I love that legal services got a shoutout. Meanwhile, audit, the service that Punit Renjen says is "central to who were are and will remain central to who we are, period," is mentioned a grand total of two times.

AICPA: Continued rise projected for accountants’ starting salaries in 2017 ---
http://www.journalofaccountancy.com/news/2016/aug/accounting-starting-salaries-2017-201615093.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31Aug2016#sthash.bhgB3hbt.dpuf

Accounting Again Leads as Most Profitable Industry ---
http://www.accountingweb.com/practice/growth/accounting-tops-list-of-most-profitable-industries

Jensen Comment
This may be one of those ways to mislead with statistics.
For example, I think an orthopedics surgeon corporation down the road in our Alpine Clinic has a much higher percentage of return to owners than any accounting firm in the State of New Hampshire. This is probably true for most every MD specialty corporation in the State.
Much depends upon what you call an "industry."

One thing that helps accounting firms have high returns is relatively cheap labor. For example, we have a granddaughter who graduated in pharmacy and then interned with the Veterans Administration in Boston. She's now returning to Maine (Portland) for her first real job at a starting salary of $125,000 plus fringe benefits. Are there any accounting firms in New England with starting salaries of entry level graduates of $125,000? There might be some who specialize in computer and IT services, but I doubt that this salary is offered to accounting graduates.

Having said this, I still recommend in many instances going to work for an accounting firm at less than half this starting pharmacist salary. The reason is that accountancy offers so many alternative tracks for advancement into much higher paying careers. And believe it or not I think an auditor traveling from client to client has more interesting and varied work. I watch those high paid pharmacists in our Wal-Mart pharmacy working intently day-to-day and year-to-year and thank my lucky stars that I never became a Wal-Mart pharmacist.

Seeking Your Input
COSO Enterprise Risk Management — Aligning Risk with Strategy and Performance ---
http://erm.coso.org/Pages/default.aspx

How much has Vanguard saved investors? Over a trillion dollars
https://www.bloomberg.com/view/articles/2016-08-30/how-much-has-vanguard-saved-investors-try-1-trillion

Jensen Comment
Aside from my six TIAA lifetime annuities, all my savings are invested through Vanguard. I have a checkbook and can write a check anytime I need liquidity for such things as buying a car or paying property taxes. My returns are automatically invested. However, I also have a checking account with a local bank.

Updates on the Journal of Accounting and Economics
From MAAW's Blog Compiled by Jim Martin

Journal of Accounting and Economics 2016 http://maaw.info/JournalofAccountingandEconomics2016.htm

Journal of Accounting and Economics 1979 - August 2016 http://maaw.info/JournalofAccountingandEconomics.htm

Updates on the journal Contemporary Accounting Research (a Canadian Academic Accounting Association journal and is the Canadian equivalent to the AAA's TAR)
From MAAW's Blog Compiled by Jim Martin

Contemporary Accounting Research 2016 --- http://maaw.info/ContemporaryAccountingResearch2016.htm

Contemporary Accounting Research 1984-1992 and 2010-2016 --- http://maaw.info/ContemporaryAccountingResearch.htm

Updates on the journal Decision Sciences
From MAAW's Blog Compiled by Jim Martin

Decision Sciences Volume 47(1) - 47(4) 2016 http://maaw.info/ManagementJournals/DecisionSciences2016.htm

Decision Sciences Volume 1(1) 1970 - Volume 6(4) 1975 and Volumes 41(1) 2010 - 47(4) 2016 http://maaw.info/ManagementJournals/DecisionSciences.htm

Updates on the journal Advances in Management Accounting
From MAAW's Blog Compiled by Jim Martin

Advances in Management Accounting Volume (26) 2016 http://maaw.info/AdvancesinManageAcc2016.htm

Advances in Management Accounting Volumes (1) 1992 - (26) 2016 http://maaw.info/AdvancesinManageAcc.htm

SysTrust and SAS 70 --- https://en.wikipedia.org/wiki/American_Institute_of_Certified_Public_Accountants#WebTrust.2C_SysTrust_and_SAS_70

Are these old SysTrust dream wines in new dream wine bottles?

New path proposed for CPAs in cyber risk management ----
http://www.journalofaccountancy.com/news/2016/sep/cyber-risk-management-201615199.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=19Sep2016#sthash.gHU9wRUs.dpuf

Blast from the Past on the AECM

PwC: Re-Branding the Accounting Profession ---
http://www.pwc.ch/en/video.html?objects.mid=362&navigationid=3856

September 20, 2010 message from Bob Jensen

Hi Denny,

Yes, I could access the PwC re-branding video directly without having to log in:
http://www.pwc.ch/en/video.html?objects.mid=362&navigationid=3856

I do have a PwC Direct password, but I really doubt that the Switzerland link is using a cookie.

In any case the home page of PwC does not require any login --- http://www.pwc.com/
The video is now on this home page.

This takes me back to the days when Bob Eliott, eventually as President of the AICPA, was proposing great changes in the profession, including SysTrust, WebTrust, Eldercare Assurance, etc. For years I used Bob’s AICPA/KPMG videos as starting points for discussion in my accounting theory course. Bob relied heavily on the analogy of why the railroads that did not adapt to innovations in transportation such as Interstate Highways and Jet Airliners went downhill and not uphill. The railroads simply gave up new opportunities to startup professions rather than adapt from railroading to transportation.

Bob’s underlying assumption was that CPA firms could extend assurance services to non-traditional areas (where they were not experts but could hire new kinds of experts) by leveraging the public image of accountants as having high integrity and professional responsibility. That public image was destroyed by the many auditing scandals, notably Enron and the implosion of Andersen, that surfaced in the late 1990s and beyond ---
http://faculty.trinity.edu/rjensen/Fraud001.htm

This is a 1998 lecture given by Bob Eliott before his world (the lofty public perception of CPA firm integrity) collapsed ---
http://newman.baruch.cuny.edu/digital/saxe/saxe_1998/elliott_98.ht

The AICPA commenced initiatives on such things as Systrust. To my knowledge most of these initiatives bit the dust, although some CPA firms might be making money by assuring Eldercare services.

The counter argument to Bob Elliot’s initiatives is that CPA firms had no comparative advantages in expertise in their new ventures just as railroads had few comparative advantages in trucking and airline transportation industries, although the concept of piggy backing of truck trailers eventually caught on.

I still have copies of Bob’s great VCR tapes, but I doubt that these have ever been digitized. Bob could sell refrigerators to Eskimos.

September 21, 2010 reply from Roger Debreceny [roger@DEBRECENY.COM]

Isn't interesting that the pwc video has nothing at all to say about protection of the investor or maintenance of the public interest. It is all about value for the client. The client gets mentioned at least a dozen times -- investors and the public, zero times.

If these are truly the internalized values of the firm, we're sure to have more audit failures in coming years.

<sigh>

Roger

September 22, 2010 reply from Bob Jensen

Hi Roger,

In 1998, Bob Elliott argued that financial audits were destined in the 21^st Century to be money losing assurance services ---
http://www.baruch.cuny.edu/library/alumni/online_exhibits/digital/saxe/saxe_1998/elliott_98.htm
This is a great lecture that can be debated in various accounting courses, notably AIS, Ethics, and Auditing courses.

Sarbox (Sarbanes, SOX) revived the profitability of financial audits but possibly not for long as worldwide lawsuits commence to take their toll on the auditing firms.
http://faculty.trinity.edu/rjensen/Fraud001.htm

A key point made by Bob Elliott is that expansion of assurance services (e.g., SysTrust and Eldercare) is levered on the public image of CPA firms’ high integrity and professional responsibility. After this shining public image of CPA firms’ integrity and professional responsibility was tarnished since the turn of the Century, the question becomes what comparative advantages do CPA firms have that gives them comparative advantage. If you believe Francine, there’s not much left for the largest auditing firms aside from an existing global network of offices, infrastructures, vast teams of lawyers, and whatever is left of a once-shining public image

Bob Jensen

September 22, 2010 reply from Francine McKenna re: The Auditors Blog [retheauditors@GMAIL.COM]

Bob, it's all about branding. If you look at what Deloitte now says on their new boilerplate legal language- they recently converted from Swiss Verein to UK private firm structure - you'll see that brand is king. "Deloitte is a brand..." It begins.

Deloitte has a consulting firm they never shed, PwC wants one bad and is counting on it to grow to pull the rest if the firm up. KPMG is trying to get back in. They were advertising their presence at Oracle Open World user conf. EY seems the only one laying low, but then again I predicted that. Time and money is being spent on lots of litigation and they have the whopper of the day-Lehman. Yes, we are back pre-2000 and no one is doing anything to stop it. In the UK the regulators and media are rattling sabers but in the US nada but me and a few others like Jim Peterson. The PCAOB has no powers to stop acquisitions like BearingPoint and Diamond by PwC that distract them and waste resources that should be spent on training and quality assurance.

Francine

Bob Jensen's threads on auditor independence and professional responsibility ---
http://faculty.trinity.edu/rjensen/Fraud001.htm#Professionalism

Bob Jensen's threads on auditor independence and professional responsibility ---
http://faculty.trinity.edu/rjensen/Fraud001.htm#Professionalism

PwC has another $1 billion stumbling block to litigate or settle out of court (for less)---
PwC Fights FDIC’s Damages Claims
https://www.fwdforensics.com/accounting/pwc-fights-fdic-damages/

PwC Reaches Settlement in Taylor Bean Case $5.5 Billion Lawsuit ---
http://www.accountingtoday.com/news/audit-accounting/pwc-reaches-settlement-in-taylor-bean-lawsuit-79077-1.html

Jensen Comment
The settlement amount is confidential, but given the timing of the settlement I would guess that PwC is quite happy.
The good news is that PwC is still in business, contrary to one of the scenarios laid out by Jim Peterson to sell his new (overpriced) book.

From Scott Bonacker on March 31, 2016

Every once in a while, a dog catches a car. Then what to do (other than call the lawyer in) – these articles discuss tax reporting after catching an embezzler:
http://web.nacva.com/JFIA/Issues/JFIA-2013-1_4.pdf

http://www.plantemoran.com/services/business-advisory-services/forensic-accounting/documents/fvs-navigating-aftermath-of-embezzlement.pdf

http://www.journalofaccountancy.com/issues/1999/aug/accountingforstickyfingers.html

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

There's something odd about the way insulin prices change (read that as meaning competition does not restrain price gouging including Medicare and Medicaid gouging) ---
http://www.businessinsider.com/rising-insulin-prices-track-competitors-closely-2016-9

Insulin prices are rising — increases that mean some people are spending as much on monthly diabetes-related expenses as their mortgage payment.

But what makes the rise in insulin prices different than many other old drugs that have drawn scrutiny over prices, is that there is competition for insulin.

In most industries, competition drives down prices. In this case, the competitors appear to increase prices side-by-side — something that's been referred to as "shadow pricing."

At least three companies — Eli Lilly & Co., Novo Nordisk, and Sanofi Aventis — make and sell insulin.

Despite this competition, prices have steadily climbed over the past decade, taking single or double-digit list price increases in a year. A 10 milliliter vial of Sanofi's long-acting insulin, Lantus, first hit the US market at $34.81 a vial in 2001, according to data from Truven Health Analytics.

Since 2014, the last time Sanofi raised the price, it has been $248.51.

During the period in which Lantus's price rose 600%, a rival product from Novo Nordisk appeared. In 2006, the new drug, called Levemir, hit the market at $66.96 (close to what Sanofi's drug cost at the time). These days Levemir costs about $269.

In other words, the competition seems to have done nothing to push prices down. In fact, when charted side by side, the price increases seem to be in synch.

Time Magazine: 2016 Ig Nobel Prize Winning Quirky Research ---
http://time.com/4505383/ig-nobel-awards-2016-spoof-prize-quirky-science/?xid=newsletter-brief

Home Page and Archives ---
http://www.improbable.com/ig/

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

Another Obama Broken Promise
An Internet Giveaway to the U.N.: If the U.S. abdicates internet stewardship (on Sept. 30), the United Nations might take control ---
http://www.wsj.com/articles/an-internet-giveaway-to-the-u-n-1472421165?mod=djemMER

When the Obama administration announced its plan to give up U.S. protection of the internet, it promised the United Nations would never take control. But because of the administration’s naiveté or arrogance, U.N. control is the likely result if the U.S. gives up internet stewardship as planned at midnight on Sept. 30.

On Friday Americans for Limited Government received a response to its Freedom of Information Act request for “all records relating to legal and policy analysis . . . concerning antitrust issues for the Internet Corporation for Assigned Names and Numbers” if the U.S. gives up oversight. The administration replied it had “conducted a thorough search for responsive records within its possession and control and found no records responsive to your request.”

It’s shocking the administration admits it has no plan for how Icann retains its antitrust exemption. The reason Icann can operate the entire World Wide Web root zone is that it has the status of a legal monopolist, stemming from its contract with the Commerce Department that makes Icann an “instrumentality” of government.

Antitrust rules don’t apply to governments or organizations operating under government control. In a 1999 case, the Second U.S. Circuit Court of Appeals upheld the monopoly on internet domains because the Commerce Department had set “explicit terms” of the contract relating to the “government’s policies regarding the proper administration” of the domain system.

Without the U.S. contract, Icann would seek to be overseen by another governmental group so as to keep its antitrust exemption. Authoritarian regimes have already proposed Icann become part of the U.N. to make it easier for them to censor the internet globally. So much for the Obama pledge that the U.S. would never be replaced by a “government-led or an inter-governmental organization solution.”

Rick Manning, president of Americans for Limited Government, called it “simply stunning” that the “politically blinded Obama administration missed the obvious point that Icann loses its antitrust shield should the government relinquish control.”

The administration might not have considered the antitrust issue, which would have been naive. Or perhaps in its arrogance the administration knew all along Icann would lose its antitrust immunity and look to the U.N. as an alternative. Congress could have voted to give Icann an antitrust exemption, but the internet giveaway plan is too flawed for legislative approval.

As the administration spent the past two years preparing to give up the contract with Icann, it also stopped actively overseeing the group. That allowed Icann to abuse its monopoly over internet domains, which earns it hundreds of millions of dollars a year.

Earlier this month, an independent review within Icann called the organization “simply not credible” in how it handled the application for the .inc, .llc and .llp domains. The independent review found Icann staffers were “intimately involved” in evaluating their own work. A company called Dot Registry had worked with officials of U.S. states to create a system ensuring anyone using these Web addresses was a legitimate registered company. Icann rejected Dot Registry’s application as a community, which would have resulted in lowered fees to Icann.

Delaware’s secretary of state objected: “Legitimate policy concerns have been systematically brushed to the curb by Icann staffers well-skilled at manufacturing bureaucratic processes to disguise pre-determined decisions.” Dot Registry’s lawyer, Arif Ali of the Dechert firm, told me last week his experience made clear “Icann is not ready to govern itself.”

Icann also refuses to award the .gay domain to community groups representing gay people around the world. Icann’s ombudsman recently urged his group to “put an end to this long and difficult issue” by granting the domain. Icann prefers to earn larger fees by putting the .gay domain up for auction among for-profit domain companies.

And Icann rejects the community application for the .cpa domain made by the American Institute of CPAs, which along with other accounting groups argues consumers should expect the .cpa address only to be used by legitimate accountants, not by the highest bidder. An AICPA spokesman told me he has a pile of paperwork three feet high on the five-year quest for the .cpa domain. The professional group objected in a recent appeal: “The process seems skewed toward a financial outcome that benefits Icann itself.”

Continued in article

Anti-Trust Lawsuit Outcome: Killing Off Hundreds of Thousands of American Cows to Keep Milk Prices High ---
https://www.bloomberg.com/news/articles/2016-09-08/cow-killing-and-price-fixing-in-your-supermarket-dairy-aisle?cmpid=BBD090816_BIZ

Your Textbook May be Out of Date: Revised SSARS No. 21 ---
http://www.aicpa.org/interestareas/frc/reviewcompilationpreparation/pages/resources-for-ssars21.aspx?utm_source=mnl:cpald&utm_medium=email&utm_campaign=16Sep2016

Your Updated Textbook May Be Out of Date Already
FASB proposes additional revenue recognition corrections ---
http://www.journalofaccountancy.com/news/2016/sep/fasb-revenue-recognition-corrections-201615215.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=20Sep2016#sthash.qiUkvfAq.dpuf

Consumers Are Getting Plucked: Why America Pays 50% More for Chicken ---
http://www.bloomberg.com/news/articles/2016-09-28/is-there-a-vast-conspiracy-to-overcharge-you-for-chicken?cmpid=BBD092816_BIZ

From the CFO Journal's Morning Ledger on September 29, 2016

UBS to pay $15 million over sales practices
UBS Group AG has agreed to pay more than $15 million to settle SEC charges that its failure to properly train brokers led to customers buying hundreds of millions of dollars of unsuitable securities. According to Reuters, the SEC said on Wednesday that UBS from 2011 to 2014 sold about $548 million of derivatives tied to individual stocks to relatively inexperienced retail customers.

Jensen Comment
If you believe that improper training of brokers in selling derivatives was the cause of these frauds then Tom Selling will negotiate a price with you for his ocean front home in Phoenix. The problem is that UBS brokers were overly trained in screwing derivatives customers. Sometimes I've got to agree with Senator Elizabeth Warren.

Bob Jensen's threads on the history of derivatives marketing frauds ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

From the CFO Journal's Morning Ledger on September 29, 2016

Why the $600 EpiPen costs $69 in Britain
The EpiPen allergy shot costs less than its leather case in Britain, Bloomberg reports. The price of an EpiPen two-pack has surged to more than $600 in the U.S., sparking a political outcry. While the manufacturer, Mylan NV, says it takes home about $274, in the U.K. a similar pair of injectors costs the state-funded National Health Service $69. The numbers highlight the stark differences in the way drugs are priced in the U.S. and Britain, where the government negotiates with pharmaceutical companies to limit costs.

Jensen Comment
Such pricing would never work worldwide because somebody has to pay for Mylan's corporate jets and conferences in Ritz hotels around the world. "Cost Plus" pricing all depends upon what outlays are included in what you call "cost." Accountants are notoriously creative when it comes to "measuring" cost.

From The Wall Street Journal on September 27, 2016
"Mylan Clarifies EpiPen's Profit"

. . .

Testifying before a congressional committee last week, CEO Heather Bresch said Mylan's profit was $100 for a two-pack of injectors, despite a $608 price in the USA (versus $69 in the U.K.)

Continued in article

Jensen Comment
As usual USA prices include all the allocations of corporate jets, conferences in luxury hotels, factory depreciation, equipment depreciation, R&D, etc. Screwing USA customers and third parties (think Blue Cross, Medicare, and Medicaid) is the name of the game in the USA.

Sustainability Accounting --- https://en.wikipedia.org/wiki/Sustainability_accounting

From the CFO Journal's Morning Ledger on September 23, 2016

Sustainability disclosures unstustainable
Investors are asking companies to beef up the information that appears in company filings regarding sustainability efforts, Tatyana Shumsky writes. Many companies issue corporate-social-responsibility reports, but both the standardization of reported metrics and third-party oversight are lacking, an investment officer for the California State Teachers’ Retirement System said on Monday.

PBGC is a Synonym for Santa Claus

Pension Benefit Guarantee Corporation --- https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation

From the CFO Journal's Morning Ledger on September 23, 2016

PBGC feels your pain
The Pension Benefit Guaranty Corp. wants companies struggling with overburdened pension deficits to know it understands the struggle. That’s why, on Thursday, it eased late-payment fees, Vipal Monga reports. The director of the PBGC, Tom Reeder, said employers are ditching defined benefit plans “at an alarming rate.” Premium-payment penalties will be halved, and for those with a good payment history the penalty could be cut by another 80% of that amount.

Jensen Comment

Relax. It's not really taxpayer money at stake here. One day the PRGC obligation for pensions will be so huge that the Federal Government will make it simple by printing enough money to pay all the public and private pension obligations in the USA. Why is everybody so concerned about entitlements since the simple answer is in the money printing processes? Economists on edge about entitlements make it seem overly complicated when Zimbabwe had the answers all along.

Bob Jensen's threads on $100+ in unbooked entitlements that USA politicians forget about during election campaigns ---
http://faculty.trinity.edu/rjensen/entitlements.htm

Yahoo revealed that upwards of half a billion user’s data was compromised

From the CFO Journal's Morning Ledger on September 23, 2016

If you think your personal data is safe online, you may be a yahoo. That’s the message from Yahoo Inc., which revealed that upwards of half a billion user’s data was compromised – in 2014, by the way – by what it called “state-sponsored” hackers. While anybody with a Yahoo email or fantasy sports account is rightfully worried, the massive breach throws into question the Marissa Mayer-led company’s oversight and disclosure, especially amid the sale of its core businesses to Verizon Communications Inc.
The hack, and the timing of the disclosure, could affect the Verizon merger, Vipal Monga and Ryan Knutson report. The question is whether potentially the biggest hack on record, and the lag-time in noticing it, could constitute a material adverse change to Yahoo’s business. Courts haven’t been kind to takeover parties’ attempts to use such deal clauses to wriggle out of a soured merger, but the legalese might allow Verizon some leverage if it wants to rework the pact. As Tatyana Shumsky notes, determining tthe impact is a sticky wicket and most companies are reticent to disclose any breaches if materiality isn’t a foregone conclusion

From the CFO Journal's Morning Ledger on September 22, 2016

U.S. drug company hiked price of acne cream by 3,900%
Another U.S. drug company has increased the price of an acne cream by more than 3,900% in less than 18 months in the latest example of what some label price gouging, which has enraged the American public and become a central topic of debate in the presidential election campaign, the Guardian reports. Novum Pharma LLC, a recently formed privately held Chicago-based company, bought the rights to drug Aloquin in May 2015. Novum almost immediately increased the price by 1,100%, and hiked the price higher still in January 2016.

From the CFO Journal's Morning Ledger on September 22, 2016

AICPA steps up cyberfraud fight
The American Institute of CPAs this week unveiled three measures aimed at advancing the battle for cybersecurity, Tatyana Shumsky reports. The accounting industry group on Wednesday published a fraud report designed to better equip accountants fight off “executive impersonation” cyberattacks. The scam involves an email sent from an executive imposter to a subordinate asking for a wire transfer or payment to a new bank. Finance chiefs and their staff are particularly popular targets for this type of attack, because of their access to company accounts.

From the CFO Journal's Morning Ledger on September 21, 2016

Microsoft plans $40 billion stock buyback and raises dividend
Microsoft Corp. announced plans to buy back up to $40 billion in stock and boost its dividend by 8%, the latest in a series of moves by the software giant to share a steady flood of cash with shareholders. The latest repurchase target is the same size as a buyback plan announced in 2013, which the company said Tuesday it expects to complete by the end of this year.

Jensen Comment
When teaching elementary accounting students how to journalize the above transactions these may good examples of why companies pay dividends and why they buyback shares. Of course there are various possible reasons in each instance.

From the CFO Journal's Morning Ledger on September 20, 2016

E&Y fined $9 million for improper auditor relationships
Big companies and their outside auditors often have close professional relationships. But now, for the first time, U.S. regulators have taken enforcement action over relationships that became a little too close: it has fined professional services firm Ernst & Young LLP $9.3 million for failures including an auditor’s romantic involvement with a client, the Financial Times reports.

Bob Jensen's archives on E&Y's legal woes ---
http://faculty.trinity.edu/rjensen/fraud001.htm

Bob Jensen's threads on professionalism in auditing ---
http://faculty.trinity.edu/rjensen/fraud001c.htm

From the CFO Journal's Morning Ledger on September 20, 2016

Wells Fargo CEO ‘deeply sorry.’
Wells Fargo & Co. Chief Executive John Stumpf will tell U.S. senators on Tuesday that he is “deeply sorry” for selling customers unauthorized bank accounts and credit cards and that he would take “full responsibility” for the unethical activity, the New York Times reports. Mr. Stumpf will strike a contrite tone in a testimony over the fake accounts at a Senate Banking Committee hearing on Tuesday morning, the New York Times said, citing a copy of his prepared remarks.

Jensen Question
Where have we heard this before in front of the US Senate?

Bankers, the IRS, and on and on and on.

From the CFO Journal's Morning Ledger on September 19, 2016

PCAOB levies sanctions, gets first ever admissions (of guilt)
The Public Company Accounting Oversight Board imposed sanctions on three, smaller audit firms, along with engagement partners at two of the firms, for violating independence requirements while auditing broker-dealer clients. Two of the firms and two engagement partners admitted to the violations, a first for the PCAOB, Accounting Today reports.

Paperless Office? Yeah Right!

From the CFO Journal's Morning Ledger on September 19, 2016

The future is finally now?
Every year, America’s office workers print out or photocopy about one trillion pieces of paper, Christopher Mims writes. If you add in all the other paper businesses produce, the utility bills and invoices and bank statements and the like, the figure rises to 1.6 trillion. This is why HP Inc.’s acquisition of Samsung Electronics Co.’s printing and copying business last week makes sense.

If you teach a module on "Rent vs. Buy" you may want to make the following point

From the CFO Journal's Morning Ledger on September 19, 2016

Renting machines to weather slump
Used machinery is flooding the secondhand market, piling more pain on equipment makers battling slack demand from any customer that mines, moves or refines commodities amid a global slump in the value of everything from coal to corn. Many construction firms and other equipment users are renting or entering longer-term leases for machines to expand their fleets or replace worn out equipment, dealers and analysts say.

Low Interest Rates Driving Investors to Real Estate Investment Trusts

From the CFO Journal's Morning Ledger on September 19, 2016

In a sign of shifting trading and tax strategies, along with ever-changing market conditions, real-estate-investment trusts will become the new, 11th stock grouping among S&P 500 companies. It is the first time in roughly two decades, since the technology boom, that the index is gaining a new sector.

Real-estate investment trusts own real estate and pay steady dividends, which have been attractive to investors with interest rates so low. More than a net $62 billion had flowed into U.S. real-estate funds since 2001 through the end of 2015, according to Morningstar data. Since 2001, 129 real-estate investment trusts have gone public in the U.S., raising more than $38 billion. After it breaks away from banks, insurers and other financial companies, the real-estate sector will make up roughly 3% of the market capitalization of the S&P 500.

From the CFO Journal's Morning Ledger on September 16, 2016

Exxon gets New York accounting probe
New York Attorney General Eric Schneiderman is investigating why Exxon Mobil Corp. hasn’t written down the value of its assets, two years into a pronounced crash in oil prices. Mr. Schneiderman’s office, which has been probing Exxon’s past knowledge of the impact of climate change and how it could affect its future business, is also examining the company’s accounting practices, according to people familiar with the matter.

How GAAP, IFRS differ on asset write-downs
"For U.S. firms, figuring out GAAP is not the only challenge," by Nina Trentmann, The Wall Street Journal, September 19, 2016 ---
http://blogs.wsj.com/cfo/2016/09/19/for-u-s-firms-figuring-out-gaap-is-not-the-only-challenge/

A U.S. investigation into the lack of write-downs at Exxon Mobil Corp. despite the slump in oil-prices has brought to light the challenge of assessing impairments under U.S. Generally Accepted Accounting Principles (GAAP).

But, for international companies and U.S. firms with foreign operations, figuring out GAAP is not the only contest, as there is second set of rules.

International Financial Reporting Standards (IFRS) are a single set of accounting standards that are now mandated for use by more than 100 countries, including the EU and more than ⅔ of the G20.

U.S. companies with overseas operations keep two sets of books, as they have to convert their IFRS results into GAAP. International firms that are stocklisted in the U.S. are exempt from this rule, they file in IFRS.

According to its latest earnings report, Exxon consolidates in GAAP.

Both in GAAP and in IFRS, the goal is to ensure that assets are not reported above their so-called fair value, or the amount that can be recovered from liquidating the asset, said Emmanuel De George, assistant professor of accounting at London Business School.

Once it is determined that an asset requires a write-down, reporting entries and disclosure are similar between IFRS and GAAP, the professor said.

However, there are substantial distinctions between IFRS and GAAP. “The key difference arises in the determination of whether or not an asset requires a write-down,” Mr. De George said.

Exxon said it hasn’t needed to record a write-down since oil-prices came falling 2014. Last year, a trade publication quoted Exxon Chief Executive Rex Tillerson with saying “we don’t do write-downs.”

It is much harder to write down assets under GAAP than under IFRS, Mr. De George said.

This is because under IFRS impairment losses can be reversed if economic conditions change and value is restored, whereas under GAAP reversals are prohibited, once a write-down has taken place, even if economic conditions improve.

“Under GAAP, a write-down is triggered if the sum of the undiscounted expected future cash flows from the asset fall below the net book value,” said Mr. De George.

This means that over time changes to the value of the asset, for example due to currency fluctuations, are not taken into consideration when calculating the expected future cash flow that is generated by the asset.

For the write-down itself, however, companies don’t reference undiscounted expected future cash flows, but the discounted expected future cash flow.

This is also described as “fair value,” the “price that would be expected upon sale of the asset,” said Mr. De George.

Under IFRS, there’s a difference in testing whether there needs to be a write-down. IFRS starts with the discounted future expected cash flows, thus directly accounting for over time changes to the value of the asset.

The second step, the write-down, follows the same route as GAAP.

In addition there is another major difference between GAAP and IFRS. IFRS does not permit a method called last-in-first-out (LIFO) which shows a lower cost of sales and higher gains during periods of declining oil prices, said Karthik Balakrishnan, assistant professor of accounting at London Business School.

“This is what Exxon and most U.S. oil companies use,” said Mr. Balakrishnan.

Because of the difference in assessing write-downs and LIFO, IFRS will produce more conservative numbers for earnings during periods of declining prices, said Mr. Balakrishnan.

In the case of Exxon, the experts warn against simply accrediting the lack of write-downs to the differences in accounting standards between the U.S. and other parts of the world.

“That would be an unfair comparison, given that the threshold for impairment testing is higher under GAAP,” said Mr. De George.

Exxon tends to be more conservative when capitalizing the costs of their fields which lead to lower book values to begin with, Mr. George said. “That further reduces the probability that they will trigger an impairment event,” he said.

Continued in article

Bob Jensen's threads on FASB versus IASB standards ---
http://faculty.trinity.edu/rjensen/Theory01.htm#MethodsForSetting

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

For more than three decades, macroeconomics has gone backward.
"The state of macroeconomics is not good. by Daniel Drezner, The Washington Post, September 15, 2016 ---
https://www.washingtonpost.com/posteverything/wp/2016/09/15/the-state-of-macroeconomics-is-not-good/?utm_term=.5f06c2cc0186

Yesterday’s post about the stale quality of international relations theory provoked some pushback from international relations scholars. It also probably generated some bemusement by economists.

This is mostly because economists are close to insufferable when they opine about the other. Indeed, in “Economics Rules,” an otherwise critical book of his discipline, Dani Rodrik offers up numerous asides about how economics is more rigorous than the rest of the social sciences, such as, “economics is by and large the only social science that remains almost entirely impenetrable to those who have not undertaken the requisite apprenticeship in graduate school,” which allows him to conclude that, “because economists share a language and a method, they are prone to disregard, or deprecate, noneconomists’ point of view.” And this is empirically true: Other academic disciplines cite economists frequently, but they do not return the favor nearly as often.

This has mostly worked out gangbusters for economists. In a 2015 paper that examined how well economists have thrived in the world compared with the other social sciences, sociologist Marion Fourcade and two colleagues conclude:

Most economists feel quite secure about their value-added. They are comforted in this feeling by the fairly unified disciplinary framework behind them, higher salaries that many of them believe reflect some true fundamental value, and a whole institutional structure — from newspapers to congressional committees to international policy circles — looking up to them for answers, especially in hard times.

Most economists are perfectly content with this status quo, believing it to be fair and just. And I’d just like to take this opportunity to tell economists that this is a complete and total crock.

One could argue that the two subfields of economics that have had the largest real-world policy influence have been in finance and macroeconomics. The problem is that this influence has mostly been catastrophic. In the arena of finance, University of Chicago economist Luigi Zingales has lambasted his own subfield, acknowledging that “our view of the benefits of finance is inflated.” Stanford University professor Paul Pfleiderer accuses finance scholars of using models as chameleons, engaging in “theoretical cherry-picking” to advance ideas that are not necessarily grounded in reality. Other economists acknowledge that a narrow focus on financial variables caused them to miss political sources of the crisis and its aftermath.

If you think that’s bad, though, let’s talk about macroeconomics for a minute. One could argue that the most high-profile contribution by macroeconomists to the post-2008 global economy has been an emphasis on fiscal austerity as a solution to stagnation. That prescription has been, well, pretty much disastrous.

I bring all of this up because Paul Romer has a lulu of a paper entitled “The Trouble with Macroeconomics” that rocketed around the social media of the social sciences. If you think the title implies criticism, read the abstract:

For more than three decades, macroeconomics has gone backward. The treatment of identification now is no more credible than in the early 1970s but escapes challenge because it is so much more opaque. Macroeconomic theorists dismiss mere facts by feigning an obtuse ignorance about such simple assertions as “tight monetary policy can cause a recession.” Their models attribute fluctuations in aggregate variables to imaginary causal forces that are not influenced by the action that any person takes. A parallel with string theory from physics hints at a general failure mode of science that is triggered when respect for highly regarded leaders evolves into a deference to authority that displaces objective fact from its position as the ultimate determinant of scientific truth.

It gets more brutal from there, as Romer mocks the logic of real business cycles (a core component behind much of modern macro) and relabels its key explanatory variable as “phlogiston.” In history of science circles, that is a sick burn.

Continued in article

The U.S. Justice Department proposed that Deutsche Bank pay $14 billion to settle a set of high-profile mortgage-securities probes
From the CFO Journal's Morning Ledger on September 16, 2016

Deutsche Bank AG will not go gently into that goodnight. The U.S. Justice Department proposed that Deutsche Bank pay $14 billion to settle a set of high-profile mortgage-securities probes stemming from the financial crisis, according to people familiar with the matter, a number that would rank among the largest payments by banks to resolve similar claims and is well above what investors have been expecting. The figure is described by people close to the negotiations between Deutsche Bank and the government as preliminary, and they said it came up in discussions between the bank and government lawyers in recent days.
For its part, Deutsche Bank says it “has no intent to settle these potential civil claims anywhere near the number cited.” It said the outcome should reflect those that have settled before and expects a settlement at “materially lower amounts.” Privately, Deutsche Bank lawyers have suggested that the bank views between $2 billion and $3 billion as a reasonable cost to close out the Justice Department’s mortgage-related probe quickly, according to people familiar with internal bank discussions and signals communicated to investors

From the CFO Journal's Morning Ledger on September 15, 2016

Health-care costs no joke
The average cost of health coverage offered by employers pushed above $18,000 for a family plan this year, though the growth was slowed by the accelerating shift into high-deductible plans, according to a major survey. Annual premium cost rose 3% to $18,142 for an employer family plan in 2016, according to the annual poll of employers performed by the nonprofit Kaiser Family Foundation along with the Health Research & Educational Trust.

From the CFO Journal's Morning Ledger on August 17, 2016

Health care a sticky wicket
Many companies are cutting jobs in response to rising health-care costs spurred by the Affordable Care Act, according to a new survey by the Federal Reserve Bank of New York. Roughly one-fifth of service sector and manufacturing company executives said they are reducing the number of workers in response to provisions in the health-care law, Vipal Monga reports. The results add to a bevy of bad news related to the Obama administration’s signature health-care law.

Obamacare: More and more limited access to doctors and hospitals
From the CFO Journal's Morning Ledger on September 1, 2016

Why put off until January what you can do today? Under intense pressure to curb costs that have led to losses on the Affordable Care Act exchanges, insurers are accelerating their move toward plans that offer limited choices of doctors and hospitals. A new McKinsey & Co. analysis of regulatory filings for 18 states and the District of Columbia found that 75% of the offerings on their exchanges in 2017 will likely be health-maintenance organizations or a similar plan design known as an exclusive provider organization, or EPO. Both typically require consumers to use an often-narrow network of health-care providers – in some cases, just one large hospital system and its affiliated facilities and doctors.

Only a quarter of the exchange plans next year would still be broader designs such as preferred-provider organizations, or PPOs, which generally offer larger selections of doctors and hospitals and include out-of-network coverage, the McKinsey analysis found. Across the states McKinsey examined, about 15% of exchange-eligible consumers are expected to have no PPOs to choose from. A spokesman for the Department of Health and Human Services said that many surveys have shown that exchange enrollees are satisfied with the array of health-care providers in their plans, and insurers are adjusting their offerings based on consumer demand. Offering a smaller selection of health-care providers holds down costs, in part because hospitals and specialists with the highest reimbursement rates can be cut out.

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

Regulation: The intent is no longer to regulate. The intent is to raise government revenues.

From the CFO Journal's Morning Ledger on September 15, 2016

A cross-border merger, one of the larger deals in history, a ton of debt financing, genetically modified crops, German law, regulatory oversight and a the future of a 115-year old brand name: What’s not to love? After months of haggling Monsanto Co. agreed to sell itself to Bayer AG in a $57 billion deal that would create an agricultural powerhouse and end the independence of one of the most successful and controversial companies in the U.S. Because of the two companies’ far-flung operations and markets, the pact would require approval from about 30 regulatory agencies around the world, including antitrust enforcers already examining deals between some of the companies’ main rivals in the roughly $100 billion global market for crop seeds and pesticides.

The two businesses don’t overlap much, though seeds could be an issue, but perhaps more importantly there may not be much appetite for further consolidation among farm suppliers as the global farming industry struggles and fertilizer companies are also racing into one another’ arms. The venerable Monsanto brand could also disappear, and the resulting company will face a world that, scientifically justified or not, is increasingly skeptical of GMO crops, and its farmers question the higher prices for such seeds. Bayer will finance the deal chiefly with debt, which under German law will allow it to circumvent a shareholder vote, CFO Journal reports. In a deal with a greater equity component, Bayer would have needed to get three out of four investors to say yes.

Jensen Comment
Many are predicting that there are so many regulating agencies that this deal will never materialize. I think it will fly due to those regulatory agencies catching on the the EU strategy of allowing something (tax deals, merger, etc.) and then suing later for billions. The intent is no longer to regulate. The intent is to raise government revenues.

From the CFO Journal's Morning Ledger on September 14, 2016

Former AIG boss set to go on trial
Former AIG Inc. boss Hank Greenberg went to trial in New York on Tuesday over a decade after civil charges were filed, the FT reports. He is accused of engineering bogus transactions to hide the insurance giant's financial difficulties. The charges were filed in 2005, but Mr. Greenberg has said they have no merit.

From the CFO Journal's Morning Ledger on September 13, 2016

U.K. pension deficits mount
The gap between reserves set aside by U.K. companies and their obligations to retirees continues to grow, Nina Trentmann reports in today’s Big Number. The combined deficit of defined-benefit pension plans at U.K. public companies rose by £50 billion to £189 billion ($250.8 billion) at the end of August, according to Mercer, a benefits consulting firm. Although the deficit has been building up for over a decade, more recent developments such as the U.K.’s vote to leave the European Union and low interest rates have accelerated the downward trend.

Yale Law Journal: USA's State Pension Deficits, the Recession, and a Modern View of the Contracts Clause ---
http://www.yalelawjournal.org/comment/state-pension-deficits-the-recession-and-a-modern-view-of-the-contracts-clause-

This $19 Billion Claim Could Be the Largest in UK History

From the CFO Journal's Morning Ledger on September 9, 2016

MasterCard charged
In 2014, the European Court of Justice ruled that regulators were right to condemn the cost of its interchange fees - the fees retailers pay banks to process card payments, the BBC reports. MasterCard lowered its fees but now faces a claim for damages for 16 years of charging from 1992 to 2008. As the Journal reports, the claim is nearly $19 billion, and could be the biggest in U.K. history

From the CFO Journal's Morning Ledger on September 8, 2016

Apache strikes black gold
Apache Corp. said it has discovered the equivalent of at least two billion barrels of oil in a new West Texas field that has the promise to become one of the biggest energy finds of the past decade. The discovery, which Apache is calling “Alpine High,” is in an area near the Davis Mountains that had been overlooked by geologists and engineers, who believed it would be a poor fit for hydraulic fracturing.

Jensen Comment
That should keep high school football going in West Texas for a few more decades.

The SEC Racket of Defending Companies You Previously Investigated

From the CFO Journal's Morning Ledger on September 6, 2016

Government parachute
The former head of the Securities and Exchange Commission’s whistleblower program is joining a law firm that represents those same tipsters—an unusual turn of the revolving door that highlights the potential profitability of legal work that didn’t even exist a few years ago. Government officials typically go into private practice to defend the companies they previously might have investigated. Sean McKessy, who left his post as the first chief of the SEC’s Office of the Whistleblower in July, is taking the riskier path of the plaintiffs’ bar by joining Washington-based Phillips & Cohen LLP.

Jensen Comment
The Regulator to Regulated racket is not confined to the SEC. Is there a government agency where the top regulators don't become employees of the companies they regulated?
Exhibits A, B, and C are attorney generals, military generals, and health regulators in the FDA, NIH, etc.

From the CFO Journal's Morning Ledger on September 6, 2016

Junk is called junk for a reason
High-yield corporate bonds have been a hot investment in 2016. Now, some investors are fretting that the debt may have gotten too popular. Drawn by higher yields than on safer bonds and lower valuations than on stocks, portfolio managers and individuals alike have poured money into junk bonds this year.

From the CFO Journal's Morning Ledger on September 2, 2016

Whistleblowing, career safety at odds
In a perfect world, whistleblowing would be celebrated universally, but this ain’t a perfect world. That’s the message David Mayer, a professor of management and organizations at the University of Michigan business school. Those who speak out about wrongdoing in organizations often suffer retaliation, he writes for Harvard Business Review, both at their current organization and in their attempt to find future employment

Bob Jensen's threads on whistle blowing ---
http://faculty.trinity.edu/rjensen/Fraudconclusion.htm#WhistleBlowing

Wharton: The Real Losers in the European Commission’s Apple Tax Ruling ---
http://knowledge.wharton.upenn.edu/article/the-european-commissions-apple-tax-ruling-who-are-the-real-losers/

Apple: You can have $14.5 billion or jobs, not both ---
http://www.businessinsider.com/apple-eu-tax-ruling-profound-harmful-effect-investment-job-creation-2016-8
The EU does not have the last laugh in it's quest to rip off USA companies
Apple makes a lot of computers Ireland, but there are other choice sites in the world wanting those jobs

From the CFO Journal's Morning Ledger on August 31, 2016

Apple faces EU peeler
The European Union’s antitrust regulator announced Tuesday a ruling that Apple Inc.’s tax arrangements with Ireland have breached the bloc’s state-aid rules, saying Ireland must recoup about €13 billion ($14.5 billion) in unpaid taxes from the tech giant. The EU’s decision is likely to aggravate trans-Atlantic tensions over the investigations into tax deals brokered between U.S. multinational corporations and individual European countries.

Also see
http://www.bloomberg.com/news/articles/2016-08-30/apple-s-14-5-billion-eu-tax-ruling-what-you-need-to-know?cmpid=BBD083016_BIZ

From the CFO Journal's Morning Ledger on August 31, 2016

The European Union’s ruling against Apple Inc.’s tax situation in Ireland could have global implications. It might affect everything from our domestic tax code to our relationship with foreign countries. The size of the tax demand, which came in a formal decision issued Tuesday, risks further unsettling multinational companies, which face a broader international effort to curb aggressive tax avoidance. But the commission’s decision shows companies could be on the hook for past behavior and potentially be handed big bills for allegedly unpaid back taxes. The sum is the highest ever demanded under the EU’s longstanding rules that forbid companies from gaining advantages over competitors because of government help.

To the Treasury and members of Congress, EU regulators represent a threat partly because companies could get U.S. tax credits if they pay more abroad, reducing future U.S. tax collections. The U.S. is trying to protect its claim to the foreign income even though it hasn’t figured out how to tax it, Richard Rubin writes. The EU move underscores the difficulty American regulators have had to deal with as they try to appropriately tax U.S. multinationals..

A bright side?
The $14.5 billion Apple is being asked to pay to Ireland in back taxes could potentially help offset its tab with the Internal R brigevenue Service, Kimberly S. Johnson and Tatyana Shumsky report. When an American company pays taxes on profits in foreign countries, it owes Uncle Sam only the difference between the taxes paid and the U.S. tax rate. So in the case of Apple, recording a large foreign tax charge could “set the stage for a foreign tax credit,” said tax consultant Robert Willens.

A silver lining?
But the EU’s move could force the hand of Congress, which has been arguing and dithering over an overhaul to the U.S. corporate-tax code. The U.S. levies nearly the highest corporate rates in the world. Ray Wiacek, senior tax partner at international law firm Jones Day in Washington, told Richard Teitelbaum that the ruling “may be the straw that broke the camel’s back.” With the rest of the developed world moving toward lower corporate rates, the EU ruling may provide the impetus for the U.S. Congress to address the chasm between the U.S. tax code and that of other nations. We’ll likely need to wait until November to know more.

New IRS restrictions foreign tax credit splitter arrangements ---
http://www.journalofaccountancy.com/news/2016/sep/irs-restricts-foreign-tax-credit-splitter-arrangements-201615196.html?mod=djemCFO_h#sthash.N5pMfgxH.dpuf

New Audit Deficiencies Disclosed in PCAOB Inspection Reports: Do the big auditing firms simply ignore deficiencies uncovered by the PCAOB?
From the CFO Journal's Morning Ledger on August 31, 2016

It’s that time of year again
The government’s audit regulator found deficiencies in 13 audits conducted by Deloitte & Touche LLP and 12 audits conducted by PricewaterhouseCoopers LLP in its latest annual inspections of the Big Four accounting firms. The 13 deficient audits found by the Public Company Accounting Oversight Board represent 24% of the 55 audits and partial audits reviewed by the board in its 2015 inspection of Deloitte, issued Tuesday. That is up slightly from the previous year’s report.

Jensen Comment
Someday law firms will discover how to use these deficiencies to milk the auditing firms
Maybe they do already and I just don't know about it.

From the CFO Journal's Morning Ledger on August 30, 2016

Public companies are minding the GAAP again, now that the Securities and Exchange Commission is having a close look, Tatyana Shumsky reports in today’s Business & Tech. section. After March quarterly earnings reports in which nearly half of S&P 500 companies led with adjusted numbers that didn’t adhere to generally accepted accounting principles, the SEC in May told businesses to play non-GAAP numbers down. When second-quarter numbers were released, more than 80% of companies gave GAAP results top billing, according to an Audit Analytics study for The Wall Street Journal.

Companies that have made the transition include Halliburton Co., Walgreens Boots Alliance Inc. and videogame maker Electronic Arts Inc. The guidance leaves little room for flexibility, and most companies aren’t taking any chances. If a paragraph or table contains standard and adjusted figures, companies must make sure sentences or columns with the standard, or GAAP, information precede everything else. Numbers must be also be presented in the same style, meaning customized metrics can’t be bolded or printed in a larger-size font, nor can they be described as “record” or “exceptional” unless GAAP results are characterized in a similar way.

From the CFO Journal's Morning Ledger on August 29, 2016

FASB issues cash-flows standard
The Financial Accounting Standards Board on Friday issued a new standard for reporting cash-flow statements, in an effort to streamline reporting and clarify aspects of generally accepted accounting principles that are unclear or absent, the Journal of Accountancy reports.

Also see
http://www.journalofaccountancy.com/news/2016/aug/fasb-addresses-cash-flow-issues-201615068.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=29Aug2016

Which is More Value-Relevant: Earnings or Cash Flows?
http://faculty.trinity.edu/rjensen/theory02.htm#CashVsAccrualAcctg

From the CFO Journal's Morning Ledger on August 29, 2016

Exxon bailing on Alaska project
Exxon Mobil Corp. has decided not to invest in the next stage of a proposed natural gas export terminal in Alaska and said it would work with its partners to sell its interest in the project to the state government. The company’s decision comes amid a global glut of natural gas that has depressed prices and follows the release of a Wood McKenzie report last week concluding the Alaskan project “is one of the least competitive” of proposed liquefied natural gas plants worldwide

Jensen Comment
Meanwhile Alaska's budget is in desparate shape due to the plunge in oil prices. It will probably enact it's first state income tax in 2019 ---
http://www.wsj.com/articles/alaskas-folly-politicians-contemplate-a-state-income-tax-1461966849

Alaska has the nation's worst prospects for solar energy due to so many days of darkness. Also batteries for renewable energy storage don't work well in cold climates.

From the CFO Journal's Morning Ledger on August 29, 2016

Strapped IRS ends program
The Internal Revenue Service, lacking sufficient budget, is halting a program that lets large companies resolve tax issues before filing returns, Accounting Today reports. No new taxpayers will be accepted into the Compliance Assurance Process program for the 2017 application season, which starts next month.

Credit Derivative --- https://en.wikipedia.org/wiki/Credit_derivative

Credit Default Swap --- https://en.wikipedia.org/wiki/Credit_default_swap

"Credit Derivatives and Analyst Behavior," by George Eli Batta, Jiaping Qiu, and Fan Yu, The Accounting Review, September 2016, Vol. 91, No. 5, pp. 1315-1343
http://aaajournals.org/doi/full/10.2308/accr-51381
This is not a free download

This paper presents a comprehensive analysis of the role of credit default swaps (CDS) in information production surrounding earnings announcements. First, we demonstrate that the strength of CDS price discovery prior to earnings announcements is related to the presence of private information and the illiquidity of the underlying corporate bonds, consistent with the CDS market being a preferred venue for informed trading. Next, we ask how the information revealed through CDS trading influences the output of equity and credit rating analysts. We find that post-CDS trading, the dispersion and error of earnings per share forecasts are generally reduced, and downgrades by both types of analysts become more frequent and more timely before large negative earnings surprises, suggesting that the CDS market conveys information valuable to financial analysts.

Jensen Comment

Collateralized debt obligations (CDOs) used with credit default swaps led to the demise of Bear Sterns and the need to bail out Goldman Sachs following the 2007 economic collapse ---
https://en.wikipedia.org/wiki/Credit_default_swap#Regulatory_concerns_over_CDS
Much of the problem was with the poisoned CDOs sold to large investors who had protected themselves with credit derivatives.

WMD = Weapon of Mass Destruction
Financial WMDs (Credit Derivatives) on Sixty Minutes (CBS) on August 30, 2009 ---
http://www.cbsnews.com/video/watch/?id=5274961n&tag=contentBody;housing
The free download will only be available for a short while. I downloaded this video (a little over 5 Mbs) using a free updated version of RealMedia --- Click Here
http://www.real.com/dmm/superpass?pcode=cj&ocode=cj&cpath=aff&rsrc=1275588_10303897_SPLP

Steve Kroft examines the complicated financial instruments known as credit default swaps and the central role they are playing in the unfolding economic crisis. The interview features my hero Frank Partnoy. I don't know of anybody who knows derivative securities contracts and frauds better than Frank Partnoy, who once sold these derivatives in bucket shops. You can find links to Partnoy's books and many, many quotations at http://faculty.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

From The Wall Street Journal Accounting Educators' Review on April 3, 2003

TITLE: Lending Less, "Protecting" More: Desperate for Better Returns, Banks Turn to Credit-Default Swaps
REPORTER: Henny Sender and Marcus Walker
DATE: Apr 01, 2003
PAGE: C13
LINK: http://online.wsj.com/article/0,,SB104924410648100900,00.html
TOPICS: Advanced Financial Accounting, Banking, Fair Value Accounting, Financial Analysis, Insurance Industry

SUMMARY: This article describes the implications of banks selling credit-default swap derivatives. Firtch Ratings has concluded in a recent report that banks are adding to their own risk as they use these derivatives to sell insurance agains default by their borrower clients.

QUESTIONS: 1.) Define the term "derivative security" and describe the particular derivative, credit-default swaps, that are discussed in this article.

2.) Why are banks entering into derivatives known as credit-default swaps? Who is buying these derivatives that the bank is selling?

3.) In general, how should these derivative securities be accounted for in the banks' financial statements? What finanicial statement disclosures are required? How have these disclosures provided evidence about the general trends in the banking industry that are discussed in this article?

4.) Explain the following quote from Frank Accetta, an executive director at Morgan Stanley: "Banks are realizing that you can take on the same risk [as the risk associated with making a loan] at more attractive prices by selling protection."

5.) Why do you think the article equates the sale of credit-default swaps with the business of selling insurance? What do you think are the likely pitfalls of a bank undertaking such a transaction as opposed to an insurance company doing so?

6.) What impact have these derivatives had on loan pricing at Deutsche Bank AG? What is a term that is used to describe the types of costs Deutsche Bank is now considering when it decides on a lending rate for a particular borrower?

"Banks' Increasing Use of Swaps May Boost Credit-Risk Exposure, by Henny Sender and Marcus Walker, The Wall Street Journal, April 1, 2003 --- http://online.wsj.com/article/0,,SB104924410648100900,00.html

When companies default on their debt, banks in the U.S. and Europe increasingly will have to pick up the tab.

That is the conclusion of Fitch Ratings, the credit-rating concern. Desperate for better returns, more banks are turning to the "credit default" markets, a sphere once dominated by insurers. In a recent report, Fitch says the banks -- as they use these derivatives to sell insurance against default by their borrowers -- are adding to their credit risk.

The trend toward selling protection, rather than lending, could well raise borrowing costs for many companies. It also may mean greater risk for banks that increasingly are attracted to the business of selling protection, potentially weakening the financial system as a whole if credit quality remains troubled. One Canadian bank, for example, lent a large sum to WorldCom Inc., which filed for Chapter 11 bankruptcy protection last year. Rather than hedging its loan to the distressed telecom company by buying protection, it increased its exposure by selling protection. The premium it earned by selling insurance, though, fell far short of what it both lost on the loan and had to pay out to the bank on the other side of the credit default swap.

"The whole DNA of banks is changing. The act of lending used to be part of the organic face of the bank," says Frank Accetta, an executive director at Morgan Stanley who works in the loan-portfolio management department. "Nobody used to sit down and calculate the cost of lending. Now banks are realizing that you can take on the same risk at more attractive prices by selling protection."

Despite its youth, the unregulated, informal credit-default swap market has grown sharply to total almost $2 trillion in face value of outstanding contracts, according to estimates from the British Bankers Association, which does the most comprehensive global study of the market. That is up from less than $900 billion just two years ago. (The BBA says the estimate contains a good amount of double counting, but it uses the same method over time and thus its estimates are considered a good measuring stick of relative change in the credit-default swap market.) Usually, banks have primarily bought protection to hedge their lending exposure, while insurers have sold protection. But Fitch's study, as well as banks' own financial statements and anecdotal evidence, shows that banks are becoming more active sellers of protection, thereby altering their risk profiles.

The shift toward selling more protection comes as European and American banks trumpet their reduced credit risk. And it is true that such banks have cut the size of their loan exposures, either by taking smaller slices of loans or selling such loans to other banks. They also have diversified their sources of profit by trying to snare more lucrative investment-banking business and other fee-based activity.

Whether banks lend money or sell insurance protection, the downside is generally similar: The bank takes a hit if a company defaults, cushioned by whatever amount can eventually be recovered. (Though lenders are first in line in bankruptcy court; sellers of such protection are further back in the queue.)

But the upside differs substantially between lenders and sellers of protection. Banks don't generally charge their corporate borrowers much when they make a loan because they hope to get other, more lucrative assignments from the relationship. So if a bank extends $100 million to an industrial client, the bank may pocket $100,000 annually over the life of the loan. By contrast, the credit-default swap market prices corporate risk far more systematically, devoid of relationship issues. So if banks sell $100 million of insurance to protect another party against a default by that same company, the bank can receive, say, $3 million annually in the equivalent of insurance premiums (depending on the company's creditworthiness).

All this comes as the traditional lending business is becoming less lucrative. The credit-derivatives market highlights the degree to which bankers underprice corporate loans, and, as a result, bankers expect the price of such loans to rise.

"We see a change over time in the way loans are priced and structured," says Michael Pohly, head of credit derivatives at Morgan Stanley. "The lending market is becoming more aligned with the rest of the capital markets." In one possible sign of the trend away from traditional lending, the average bank syndicate has dropped from 30 lenders in 1995 to about 17 now, according to data from Loan Pricing Corp.

Some of the biggest players in the market, such as J.P. Morgan Chase & Co., are net sellers of such insurance, according to J.P. Morgan's financial statements. In its annual report, J.P. Morgan notes that the mismatch between its bought and sold positions can be explained by the fact that, while it doesn't always hedge, "the risk positions are largely matched." A spokesman declined to comment.

But smaller German banks, some of them backed by regional governments, are also active sellers, according to Fitch. "Low margins in the domestic market have compelled many German state-guaranteed banks to search for alternative sources of higher yielding assets, such as credit derivatives," the report notes. These include the regional banks Westdeutsche Landesbank, Bayerische Landesbank, Bankgesellschaft Berlin and Landesbank Hessen-Thueringen, according to market participants. The state-owned Landesbanken in particular have been searching for ways to improve their meager profits in time for 2005, when they are due to lose their government support under pressure from the European Union.

Deutsche Bank AG is one of biggest players in the market. It is also among the furthest along in introducing more-rational pricing to reflect the implicit subsidy in making loans. At Deutsche Bank, "loan approvals now are scrutinized for economic shortfall" between what the bank could earn selling protection and what it makes on the loan, says Rajeev Misra, the London-based head of global credit trading.

A credit default swap is a form of insurance against default by means of a swap. See Paragraphs 190 and 411d of FAS 133. See Risks.

Somewhat confusing is Paragraph 29e on Page 20 of FAS 133 that requires any cash flow hedge to be on prices or interest rates rather than credit worthiness. For example, a forecasted sale of a specific asset at a specific price can be hedged for spot price changes under Paragraph 29e. The forecasted sale's cash flows may not be hedged for the credit worthiness of the intended buyer or buyers. Example 24 in Paragraph 190 on Page 99 of FAS 133 discusses a credit-sensitive bond. Because the bond's coupon payments were indexed to credit rating rather than interest rates, the embedded derivative could not be isolated and accounted for as a cash flow hedge.

One of my students wrote the following case just prior to the issuance of FAS 133:. John D. Payne's case and case solution entitled A Case Study of Accounting for an Interest Rate Swap and a Credit Derivative appear at http://www.resnet.trinity.edu/users/jpayne/coverpag.htm . He states the following:

The objective of this case is to provide students with an in-depth examination of a vanilla swap and to introduce students to the accounting for a unique hedging device--a credit derivative. The case is designed to induce students to become familiar with FASB Exposure Draft 162-B and to prepare students to account for a given derivative transaction from the perspective of all parties involved. In 1991, Vandalay Industries borrowed $500,000 from Putty Chemical Bank and simultaneously engaged in an interest rate swap with a counterparty. The goal of the swap was to hedge away the risk that variable rates would increase by agreeing to a fixed-payable, variable-receivable swap, thus hopefully obtaining a lower borrowing cost than if variable rates were used through the life of the loan. In 1992, Putty Chemical Bank entered into a credit derivative with Mr. Pitt Co. in order to eliminate the credit risk that Vandalay would default on repayment of its loan principal to Putty.

Greg Gupton's site is a major convergence point of research on credit risk and credit derivatives --- http://www.credit-deriv.com/crelink.htm

A good site on credit risk is at http://www.numa.com/ref/volatili.htm

Example 24 in Paragraph 190 on Page 99 of FAS 133 discusses a credit-sensitive bond.

Misuses of Credit Derivatives

JP Morgan – whose lawyers must be working overtime – is refuting any wrongdoing over credit default swaps it sold on Argentine sovereign debt to three hedge funds. But the bank failed to win immediate payment of $965 million from the 11 insurers it is suing for outstanding surety bonds.
Christopher Jeffery Editor, March 2, 2002, RiskNews http://www.risknews.net
Note from Bob Jensen: The above quotation seems to be Year 2002 Déjà Vu in terms of all the bad ways investment bankers cheated investors in the 1980s and 1990s. Read passage from Partnoy's book quoted at http://faculty.trinity.edu/rjensen/book02q1.htm#022502
Enron was its own investment bank on many deals, especially in credit derivatives. You can read the following at http://faculty.trinity.edu/rjensen/fraud.htm

Selected quotations from "Why Enron Went Bust: Start with arrogance. Add greed, deceit, and financial chicanery. What do you get? A company that wasn't what it was cracked up to be." by Benthany McLean, Fortune Magazine, December 24, 2001, pp. 58-68.

Why Enron Went Bust: Start with arrogance. Add greed, deceit, and financial chicanery. What do you get? A company that wasn't what it was cracked up to be."

In fact , it's next to impossible to find someone outside Enron who agrees with Fasto's contention (that Enron was an energy provider rather than an energy trading company). "They were not an energy company that used trading as part of their strategy, but a company that traded for trading's sake," says Austin Ramzy, research director of Principal Capital Income Investors. "Enron is dominated by pure trading," says one competitor. Indeed, Enron had a reputation for taking more risk than other companies, especially in longer-term contracts, in which there is far less liquidity. "Enron swung for the fences," says another trader. And it's not secret that among non-investment banks, Enron was an active and extremely aggressive player in complex financial instruments such as credi8t derivatives. Because Enron didn't have as strong a balance sheet as the investment banks that dominate that world, it had to offer better prices to get business. "Funky" is a word that is used to describe its trades.

I was particularly impressed, as were all people who phoned in, by the testimony of Scott Cleland (see Tuesday, January 15) and then click on the following link to read his opening remarks to a Senate Committee on December 18. If you think the public accounting profession has an "independence problem," that problem is miniscule relative to an enormous independence problem among financial analysts and investment bankers --- two professions that are literally rotten to the core. Go to http://www.c-span.org/enron/scomm_1218.asp#open

A portion of Mr. Cleland's testimony is quoted below:

Four, it's common for analysts to have a financial stake in the companies they're covering. That's just like, essentially, allowing athletes to bet on the outcome of the game that they're playing in.

Five, most payments for investment research is routinely commingled in the process with more profitable investment banking and proprietary trading. The problem with this is it effectively means that most research analysts work for the companies and don't work for investors.

Six, credit agencies may have conflicts of interest.

Seven, analysts seeking investment banking tend to be more tolerant of pro-forma accounting and the conflict there is, essentially, the system is allowing companies to tell -- you know, to make up their own accounting. To describe their own financial performance, that no one then can compare objectively with other companies.

Eight, surprise, surprise, companies routinely beat the expectations of a consensus of research analysts that are seeking their investment banking business.

See how banks use/misuse credit derivatives with tranches.

A Bankers Primer on Credit Derivatives --- http://www.citissb.com/home/Creddriv.pdf

What are Credit Derivatives?

Credit derivatives have three basic structures: credit default swaps, total return swaps and credit spread options. In a credit default swap, a buyer pays a seller a fixed fee in return for indemnification against losses should a credit event occur. Credit default swaps are used for risk management, capital management and investment management. Buyers of protection reduce credit concentrations or open up credit lines. Buyers may also obtain capital relief, redeploying the capital in more profitable business lines or buying back stock.

Primus Financial Services offers credit derivatives --- http://www.tfibcm.com/news/story/default.asp?734

Kicking off what analysts are calling a small trend, New York-based Primus Financial Products recently became the first company structured solely to be a swap counterparty, selling protection via credit default swaps. "We're not a dealer, we're not a CDO, and we're not an insurance company," said Chief Executive Officer Tom Jasper. "What we are is a credit derivatives company."

As derivatives are becoming a more and more widely accepted method of transferring risk, it is not surprising that at least two additional companies - both at different stages of development - are following suit. The two are said to be familiar names in the asset-backed market, and the first will likely launch in mid-summer, according to Moody's Investors Service, which, along with Standard & Poor's, has awarded Primus a triple-A counterparty rating. Primus will begin trading in the next few weeks, Jasper said. In the first year of trading, Primus is planning to build a portfolio of about $5.5 billion in single name investment-grade corporate and sovereign credits.

"The plan is to take advantage of what we believe is a pretty efficient capital model and cost model, and to become a very efficient investor in investment-grade risk, using, as the transfer vehicle, the credit default swap," Jasper said. "So we're transferring risk synthetically versus a cash instrument."

Though many of its clients, which could include CDOs, insurance company portfolio managers, hedge funds, banks and other cash investors, might be using PFP to establish hedges, Primus is not incorporating a hedging strategy for its own portfolio, and, only in special situations, will buy credit protection for its exposures. Its triple-A counterparty rating is based primarily on its capital levels, or other resources, being sized to match the expected loss (Moody's) of its referenced obligations.

Also, contrary to some players' initial impressions of the company, Primus doesn't plan to launch any CDOs from its portfolio.

"It's not contemplated that we would securitize the risk that we will take on," Jasper said. "We're very happy to hold the risk to maturity."

March 2002 - Former dealers from Salomon Smith Barney and Bank of America yesterday set up what they claimed to be the first boutique focusing purely on default swap credit derivatives.

Question:
When does a hedge become a speculation?

Answer:
There are essentially two answers. Answer 1 is that a speculation arises when the hedge is not perfectly effective in covering that which is hedged such as the current value (fair alue hedge) of the hedged item or the hedged cash flow (cash flow hedge). Testing for hedge ineffectiveness under FAS 133 and IAS 39 rules is very difficult for auditors. Answer 2 is that a speculation arises when unsuspected credit risk arises from the settlements themselves such as when dealers who brokered hedge derivatives cannot back the defaults all parties contracted under the derivatives themselves. Hedges may no longer be hedges! Answer 2 is even more problematic in this particular down economy.

There is a lot of complaining around the world about need for and technicalities of the U.S. FAS 133 and the international IAS 39 standards on Accounting for Financial Instruments Derivatives and Hedging Activities. But recent scandals adding to the pile of enormous scandals in derivatives over the past two decades suggest an increased need for more stringent rather than weakened standards for accounting for derivatives. The main problem lies in valuation of these derivatives coupled with the possibility that what is a safe hedge is really a risky speculation. A case in point is Newmont Mining Corporation's Yandal Project in Australia as reported by Steve Maich in "Newmont's Hedge Book Bites Back," on Page IN1 of the March 4, 2003 edition of Canada's Financial Post --- http://www.financialpost.com/

Even by the gold industry's relatively aggressive standards, Yandal's derivatives exposure is stunning. The unit has 3.4 million ounces of gold committed through hedging contracts that had a market value of negative US$288-million at the end of 2002.

That would be a problem for any major producer, but the situation is particularly dire for Yandal because the development's total proven and provable gold reserves are just 2.1 million ounces. In other words, the project has, through its hedging contracts, committed to sell 60% more gold than it actually has in the ground.

Making matters worse, the mine's counterparties can require Yandal to settle the contracts in cash, before they come due. In all, about 2.8 million ounces are subject to these cash termination agreements by 2005, which could cost the company US$223.7-million at current market prices.

With insufficient gold to meet its obligations, and just US$58-million in cash to make up the difference, bankruptcy may be the only option available to Yandal, analysts said.

Comparing Yandal's reserves to its hedging liabilities "suggests that the Yandal assets may be worth more dead than alive," CIBC World Markets analyst Barry Cooper said in a report to clients.

All this is raising even bigger questions about the impact that the Yandal situation might have on the industry's other major hedgers. Companies such as Canada's Barrick Gold Corp. and Placer Dome Ltd. have lagged the sector's strong rally of the past year, largely because many investors and analysts distrust the companies' derivative portfolios.

One thing that is not stressed hard enough in FAS 133 is the credit risk of the dealers themselves. The FAS 133 standard and its international IAS 39 counterpart implicitly assume that when speculating or hedging with derivatives, the dealers who broker these contracts are highly credit worthy. For example, in the case of interest rate swaps it is assumed that the dealer that brokers the swap will stand behind the swapping party and counterparty default risks. There are now some doubts about this in the present weak economy.

"Derivatives Market a 'Time Bomb': Buffet," Financial Post, March 4, 2003, Page IN1 --- http://www.financialpost.com/
Berkshire chairman warns of risks in shareholder letter --- http://www.berkshirehathaway.com/letters/letters.html
(The above link is not yet updated for the Year 2002 forthcoming annual Shareholder Letter.)

Billionaire investor Warren Buffett calls derivative contracts "financial weapons of mass destruction, carrying dangers that while now latent are potentially lethal," according to excerpts from his forthcoming annual letter to Berkshire Hathaway Inc. shareholders.

Mr. Buffett, whose company is now seeking to divest of derivatives business tied to its General Re purchase, also worries that substantial credit risk has become concentrated "in the hands of relatively few derivatives dealers."

"Divided on Derivatives Greenspan: Buffett at Odds on Risks of the Financial Instruments," by John M. Berry, The Washington Post, March 6, 2003, Page E01 --- http://www.washingtonpost.com/wp-dyn/articles/A48287-2003Mar5.html

The use of derivatives has grown exponentially in recent years. The total value of all unregulated derivatives is estimated to be $127 trillion -- up from $3 trillion 1990. J.P. Morgan Chase & Co. is the world's largest derivatives trader, with contracts on its books totaling more than $27 trillion. Most of those contracts are designed to offset each other, so the actual amount of bank capital at risk is supposed to be a small fraction of that amount.

Previous efforts to increase federal oversight of the derivatives market have failed, including one during the Clinton administration when the industry, with support from Greenspan and other regulators, beat back an effort by Brooksley Born, the chief futures contracts' regulator. Sen. Dianne Feinstein (D-Calif.) has introduced a bill to regulate energy derivatives because of her belief that Enron used them to manipulate prices during the California energy crisis, but no immediate congressional action is expected.

Randall Dodd, director of the Derivatives Study Center, a Washington think tank, said both Buffett and Greenspan are right -- unregulated derivatives are essential tools, but also potentially very risky. Dodd believes more oversight is needed to reduce that inherent risk.

"It's a double-edged sword," he said. "Derivatives are extremely useful for risk management, but they also create a host of new risks that expose the entire economy to potential financial market disruptions."

Buffett has no problem with simpler derivatives, such as futures contracts in commodities that are traded on organized exchanges, which are regulated. For instance, a farmer growing corn can protect himself against a drop in prices before he sells his crop by buying a futures contract that would pay off if the price fell. In essence, derivatives are used to spread the risk of loss to someone else who is willing to take it on -- at a price.

Buffett's concern about more complex derivatives has increased since Berkshire Hathaway purchased General Re Corp., a reinsurance company, with a subsidiary that is a derivatives dealer. Buffett and his partner, Charles T. Munger, judged that business "to be too dangerous."

Because many of the subsidiary's derivatives involve long-term commitments, "it will be a great many years before we are totally out of this operation," Buffett wrote in the letter, which was excerpted on the Fortune magazine Web site. The full text of the letter will be available on Berkshire Hathaway's Web site on Saturday. "In fact, the reinsurance and derivatives businesses are similar: Like Hell, both are easy to enter and almost impossible to exit."

One derivatives expert said several of General Re's contracts probably involved credit risk swaps with lenders in which General Re had agreed to pay off a loan if a borrower -- perhaps a telecommunications company -- were to default. In testimony last year, Greenspan singled out the case of telecom companies, which had defaulted on a significant portion of about $1 trillion in loans. The defaults, the Fed chairman said, had strained financial markets, but because much of the risk had been "swapped" to others -- such as insurance companies, hedge funds and pension funds -- the defaults did not cause a wave of financial-institution bankruptcies.

"Many people argue that derivatives reduce systemic problems, in that participants who can't bear certain risks are able to transfer them to stronger hands," Buffett acknowledged. "These people believe that derivatives act to stabilize the economy, facilitate trade and eliminate bumps for individual participants. And, on a micro level, what they say is often true. Indeed, at Berkshire, I sometimes engage in large-scale derivatives transactions in order to facilitate certain investment strategies."

But then Buffett added: "The macro picture is dangerous and getting more so. Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one another. The troubles of one could quickly infect the others. On top of that, these dealers are owed huge amounts by nondealer counterparties," some of whom are linked in such a way that many of them could run into problems simultaneously and set off a cascade of defaults.

March 7, 2003 message from Risk Waters Group [RiskWaters@lb.bcentral.com]

Alan Greenspan, chairman of the US Federal Reserve, today once again defended the use of derivatives as hedging tools, especially credit derivatives. His comments come in the wake of Warren Buffett's criticism of derivatives as "time bombs" and Peter Carr - recipient of Risk's 2003 quant of the year award this week - saying that in a [hypothetical] argument between quants convinced of the infallibility of their models and derivatives sceptics such as Buffett, he would probably side with Buffett.

But Greenspan, speaking at the Banque de France's symposium on monetary policy, economic cycle and financial dynamics in Paris, said derivatives have become indispensable risk management tools for many of the largest corporations. He said the marriage of derivatives and securitisation techniques in the form of synthetic collateralised debt obligations has broadened the range of investors willing to provide credit protection by pooling and unbundling credit risk through the creation of securities that best fit their preferences for risk and return.

This probably explains why credit derivatives employees reap the highest salaries, with an Asian-based managing director in synthetic structuring at a bulge-bracket firm earning an average basic plus bonus of £1.35 million last year. These were the findings of a first-of-its-kind survey conducted by City of London executive search company Napier Scott. The survey found that most managing directors working in credit derivatives at the top investment banks earn more than £1 million, with synthetic structurers commanding the highest salary levels. Asia-based staff earn 12-15% more than their US counterparts, with UK-based staff not far behind their Asia-based counterparts. Even credit derivatives associates with one or two years' experience earn in excess of £150,000 a year on average at a tier-1 bank.

In more people news, Merrill Lynch has hired four ex-Goldman Sachs bankers for its corporate risk management group focused on Europe, the Middle East and Africa. Roberto Centeno was hired as a director with responsibility for Iberia. Andrea Anselmetti and Luca Pietrangeli, both directors, and Ernesto Mercadente, an associate, will focus on expanding the corporate risk management and foreign exchange business in the Italian region. The corporate risk management group focuses on providing advice and execution for corporate clients, covering all risk management issues, including foreign exchange, interest rate risk and credit risk. All four will report to Patrick Bauné, co-head of Merrill Lynch's global foreign exchange issuer client group, and Damian Chunilal, head of the EMEA issuer client group, and are expected to join within the next two weeks. Merrill also hired Scott Giardina as a director in credit derivatives trading, based in London. He will report to Jon Pliner, managing director of credit trading EMEA, and Neil Walker, managing director of structured credit trading, EMEA. Giardina also joins from Goldman Sachs.

Christopher Jeffery
Editor, RiskNews
www.risknews.net
cjeffery@riskwaters.com

Bob Jensen's threads on credit derivatives ---
http://faculty.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
Click on the letter "C" and scroll down

"Questioning Claims That Are Too Good to Be True," by Karen Firestone, Harvard Business Review Blog, September 7, 2016 ---
https://hbr.org/2016/09/questioning-claims-that-are-too-good-to-be-true?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Jensen Comment
The real challenge in financial auditing is often discoveries of falsehoods that lie outside the scope of the audit and what the auditors assert in the audit report to financial statements. What is their professional and ethical obligation to not ignore falsehoods that legally are "none of their business?"

This also seems to have been the dilemma of the FBI's investigation of the Clinton emails.

The FBI admits it “didn’t pursue evidence of potential false statements, obstruction of justice and destruction of evidence,”
WSJ Editorial Board
http://www.wsj.com/articles/the-fbis-blind-clinton-trust-1473289804?mod=djemMER

Jensen Comment
In some ways FBI pursuit of false statements is unjust if there is not also FBI pursuit of Trump false statements.

My point here is that questioning falsehoods is not as simple as what we read in ethics cases and textbooks and learn in law schools and accounting schools and journalism schools.

Teaching Case

The Controversial Way Wealthy Americans Are Lowering Their Estate Taxes
by: Laura Saunders
Aug 20, 2016
Click here to view the full article on WSJ.com

TOPICS: Asset Valuation, Business Valuation, Discounting, Estate Tax, Gift Tax, Valuation Discount

SUMMARY: Regulations proposed by the Treasury Department and Internal Revenue Service apply to tax-saving moves known as "valuation discounts." They allow people with assets greater than the current exemption of $5.45 million per person ($10.9 million for a couple) to lower the value of their assets that are subject to gift and estate taxes. To get the lower valuations, the owner of assets typically puts them into a holding company or other entity that isn't traded and gives pieces of the company to family members and perhaps a charity. As a result, the assets' value drops because control of the entity is dispersed and the assets would be harder to sell. The combined discounts generally range from 30% to 50% of the assets' value, and can be even higher. These moves are controversial because the courts have allowed taxpayers to use them to get sizable tax breaks on traded securities and even cash. Thus a wealthy taxpayer could reduce the taxable value of $10 million of blue-chip stocks to $6 million and cut his estate tax by $1.6 million.

CLASSROOM APPLICATION: This article is a useful update for an estate and gift tax class and for any classes covering business valuations.

QUESTIONS:
1. (Advanced) What is a valuation discount? What are the current tax rules regarding valuation discounts? Why has this been effective? What benefits does it offer? Who benefits?

2. (Introductory) What has the Treasury Department and Internal Revenue Service proposed regarding valuation discounts?

3. (Advanced) Why did the government make this proposal? How will the change affect taxpayers?

4. (Advanced) What are the liquidity issues associated with a partial interest in a closely held business? Are there control issues? Are there situations with legitimate reasons for a discount in fair market value? Why or why not?

5. (Advanced) What actions do some taxpayers take that shows the purpose of the holding company is for tax avoidance only?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES:
U.S. Aims to Clamp Down on Tactic to Avoid Estate Tax
by Richard Rubin
Aug 03, 2016
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IRS Loses a Gift-Tax Battle
by Laura Saunders
Sep 17, 2011
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"The Controversial Way Wealthy Americans Are Lowering Their Estate Taxes," by Laura Saunders," The Wall Street Journal, August 20, 2016
http://www.wsj.com/articles/the-controversial-way-wealthy-americans-are-lowering-their-estate-taxes-1471614809?mod=djem_jiewr_AC_domainid

Proposed new rules apply to moves known as ‘valuation discounts’

New rules are coming that will likely limit techniques used by the wealthy to lower their estate and gift taxes.

The proposed regulations, issued by the Treasury Department and Internal Revenue Service in early August, apply to moves known as “valuation discounts.” They allow people with assets greater than the current exemption of $5.45 million per person ($10.9 million for a couple) to lower the value of their assets that are subject to gift and estate taxes. The top tax rate on amounts above the exemption is currently 40%, so the savings can be substantial.

To get the lower valuations, the owner of assets typically puts them into a holding company or other entity that isn’t traded and gives pieces of the company to family members and perhaps a charity. As a result, the assets’ value drops because control of the entity is dispersed and the assets would be harder to sell. The combined discounts generally range from 30% to 50% of the assets’ value, and can be even higher.

These moves are controversial because the courts have allowed taxpayers to use them to get sizable tax breaks on traded securities and even cash. Thus a wealthy taxpayer could reduce the taxable value of $10 million of blue-chip stocks to $6 million and cut his estate tax by $1.6 million.

Ronald Aucutt, an estate-tax lawyer with McGuireWoods LLP in Washington, says that in some cases families simply wait until three years after the original owner’s estate-tax return is filed and the statute of limitations for an audit expires. Then they dissolve the holding company and divide up the assets, having bypassed tax on a large chunk of market value. “This drives the IRS crazy,” he says.

The proposed changes in the rules would allow the IRS to ignore many discounts in entities where they currently apply and collect far more estate or gift tax. In addition, the IRS could disallow even more discounts if a taxpayer dies within three years after making certain gifts. Mr. Aucutt thinks the Treasury Department and IRS have the authority to make such changes.

Critics of the changes call them far too broad. “This is an example of Treasury overstepping its bounds,” says John Porter, an attorney with Baker Botts in Houston, who has won landmark court cases involving discounts.

Mr. Porter points out that the proposed changes apply to nearly all family-controlled entities, even those holding operating businesses. “If these rules go through in current form, business owners are going to be taxed on value they may not have, or have access to,” he says. He expects a court challenge unless there are substantial revisions to the rules.

Continued in article

Teaching Case

FASB Updates Accounting Rules For Not-for-Profits
by: Maxwell Murphy
Aug 19, 2016
Click here to view the full article on WSJ.com

TOPICS: FASB, Financial Reporting, Nonprofit Accounting

SUMMARY: The Financial Accounting Standards Board's updated rules aim to make it simpler for nonprofits to classify and report their assets. The new rules also make it easier for donors, creditors and other interested parties to see how a nonprofit's funds are being used. Non-profits will now report two classes of assets, instead of three, which should reduce some of the burden of deciding which charitable assets can be used, and when. The simplification will also come with more stringent standards to more fully explain in footnotes any restrictions on when and how donations and assets can be used.

CLASSROOM APPLICATION: This article offers a good update for nonprofit accounting classes.

QUESTIONS:
1. (Introductory) What is the FASB? What is its purpose? What is its area of authority?

2. (Advanced) What are the updates to nonprofit accounting rules? What areas are affected?

3. (Advanced) Why did the FASB make these changes? How is financial reporting improved for users of the financial statements as a result of these changes?

4. (Advanced) How will nonprofit entities be affected by these changes? Are the changes substantial?
Reviewed By: Linda Christiansen, Indiana University Southeast

"FASB Updates Accounting Rules For Not-for-Profits," by Maxwell Murphy," The Wall Street Journal, August 20, 2016
http://blogs.wsj.com/cfo/2016/08/19/fasb-updates-accounting-rules-for-not-for-profits/?mod=djem_jiewr_AC_domainid

The Financial Accounting Standards Board’s updated rules aim to make it simpler for nonprofits to classify and report their assets. The new rules also make it easier for donors, creditors and other interested parties to see how a nonprofit’s funds are being used.

“More transparent information about an organization’s available resources and financial performance” was the goal, FASB member Lawrence Smith said in a statement to CFO Journal.

Non-profits will now report two classes of assets, instead of three, which should reduce some of the burden of deciding which charitable assets can be used, and when. The amendments in the standard are effective for annual financial statements issued for fiscal years after December 15, 2017.

The new reporting will separate cash that is available now from cash that may have time contingencies or other strings attached. Currently these companies must classify cash that isn’t immediately available into two categories, in addition to a third category for cash they’re able to use now.

That simplification will also come with more stringent standards to more fully explain in footnotes any restrictions on when and how donations and assets can be used. FASB said the changes will make financial reports easier to complete and understand.

“Stakeholders expressed concerns about the complexity, insufficient transparency, and limited usefulness of certain aspects of the model,” FASB Chairman Russell Golden said in a press release announcing the changes. Not-for-profits will benefit from reduced costs and complexities in reporting their financial position, while contributors will receive enhanced disclosures in footnotes, the standards setter said.

Continued in article

Teaching Case

Transforming the Tax Function into a Strategic Business Partner
by: Deloitte CFO Jounral Editor
Aug 18, 2016
Click here to view the full article on WSJ.com

TOPICS: Strategy, Tax Function, Taxation

SUMMARY: As globalization accelerates, tax issues often become more complex and relevant to an organization's business strategies. Increasingly, executives face demands by tax authorities for more information faster-sometimes in real time. They also face a growing number of IT challenges as commercial tax applications evolve to satisfy regulatory mandates. In response, some leading companies have made a fundamental shift in the way they operate tax departments, transforming the tax function into a strategic business partner across the enterprise.

CLASSROOM APPLICATION: This article would be appropriate for tax classes. It helps us show students the importance of tax knowledge and the tax issues facing businesses. Tax implications should be considered in most strategic decisions.

QUESTIONS:
1. (Introductory) What does the tax function of a business include?

2. (Advanced) What does that article say about why the tax function should be a part of a business's strategy process? What parts could it play?

3. (Advanced) How can a tax function be integrated into a business's strategic process? In what areas would it be integrated? What steps does that article offer?

4. (Advanced) What are some reasons why some companies have not considered the tax function to be an important part of business strategy? Have conditions changed over time?
Reviewed By: Linda Christiansen, Indiana University Southeast

"Transforming the Tax Function into a Strategic Business Partner," by Deloitte CFO Jounral Editor," The Wall Street Journal, August 18, 2016
http://deloitte.wsj.com/cfo/2016/08/18/transforming-the-tax-function-into-a-strategic-business-partner-2/?mod=djem_jiewr_AC_domainid

As globalization accelerates, tax issues often become more complex and relevant to an organization’s business strategies. Increasingly, executives face demands by tax authorities for more information faster—sometimes in real time. They also face a growing number of IT challenges as commercial tax applications evolve to satisfy regulatory mandates.

In response, some leading companies have made a fundamental shift in the way they operate tax departments, transforming the tax function into a strategic business partner across the enterprise.

“Because the implications of tax affect the financial and strategic decisions of many organizations, tax issues are capturing the attention of C-suite executives and boards,” said Carl Allegretti, chairman and CEO, Deloitte Tax LLP, during a Deloitte webcast. “Tax transformation activities should be closely aligned with the business strategy,” he added.

When webcast participants were asked “What is the biggest advantage to transforming the corporate tax department,” 26% of the 2,182 respondents indicated “having an enhanced ability to reach strategic and financial goals.” Another 24% reported “enhanced business partnering across the organization,” such as greater alignment between the tax and finance functions, and 22% cited “sustainability and efficiency of the tax function through cost savings.”

“Tax departments should be prepared to transform or be transformed,” noted Emily VanVleet, partner, Deloitte Tax LLP, during the webcast. She explained that in many cases, finance executives have gone through a finance function transformation and currently are experiencing the benefits of that strategic change. As a result, tax departments may begin to feel pressure from CFOs to, for example, complete the tax close faster.

“CFOs know what they have accomplished through finance transformation, and so increasingly expect the tax department to undertake a similar process,” added Ms. VanVleet.

Expanding Tax Responsibilities

“There is a growing recognition of the tax department’s ability to contribute to the enterprise,” noted Nathan Andrews, partner, Deloitte Tax LLP, during the webcast. “As a result, the tax department is being included in strategic business discussions and participating in the processes that address marketplace shifts,” he added.

Continued in article

Teaching Case

Accounting Watchdog Says Most Brokerage-Firm Audits Need to Improve
by: Michael Rapoport
Aug 19, 2016
Click here to view the full article on WSJ.com

TOPICS: Audit Inspections, Auditing, PCAOB

SUMMARY: The Public Company Accounting Oversight Board found deficiencies in 77% of the broker-dealer audits it inspected in 2015, compared with 87% in 2014, the board said in its annual report on its broker-dealer audit inspection program. Nearly all of the audit firms that conducted the broker-dealer audits - 72 of 75 - had deficiencies in one or more of their audits. Auditor independence in broker-dealer audits improved, however.

CLASSROOM APPLICATION: This article is useful for auditing and financial accounting discussions of the PCAOB and inspection of audits.

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

2. (Advanced) What is an audit inspection? Why does the PCAOB conduct them?

3. (Advanced) What is a deficiency? What are the implications of a deficiency? If a deficiency is found, should the financial statements be restated? Why or why not? What problems could deficient audits cause?

4. (Introductory) What are broker-dealers? What are the statistics regarding deficiencies in audits of broker-dealers in recent years? What were the most common deficiencies?

5. (Advanced) What is auditor independence? What are the statistical trends regarding auditor independence in the audits of broker-dealers? Are these levels acceptable? Why or why not?

Reviewed By: Linda Christiansen, Indiana University Southeast
RELATED ARTICLES:
Auditing the Auditors: U.S. Rethinks Approach
by Michael Rapoport
May 05, 2016
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Audit Regulator Finds 17 Deficient Audits at PricewaterhouseCoopers
by Michael Rapoport
Jul 22, 2015
Online Exclusive

"Accounting Watchdog Says Most Brokerage-Firm Audits Need to Improve," by Michael Rapoport," The Wall Street Journal, August 19, 2016
http://www.wsj.com/articles/accounting-watchdog-says-most-brokerage-firm-audits-need-to-improve-1471555393?mod=djem_jiewr_AC_domainid

Inspectors found deficiencies in more than three-quarters of broker-dealer audits

Federal inspectors found deficiencies in more than three-quarters of the audits of broker-dealers they reviewed last year, down from the previous year but still at a high level, the government’s audit-industry regulator said Thursday.

The Public Company Accounting Oversight Board found deficiencies in 77% of the broker-dealer audits it inspected in 2015, compared with 87% in 2014, the board said in its annual report on its broker-dealer audit inspection program. Nearly all of the audit firms that conducted the broker-dealer audits—72 of 75—had deficiencies in one or more of their audits, the PCAOB said.

The PCAOB’s findings don’t mean that it has determined the broker-dealers themselves have operational deficiencies, just that the board believes the audits that assessed whether they might have a problem were flawed or insufficient.

Auditor independence in broker-dealer audits improved, however. The PCAOB found auditor independence—an auditor’s need to keep an arm’s length relationship from its client so as to preserve its impartiality—was impaired in 7% of the audits it inspected, down from 25% the previous year.

Among the most common deficiencies the PCAOB’s inspectors found were problems in auditing revenue, which the PCAOB identified in 70% of the audits it reviewed, and deficiencies in auditing fair value measures, in 44% of the audits where that area was inspected.

The PCAOB has consistently found high levels of deficiencies in its inspections of audits of broker-dealers, which the board has reviewed since 2011 under powers it was granted by the Dodd-Frank financial overhaul law. The board’s reports don’t identify the individual audit firms or the broker-dealers involved in the audits it inspects.

Continued in article

Teaching Case

Why It's So Hard to Get Rid of Tax 'Loopholes'
by: Richard Rubin
Aug 19, 2016
Click here to view the full article on WSJ.com

TOPICS: Itemized Deductions

SUMMARY: The problem with attacking "loopholes" in the tax code is just how popular they are. That's the challenge facing lawmakers who favor lowering rates and broadening the tax base. It's easy to talk about closing unjust loopholes - and depending on your definition of justice, there are a few of them out there. Taxpayers can itemize deductions if their total exceeds the standard deduction. Some itemized deductions, such as the break for tax-preparation fees, are already subject to strict limits, but the big three are largely uncapped: state and local taxes, home-mortgage interest and charitable contributions.

CLASSROOM APPLICATION: This article and topic is appropriate for use in an individual tax class.

QUESTIONS:
1. (Introductory) What are itemized deductions? What are some examples of itemized deductions? Which are most common?

2. (Advanced) How many households itemize deductions? What do other households choose to do instead? Why do so few taxpayers itemize? What types of taxpayers are more likely to itemize?

3. (Advanced) What is a loophole? To what is the writer of this article referring when using the term tax loophole? Why does the writer call these loopholes?

4. (Advanced) What does the article say is the reason why it is challenging to eliminate tax loopholes? What could be done to remedy that? Should they be eliminated? Why or why not?
Reviewed By: Linda Christiansen, Indiana University Southea

"Why It's So Hard to Get Rid of Tax 'Loopholes'," by Richard Rubin," The Wall Street Journal, August 19, 2016 ---
http://blogs.wsj.com/economics/2016/08/18/why-its-so-hard-to-get-rid-of-tax-loopholes/?mod=djem_jiewr_AC_domainid

Many of the biggest—and most popular—tax breaks benefit the upper-middle class

The problem with attacking “loopholes” in the tax code is just how popular they are.

That’s the challenge facing lawmakers who favor lowering rates and broadening the tax base. It’s easy to talk about closing unjust loopholes—and depending on your definition of justice, there are a few of them out there.

But the reality is that many of the biggest breaks are the ones that benefit the upper-middle class: itemized deductions. That’s why President Barack Obama and Democratic presidential candidate Hillary Clinton have proposed limits on high earners’ deductions. Republican presidential candidates Jeb Bush and Mitt Romney talked about deduction caps and Donald Trump is considering one, too.

Taxpayers can itemize deductions if their total exceeds the standard deduction—$6,300 for individuals and twice that for married couples. Some itemized deductions, such as the break for tax-preparation fees, are already subject to strict limits, but the big three are largely uncapped: state and local taxes, home-mortgage interest and charitable contributions.

Only about 30% of households itemize their deductions, and they tend to be higher-income households who have mortgages, significant state taxes and available cash to donate to charities.

To see exactly how much money is at stake and what happens if you repeal the breaks, here’s a tool from the Open Source Policy Center at the free-market-oriented American Enterprise Institute, which draws on ideas from technical contributors.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 2, 2016

Apple Faces $14.5 Billion Irish Tax Bill
by: Natalia Drozdiak and Sam Schechner
Aug 31, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com

TOPICS: Accounting Change, Accounting for Income Taxes, Income Tax

SUMMARY: The EU says Apple's tax deal with Ireland allowed the company to pay almost zero tax on European profits between 2003 and 2014.

CLASSROOM APPLICATION: Questions in this article relate primarily to accounting for income taxes and international tax strategy.

QUESTIONS:
1. (Introductory) What entity made the order that Apple should pay $14.5 billion in taxes?

2. (Introductory) Why are both Apple and Ireland appealing this ruling?

3. (Advanced) Watch the related video. What is Apple's effective tax rate in Ireland? What does the EU leadership say about that tax rate? In your answer, include the definition of effective tax rate.

4. (Advanced) Refer to the graphic entitled "Cash Flow" and the two related articles. Briefly (no more than 3 sentences) summarize Apple's tax strategies which lead to its low effective tax rate.

5. (Advanced) If Apple must pay these taxes, do you think they must re-issue financial statements for the years in question, 2003 to 2014? Explain your answer and describe what you think are the appropriate areas of accounting standards addressing this issue.

6. (Advanced) The decision is reported as a payment "well above most analysts' expectations." What is the significance of that statement? In your answer, comment on the role of analysts in the U.S. market for Apple's stock and the market reaction described in the article.

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES:
EU Apple Tax Ruling Stirs Fears of Revenue Loss in U.S.
by Richard Rubin
Aug 30, 2016
Online Exclusive

Apple's Tax in Ireland
by WSJ Staff
Aug 30, 2016
Online Exclusive

"Apple Faces $14.5 Billion Irish Tax Bill," by Natalia Drozdiak and Sam Schechner," The Wall Street Journal, August 31, 2016
http://www.wsj.com/articles/apple-received-14-5-billion-in-illegal-tax-benefits-from-ireland-1472551598?mod=djem_jiewr_AC_domainid

The European Union’s antitrust regulator has demanded that Ireland recoup roughly €13 billion ($14.5 billion) of unpaid taxes accumulated over more than a decade by Apple Inc., a move that intensifies a feud between the EU and the U.S. over the bloc’s tax probes into American companies.

The size of the tax demand, which came in a formal decision issued Tuesday, risks further unsettling multinational companies, which face a broader international effort to curb aggressive tax avoidance. But the commission’s decision shows companies could be on the hook for past behavior and potentially be handed big bills for allegedly unpaid back taxes.

The sum is the highest ever demanded under the EU’s longstanding rules that forbid companies from gaining advantages over competitors because of government help.

The decision—which ordered a payment well above most analysts’ expectations— is likely to be the subject of years of appeals up to the EU’s top court. It could also set off a broader scramble by the U.S. and individual EU governments over the right to tax billions of dollars of offshore profits made by Apple and other large companies.

Apple disputed the reasoning of the decision and said it would appeal. Chief Executive Tim Cook, in an open letter, added: “Apple follows the law and we pay all the taxes we owe.”

Irish Finance Minister Michael Noonan said he disagreed “profoundly” with the European Commission’s decision and said Ireland would appeal the decision in order “to defend the integrity of our tax system.”

The European Commission said tax arrangements that Ireland offered Apple in 1991 and 2007 allowed the company to pay annual tax rates of between 0.005% and 1% on its European profits for over a decade to 2014, by designating only a tiny portion of its profit as taxable in Ireland.

“The commission’s investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years,” said European antitrust commissioner Margrethe Vestager.

Mr. Cook described the decision as “an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process.”

Under EU rules, Ireland has four months to calculate the exact amount the commission says Apple owes and collect the cash. Apple, whose shares fell by 0.8% Tuesday in New York, said it would put the money in an escrow account pending appeals.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 2, 2016

Apple Likely to Benefit in U.S. from Irish Tax Bill
by: Kimberly S. Johnson and Tatyana Shumsky
Aug 31, 2016
Click here to view the full article on WSJ.com

TOPICS: Income Taxes, International Taxation

SUMMARY: The EU says Apple's tax deal with Ireland allowed the company to pay almost zero tax on European profits between 2003 and 2014.

CLASSROOM APPLICATION: Questions on this article include international taxation and accounting for income taxes.

QUESTIONS:
1. (Introductory) Why do the amounts Apple pays in Irish taxes affect the company's U.S. tax bill? In your answer, define the term tax credit.

2. (Introductory) What are unrepatriated earnings? Describe the tax implications of unrepatriated earnings.

3. (Advanced) The article states that "many see Apple as finite amount of taxes to pay"-the more that Apple pays to other worldwide tax authorities, the less company will owe in the U.S. Why would this be the case for any multinational corporation? You may tie your answer to questions #1 and 2.

4. (Advanced) Regarding Apple's accounting for income taxes, why does tax consultant Robert Willens say that the $14.5 billion amount is "not damaging from a P&L point of view"? In your answer, state what is meant by "P&L" and comment on income tax expense calculation.

Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
EU Apple Tax Ruling Stirs Fears of Revenue Loss in the U.S.
by Richard Rubin
Aug 31, 2016
Page: A1

"Apple Likely to Benefit in U.S. from Irish Tax Bill," by Kimberly S. Johnson and Tatyana Shumsky," The Wall Street Journal, August 31, 2016
http://blogs.wsj.com/cfo/2016/08/30/apple-likely-to-benefit-in-u-s-from-irish-tax-bill/?mod=djem_jiewr_AC_domainid

The $14.5 billion Apple Inc. is being asked to pay to Ireland in back taxes could potentially help offset its tab with the Internal Revenue Service.

When an American company pays taxes on profits in foreign countries, they only owe Uncle Sam the difference between the taxes paid and the U.S. tax rate.

So in the case of Apple, recording a large foreign tax charge could “set the stage for a foreign tax credit,” said tax consultant Robert Willens.

“The tax detriment would be balanced out by a tax benefit,” he said. “It’s not damaging from a P&L point of view.”

Apple would have to accrue a tax bill in the U.S. in order to reflect such an assessment, most likely through a repatriation of foreign earnings. Many multinationals – Apple included – state that their foreign profits are indefinitely reinvested abroad.

Apple’s foreign subsidiaries held $186.9 billion of cash and marketable securities when its fiscal year ended last Sept. 26, Of that sum, Apple had set aside $91.5 billion as indefinitely reinvested, as previously reported.

The U.S. Treasury Department has criticized the EU’s tax investigations, and on Tuesday a spokeswoman said the EU’s decision was disappointing, reiterating that “retroactive tax assessments by the commission are unfair.”

But based on how multinationals book revenue and taxes, such a move puts the U.S. government at a disadvantage. “The taxes they pay in Ireland will reduce the taxes they pay in the U.S.,” Mr. Willens said. “Many see Apple as having a finite amount of taxes to pay. The more they pay to others, the less they get.”

Still, the U.S. could challenge whether Apple’s $14.5 billion payment is correctly classified as back taxes or whether it is, in fact a fine. The latter wouldn’t generate a foreign tax credit, said Stephen Brecher, senior advisor at accounting firm WeiserMazars LLP.

Ireland already arguing that it properly applied its tax law presents another wrinkle. It is unclear whether U.S. authorities will recognize the payment as an income tax payment even if Ireland changes its position and collects the payment, Mr. Brecher said.

“The U.S. might say that Apple has paid the correct amount of tax and that Ireland is wrong to collect this,” Mr. Brecher said. “Apple could get caught in the middle here,” he added.

For now, the U.S. tech giant has vowed to appeal the European Commission’s decision, a process that some say will take several years to play out.

“There’s little question that this story is closer to its beginning than its end,” said Manal Corwin, national leader KPMG LLP’s International Tax practice and former Deputy Assistant Secretary for International Tax Affairs in the Office of Tax Policy at the U.S. Department of the Treasury.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 2, 2016

Firms Drop Prettied-Up Results
by: Tatyana Shumsky
Aug 30, 2016
Click here to view the full article on WSJ.com

TOPICS: Non-GAAP, Non-GAAP Reporting

SUMMARY: More companies are responding to regulatory scrutiny of financial reporting by giving greater prominence to standard, or GAAP, accounting figures, rather than emphasizing non-GAAP, typically more-flattering metrics.

CLASSROOM APPLICATION: The article may be used in a financial reporting class above the introductory level.

QUESTIONS:
1. (Introductory) What are non-GAAP items?

2. (Introductory) What are recent trends and events in U.S. companies' use of non-GAAP reporting?

3. (Advanced) Why does the opening line of the article describe the changes in reporting by S&P 500 companies as "giving investors the bad news first"? Is financial reporting according to generally accepted accounting principles (GAAP) always bad news?

4. (Advanced) Access the earnings releases filed on Forms 8-K for the company Electronic Arts, Inc. (EA) for the first and second quarter 2016. They are available through the web site of the U.S. Securities and Exchange Commission at the following web links. Comment on the differences you see in the two press releases. Focus on the headlines in pages 1-2. Fiscal fourth quarter ended March 31 2016: https://www.sec.gov/Archives/edgar/data/712515/000071251516000129/earningsrelease8216.htm Fiscal first quarter ended June 30, 2016: https://www.sec.gov/Archives/edgar/data/712515/000071251516000129/earningsrelease8216.htm

5. (Introductory) How will companies' reporting on a non-GAAP basis be evaluated in the coming months?
Reviewed By: Judy Beckman, University of Rhode Islan

"Firms Drop Prettied-Up Results," Tatyana Shumsky," The Wall Street Journal, August 30, 2016
http://www.wsj.com/articles/companies-play-up-standard-accounting-figures-1472495965?tesla=y

More companies are giving investors the bad news first, in response to heavier regulatory scrutiny of their financial reporting.

More than a quarter of the companies in the S&P 500 index have shifted results that conform with Generally Accepted Accounting Principles to the top of news releases outlining their most recent financial performance.

Among the S&P 500 companies reporting results since the start of July, 81% have given prominence to GAAP figures, an increase from the 52% that did so when reporting first-quarter results, according to an Audit Analytics analysis conducted for The Wall Street Journal.

Companies that have made the transition include Halliburton Co. , Walgreens Boots Alliance Inc. and videogame maker Electronic Arts Inc.

The uptick comes in response to new guidance issued by the Securities and Exchange Commission in May that requires companies to give GAAP figures greater weight. It reflects concerns that adjusted or non-GAAP figures make companies look healthier.

The SEC’s timing offered some breathing room, giving companies a chance to comply with the guidance for subsequent reporting periods, officials said.

The guidance, however, leaves little room for flexibility. If a paragraph or table contains standard and adjusted figures, companies must make sure sentences or columns with the standard, or GAAP, information precedes everything else.

Numbers must be also be presented in the same style, meaning customized metrics can’t be bolded or printed in a larger-size font, nor can they be described as “record” or “exceptional” unless GAAP results are characterized in a similar way.

“There’s little appetite at the SEC for companies who don’t assess the guidance and self-correct,” said Paula Hamric, a partner in accounting firm BDO USA’s national SEC practice.

Halliburton highlighted $64 million in “income from continuing operations excluding special items” in its first-quarter press release. But when reconciled to standard accounting principles, the company had a loss of $2.4 billion.

By contrast, the Houston oil-field services company led its second-quarter earnings release with a standard-accounting loss of $3.73 per share, or $3.2 billion.

A Halliburton spokeswoman confirmed that the change was made to comply with the SEC’s new instructions.

Over the past two quarters, drugstore operator Walgreens has switched around the sentences atop its earnings press release. The company led its fiscal second-quarter earnings release with an 11% increase in “adjusted net earnings,” adding that standard per-share results had plunged 56%. The following quarter, Walgreens put standard results first, reporting a 14% drop in per-share earnings.

“We did make some small changes to our most recent quarterly earnings announcement based on the new SEC guidance and to further enhance our disclosure to investors,” said a spokesman for Walgreens.

Some companies haven’t yet made the shift. Software provider Ellie Mae Inc. said in its second-quarter earnings release in July that it hadn’t yet modified “adjusted net income” to reflect certain tax impacts—a change now required by the SEC.

In a statement recently, Ellie Mae said it plans to comply with SEC guidelines and modify the “adjusted” benchmark, but is currently considering timing of the change. “Our measured approach to transitioning the reporting of this financial metric will balance our investors’ expectations with the concerns of the SEC staff,” the company said.

Companies that don’t make the necessary changes run the risk of additional regulatory scrutiny in the form of letters and forced revisions. in letters made public through Aug. 5, the SEC questioned 166 companies this year regarding their use of non-GAAP figures, up 13% from a year earlier, according to Audit Analytics.

The SEC makes such written exchanges public 20 days after the matter is resolved. The letters that have become public so far concern financial reports from before the new guidance was announced.

Accountants expect such correspondence to surge as the SEC evaluates how companies handle the new requirement.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 2, 2016

Hard to Find: Workers with Good 'Soft Skills'
by: Kate Davidson
Aug 31, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com

TOPICS: Accounting Careers

SUMMARY: This article and a recent video highlight the skills students must develop in today's workforce: both "soft skills" and, for accountants, good technology skills such as spreadsheets (e.g., Excel) and database management (e.g., Access).

CLASSROOM APPLICATION: The article may be used in any level of accounting class, particularly good at the start of the semester to discuss students' expectations about hiring practices.

QUESTIONS:
1. (Introductory) What are 'soft skills'?

2. (Introductory) Why are soft skills becoming increasingly important in today's economy?

3. (Introductory) Do you feel that accountants in particular might be called upon to develop a broad mix of skills or do you think that is common across all professionals? Specifically compare the skills discussed in the article and those listed for accountants in particular by the speaker in the related video.

4. (Advanced) Refer to the related video. By what average percentage are accounting salaries expected to increase next year?

5. (Advanced) Accounting and finance associated technology skills include proficiency with Excel and Access. Are you developing those skills sufficiently at this point in your educational career? Discuss.
Reviewed By: Judy Beckman, University of Rhode Islan

"Hard to Find: Workers with Good 'Soft Skills'," Kate Davidson," The Wall Street Journal, August 31, 2016
http://www.wsj.com/articles/employers-find-soft-skills-like-critical-thinking-in-short-supply-1472549400?mod=djem_jiewr_AC_domainid

Companies put more time and money into teasing out job applicants’ personality traits

The job market’s most sought-after skills can be tough to spot on a résumé.

Companies across the U.S. say it is becoming increasingly difficult to find applicants who can communicate clearly, take initiative, problem-solve and get along with co-workers.

Those traits, often called soft skills, can make the difference between a standout employee and one who just gets by.

While such skills have always appealed to employers, decades-long shifts in the economy have made them especially crucial now. Companies have automated or outsourced many routine tasks, and the jobs that remain often require workers to take on broader responsibilities that demand critical thinking, empathy or other abilities that computers can’t easily simulate.

As the labor market tightens, competition has heated up for workers with the right mix of soft skills, which vary by industry and across the pay spectrum—from making small talk with a customer at the checkout counter, to coordinating a project across several departments on a tight deadline.

In pursuit of the ideal employee, companies are investing more time and capital in teasing out job applicants’ personality quirks, sometimes hiring consultants to develop tests or other screening methods, and beefing up training programs to develop a pipeline of candidates.

“We’ve never spent more money in the history of our firm than we are now on recruiting,” said Keith Albritton, chief executive of Allen Investments, an 84-year-old wealth-management company in Lakeland, Fla.

In 2014, the firm hired an industrial psychologist who helped it identify the traits of its top-performing employees, and then developed a test for job candidates to determine how closely they fit the bill.

In the increasingly complex financial-services world, advisers often collaborate with accountants, attorneys and other planning professionals, Mr. Albritton said. That means the firm’s associates must be able to work in teams. “You can’t just be the general of your own army,” he said.

A recent LinkedIn survey of 291 hiring managers found 58% say the lack of soft skills among job candidates is limiting their company’s productivity.

In a Wall Street Journal survey of nearly 900 executives last year, 92% said soft skills were equally important or more important than technical skills. But 89% said they have a very or somewhat difficult time finding people with the requisite attributes. Many say it’s a problem spanning age groups and experience levels.

A LinkedIn analysis of its member profiles found soft skills are most prevalent among workers in the service sector, including restaurant, consumer-services, professional-training and retail industries.

To determine the most sought-after soft skills, LinkedIn analyzed those listed on the profiles of members who applied for two or more jobs and changed jobs between June 2014 and June 2015. The ability to communicate trumped all else, followed by organization, capacity for teamwork, punctuality, critical thinking, social savvy, creativity and adaptability.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 2, 2016

Employers Boost Benefits for Interns
by: Dahlia Bazzaz
Aug 31, 2016
Click here to view the full article on WSJ.com

TOPICS: Accounting Careers

SUMMARY: Companies are offering interns benefits such as health insurance and retirement savings plans-and offering jobs at record levels-72% as opposed to 59% in 2015.

CLASSROOM APPLICATION: The article is useful in any level of accounting class, but particularly near when students will apply for internships.

QUESTIONS:
1. (Advanced) Are you planning to obtain an internship position in your college career? If so, in what area?

2. (Introductory) What benefits are companies offering to interns?

3. (Advanced) How could employment benefits help some students to have an internship experience, even if most do not take advantage of them?

4. (Introductory) Why does offering health insurance pose little cost to employers offering internship experience?
Reviewed By: Judy Beckman, University of Rhode Island

"Employers Boost Benefits for Interns by: Dahlia Bazzaz," The Wall Street Journal, August 31, 2016
http://www.wsj.com/articles/more-employers-boost-benefits-for-interns-1472569293?mod=djem_jiewr_AC_domainid

Companies offer health insurance, retirement savings plans to attract permanent workers

More companies are offering interns benefits such as health insurance and access to retirement savings plans this year, according to a recent survey from the National Association of Colleges and Employers.

Interns are also getting job offers at record levels this year. Some 72% of them—a postrecession high—received offer letters at the end of their internships up from 58.9% in 2015, according to the survey, which looked at internship programs at 271 large companies including International Business Machines Corp. IBM offers its interns health insurance and 401(k) plans.

In 2015, 16.7% of companies offered health insurance. This year, some 46.5% offer medical coverage.

At the same time, companies are offering fewer internships and being more selective with regard to the interns they recruit. Companies are providing interns with better benefits in hopes of attracting them as permanent workers, said Edwin Koc, director of research at NACE.

Offering health insurance to interns “doesn’t come at much of a cost to the employer,” said Mr. Koc. Many paid interns who are offered insurance plans don’t take them. Since most interns are in their early 20s, they often have coverage through their parents, he said. The Affordable Care Act allows individuals to stay on their parents’ health-insurance plans until they are 26.

ACA rules may be part of the reason some companies are now offering insurance to interns. Under the health law, paid interns who work full-time (more than 30 hours a week) and are employed at a company with 50 or more employees are entitled to health-insurance benefits. Interns also have to be working full time for about 17 weeks, or 120 days, to be legally entitled. But even companies with internship programs that don’t fit these requirements are offering medical insurance.

Offering insurance could be a gesture of goodwill to future employees, and a response to demand for generous employee benefits. In a NACE survey of nearly 10,000 students graduating from college in 2015, 79% of those surveyed marked “a good benefits package” as important in an employer—above a “high starting salary” and “diversity.”

Demand could also explain the upward trend in the portion of companies offering 401(k) plans in recent years, which grew from 8.8% to more than half of employers in the past nine years, said Mr. Koc. In the student survey, a company-matched 401(k) plan ranked fourth in the list of preferred employer benefits, behind tuition reimbursement, the promise of a salary raise and more than two weeks of vacation.

Wages for interns have been stagnant for a number of years, Mr. Koc notes, reflecting the broader economy. The average hourly pay for interns, $17.69, is at a seven-year standstill, according to the employer survey. After calculating for inflation, interns in 2016 make less money than interns from six years ago.

Geni Harclerode, the director of employer recruitment at Northwestern University, said she hasn’t noticed any big firms touting hefty benefits packages. “I haven’t seen companies advertising it in their promotional material in big bold letters,” she said. Companies such as Goldman Sachs and Bank of America recruit from the school, Ms. Harclerode said.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 16, 2016

Indies Get a Way to Track Digital Sales
by: Ben Fritz
Sep 10, 2016
Click here to view the full article on WSJ.com

TOPICS: Accounting Theory

SUMMARY: Independent film producers face difficulties in assessing the financial performance of their films that are known as "indies." "The vast majority of indie-movie viewing takes place via video-on-demand retailers who typically provide statements to filmmakers quarterly." Orchard, an independent distributor, is attempting to stand out from competitors and thereby garner business by providing more frequent and transparent reporting of films' financial performance.

CLASSROOM APPLICATION: Questions ask students to discuss qualitative characteristics of financial information and interpret financial information presented graphically.

QUESTIONS:
1. (Introductory) What makes finding information about an independent film's profitability difficult? How often do filmmakers typically receive financial information about their films' profitability?

2. (Introductory) What financial reporting improvement does independent film distributor Orchard provide? How important is that innovation for them in obtaining business?

3. (Advanced) Review the related graphiic enitled "Hollywood Accounting." Has the movie "Cartel Land" been profitable during the period July 2015 to August 2016? Explain your answer.

4. (Advanced) Consider the statement that "The Orchard's expenses...totalled nearly $1.5 million, including a $500,000 advance it paid for rights to release the movie..." Is it possible that this amount should not entirely be considered an expense in the period July 2015 through August 2016? Support your answer with references to accounting literature.

5. (Advanced) List the qualitative characteristics of financial reporting as identified in FASB Concept Statement 8. Which of these characteristics is Orchard is attempting to improve in its reporting to independent filmmakers?

Reviewed By: Judy Beckman, University of Rhode Island

"Indies Get a Way to Track Digital Sales," by Ben Fritz, The Wall Street Journal, September 10, 2016
http://www.wsj.com/articles/tallying-the-bottom-line-for-independent-films-is-tricky-business-1473413400?tesla=y?mod=djem_jiewr_AC_domainid

For bigger-budget movies that play nationwide in theaters, Hollywood can be one of America’s more transparent industries. Box-office receipts usually are a fraction of a movie’s revenue, but they are a good predictor of what the sum total will be, making it relatively straightforward to determine within weeks of a film’s release whether it will be a financial hit or flop.

Outside the major studio system, though, that is increasingly not the case. Low-budget films rarely get a theatrical release these days, and if they do, it typically is in just a handful of theaters meant to generate reviews, awards consideration and the perception that it is a “real” movie.

The vast majority of indie-movie viewing today takes place via video-on-demand retailers such as cable boxes and Apple Inc.’s iTunes, making them the primary source of revenue for such films. Box-office grosses, typically in the hundreds or even tens of thousands of dollars, essentially are meaningless.

Whereas reliable box-office tallies are made public on a daily basis by websites such as Box Office Mojo, no such mechanism exists for video-on-demand, for which retailers retain their own data.

Independent filmmakers rarely know how many times their movie has been rented on Amazon.com, streamed on Netflix, or purchased on DVD. Typically, they rely on quarterly statements from a distributor to learn how much revenue their movie has earned and how much that company has spent on expenses such as advertising. In between quarterly statements, filmmakers and agents typically pepper distributors with questions.

“It can be like pulling teeth to get any information, and some filmmakers get frustrated by how long they have to wait,” said Rena Ronson, head of independent film for the United Talent Agency.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 16, 2016

Wal-Mart Pulls 'Egyptian Cotton' Sheets
by: Sarah Nassauer and Preetick Rana
Sep 10, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com

TOPICS: Supply Chain

SUMMARY: Wal-Mart Stores has removed products from Welspun India, Ltd., because the supplier had not used Egyptian cotton in its sheets in approximately two years though the product was labeled as such.

CLASSROOM APPLICATION: Questions relate to supply chain management and also could be used in an auditing class to cover audit procedures.

QUESTIONS:
1. (Introductory) What is a supply chain? What part of Wal-Mart's supply chain failed?

2. (Advanced) Is Wal-Mart incurring costs because of this failure at its supplier? Explain.

3. (Introductory) Who has hired an accounting firm to investigate the cause of these materials sourcing problems?

4. (Advanced) What type of an accountant do you think will do the work to investigate the cause of the problem with products not containing the Egyptian cotton materials as labeled?

5. (Introductory) What other steps is the supplier taking to resolve this materials sourcing problem?
Reviewed By: Judy Beckman, University of Rhode Island

"Wal-Mart Pulls 'Egyptian Cotton' Sheets," Sarah Nassauer and Preetick Rana," The Wall Street Journal, September 10, 2016
http://www.wsj.com/articles/wal-mart-to-stop-selling-offer-refunds-for-egyptian-cotton-sheets-made-by-welspun-1473445139?tesla=y

Retailer offering refunds for bed linen, the authenticity of which its says can’t be confirmed by manufacturer.

Wal-Mart Stores Inc. said it would stop selling Egyptian cotton sheets made by Welspun India Ltd. , after its investigation found the Indian textile giant couldn’t guarantee the products were legitimate.

“Welspun has not been able to assure us the products are 100% Egyptian cotton, which is unacceptable,” Wal-Mart spokeswoman Marilee McInnis said.

The world’s biggest retailer is removing the Welspun products from U.S. store shelves and Walmart.com. Wal-Mart said it would offer customers who purchased the products a full refund. It will donate the sheets currently on shelves.

The move is the latest blow to the Indian textile company after Target Corp. last month said it was pulling thousands of Welspun’s “Egyptian cotton” sheets from its shelves and cutting ties with the company after it found Welspun had not used actual Egyptian cotton in the products for about two years.

Target’s move spurred other Welspun customers, including Wal-Mart, J.C. Penney Co. and Bed Bath & Beyond Inc. also to investigate the products.

Penney and Bed Bath & Beyond on Friday didn’t immediately respond to requests for comment.

A spokesman for Welspun acknowledged the Wal-Mart action and said the company is working with retailers to resolve the issue. “We take the current traceability concerns around some of our product lines very seriously,” he said.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 16, 2016

Ford Cut Guidance on Recall Charges
by: Christina Rogers and Anne Steele
Sep 09, 2016
Click here to view the full article on WSJ.com

TOPICS: Forecasting, Non-GAAP, Warranty Expenses

SUMMARY: Ford Motor Co.'s reduced is guidance for expected operating profit this year because of a $640 million charge in the third quarter. The charge relates to doubling Ford's recall of vehicles with faulty latches from 1.5 to 2.4 million vehicles. The faulty latches lead to doors opening while vehicles are being driven.

CLASSROOM APPLICATION: Questions relate to quarterly reporting, warranty liability accounting, measuring operating profits, management guidance, and non-GAAP reporting.

QUESTIONS:
1. (Introductory) Ford is doubling the number of automobiles it is recalling due to a faulty latch and will record the impact in its 3rd quarter reporting. If all of the latches on newly recalled vehicles will not be serviced in that quarter, why will the company record the entire cost in that time period? Include in your explanation an example entry to record the cost of the recall.

2. (Advanced) What is operating profit? What does it mean to say that a company issues guidance about revenues, operating profits, or earnings?

3. (Advanced) "The company expects adjusted pre-tax profit of about $10.2 billion, according to a regulatory filing..." What is "adjusted pre-tax profit"? You may refer to the announcement on which this article reports that is available on the SEC web site at https://www.sec.gov/Archives/edgar/data/37996/000003799616000147/f8-kdatedseptember82016.htm

Reviewed By: Judy Beckman, University of Rhode Island

"Ford Cut Guidance on Recall Charges," by Christina Rogers and Anne Steele," The Wall Street Journal, September 9, 2016
http://www.wsj.com/articles/ford-lowers-profit-guidance-as-it-expands-door-latch-recall-1473342127?mod=djem_jiewr_AC_domainid

Added vehicles bring the total to 2.4 million

Ford Motor Co. ’s outlook hit another speed bump Thursday, with the company saying hefty charges for an expanded safety recall will reduce this year’s operating profit guidance by 6%.

The Dearborn, Mich., auto maker in July flagged Brexit headwinds and an expected slowdown in its core U.S. market as reasons for concerns about 2016’s second half. Although benefiting from strong U.S. sales for pickups and sport utilities, recovery in Europe and momentum in Asia, Ford has been less bullish than rival General Motors Co. on near-term prospects for the industry.

Ford cut its profit outlook after announcing it would take a $640 million charge in the third quarter to double its recall of vehicles with faulty door latches. The No. 2 U.S. auto maker said it now expects adjusted pretax profit of about $10.2 billion, according to a regulatory filing, down from its previous guidance of at least $10.8 billion.

The company said Thursday it would recall an additional 1.5 million vehicles at the request of the National Highway Traffic Safety Administration, bringing the total to 2.4 million vehicles. Ford said there had been one reported accident and three reported injuries that may be related.

The recall will fix a spring in the side-door latch that could fracture and prevent the door from closing properly, causing it to open while driving. The campaign mostly covers newer models, including the 2013-2015 Escape, 2012-2015 Ford Focus and 2015 Ford Mustang.

Shares of Ford were flat in afternoon trading.

The $640 million safety-recall charge comes as Ford is scrambling to keep pace with rivals investing heavily in autonomous-car and electric-vehicle development.

Ford reported a 9% drop in profits in the second quarter and Chief Financial Officer Bob Shanks has warned the company will face a tougher second half.

Slowing U.S. retail sales, a weaker Chinese auto market and higher costs related to the roll out of a new heavy-duty pickup truck this fall will hurt the company’s prospects for meeting its 2016 guidance, Mr. Shanks said in July.

Auto makers are also facing greater scrutiny by U.S. regulators of their safety-recall practices, resulting in the industry recalling a record 51.26 million vehicles in the U.S. last year. The volume of safety campaigns has weighed on auto makers’ profitability in recent years.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 16, 2016

Companies Move to Reprice Stock Options
by: Alix Stuart
Sep 13, 2016
Click here to view the full article on WSJ.com

TOPICS: Equity Compensation

SUMMARY: According to Institutional Shareholder Services, so far this year at least 10 publicly traded companies have exchanged employees' worthless stock options for new options or restricted stock.

CLASSROOM APPLICATION: Questions related to accounting for employee stock options and accounting for restricted stock.

QUESTIONS:
1. (Introductory) What are stock option exchanges?

2. (Introductory) What is the main reason companies undertake stock option exchanges?

3. (Introductory) What type of companies undertake exchanges? How is the need for exchanges related to a company's need to ccompete for employee talent?

4. (Advanced) Why could a stock option exchange generate "shareholder pushback"?

5. (Advanced) "Restricted stock has become much more popular partly because it is easier to account for." Compare the accounting for employee stock options and the accounting for restricted stock granted to employees.

Reviewed By: Judy Beckman, University of Rhode Island

"Companies Move to Reprice Stock Options," by Alix Stuart," The Wall Street Journal, September 13, 2016---
http://www.wsj.com/articles/companies-move-to-reprice-employees-stock-options-1473721243?mod=djem_jiewr_AC_domainid

Stock-option exchanges surged in popularity during market busts, when many options became underwater

Stock-option exchanges are making a bit of a comeback, despite a strong stock market and worries about the shareholder pushback they can generate.

Such exchanges, which let employees trade nearly worthless options for new options or restricted stock, have been proposed or implemented by at least 10 publicly traded companies so far this year, according to proxy-advisory firm Institutional Shareholder Services—up from seven last year, and three in 2014.

Options repricing surged in popularity after the dot-com bust in the early 2000s, then again following the financial crisis in 2009, when many employee stock options became underwater: The company’s stock had fallen way below the price at which they had the right to buy shares.

Eighty companies including Apple Inc., Starbucks Corp. and Google—now Alphabet Inc. —allowed employees to trade in underwater options in 2009. Back then, about 25% of companies swapped the options without consulting shareholders, according to ISS data.

For the most part, the trend these days is confined to younger firms that have recently gone public, said Brett Harsen, partner for Radford, a part of Aon Hewitt, a consulting company.

“Companies that have lower values are competing for employees with companies with stronger equity,” said Robert Finkel, a partner with the Boston-based law firm of Morse, Barnes-Brown & Pendleton PC. “And equity is still a very important part of compensation, particularly for technology companies.”

Shares of Jive Software Inc., a maker of business software, slid below $4 in March from a high of $27.16 in 2012. That left more than 25% of the options held by the company’s employees out of the money, with their strike prices far above Jive’s then current trading price.

The Palo Alto, Calif., company pitched the idea of an option exchange to shareholders and a majority approved. Nearly 80% of eligible options were exchanged over the past two months for restricted stock units that vest over two years.

“We were looking for ways wherever we could to help the people who were staying with Jive be as incented and motivated as possible,” said Bryan LeBlanc, Jive’s finance chief.

In the exchange process, Jive and other companies are offering employees restricted stock units that automatically convert to shares in place of the options to eliminate future uncertainty.

Companies typically take great pains to ensure that exchange terms are acceptable to shareholders as well as employees. That means executives and directors don’t participate and employees receive a value equivalent to their initial grant. While shareholders approve most exchanges, companies only float them when they know such approval is forthcoming, said Mr. Harsen.

Since 2012, Jive has used restricted stock exclusively for nonexecutive employee equity awards, said Mr. LeBlanc.

Restricted stock has become much more popular partly because it is easier to account for. It also lowers the risk to employees.

Such options exchanges can benefit companies by reducing compensation expenses, since companies are required to expense the value of outstanding stock options even when they are underwater.

And for employees who receive new options, there is no guarantee their prospects will improve. Electronics retailer hhgregg Inc. repriced options with a three-year vesting schedule for 58 employees on May 1, 2013 to the then-current trading price of $13.56, according to a filing. Since 2014, the stock hasn’t returned to that level, and is currently trading around $2 per share.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 16, 2016

Online Shopping Upends Small-Town Retail
by: Laura Stevens
Sep 12, 2016
Click here to view the full article on WSJ.com

TOPICS: Inventory, Profitability, Supply Chain

SUMMARY: The article discusses shipping costs for everyday consumer products by beginning with a vignette about Vince Bledsoe, a UPS delivery man in tiny Mangum, OK. "Until five years ago, Mr. Bledsoe was the bearer of special orders, tractor parts and business deliveries to this area. Now, he delivers dog food, fruit snacks and Kleenex, among other things. His business has increased 30% during the past couple of years, he estimates." Shipping these products to this remote location is estimated to turn sales unprofitable for retailers and is costlier for delivery services.

CLASSROOM APPLICATION: The article may be used to discuss inventory and shipping costs, along with marketing strategy, in a managerial accounting class.

QUESTIONS:
1. (Introductory) When did Oklahoma-based UPS delivery driver Vince Bledsoe realize that a significant shift had occurred in what is sold online?

2. (Introductory) How has the change in online shopping 'transformed rural America"?

3. (Advanced) Review the graphic entitled "Diminishing Returns" and focus on the information related to the product Diorshow lash mascara. What is the cost (estimated) of shipping this product to Oklahoma City? To Mangum, OK?

4. (Advanced) Define the gross profit method of estimating inventory. How is that technique used to estimate the impact of shipping to rural locations on the profitability of product sales shown in the graphic 'Diminishing Returns'?

5. (Introductory) According to the article, why do retailers continue to make these unprofitable online sales by shipping to remote locations?
Reviewed By: Judy Beckman, University of Rhode Island

"Online Shopping Upends Small-Town Retail," by Laura Stevens, The Wall Street Journal, September 12, 2016
http://www.wsj.com/articles/e-commerce-a-boon-for-rural-america-but-it-comes-with-a-price-1473615741?tesla=y?mod=djem_jiewr_AC_domainid

MANGUM, Okla.— Vince Bledsoe, a United Parcel Service Inc. delivery man in this remote tiny town, remembers the exact moment he knew that e-commerce had changed the way rural America shops.

He was taping up a package a few months ago to one of the town’s 3,000 residents and noticed it contained a bottle of bleach. “It wasn’t lavender [scented] or anything,” he recalls. “It was just a bottle of plain Clorox. ”

Until five years ago, Mr. Bledsoe was the bearer of special orders, tractor parts and business deliveries to this area. Now, he delivers dog food, fruit snacks and Kleenex, among other things. His business has increased 30% during the past couple of years, he estimates.

“It is getting out of hand,” he said, recently while driving his truck along a highway bordered by cotton fields. “They can find anything online. Literally anything.”

E-commerce hasn’t just reached rural America, it is transforming it by giving small-town residents an opportunity to buy staples online at a cheaper price than the local supermarket. It also provides remote areas with big-city conveniences and the latest products. Contemporary fashion, such as Victoria Secret bathing suits or Tory Burch ballet flats—items that can’t be found at Dollar General —are easily shipped.

Consumers increasingly are shopping online instead of driving, often long distances, to stores. Online shopping also brings with it deals and new entrepreneurial opportunities. These consumers, however, are the most expensive to serve for both retailers and delivery companies.

According to Kantar Retail, about 73% of rural consumers—defined as those who drive at least 10 miles for everyday shopping—are now buying online versus 68% two years ago. Last year, 30% were members of Amazon Prime, up from 22% in 2014.

Flowers Unlimited and Bratton Drug are about all that is left of a red-brick town square that just a couple of decades ago buzzed with three florists, restaurants and a furniture store. A Wal-Mart built in 1982 in Altus, Okla., about 20 miles away, brought residents choice, convenience and low prices. Now, online shopping is creating another retail revolution here that doesn’t require a half-hour drive to Wal-Mart or roughly 2½-hour drive to Oklahoma City.

April Geralds, a security-firm support manager, recently bought her two teenage daughters designer Miss Me jeans for half price on Macys.com. Her family now has access to things “I didn’t ever think we would have,” said the Mangum resident.

Residents here are even starting to buy groceries online because frequently it is cheaper than at the town’s United Supermarkets.

A can of Bush’s Best Bold and Spicy Baked Beans cost $2.07 on Walmart.com recently, 22% less than at the United in Mangum, where it’s more expensive to transport goods.

E-commerce has provided new opportunities for area residents to earn money. In Willow, Okla., Anneliese Rogers, a mother of three, raised $1,500 in one sitting by selling items from her closet on Facebook. Nearby, Kassandra Bruton mails up to 100 packages a week from her clothing store Trailer Trash.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 16, 2016

Investigation of Solar Firms Widens
by: Brody Mullins, Ianthe Jeanne Dugan and Richard Rubin
Sep 16, 2016
Click here to view the full article on WSJ.com

TOPICS: Financial Reporting, Income Taxes

SUMMARY: The Senate Finance Committee and the House Ways and Means Committe sent letters to seven foreign and domestic companies in the solar industry, expanding a more limited probe started earlier this year. Recipients were SolarCity Corp., Sunrun Inc. , Sungevity Inc., SunEdison Inc., Abengoa SA, NextEra Energy Inc. and NRG energy Inc. They are investigating valuation of solar energy installations for tax credits and/or government cash grants.

CLASSROOM APPLICATION: Both tax incentives (e.g., tax credits) and financial reporting disclosures are covered.

QUESTIONS:
1. (Introductory) Define the two types of incentives offered by the U.S Federal government for investments in solar energy systems: tax credits and cash grants.

2. (Introductory) A solar energy developer company could choose between these two incentive options. When would each of the types of incentives described above likely be used?

3. (Advanced) When will companies enter into contracts to transfer these solar energy tax benefits to others?

4. (Advanced) Access SolarEnergy's financial filing on Form 10-Q for the quarter ended June 30, 2016 on the SEC web site at the link below https://www.sec.gov/Archives/edgar/data/1408356/000156459016023725/scty-10q_20160630.htm Search for the disclosure described in the article as adverse effects if the "Internal Revenue Service or the U.S. Treasury Department were to object to amounts...claimed [by the company] as too high of a fair market value on such systems...." Where is this disclosure made? Why is this disclosure important in this filing?

5. (Advanced) "Solar-energy developers...routinely enlist big investors and transfer the tax benefits. Some also lease systems to homeowners and businesses. So there is debate over the fair market value of the solar energy systems...." Why do these transactions lead to the need to appraise the fair market value of these solar-energy systems? Offer at least one explanation for either the scenario of a developer attracting other investors to a project or the case of a developer leasing systems to homeowners and businesses.

Reviewed By: Judy Beckman, University of Rhode Island

"Investigation of Solar Firms Widens," by Brody Mullins, Ianthe Jeanne Dugan and Richard Rubin, The Wall Street Journal, September 16, 2016
http://www.wsj.com/articles/lawmakers-probe-tax-incentives-received-by-solar-energy-firms-1473967056?mod=djem_jiewr_AC_domainid

Under investigation is how companies determine the value of the credits

Congressional lawmakers have launched a formal investigation into whether solar-energy companies improperly received billions of dollars in tax incentives from the Obama administration. The Senate Finance Committee and the House Ways and Means Committee on Wednesday sent letters to seven foreign and domestic companies in the solar industry, expanding a more limited probe started earlier this year. The recipients included three firms in the residential solar industry, SolarCity Corp. , Sunrun Inc. and Sungevity Inc., and four solar utility companies—SunEdison Inc., Abengoa SA, NextEra Energy Inc. and NRG Energy Inc.

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 16, 2016

SEC Probes Exxon Over Accounting for Climate Change
by: Bradley Olson and Aruna Viswanatha
Sep 21, 2016
Click here to view the full article on WSJ.com

TOPICS: Auditing, Impairment

SUMMARY: The SEC sought information and documents in August from Exxon and the company's auditor, PricewaterhouseCoopers LLP, over how Exxon values its assets. The SEC's probe is homing in on how Exxon calculates the impact to its business from the world's mounting response to climate change, including what figures the company uses to account for the future costs of complying with regulations to curb greenhouse gases as it evaluates the economic viability of its projects....As part of its probe, the SEC is also examining Exxon's longstanding practice of not writing down the value of its oil and gas reserves when prices fall, people familiar with the matter said.

CLASSROOM APPLICATION: Questions cover impairment testing, carbon tax and cap-and-trad cost, and audit documentation

QUESTIONS:
1. (Introductory) What two asset valuation issues is the SEC investigating at Exxon?

2. (Introductory) What is impairment testing?

3. (Advanced) The SEC is investigating how Exxon considers the impact of climate-related regulation compliance costs "as it evaluates the economic viability of its projects." When do companies base their accounting on the economic viability of their projects?

4. (Advanced) According to the article, how should cost of regulations impact evaluations of future oil and gas prospects? In your answer, define the terms "carbon tax" and "cap-and-trade systems."

5. (Advanced) The SEC has asked for documents from Exxon's auditor, PricewaterhouseCoopers, as well as the company. Name one type of documentation that PwC would have as audit evidence for its Exxon engagement. Describe the purpose of this audit evidence and then explain how it might be useful to the SEC in making its assessment of these issues.
Reviewed By: Judy Beckman, University of Rhode Island

"SEC Probes Exxon Over Accounting for Climate Change," by Bradley Olson and Aruna Viswanatha, The Wall Street Journal, September 21, 2016
http://www.wsj.com/articles/sec-investigating-exxon-on-valuing-of-assets-accounting-practices-1474393593?mod=djem_jiewr_AC_domainid

Probe also examines company’s practice of not writing down the value of oil and gas reserves

The U.S. Securities and Exchange Commission is investigating how Exxon Mobil Corp. values its assets in a world of increasing climate-change regulations, a probe that could have far-reaching consequences for the oil and gas industry. The SEC sought information and documents in August from Exxon and the company’s auditor, PricewaterhouseCoopers LLP, according to people familiar with the matter. The federal agency has been receiving documents the company submitted as part of a continuing probe into similar issues begun last year by New York Attorney General Eric Schneiderman, the people said. The SEC’s probe is homing in on how Exxon calculates the impact to its business from the world’s mounting response to climate change, including what figures the company uses to account for the future costs of complying with regulations to curb greenhouse gases as it evaluates the economic viability of its projects.

The decision to step into an Exxon investigation and seek climate-related information represents a moment in the effort to take climate change more seriously in the financial community, said Andrew Logan, director of the oil and gas program at Ceres, a Boston-based advocacy organization that has pushed for more carbon-related disclosure from companies.

“It’s a potential tipping point not just for Exxon, but for the industry as a whole,” he said. As part of its probe, the SEC is also examining Exxon’s longstanding practice of not writing down the value of its oil and gas reserves when prices fall, people familiar with the matter said. Exxon is the only major U.S. producer that hasn’t taken a write down or impairment since oil prices plunged two years ago. Peers including Chevron Corp. have lowered valuations by a collective $50 billion. “The SEC is the appropriate entity to examine issues related to impairment, reserves and other communications important to investors,” said Exxon spokesman Alan Jeffers. “We are fully complying with the SEC request for information and are confident our financial reporting meets all legal and accounting requirements.” A spokeswoman for PwC declined to comment. An SEC spokeswoman declined to comment. A spokesman for Mr. Schneiderman said the attorney general wouldn’t comment on the matter. The SEC probe isn’t believed to involve other energy companies, according to a person familiar with the matter.

Activists, members of Congress and former government officials have ratcheted up pressure on the SEC in the past year to do more to assess climate risks. Four congressional Democrats including U.S. Rep. Ted Lieu last year asked the SEC to investigate Exxon over its climate-related science and advocacy. Three former U.S. treasury secretaries wrote the SEC in July urging the agency to adopt industry-specific standards for disclosure in company filings.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 16, 2016

For U.S. Firms, Figuring Out GAAP is Not the Only Challenge
by: Nina Trentmann
Sep 19, 2016
Click here to view the full article on WSJ.com

TOPICS: Generally accepted accounting principles, IFRS

SUMMARY: The article discusses the differences between U.S. GAAP and IFRS in the areas of inventory write-downs and long-lived asset impairments. It is driven by the related article on the SEC inquiry of Exxon and its auditor, PwC, on accounting for oil & gas related assets.

CLASSROOM APPLICATION: The article may be used when covering impairment analysis or in an IFRS course.

QUESTIONS:
1. (Introductory) According to the article, how does Exxon's financial reporting for long-lived assets (oil fields) under U.S. GAAP compare to competitors Royal Dutch Shell PLC, Total SA, and BP PLC (which report under IFRS) and even Chevron Corp. (which reports under U.S. GAAP)?

2. (Advanced) What is the goal of accounting practices related to impairment testing under both U.S. GAAP and IFRS? Reference the description in the article but then support the statement with reference to authoritative accounting literature.

3. (Advanced) What is the difference in requirements between IFRS and U.S. GAAP leading to the statement in the article that it is "much harder to write down assets under [U.S.] GAAP than under IFRS? Again, cite your sources in authoritative accounting literature.

4. (Advanced) What is the difference in treatment of impairment loss allowances in U.S. GAAP and IFRS? Again, support the statement in the article with reference to authoritative guidance.

5. (Introductory) Do you think that the differences in reporting practices between U.S. GAAP and IFRS described in this article might influence judgments in difficult areas of accounting such as estimating values of oil & gas? Explain

Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
SEC Probes Exxon Over Accounting for Climate Change
by Bradley Olson and Aruna Viswanatha
Sep 21, 2016
Page: A

"For U.S. Firms, Figuring Out GAAP is Not the Only Challenge," by Nina Trentmann, The Wall Street Journal, September 19, 2016
http://blogs.wsj.com/cfo/2016/09/19/for-u-s-firms-figuring-out-gaap-is-not-the-only-challenge/?mod=djem_jiewr_AC_domainid

A U.S. investigation into the lack of write-downs at Exxon Mobil Corp. despite the slump in oil-prices has brought to light the challenge of assessing impairments under U.S. Generally Accepted Accounting Principles (GAAP).

But, for international companies and U.S. firms with foreign operations, figuring out GAAP is not the only contest, as there is second set of rules.

International Financial Reporting Standards (IFRS) are a single set of accounting standards that are now mandated for use by more than 100 countries, including the EU and more than ⅔ of the G20.

U.S. companies with overseas operations keep two sets of books, as they have to convert their IFRS results into GAAP. International firms that are stocklisted in the U.S. are exempt from this rule, they file in IFRS.

According to its latest earnings report, Exxon consolidates in GAAP.

Both in GAAP and in IFRS, the goal is to ensure that assets are not reported above their so-called fair value, or the amount that can be recovered from liquidating the asset, said Emmanuel De George, assistant professor of accounting at London Business School.

Once it is determined that an asset requires a write-down, reporting entries and disclosure are similar between IFRS and GAAP, the professor said.

However, there are substantial distinctions between IFRS and GAAP. “The key difference arises in the determination of whether or not an asset requires a write-down,” Mr. De George said.

Exxon said it hasn’t needed to record a write-down since oil-prices came falling 2014. Last year, a trade publication quoted Exxon Chief Executive Rex Tillerson with saying “we don’t do write-downs.”

It is much harder to write down assets under GAAP than under IFRS, Mr. De George said.

This is because under IFRS impairment losses can be reversed if economic conditions change and value is restored, whereas under GAAP reversals are prohibited, once a write-down has taken place, even if economic conditions improve.

“Under GAAP, a write-down is triggered if the sum of the undiscounted expected future cash flows from the asset fall below the net book value,” said Mr. De George.

This means that over time changes to the value of the asset, for example due to currency fluctuations, are not taken into consideration when calculating the expected future cash flow that is generated by the asset.

For the write-down itself, however, companies don’t reference undiscounted expected future cash flows, but the discounted expected future cash flow.

This is also described as “fair value,” the “price that would be expected upon sale of the asset,” said Mr. De George.

Under IFRS, there’s a difference in testing whether there needs to be a write-down. IFRS starts with the discounted future expected cash flows, thus directly accounting for over time changes to the value of the asset.

The second step, the write-down, follows the same route as GAAP.

In addition there is another major difference between GAAP and IFRS. IFRS does not permit a method called last-in-first-out (LIFO) which shows a lower cost of sales and higher gains during periods of declining oil prices, said Karthik Balakrishnan, assistant professor of accounting at London Business School.

“This is what Exxon and most U.S. oil companies use,” said Mr. Balakrishnan.

Because of the difference in assessing write-downs and LIFO, IFRS will produce more conservative numbers for earnings during periods of declining prices, said Mr. Balakrishnan.

In the case of Exxon, the experts warn against simply accrediting the lack of write-downs to the differences in accounting standards between the U.S. and other parts of the world.

“That would be an unfair comparison, given that the threshold for impairment testing is higher under GAAP,” said Mr. De George.

Exxon tends to be more conservative when capitalizing the costs of their fields which lead to lower book values to begin with, Mr. George said. “That further reduces the probability that they will trigger an impairment event,” he said.

Exxon’s competitors Chevron Corp., Royal Dutch Shell PLC, Total SA and BP PLC have written down more than $50 billion since 2014. Shell, Total and BP use IFRS, Chevron consolidates in GAAP.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 16, 2016

Microsoft Plans $40 Billion Stock Buyback and Raises Dividend
by: Don Clark and Josh Beckerman
Sep 21, 2016
Click here to view the full article on WSJ.com

TOPICS: Dividend Yield

SUMMARY: Microsoft announced a stock buyback amounting to approximately 9% of the company's $442.7 billion market value and increased the dividend rate to 39 cents from 36 cents.

CLASSROOM APPLICATION: Questions cover accounting for dividends, treasury stock (stock buybacks) and dividend yield calculations.

QUESTIONS:
1. (Introductory) Define the terms declaration date, date of record, and date of payment in relation to dividends. Identify those three dates for Microsoft's declared dividend reported in the article.

2. (Advanced) What is dividend yield?

3. (Advanced) Show the calculation from the information in the article which determines that Microsoft's dividend yield is 2.7%.

Reviewed By: Judy Beckman, University of Rhode Island

"Microsoft Plans $40 Billion Stock Buyback and Raises Dividend," by Don Clark and Josh Beckerman, The Wall Street Journal, September 21, 2016
http://www.wsj.com/articles/microsoft-plans-40-billion-stock-buyback-and-raises-dividend-1474404013?mod=djem_jiewr_AC_domainid

Rise in Tech giant’s quarterly payout to 39 cents from 36 cents represents an increased dividend yield to 2.7%

Microsoft Corp. announced plans to buy back up to $40 billion in stock and boost its dividend by 8%, the latest in a series of moves by the software giant to share a steady flood of cash with shareholders. The latest repurchase target is the same size as a buyback plan announced in 2013, which the company said Tuesday it expects to complete by the end of this year. Microsoft didn't set an expiration date for the new buyback, which represents about 9% of Microsoft’s market value of $442.7 billion. The company has been among most active in buying back shares, having spent nearly $140 billion on the tactic over the years.

Microsoft tends to announce dividend increases in September. The 8% increase announced Tuesday is a smaller rate of increase than those of recent years. Last year, the company raised its quarterly payout by 16% to 36 cents from 31 cents, after an 11% increase in 2014. This year’s increase, to 39 cents per quarter, from 36 cents, raises Microsoft’s dividend yield to 2.7% from 2.3%. The dividend is payable Dec. 8 to shareholders of record Nov. 17. Microsoft, based in Redmond, Wash., enjoyed torrid revenue growth in the 1990s fueled by the spread of personal computers. After its growth slowed, the company began offering increasingly generous dividends as well as buybacks. The latter tactic tends to prop up a company’s stock price by reducing total shares outstanding, thereby increasing earnings per share. Though a slowdown in unit sales of PCs has tended to hurt sales of Microsoft’s Windows operating system, the company sells other software and services that generate a steady flow of cash. Microsoft reported $113 billion in cash and investments at the end of June. Meanwhile, investors have become more optimistic about the company’s plans to build a big business in cloud services since Satya Nadella took over as chief executive in February 2014. Underscoring his bet on services, Microsoft agreed in June to buy professional social network LinkedIn Corp. for $26.2 billion. The company’s shares are up 31% over the past year. They rose 1%, or 54 cents, in after-hours trading. In 4 p.m. trading, Microsoft shares fell 12 cents, to $56.81. Strength in Microsoft’s cloud business helped the company beat sales and profit expectations in its fiscal fourth quarter, which ended June 30, although revenue fell 7% to $20.61 billion.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on September 16, 2016

Lew is Right on EU Tax But Lacks Credibility
by: Reps. John K. Delaney and Richard Hanna
Sep 16, 2016
Click here to view the full article on WSJ.com

TOPICS: International Taxation

SUMMARY: This Letter to the Editor from Representatives John K. Delaney (D., MD) and Richard Hanna (R., nY) proposes a combination of international tax "reform" and infrastructure investment.

CLASSROOM APPLICATION: The article may be used in tax class to address the political impretus behind tax law in relation to the recent EU finding against Apple.

QUESTIONS:
1. (Introductory) Describe the features of this proposal to repatriate U.S. multinationals' foreign held earnings and invest in U.S. infrastructure. Greater detail is available in the related letter to the editor by Treasury Secretary Jacob Lew.

2. (Advanced) Refer to the related article: what is Treasury Secretary's concern about U.S. federal tax revenues because of the European Union decision on Apple tax payments to Ireland?

3. (Advanced) Explain the argument that U.S. business leave for foreign countries because of our aging infrastructure. What is the evidence against this argument?

Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Europe's Bite Out of the Apple Shows the Need for U.S. Tax Reform
by Jacob J. Lew
Sep 13, 2016
Page: A11

"Lew is Right on EU Tax But Lacks Credibility," by Reps. John K. Delaney and Richard Hanna, The Wall Street Journal, September 16, 2016
http://www.wsj.com/articles/lew-is-right-on-eu-tax-grab-but-lacks-credibility-1473962171?mod=djem_jiewr_AC_domainid

Our bipartisan Infrastructure 2.0 Act is the way to get this done: Combine international tax reform with infrastructure investment.

We agree with Treasury Secretary Jacob Lew’s diagnosis of our flawed international tax system (“Europe’s Bite Out of the Apple Shows the Need for U.S. Tax Reform,” op-ed, Sept. 13) and we agree, directionally, with his description of the proper solution. We encourage the secretary and congressional leadership to focus on our bipartisan Infrastructure 2.0 Act. The way to get this done is to combine international tax reform with infrastructure investment. The $2 trillion of existing overseas earnings would be “deemed” repatriated and subject to a minimum tax of 8.75% (less any tax already paid) and on a “go forward” basis, deferral would end and the rate would be 12.25% for profits in low-tax jurisdictions with deductions for taxes already paid.

This bipartisan approach generates $170 billion of revenue that would be applied to our nation’s infrastructure and creates a new national infrastructure fund that would provide an additional $750 billion in financing to state and local governments. The urgency of this problem demands embracing a smart, practical plan that has bipartisan support, like the Infrastructure 2.0 Act. This is the only way to actually make progress.

Continued in article

Humor for September 2016

Is looking for a gap between an object and its reflection a good way to distinguish two-way mirrors from ordinary mirrors?
http://www.snopes.com/crime/warnings/mirror.asp
Jensen Comment
Reminds me of the time a Texas Aggie coed wore a see-through dress and nobody wanted to

Gene Wilder Recalls the Beginnings of His Creative Life in Two Hilarious, Poignant Stories ---
http://www.openculture.com/2016/08/gene-wilder-recalls-the-beginnings-of-his-creative-life-in-two-hilarious-poignant-stories.html

11 Books by Comedians That Will Make You Laugh ---
http://www.businessinsider.com/comedian-books-2016-8

Florida: The Punchline State ---
http://www.wsj.com/articles/florida-the-punchline-state-1472845591

I completely forgot to write about jail being one of the retirement options
70-year-old says he robbed bank because he preferred jail to his wife -+--
http://www.thestate.com/news/nation-world/national/article100357577.html#fmp

Ex-Playboy model runs from Interpol to avoid prison for honeypot mafia-murder plot ---
http://www.washingtontimes.com/news/2016/sep/7/slobodanka-tosic-ex-playboy-model-runs-from-interp/
Jensen Comment
You can identify her by looking for the staple scars

Video: The Twilight of the Clintons. A very funny parody of the Ring cycle ---
https://www.youtube.com/watch?v=Prls6Iz3B3E

The funniest puns and double-entendres from 'Great British Bake Off' ---
http://www.businessinsider.com/great-british-bake-off-funniest-puns-and-double-entendres-from-2016-9

This is not funny, but it is a little ironic
'Sherlock' actress has a new mystery to solve: Who took her purse when she was accepting her Emmy ---
http://www.businessinsider.com/amanda-abbington-purse-stolen-at-emmys-2016-9

Time Magazine: 2016 Ig Nobel Prize Winning Quirky Research ---
http://time.com/4505383/ig-nobel-awards-2016-spoof-prize-quirky-science/?xid=newsletter-brief

Home Page and Archives ---
http://www.improbable.com/ig/

Canadian Mint employee accused of smuggling $180K of gold in his rectum ---
http://ottawacitizen.com/news/local-news/egan-170k-in-mint-gold-allegedly-smuggled-in-body-cavity-judge-hears

Jensen Comment
This is the one and only time it might be very interesting to be a proctologist.

Johnny Cash's Cadillac could not top this one ---
https://www.youtube.com/watch?v=rWHniL8MyMM&list=RDrWHniL8MyMM

Forwarded by Paula

One Liners In An Election Year

Sayings that never grow old!

  If God wanted us to vote,

he would have given us candidates.

~Jay Leno~

The problem with political jokes is they

get elected.

~Henry Cate, VII~

We hang the petty thieves and appoint

the great ones to public office.

~Aesop~

  If we got one-tenth of what was promised

to us in these State of the Union speeches,

there wouldn't be any inducement to go to heaven.

~Will Rogers~

  Politicians are the same all over.

They promise to build a bridge even

where there is no river.

~Nikita Khrushchev~

  When I was a boy I was told that anybody

could become President; I'm beginning to believe it.

~Clarence Darrow~

  Politicians are people who, when they see

light at the end of the tunnel, go out and

buy some more tunnel.

~John Quinton~

Why pay money to have your family tree

traced; go into politics and your opponents

will do it for you.

~Author unknown

  Politics is the gentle art of getting votes

from the poor and campaign funds from

the rich, by promising to protect each from the other.

~Oscar Ameringer~

I offer my opponents a bargain: if they will

stop telling lies about us, I will stop telling

the truth about them.

~Adlai Stevenson, 1952~

  A politician is a fellow who will lay

down your life for his country.

~ Tex Guinan~

I have come to the conclusion that politics

is too serious a matter to be left to the politicians.

~Charles de Gaulle~

  Instead of giving a politician the keys to the

city, it might be better to change the locks.

~Doug Larson~

There ought to be one day -- just one --

when there is open season on Congressmen.

~Will Rogers~

Forwarded by Paula

You may not remember the old-time Jewish comedians:

Shecky Green, Red Buttons, Totie Fields, Milton Berle,

Henny Youngman, and others.

But some of us miss their kind of humor. Not a single

swear word in their routines, and you don't have to be

Jewish to enjoy their jokes.

*A car hit an elderly Jewish man. The paramedic asks, "Are you comfortable?" The man says, "I make a good living."

*I just got back from a pleasure trip. I took my mother-in-law to the airport.

*I've been in love with the same woman for 49 years. If my wife finds out, she'll kill me!

*Someone stole all my credit cards, but I won't be reporting it. The thief spends less than my wife did.

*We always hold hands. If I let go, she shops.

*My wife and I went to a hotel where we got a waterbed. My wife calls it the Dead Sea.

*My wife and I revisited the hotel where we spent our wedding night. This time I was the one who stayed in the bathroom and cried.

*My Wife was at the beauty shop for two hours. That was only for the estimate. She got a mud pack and looked great for two days. Then the mud fell off.

*The Doctor gave a man six months to live. The man couldn't pay his bill, so the doctor gave him another six months.

*The Doctor called Mrs. Cohen saying, "Mrs. Cohen, your check came back."Mrs. Cohen replied, "So did my arthritis!"

*Doctor: "You'll live to be 60!"

Patient: "I AM 60!"

Doctor: "See! What did I tell you?"

*A doctor held a stethoscope up to a man's chest. The man asks, "Doc, how do I stand?"

The doctor says, "That's what puzzles me!"

*Patient: "I have a ringing in my ears."

Doctor: "Don't answer!"

*A drunk was in front of a judge. The judge says, "You've been brought here for drinking."

The drunk says, "Okay, let's get started."

*Why do Jewish divorces cost so much?

They're worth it.

*Why do Jewish men die before their wives?

They want to.

*The Harvard School of Medicine did a study of why Jewish women like Chinese food so much.

The study revealed that the reason is Won Ton spelled backward is Not Now.

*There is a big controversy on the Jewish view of when life begins. In Jewish tradition, the fetus is not considered

viable until it graduates from law school.

*Q: Why don't Jewish mothers drink?

A: Alcohol interferes with their suffering.

*Q: Have you seen the newest Jewish-American-Princess horror movie? A: It's called, "Debbie Does Dishes."

*Q: Why do Jewish mothers make great parole officers?

A: They never let anyone finish a sentence.

*A man called his mother in Florida . "Mom, how are you?"

"Not too good," said the mother. "I've been very weak."

The son asked, "Why are you so weak?"

She replied, "Because I haven't eaten in 38 days."

The son said,"That's terrible. Why haven't you eaten in 38 days?"

The mother answered, "Because, I didn't want my mouth to be full in case you should call."

*A Jewish man said that when he was growing up, they always had two choices for dinner - Take it or leave it.

*A Jewish boy comes home from school and tells his mother he has a part in the play. She asks, "What part is it?"

The boy says, "I play the part of the Jewish husband."

The mother scowls and says, "Go back and tell the teacher you want a speaking part."

*Q: Where does a Jewish husband hide money from his wife?

A: Under the vacuum cleaner.

*Q: How many Jewish mothers does it take to change a light bulb?

A: (Sigh) "Don't bother. I'll sit in the dark. I don't want to be a nuisance to anybody."

*A Jewish mother gives her son a blue shirt and a brown shirt for his birthday. On the next visit, he wears the

brown one. The mother says, "What's the matter

already? Didn't you like the blue one?"

*Did you hear about the bum who walked up to a Jewish mother on the street and said, "Lady I haven't eaten in three days." "Force yourself," she replied.

*Q: What's the difference between a Rottweiler and a Jewish mother?

A: Eventually, the Rottweiler lets go.

*Q: Why are Jewish Men circumcised?

A: Because Jewish women don't like anything that isn't 20% off.

Taxing Tattoos and Other Fine Arts ---
http://www.bna.com/sales-tax-slice-b73014447392/

I think I'll get a tattoo that reads "Test Checker for Your Inventory"

Any better suggestions?

Awful Punish Humor from Paula

Venison for dinner again? Oh deer!

* How does Moses make tea? Hebrews it.

* England has no kidney bank, but it does have a Liverpool.

* I tried to catch some fog, but I mist.

* They told me I had type-A blood, but it was a typo.

* I changed my iPod's name to Titanic. It's syncing now.

* Jokes about German sausage are the wurst.

* I know a guy who's addicted to brake fluid, but he says he can stop any time.

* I stayed up all night to see where the sun went, and then it dawned on me.

* This girl said she recognized me from the vegetarian club, but I'd never met herbivore.

* When chemists die, they barium.

* I'm reading a book about anti-gravity. I just can't put it down.

* I did a theatrical performance about puns. It was a play on words.

* Why were the Indians here first? They had reservations.

* I didn't like my beard at first. Then it grew on me.

* Did you hear about the cross-eyed teacher who lost her job because she couldn't control her pupils?

* When you get a bladder infection, urine trouble.

* Broken pencils are pointless.

* What do you call a dinosaur with an extensive vocabulary? A thesaurus.

* I dropped out of communism class because of terrible Marx.

* I got a job at a bakery because I kneaded dough.

* Velcro - what a rip off!

* Don't worry about old age it doesn't last

Humor September 2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor093016.htm

Humor August 2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor083116.htm

Humor July 2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0716.htm

Humor June 2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor063016.htm

Humor May 2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor053116.htm

Humor April 2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor043016.htm

Humor March 2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor033116.htm

Humor February 2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor022916.htm

Humor January 2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor013116.htm

Humor December 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q4.htm#Humor123115.htm.htm

Humor November 1-30, 2015 --- http://faculty.trinity.edu/rjensen/book15q4.htm#Humor113015.htm

Humor October 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q4.htm#Humor103115

Humor September 1-30, 2015 --- http://faculty.trinity.edu/rjensen/book15q3.htm#Humor093015

Humor August 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q3.htm#Humor081115

Humor July 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q3.htm#Humor073115

Humor June 1-30, 2015 --- http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015

Humor May 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015

Humor April 1-30, 2015 --- http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015

Humor March 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q1.htm#Humor033115

Humor February 1-28, 2015 --- http://faculty.trinity.edu/rjensen/book15q1.htm#Humor022815

Humor January 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q1.htm#Humor013115

Tidbits Archives --- http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm

An Oklahoma mother and daughter are behind bars after it was revealed they had an incestuous marriage. Patricia Ann Spann, 43, and Misty Velvet Dawn Spann, 25, were married in March 2016 in Comanche County. It has since been revealed that Patricia Spann, also known as Patricia Clayton, was previously married to one of her sons, Jody Calvin Spann, in 2008
http://www.dailymail.co.uk/news/article-3778944/Oklahoma-woman-daughter-arrested-incestuous-marriage.html
I'm My Own Grandpa ---
https://www.youtube.com/watch?v=eYlJH81dSiw

Humor August 2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor083116.htm

Humor July 2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0716.htm

Humor June 2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor063016.htm

Humor May 2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor053116.htm

Humor April 2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor043016.htm

Humor March 2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor033116.htm

Humor February 2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor022916.htm

Humor January 2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor013116.htm

Humor December 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q4.htm#Humor123115.htm.htm

Humor November 1-30, 2015 --- http://faculty.trinity.edu/rjensen/book15q4.htm#Humor113015.htm

Humor October 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q4.htm#Humor103115

Humor September 1-30, 2015 --- http://faculty.trinity.edu/rjensen/book15q3.htm#Humor093015

Humor August 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q3.htm#Humor081115

Humor July 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q3.htm#Humor073115

Humor June 1-30, 2015 --- http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015

Humor May 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015

Humor April 1-30, 2015 --- http://faculty.trinity.edu/rjensen/book15q2.htm#Humor043015

Humor March 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q1.htm#Humor033115

Humor February 1-28, 2015 --- http://faculty.trinity.edu/rjensen/book15q1.htm#Humor022815

Humor January 1-31, 2015 --- http://faculty.trinity.edu/rjensen/book15q1.htm#Humor013115

And that's the way it was on September 30, 2016 with a little help from my friends.

Bob Jensen's gateway to millions of other blogs and social/professional networks ---
http://faculty.trinity.edu/rjensen/ListservRoles.htm

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

Bob Jensen's Blogs --- http://faculty.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called New Bookmarks --- http://faculty.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called Tidbits --- http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called Fraud Updates --- http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past presentations and lectures --- http://faculty.trinity.edu/rjensen/resume.htm#Presentations

Free Online Textbooks, Videos, and Tutorials --- http://faculty.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines --- http://faculty.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games --- http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses --- http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI

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

Bob Jensen's Homepage --- http://faculty.trinity.edu/rjensen/

Accounting Historians Journal --- http://www.libraries.olemiss.edu/uml/aicpa-library and http://clio.lib.olemiss.edu/cdm/landingpage/collection/aah
Accounting Historians Journal Archives--- http://www.olemiss.edu/depts/general_library/dac/files/ahj.html
Accounting History Photographs --- http://www.olemiss.edu/depts/general_library/dac/files/photos.html

August 2016

Bob Jensen's New Additions to Bookmarks

August 2016

Bob Jensen at Trinity University

Bob Jensen's Pictures and Stories
http://faculty.trinity.edu/rjensen/Pictures.htm

All my online pictures --- http://www.cs.trinity.edu/~rjensen/PictureHistory/

Scholarpedia (a cross between Wikipedia and Google Scholar) --- http://www.scholarpedia.org

Google Scholar --- https://scholar.google.com/

Wikipedia --- https://www.wikipedia.org/

Bob Jensen's search helpers --- http://faculty.trinity.edu/rjensen/searchh.htm

Bob Jensen's World Library --- http://faculty.trinity.edu/rjensen/Bookbob2.htm

Accounting History Corner
Understanding Practice and Institutions: A Historical Perspective
SSRN, July 29, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2815900
Accounting Horizons, Vol. 30, No. 3, 2016

Authors

Ross L. Watts Massachusetts Institute of Technology (MIT) - Sloan School of Management

Luo Zuo Cornell University - Samuel Curtis Johnson Graduate School of Management

Abstract

This paper explains how and why Anglo-American accounting and auditing, along with corporate governance and capital markets, evolved over many centuries in response to changes in market forces and technology. We first trace the development of practices that were included in U.S. corporate governance (including accounting and auditing) before the 1930s. We then describe the nature and effect of the increase in U.S. regulation from the 1930s and the development of fair value accounting. Finally, we give an assessment of the current state of accounting, auditing and corporate governance. Our historical accounts suggest that the approach to accounting and financial reporting is more consistent with stewardship (care of net assets) than an attempt to value the firm, and that conservatism (prudence) is a critical information control and governance mechanism. We echo the U.K. Financial Reporting Council’s call on standard setters to reintroduce an explicit reference to conservatism (prudence) into the Conceptual Framework for financial reporting.

Bob Jensen's threads on accounting history ---
http://faculty.trinity.edu/rjensen/Theory01.htm#AccountingHistory

Economist Magazine, July 30, 2016
Minsky's Moment
The second article in our series on seminal economic ideas looks at Hyman Minsky’s hypothesis that booms sow the seeds of busts
http://www.economist.com/news/economics-brief/21702740-second-article-our-series-seminal-economic-ideas-looks-hyman-minskys?cid1=cust/ednew/n/bl/n/20160728n/owned/n/n/nwl/n/n/NA/n

Economist Magazine: July 22, 2016
The Market for Lemons
The first in our series on seminal economic ideas looks at George Akerlof’s 1970 paper, a foundation stone of information economics ---
http://www.economist.com/news/economics-brief/21702428-george-akerlofs-1970-paper-market-lemons-foundation-stone-information?cid1=cust/ednew/n/bl/n/20160721n/owned/n/n/nwl/n/n/NA/n

Strategic Finance and Journal of Cost Management Articles

From MAAW's Blog on August 12, 2016
Stratigic Finance 2016 - http://maaw.blogspot.com/2016/08/strategic-finance-update.html

From MAAW's Blog on August 7, 2016
Cost Management 2016 - http://maaw.info/JournalOfCostManagement2016.htm

Cost Management 1987-2016 - http://maaw.info/JournalofCostManagement.htm

The MAAW site has thousands of citations of journal articles in accountancy, auditing, AIS, etc. ---
http://maaw.info/
Thank you Jim Martin for this painstaking work.

I can't remember when I read a more fascinating article
The Time Everyone “Corrected” the World’s Smartest Woman ---
https://priceonomics.com/the-time-everyone-corrected-the-worlds-smartest/

Time-Series Non-Stationarity --- https://en.wikipedia.org/wiki/Stationary
In my opinion this is the biggest hurdle in statistical analysis in general and time-series analysis in particular

Time Series Co-Integration --- https://en.wikipedia.org/wiki/Cointegration
Especially note the illustration in the Introduction

"The Forecasting Performance of Models for Cointegrated Data," by David Giles, Econometrics Beat, July 26, 2016 ---
http://davegiles.blogspot.com/2016/07/the-forecasting-performance-of-models.html

"GDP Is a Wildly Flawed Measure for the Digital Age," by Barry Libert and Megan Beck, Harvard Business Review Blog, July 28, 2016 ---
https://hbr.org/2016/07/gdp-is-a-wildly-flawed-measure-for-the-digital-age?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

How CPAs Rated Their Tax Software ---
http://www.journalofaccountancy.com/issues/2016/aug/2016-tax-software-survey.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=01Aug2016

Tax Policy Center's researchers and staff: USA Taxes are Very Progressive ---
http://www.taxpolicycenter.org/taxvox/federal-taxes-are-very-progressive

The USA tax code is highly progressive with the top 50% of taxpayers paying 97.2% of the income tax collected in 2013 ---
http://taxfoundation.org/article/summary-latest-federal-income-tax-data-2015-update

In 2013, the bottom 50 percent of taxpayers (those with AGIs below $36,841) earned 11.49 percent of total AGI. This group of taxpayers paid approximately $34 billion in taxes, or 2.78 percent of all income taxes in 2013.

Walmart’s Out-of-Control Crime Problem Is Driving Police Crazy ---
https://www.bloomberg.com/features/2016-walmart-crime/?cmpid=BBD081716_BIZ
Jensen Question
In this era on not wanting to incarcerate non-violent people, how do you stop the hard core of shop lifters who repeatedly defy the law?
There are gangs of shoplifters, many of them teenagers, that now attack fast and furiously.

FASB proposes concepts for financial statement presentation ---
http://www.journalofaccountancy.com/news/2016/aug/new-fasb-presentation-concepts-201614996.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=12Aug2016#sthash.v0RHPjGV.dpuf

Should You Use Retirement Savings to Fund Your Child's College Education?
Possibly not!
http://money.usnews.com/money/blogs/on-retirement/articles/2016-08-17/should-you-use-retirement-savings-to-fund-your-childs-college-education

"Bogus Audited Statements Are Holding Africa Back," by Ndubuisi Ekekwe, Harvard Business Review, August 22, 2016 ---
https://hbr.org/2016/08/bogus-audited-statements-are-holding-africa-back?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

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

IRS Employee Gets Nine Years for Identity Theft ---
http://www.forbes.com/sites/robertwood/2016/08/15/irs-employee-gets-9-years-in-prison-for-stealing-taxpayer-identities/#106b726820e7

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

U.S. Army fudged its accounts by trillions of dollars, auditor finds
http://www.reuters.com/article/us-usa-audit-army-idUSKCN10U1IG
Jensen Comment
So, what's new?

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

Stanford University: Corporations profit from tax-avoidance schemes even when they’re likely to trigger IRS audits ---
http://www.gsb.stanford.edu/insights/game-global-income-shifting-feds-are-overmatched?utm_source=Stanford+Business&utm_campaign=ec357949c2-Stanford-Business-Impact-Issue-95-8-21-2016&utm_medium=email&utm_term=0_0b5214e34b-ec357949c2-70265733&ct=t(Stanford-Business-Impact-Issue-95-8-21-2016)

Jensen Comment
In general, white collar crimes usually pay if the amount stolen is enormous enough. The reason is that the courts are excessively lenient on white collar crime even when the culprits know they will get caught ---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#CrimePays

SEC Charges Former NFL Football Player With Running $10 Million Fraud

Washington D.C., Aug. 10, 2016 — The Securities and Exchange Commission today charged Merrill Robertson Jr., a former player for the Philadelphia Eagles, with defrauding investors, including coaches he knew from his time playing football for the Fork Union Military Academy and the University of Virginia.

The SEC’s complaint, filed in federal court in Richmond, Virginia, charges Robertson, Sherman C. Vaughn Jr., and the company they co-owned, Cavalier Union Investments LLC. According to the complaint, the defendants promised to invest in diversified holdings but diverted nearly $6 million of the more than $10 million they raised from investors to pay for personal expenses and used other funds to repay earlier investors.

Robertson and Vaughn, both of Chesterfield, Virginia, are alleged to have lied about the unregistered debt securities they sold, saying they would yield as much as 20 percent “while providing safety and security for our investors.” According to the complaint, the defendants claimed that Cavalier had investment funds operated by experienced investment advisers when it did not have any funds or investment advisers and was functionally insolvent shortly after it was formed. The defendants allegedly hid this fact from potential investors and relied on cash from new investors to stay afloat. The complaint further alleges that Cavalier’s only investments were in restaurants that had all failed by 2014, something the defendants never disclosed as they continued soliciting and accepting investors’ money. The scheme allegedly targeted seniors and coaches, donors, alumni, and employees of schools Robertson had attended.

“Our complaint alleges that Robertson and Vaughn preyed on elderly victims and others who placed their trust in these individuals, only to have their savings stolen,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office. “We will continue to aggressively pursue fraudsters who exploit their relationship of trust with victims and promise returns that appear to be too good to be true.”

The SEC encourages investors to check the backgrounds of people selling them investments. A quick search on the SEC’s investor.gov website would have shown that Robertson and Vaughn are not registered to sell securities.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of Virginia today announced criminal charges against Robertson.

Continued in article

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

The Pill That Made Northwestern University Rich ---
http://www.bloomberg.com/news/articles/2016-08-18/the-pill-that-made-northwestern-rich

Jensen Comment
In the 1950s the invention of Crest Tootpaste helped make Indiana University relatively rich ---
http://www.bloomberg.com/news/articles/2016-08-18/the-pill-that-made-northwestern-rich

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

PCAOB: ANNUAL REPORT ON THE INTERIM INSPECTION PROGRAM RELATED TO AUDITS OF BROKERS AND DEALERS ---
http://www.ey.com/Publication/vwLUAssetsAL/PCAOB_InterimInspectionProgram_18August2016/$FILE/PCAOB_InterimInspectionProgram_18August2016.pdf

Jensen Conclusion
In spite of previous efforts by the PCAOB to improve audits of brokers and dealers, progress has been frustratingly slow. This seems to be one of the least proud lines of work for audit firms in terms of audit deficiencies and audit independence.

Personal Finance
Possible Student Project on Deciding Who Should Take Out Long-Term Care Insurance and What Coverage to Choose

Less is more: The dilemma over long term care insurance ---
http://www.cnbc.com/2016/08/24/less-is-more-the-dilemma-over-long-term-care-insurance.html

Jensen Comment
Unless you're already on Medicaid or commit unethical/illegal effort to shed assets in you're estate to qualify for Medicaid long-term care can become a very expensive proposition with or without long-term care insurance since Medicare does not pay for long-term care except under very restrictive rules of hospital confinement (rather than nursing home confinement and home care). Bad things are happening in the long-term care insurance industry. About 90% of the insurers in the 1990s dropped their coverage. And the deals are worse for more expensive for more limited coverage.

This is not those "cheap" burial insurance policies advertised ad nauseam on television. These are very expensive policies with possibly high payouts. The real problem is uncertainly over how long a patient will need long-term care outside a hospital combined with the explosion in the costs of providing long-term care, especially in nursing homes. Regulations increased the quality of care, but those regulations also added greatly to the coverage costs.

Jensen Comment
I know of a case in the 1990s where a son (of one of my cousins) sold this type of insurance for a time. I sighed when I thought he sort of conned his grandmother into taking out an expensive policy. But it turned out to be a darn good deal when she was covered for nearly 10 years in an Iowa nursing home.

Having said this, I'm still pretty negative about this type of insurance. Part of the reason is the increased cost of the insurance combined with the newer coverage limitations that make the insurance less exciting in recent years --- when the only thing "exciting" about going to a nursing home is the huge cost involved one way or another. What some heirs need to learn is that one purpose of building up a nest egg for old age is being able to pay for long-term care coverage in addition to providing an estate to inherit. This is no longer an era where it's expected that children almost always care for their elderly parents by moving them into the homes of those children (like the Amish continue to do in this era). Most children these days want to put the old folks into nursing homes.

"FASB Proposed Modifications to Hedge Accounting: Good Thing, Bad Thing, or Just a Thing?* by Tom Selling, The Accounting Onion, August 22, 2016 ---
http://accountingonion.com/2016/08/fasb-proposed-modifications-to-hedge-accounting-good-thing-bad-thing-or-just-a-thing.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29

If we don’t destroy ourselves first, we will someday discover intelligent life on another planet. But when we do, the chances are about one in a billion that we’ll find hedge accounting standards more complex than our own.

Now would also be as good a time as any to peel the onion on hedge accounting since the FASB has recently reached a consensus on a revisions to rules that have been in place since the issuance of SFAS 133 in 1998.

The Basics

At the risk of oversimplifying, the FASB addressed three problems in SFAS 133:

First, there was the problem of accounting for derivatives, which without additional guidance would be measured at historic cost. Historic cost accounting is always suboptimal, but it is especially problematic when it comes to derivatives. Consider, for example, a financial institution with $9 billion in liabilities covered by $10 billion of assets. Next, assume that said financial institution enters into a (near) cashless interest rate swap with a notional amount of $10 billion — or a credit default swap, or a commodities future contract. Basically, it enters into any kind of financial derivative contract, I don’t care which.

All accounting measurement conventions applied to this derivative would produce a net value of (near) zero at inception because the present value of the contract’s receivable leg would be (nearly) equal to its payable leg. But, should the “underlying” of the contract (e.g., an interest rate, a commodity price, a credit rating) change even a tiny bit, there will be a large change in the fair value of the derivative contract — owing to its relatively large national amount .

You don’t need to be a derivatives expert to figure out what’s going on here: derivative contracts are the soft underbelly of historic cost accounting. Failure to recognize the economic effects of the market risks from being a party to a derivative contract renders the entire endeavor of accounting for entities like this hypothetical financial institution an utter sham. Consequently, the FASB correctly decided that interests in derivative contracts must be, without exception, measured at fair value.

First problem solved. But, it creates two additional and related problems, which I will call Problems 2a and 2b:

Problem 2a is how to deal with the irony that if a company were to enter into a derivative contract reduce a source of risk — i.e., reducing the volatility of future enterprise value — then marking a derivative to market through net income could be expected to increase the volatility of future net income. This could be the case if GAAP requires that the item creating the risk in the first place (e.g., a commodity held as inventory or a fixed-rate mortgage loan) is measured at historic cost.

Problem 2a was addressed in SFAS 133 by the so-called “fair value hedge accounting” treatment if the source of the risk is the change in the fair value of a recognized asset, liability, or “firm commitment.” The issuer may elect to offset the gain/loss recognized in income on the derivative with an offsetting change to the hedged item.

Fair value hedging might seem like a reasonable accounting treatment, but there are a number questionable aspects to it. Two of these are:

Inconsistencies in measurement — Assets, liabilities and firm commitments that happen to be linked with a derivative in fair value hedge accounting are measured one way, and unlinked items are measured another way. Moreover, an added source of inconsistency exists since “special” hedge accounting is optional. For example, both Kellogg and General Mills report that they hedge their commodities positions with derivatives. But Kellogg uses hedge accounting and General Mills doesn’t. Obviously, this is not helpful when trying to analyze the differences in their gross margins.

Arbitrary measurement — The measurement of the assets and liabilities in the hedging relationship are neither historic cost nor fair value. They are something in between — what former FASB member Tom Linsmeier dubbed “mutt accounting.” This is not much different than the insane numbers generated by the FASB’s treatment of foreign subsidiaries set forth in SFAS 52, and which I described in a recent post as one of the worst and most divisive accounting standards ever written. One of the reasons I was particularly harsh in my assessment of SFAS 52 is because I don’t think that the SFAS 133 fair value hedge accounting provisions would have been at all palatable (or even considered) if SFAS 52 had not opened up a Pandora’s box of arbitrary accounting measurements. (And, as we will see later in this post, it also legitimized the concept of dirty surplus — euphemistically termed “other comprehensive income).

Problem 2b is that if a company were to enter into a derivative contract for the purposes of risk reduction, but the risk was not a recognized asset, liability or firm commitment, then marking the derivative to market through net income would again increase the volatility of future net income. However, fair value hedging would not be an effective solution since there is no recognized hedged item on which the offsetting changes could be lumped into.

The solution to Problem 2b that the FASB came up with is known as “cash flow hedging.” It temporarily parks the portions of the gains/losses on marking the derivative to market that are actually “effective” (more on that term later) as a hedge in Accumulated Other Comprehensive Income (AOCI). When the risk being hedged actually hits the income statement, the appropriate offsetting amounts in AOCI are transferred to net income.
Are you with me so far? These are just the first layers of the onion. I still have to tell you about additional provisions that can make hedge accounting very difficult to pull off in practice. Many of these details
Continued in article

August 22, 2016 reply from Bob Jensen

Hi Tom,

In the past your alternatives for derivatives contract accounting did not distinguish between speculation and hedging with those contracts. Until you show me an a derivatives contract accounting alternative that does so I will prefer FAS 133 or IFRS 9. Simply appealing to "full disclosure" is a cop out since annual reports with over a million footnotes are not practical.

Your statement that General Mills hedges with derivatives without applying FAS 133 is misleading. General Mills applies FAS 133 in a backhanded way. I do not think that any company can simply ignore FAS 133 for derivative contracts scoped into FAS 133. Here's what General Mills says about using hedge accounting ---
http://sec.edgar-online.com/general-mills-inc/8-k-current-report-filing/2008/09/17/section10.aspx

Regardless of designation for accounting purposes, we (at General Mills) believe all of our commodity hedges are economic hedges of our risk exposures, and as a result we consider these derivatives to be hedges for purposes of measuring segment operating performance. Thus, these gains and losses are reported in unallocated corporate expenses outside of segment operating results until such time that the exposure we are hedging affects earnings. At that time we reclassify the hedge gain or loss from unallocated corporate expenses to segment operating profit, allowing our operating segments to realize the economic effects of the hedge without experiencing any resulting mark-to-market volatility, which remains in unallocated corporate expenses. We no longer have any open commodity derivatives previously accounted for as cash flow hedges.

Continued in article

Note that General Mills is trying to exclude those mark-to-market earning fictions I've talked about in our past debates.

From what I can tell I pretty much go along with the proposed 2016 revisions in FAS 133 even though I hate some of the previous revisions in IFRS 9. You seem to think that commodity prices in Chicago can be used satisfactorily for all commodity inventories. The fact of the matter is that for most commodities there's a huge difference between commodities held as local inventory hundreds or thousands of miles from Chicago and the CBOT, CBT, CBOT, or CME prices in Chicago. Having grown up on an Iowa farm I'm well aware that the commodities we stored on the farm should not have been valued at Chicago exchange prices. Firstly, our inventories on the farm differed greatly in quality from the Chicago exchange standards.

We (on our Iowa farm) held these inventories sometimes because the local elevator did not want our lower quality inventories. Instead we either fed our crops to our own livestock or sold them to nearby feeders who would buy these inventories at serious price discounts. Today's corn farmers are often selling corn to nearby livestock containment feeding operations for the same reasons.

Secondly the Chicago exchange prices were quite different from local prices due to future shipping costs. If you look at the original FAS 133 Appendix illustrations of hedge ineffectiveness you will find that almost all those illustrations for commodities focused on hedge ineffectiveness due to shipping cost ---
http://www.cs.trinity.edu/rjensen/000overview/mp3/000ineff.htm
(Note that the FASB Codification does not include the Appendix illustrations that were in the original FAS 133 hard copy standard.)

Teaching Case
Cost Accounting and Inventory Valuation by Bob Jensen:
Differences Between Mark-to-Market Accounting for Derivative Contracts Versus Commodity Inventories ---
http://www.trinity.edu/rjensen/Mark-to-MarketCorn.htm

August 22, 2016 reply from Tom Selling

Bob,

My responses to your concerns are indented, below:

You wrote: In the past your alternatives for derivatives contract accounting did not distinguish between speculation and hedging with those contracts. Until you show me an a derivatives contract accounting alternative that does so I will prefer FAS 133 or IFRS 9.

Under extant GAAP, you can: (1) hold a freestanding derivative; (2) “hedge" and apply hedge accounting, or (3) “hedge" and not apply hedge accounting. I put “hedge” in quotes, because the FASB has not defined “hedge.” You say you are happy with SFAS 133 even though it does not, as you demand of me, distinguish between (1) and (3). That’s because the FASB no longer defines a “hedge.” Indeed, the whole purpose of SFAS 133 was to supply a hedge accounting solution without having to actually consider the difference between hedging and speculation.

You wrote: Simply appealing to "full disclosure" is a cop out since annual reports with over a million footnotes are not practical.

I did nothing of the sort. I would prefer disclosures that allow an analyst to unwind hedge accounting if they think it is a stupidity (as I do), but it is not a necessary condition. I want all commodities and financial instruments to be measured the same way. After that, feel free to screw up the income statement as much as you please.

You wrote: Your statement that General Mills hedges with derivatives without applying FAS 133 is misleading. General Mills applies FAS 133 in a backhanded way. I do not think that any company can simply ignore FAS 133 for derivative contracts scoped into FAS 133. Here's what General Mills says about using hedge accounting —

Bob, please be careful when you use the term misleading. I regard your use of the term very much like the way you took offense when you thought Zafar called you a liar. Surely, you can think of a more respectful and appropriate term than “misleading" … perhaps, “inaccurate”?

That said, I provided a link to a 10-K. It reads in relevant part as follows:

“We use derivatives to manage our exposure to changes in commodity prices. We do not perform the assessments required to achieve hedge accounting for commodity derivative positions. Accordingly, the changes in the values of these derivatives are recorded currently in cost of sales in our Consolidated Statements of Earnings.”

It appear that you provide a link to an 8-K, which I have not read. As best as I can tell, you describe GM’s presentation of segment disclosures (where departures from GAAP are permitted). That’s a far cry from the consolidated financial statements.

You wrote: From what I can tell I pretty much go along with the proposed 2016 revisions in FAS 133 even though I hate some of the previous revisions in IFRS 9. You seem to think that commodity prices in Chicago can be used satisfactorily for all commodity inventories. The fact of the matter is that for most commodities there's a huge difference between commodities held as local inventory hundreds or thousands of miles from Chicago and the CBOT, CBT, CBOT, or CME prices in Chicago. Having grown up on an Iowa farm I'm well aware that the commodities we stored on the farm should not have been valued at Chicago exchange prices. Firstly, our inventories on the farm differed greatly in quality from the Chicago exchange standards.

Again, “perfection is the enemy of the good,” even for your family farm. Do you mean to tell me that your parent’s actually gave a hoot about the historic cost of your corn after it was harvested? When they asked themselves, “how did we do?” is that what they talked about?

If you are going to provide examples of practical barriers, I suggest you use public companies. And, don’t try to tell me that Kellogg and GM don’t know the current values of their commodity inventories on a daily basis.

Best,

Tom

August 23, 2016 reply from Bob Jensen

Hi Tom,

You miss the point when you say that our farm's distant (from Chicago) less than top quality corn would not be valued at Chicago exchange prices. That's my whole point. When you hedge most often it will be done with net settlement derivative contracts priced at Chicago exchange prices. This is what gives rise to hedging ineffectiveness because your local inventory valuation differs from the Chicago exchange pricing in your hedging contracts. See the definition of "ineffectiveness" under the "I" letter at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm

Therefore, the extent your hedges are ineffective you are speculating and not hedging due to those differences in prices between your inventory valuation and Chicago exchange price valuation of your hedging contracts. To the extent hedges are effective then you are hedging and should choose to not show earnings fluctuations to the extent the hedges are effective (ala General Mills). To the extent hedges are ineffective you are speculating and should post the ineffective portion to retained earnings.

The FASB does have a definition of a derivative contract, and I elaborate on it at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
Click on "D" and then scroll down.
For the definition of a hedging contract click on "H" and scroll down.

The IASB's definition differs somewhat from the FASB's definition of a derivative. Where it gets even messier is in the definitions of derivatives for macro hedges. A "macro" contract hedges a portfolio with multiple types of risks with a hedging instrument that only hedges one of those risks. An exception now allowed under FAS 138 (that amended FAS 133) is a cross-currency hedge that hedges both FX risk and interest rate (price) risk simultaneously using one hedging instrument. The IASB and FASB departed when it comes to accounting for some (very limited) types of macro hedges.

Any USA company that has derivative contracts under the FASB's definition had better consult its attorneys and auditors before deciding to depart from FAS 133 and its amendments.

Are you trying to tell us that, unlike in its 8K discussion of derivative contracts, that General Mills has what the FASB calls derivatives contracts in its 10K that it elects not to account for under FAS 133 rules? I really, really doubt that!

One piece of information in the 8K is that General Mills does not hedge cash flows. If it did so it would abide by FAS 133 rules or worry about lawsuits.

To the extent that General Mills does have fair value hedging contracts meeting the FASB definition it does have to resort to FAS 133 for accounting purposes. An to the extent it acquires other types of hedging contracts (like cash flow hedges) meeting the FAS 133 definition it will resort to FAS 133 accounting whether in an 8K or a 10K.

If you find an exception in the General Mills 10K please let us and the auditors and the SEC know about it.

And my parents cared about the historic cost of corn. For one thing this affected taxes. Secondly when the great scorer comes to write against your aggregate lifetime profit the aggregate "cash in" versus the aggregate "cash out" is what determined how good you were as a farmer (adjusted of course when you butchered your own livestock to eat). All the unrealized commodity value ups and downs were fictions --- like it says in the General Mills 8K that you conveniently selected only part of to quote from my longer quotation.

Of course my parents looked at current fair values of their inventories. They even made decisions based on changes in values. But they did that in a two-column set of financial statements rather than confine themselves to one fair value column containing fiction accounting

August 23. 2016 reply from Tom Selling

Bob,

We are talking past each other. I don’t even think you read what I write, even though I specifically address each of your points. Just for one example, I did not state that the FASB doesn’t have a definition of a derivative; I stated that it does not have a definition of “hedge” apart from what “hedge accounting” is.

This is my last word on this subject.

Best,

Tom

August 23, 2016 reply from Bob Jensen

FAS 133 does not scope in weather derivatives mostly because the underlying (e.g., cumulative rainfall for the months of July and August) are not exchange traded like commodity price underlyings.

ASC 815-45 provides guidance on the financial accounting and reporting for weather derivatives

ASC 815-45 provides guidance on the financial accounting and reporting for weather derivatives.

FASB: Important Differences in Accounting for Embedded Derivatives in FAS 133 Versus IFRS 9
http://www.iasplus.com/en-us/standards/ifrs-usgaap/embedded-derivatives

"The Dirty Little Secret of Finance: Asymmetric Information," by Noah Smith, Bloomberg, August 11, 2016 ---
http://www.bloomberg.com/view/articles/2016-08-11/the-dirty-little-secret-of-finance-asymmetric-information

. . .

Why is asymmetric information so crucial to an understanding of financial markets? It’s probably related to the reason people want financial assets in the first place. People want cars and bananas and microwave ovens because those things are immediately useful. But most people who buy and sell financial assets have no intrinsic desire for the asset itself -- they only care about how its value to other people will change in the future. That means that while information is important for many products, when it comes to financial markets, information is the product.

Many major economics papers have explored this fact. One example is the famous 1980 paper “On the Impossibility of Informationally Efficient Markets,” by Sanford Grossman and Joseph Stiglitz. The authors showed that if it costs money (or time) to gather information about financial assets, then market prices can’t be perfectly efficient -- if they were, there would be no incentive for people to go out and pay the costs to gather data. That paper showed why the famed Efficient Markets Hypothesis can only be approximately true at best.

A 1982 paper by Paul Milgrom and Nancy Stokey is no less important. Entitled “Information, Trade, and Common Knowledge,” it demonstrated why rational financial markets should have a lot less trading than they do. Suppose you come to me offering to sell me a stock for $100 a share. Why are you offering to sell it to me for $100? Maybe you’re selling stocks because you’re shifting into bonds, or ready to retire, or need to pay a sudden medical expense. But chances are, you think the stock is worth less than $100, and you’re trying to unload it. That should make me wary about taking you up on your offer. But on the other hand, if I jump at the offer, that should tell you that I have reason to believe the stock is worth more than $100 … and that should make you wary. In an ideal market filled with rational agents, this means that trading is very rare. The fact that trade volumes are huge is a continuing puzzle for economists, not explained by the classic theories of perfect rationality.

So with all this asymmetric information, why are financial markets so active? A pair of papers in 1985 attempt to explain why. These studies -- the first by Lawrence Glosten and Paul Milgrom, the second by Albert “Pete” Kyle -- model the interaction between informed traders, market makers and liquidity traders. The liquidity traders need to buy or sell immediately for reasons unrelated to the market, but the informed traders are trading because they know something about the asset’s fundamental value. The market-makers -- basically, middlemen -- profit off of the former and lose money to the latter. At the end of the day, this delicate dance gets information out of traders’ heads and into the price. But as some other researchers showed over a decade later, if the information is too complicated, this process can lead to bubbles and crashes.

The upshot of all this -- which will be confirmed by the experience of anyone who has ever traded for real -- is that asymmetric information, which is a nothing more than a nuisance in most markets, is at the core of finance. It’s key to the way traders, including high-frequency traders, make their profits. And it’s probably at the root of why markets break down and crash.

So when someone -- say, a presidential candidate -- proposes big rollbacks of financial regulation, we should be suspicious. In many cases that might be a good idea, but finance is no ordinary market.

Law School Deans in Australia Are Running and Bait and Switch Operation ---
http://taxprof.typepad.com/taxprof_blog/2016/08/law-prof-law-school-deans-are-running-a-bait-and-switch-operation.html

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

2 KPMG auditors given stiffer penalties for TierOne work ---
http://journalstar.com/business/local/kpmg-auditors-given-stiffer-penalties-for-tierone-work/article_d140abea-c6d9-52c0-babc-513cee3f4b00.html

Two auditors for an international accounting company tried to get the Securities and Exchange Commission to overturn the suspensions they got for professional misconduct related to work they did for Lincoln's TierOne Bank before it collapsed in 2010.

Instead, a divided Securities and Exchange Commission ruled last week that the two men who worked for KPMG deserved harsher sentences.

The commission voted 2-1 to bar John J. Aesoph, a KPMG partner from Omaha, from working with SEC-regulated companies for three years, and Darren M. Bennett, a senior manager from Elkhorn, for two years.

In 2014, an SEC judge recommended bans of one year for Aesoph and six months for Bennett. The two filed an appeal of those suspensions within weeks of the judge's decision, but oral arguments were not held until last month.

The proposed suspensions were based on their work on the year-end 2008 audit of TierOne, which SEC administrative law judge Carol Fox Foelak called "a single instance of highly unreasonable conduct."

The SEC had charged the two auditors with professional misconduct, alleging that they failed to appropriately scrutinize management's estimates of TierOne's allowance for loan and lease losses.

The SEC had originally sought a three-year suspension for Aesoph and two years for Bennett.

In Friday's order, the SEC said the two committed "egregious violations of multiple auditing standards," and it called their methods in conducting the TierOne audit "highly unreasonable."

The commission also said the auditors failed to acknowledge any wrongdoing or provide any assurances that they would not commit future violations.

"Taken together, these facts lead us to conclude that there is a risk that respondents will commit future violations," the commission said.

Not only did the SEC extend the period during which the two auditors cannot work with publicly traded companies, but by barring them rather than suspending them, it made it harder for them to resume such work.

Aesoph and Bennett will have to apply to be reinstated. Under the previous suspension order, they would have been reinstated automatically.

Continued in article

SEC's Full Ruling
https://www.sec.gov/litigation/opinions/2016/34-78490.pdf

Bob Jensen's threads on KPMG scandals ---
http://faculty.trinity.edu/rjensen/fraud001.htm

IFRS 9 rattles large banks: They Weren't Prepared for in This (in a poll of 91 banks)
http://www.ft.com/cms/s/26dfb19c-60a4-11e6-b38c-7b39cbb1138a,Authorised=false.html?siteedition=intl&_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F26dfb19c-60a4-11e6-b38c-7b39cbb1138a.html%3Fsiteedition%3Dintl&_i_referer=&classification=conditional_standard&iab=barrier-app#axzz4II1gKfoC

Nearly half of big banks around the world are unprepared for an international accounting standard due to take force in less than two years, even as they expect provisions for bad loans to soar as a result of the new rules.

A poll of 91 banks across the globe — excluding US banks that are governed by their own rules — has found that 46 per cent of those surveyed do not believe they have enough resources to deliver changes by the 2018 implementation date, with a significant minority going on to say there were not enough skilled candidates in the market to hire.

With less than 18 months to go before the change, nearly two-thirds of banks are unsure how the rules might impact their balance sheets, according to Deloitte, which undertook the global survey.

The rules force banks to have a provision on their balance sheets for expected losses in the future rather than actual losses already suffered.

Those banks that have made the calculations reckon the rules will result in a surge of at least 25 per cent in total impairment provisions across all asset classes.

Banks are also forecasting that the rules, dubbed IFRS 9, will cause their capital ratios to deteriorate: they are expecting core tier one capital — one of the most keenly watched metrics of the health of a bank’s balance sheet — to decrease on average by half a per cent as a result of moving to the new standard, according to Deloitte.

Uncertainty is not limited to the banking industry: 99 per cent of respondents said their local financial regulator had yet to say how they might incorporate IFRS 9 numbers into regulatory capital requirements.

IFRS 9 is part of a suite of measures by the International Accounting Standards Board to overhaul accounting since the financial crisis. The reform package is an attempt to increase regulatory co-operation between the US and international standard setters. Converging the different corporate reporting frameworks has been fraught.

By moving from an “incurred loss” to an “expected loss” model in 2018, under IFRS 9 the regulators hope to avoid the problems that occurred during the crisis, when banks could not book accounting losses until they happened, even though they could see them coming. This should help to keep banks properly capitalised for the loans they have made. UK banks have experienced historically low impairments recently because of the record low interest rate. However, there are some concerns that if economic growth were to stall following the Brexit vote, impairments could go up even without the new rules. Steven Hall at KPMG said the estimated increase in provisions as a result of IFRS 9 was actually “cautious”. “IFRS 9 will be almost as difficult to implement as it is to say,” he said. “Firms need to consider a range of future scenarios, and in today’s uncertain economic environment assessing the impact of that is not an easy task.” Mr Hall has called for a grace period during which the new systems might be tested and embedded.

Continued in article

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

August 25, 2016 Message from Glen Gray

Collaborating with Coursera

Empowering people through learning

At PwC, our purpose is to build trust in society and solve important problems. We think there's an opportunity to do this by sharing our experience and expertise with anyone who wants to learn. We’re joining forces with Coursera to create a series of courses designed around topics that address big global issues, drawing on the real-world knowledge and experience of PwC experts from around the globe from multiple disciplines. Our first course is focused on data and analytics, one of the biggest areas of opportunity to help solve problems in an increasingly complex world.

All course materials can be accessed at no charge. (Those who want to take the assessments and get a certification will pay a small charge). As instructors, you may identify portions of the courses which you wish to incorporate into your classes as assignments to help demonstrate concepts you are teaching. We hope you will agree that this will be a valuable resource. To learn more about and access Coursera, click here.

Glen L. Gray, PhD, CPA
Professor Emeritus
Dept. of Accounting & Information Systems
David Nazarian College of Business & Economics
California State University, Northridge
18111 Nordhoff ST Northridge, CA 91330-8372
http://www.csun.edu/~vcact00f

How the 2016 Leasing Standards Differ Under IFRS Versus the FASB ---
http://www.accountingweb.com/aa/standards/leasing-under-us-gaap-and-ifrs-similar-new-standards-with-significant-differences?source=ei081016
Requires login or free registration.

Earnings Management --- https://en.wikipedia.org/wiki/Earnings_management

The Effects of Creative Culture on Real Earnings Management
SSRN, August 4, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2818499

Author

Ryan D. Guggenmos
Cornell University - Samuel Curtis Johnson Graduate School of Management

Abstract

Chief Executive Officers identify creativity as one of the most desired business leadership competencies. Accordingly, managers are increasingly looking to build creative and innovative cultures within their organizations. However, research in psychology suggests that these attempts may have unintended negative consequences. In this study, I predict and find that an innovative company culture leads to higher levels of real earnings management (REM). To reduce REM in innovative cultures, I design and test interventions based on lower-level and higher-level construals. As I predict, an intervention based on lower-level construal reduces REM, but a higher-level construal intervention reduces REM to a greater extent. I also provide evidence that these interventions reduce the desirability of self-interested behavior that is a consequence of innovation-focused culture. My findings contribute to the emerging accounting literature regarding REM. In addition, I extend the psychology literature investigating the link between self-interested behavior and creativity, as well as expand research on the effects of mental construal on decision making

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

Earnings Management --- https://en.wikipedia.org/wiki/Earnings_management

Impact of Assurance Level and Tax Status on the Tendency of Relatively Small Manufacturers to Manage Production and Earnings
SSRN. July 25, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2814314

Authors

Benjamin P. Foster University of Louisville - College of Business and Public Administration

John M. Mueller California State University, Fresno; Western Michigan University

Trimbak Shastri University of Louisville - Department of Accountancy

Abstract

The number and importance of private companies in the United States indicates that reliable quality of financial accounting reports (QFAR) of private companies that are useful for decision making is likely to be important for economic growth. Most previous research examining QFAR addressed earnings management among publicly-traded companies. This study extends prior literature by examining whether abnormal production of public and private companies is impacted by (i) assurance type (PCAOB-audit, GAAS-audit, and SSARS-Review), (ii) tax status (separately taxed versus pass-through entity) of private companies, and (iii) relative size. An audit of financial statements provides a high degree of assurance, whereas a review provides limited assurance. Due to data limitations with our private company sample, this study focuses on earnings management through abnormal production by manufacturing companies. When examining companies that just met the benchmark of prior years' earnings or zero earnings we found positive abnormal production for publicly traded companies and privately held audited-taxable companies, but not for other privately held companies. Not identified in previous studies, we find that abnormal production of similarly sized public companies and private companies differ. Our findings provide evidence relevant to the Big GAAP/Little GAAP debate and that one set of accounting standards may not satisfy all public and private company financial statement users. Also, results of this study support the recommendations of the Financial Accounting Foundation’s Blue Ribbon Panel’s Report for establishing a separate private company standards board to help ensure appropriate modifications to GAAP.

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

The Interplay between Financial Reporting Biases and Audit Quality
SSRN. August 3, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2818038

Authors

Sebastian Kronenberger University of Graz, Doctoral Program for Accounting, Reporting, and Taxation (DART), Students

Volker Laux University of Texas at Austin - Department of Accounting

Abstract

We show that a firm's optimal financial reporting bias and an auditor's choice of audit effort are inextricably intertwined. Aggressive or conservative accounting practices influence the auditor's optimal choice of audit effort, and the auditor's incentive and ability to detect misstatements in turn influence the firm's optimal accounting bias. Due to this interplay, a shift to more aggressive accounting can reduce, rather than increase, the incidence of overstatements and hence overinvestment and investor litigation. While ex ante litigation risk is typically considered to be a major driver of conservative accounting practices in corporations, we derive conditions under which a heightened threat of litigation can encourage more aggressive accounting.

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

The Interaction of the IFRS 9 Expected Loss Approach with Supervisory Rules and Implications for Financial Stability
SSRN, August 5, 2016

Accounting in Europe (Forthcoming)

Author

Zoltán Novotny-Farkas
Lancaster University - Management School

Abstract

This paper examines the interaction of the IFRS 9 expected credit loss (ECL) model with supervisory rules and discusses potential implications for financial stability in the European Union. Compared to the incurred loss approach of IAS 39, the IFRS 9 ECL model incorporates earlier and larger impairment allowances and is more closely aligned with regulatory expected loss. The earlier recognition of credit losses will reduce the build-up of loss-overhangs and the overstatement of regulatory capital. In addition, extended disclosure requirements are likely to contribute to more effective market discipline. Through these channels IFRS 9 might enhance financial stability. However, due to the reliance on point-in-time estimates of the main input parameters (probability of default and loss given default) IFRS 9 ECLs will increase the volatility of regulatory capital for some banks. Furthermore, the ECL model provides significant room for managerial discretion. Bank supervisors might play an important role in the implementation of IFRS 9, but too much supervisory intervention bears the risk of introducing a prudential bias into loan loss accounting that compromises the integrity of financial reporting. Overall, the potential benefits of the standard will crucially depend on its proper and consistent application across jurisdictions.

Bob Jensen's threads on loan losses and bad debts ---
http://faculty.trinity.edu/rjensen/Theory02.htm#LoanLosses

Jus gentium --- https://en.wikipedia.org/wiki/Jus_gentium

Comparative Law and the 'Ius Gentium’
SSRN, July 29, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2815824

Author

Se-shauna Wheatle
Durham Law School

Abstract

Constitutional principles are sometimes invoked in adjudication as a bridge to foreign law. This article argues that a cosmopolitan approach, such as that advocated by Jeremy Waldron through his ius gentium theory, is useful in accounting for the use of constitutional principles by courts insofar as the commonality of language and methodology surrounding the use of constitutional principles is connected to societal and institutional needs. The article argues that constitutional principles often serve as a connection to foreign law because the principles are applied as representations of a societal need for order and stability. At the same time, the article cautions that transnational judicial dialogue is impacted by compartmentalisation and divergence. Consequently, arguments for a ius gentium must be more cautious and nuanced. As a step in this direction, the article proposes two ideas for modifying the ius gentium theory: conceiving of the ius gentium as an emerging but not yet fully realised system and characterising the ius gentium as a convergence of methodology rather than substantive norms.

Flexibility in Cash Flow Classification Under IFRS: Determinants and Consequences
SSRN. July 27, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2815123

Authors

Elizabeth A. Gordon Temple University - Department of Accounting

Elaine Henry Stevens Institute of Technology

Bjorn Jorgensen London School of Economics & Political Science (LSE) - Department of Accounting

Cheryl L. Linthicum University of Texas - San Antonio

Abstract

International Financial Reporting Standards (IFRS) allow managers flexibility in classifying interest paid, interest received, and dividends received within operating, investing, or financing activities within the statement of cash flows. In contrast, U.S. Generally Accepted Accounting Principles (GAAP) requires these items to be classified as operating cash flows (OCF). Studying IFRS-reporting firms in 13 European countries, we document firms’ cash-flow classification choices vary, with about 76%, 60%, and 57% of our sample classifying interest paid, interest received, and dividends received, respectively, in OCF. Reported OCF under IFRS tends to exceed what would be reported under U.S. GAAP. We find the main determinants of OCF-enhancing classification choices are capital market incentives and other firm characteristics, including greater likelihood of financial distress, higher leverage, and accessing equity markets more frequently. In analyzing the consequences of reporting flexibility, we find some evidence that the market’s assessment of the persistence of operating cash flows and accruals varies with the firm’s classification choices, and the results of certain OCF prediction models are sensitive to classification choices.

Jensen Comment
This is one of the many times when I question why a research paper needs so many authors.

How Would Investing in Equities Have Affected the Social Security Trust Fund?
SSRN, July 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2815052

Authors

Gary Burtless Brookings Institution; Boston College - Retirement Research Center

Anqi Chen Center for Retirement Research at Boston College

Wenliang Hou Center for Retirement Research at Boston College

Alicia H. Munnell Boston College - Center for Retirement Research

Anthony Webb Boston College - Center for Retirement Research

Abstract

Some observers believe that investing a portion of the Social Security Trust Fund in equities would strengthen its finances and improve the program’s intergenerational risk-sharing. However, equity investments would also expose the program to greater financial risk and potentially greater political risk. Monte-Carlo simulation methods are used to investigate whether equity investments would likely strengthen the long-term outlook of the Trust Fund relative to the current policy of investing 100 percent of reserves in U.S. government bonds. The issues surrounding equity investments also go beyond expected returns on the Trust Fund portfolio. Concerns of government interference with the allocation of capital in the economy and with corporate decision-making as well as the accounting treatment of equity investments are also discussed.

This paper found that:

- Both prospective and retrospective analyses suggest that investing a portion of the Social Security Trust Fund in equities would have improved its finances.
- Little evidence exists that Trust Fund equity investments would disrupt the stock market.
- Accounting for returns on a risk-adjusted basis would not show any up-front gains from equity investment, but gains would become evident over time if higher returns were realized.
- Equity investments could be structured to avoid government interference with capital markets or corporate decision-making.

The policy implications of this paper are:

- Investing a portion of trust fund assets in equities would likely reduce the need for higher payroll taxes.
- At the 50th percentile of outcomes, equity investing has the potential to maintain a healthy Trust Fund ratio through the 75-year period.
- The experience with the Thrift Savings Plan provides a road map for separating the government from actual investment decisions.

Jensen Comment
The article fails to mention how investing pension funds sector differs from investing pension funds in the private sector. The main reason is that the public sector funds can take on bigger financial risks because of the greater assurance that they will be bailed out by taxpayers is their gambles do not pay off. This is certainly the case of the SS Trust Funds, although this SSRN research paper makes no mention of this.

We can blame democracy for the high risk of public-sector pension plans.
The Economist Magazine
July 26, 2016
http://www.economist.com/news/business-and-finance/21702623-rules-encourage-public-sector-pension-plans-take-more-risk-putting-it-all

Jensen Comment
It turns out that pension investing risk relies heavily on investment and accounting rules where public-sector pension fund managers are allowed to get their funds into riskier investments, including junk bonds.

The enormous TIAA/CREF and some other pension funds give investors risk choices. TIAA bond funds are doing worse due to the Fed's low-interest policy such that teachers in TIAA/CREF are choosing more risky funds. Deals are no longer as good for fixed-annuity plans on the date of retirement relative to when I retired in 2006 (blind luck rather than brilliant strategy).

Sadly, riskier public-sector pension plans increase the expectation of future taxpayer bailouts. Public-sector pension plans would probably not be as risky if government declared there was zero chance of future bailouts. But then what legislators seeking office are going to promise zero chance of a public-sector pension bailout? Hence we can blame democracy for the high risk of public-sector pension plans.

One definition of democracy is gambling with taxpayer dollars.
Bankers as well as K-12 teachers helped to invent the taxpayer bailout idea along with municipal workers. Public-sector workers opposed to gambling probably don't even know they are gambling with taxpayer dollars.

The Effect of CFO Personal Litigation Risk on Firms’ Disclosure and Accounting Choices
SSRN. July 28, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2815011

Authors

Hagit Levy City University of New York (CUNY) - Stan Ross Department of Accountancy

Ron Shalev New York University (NYU) - Leonard N. Stern School of Business

Emanuel Zur University of Maryland - Robert H. Smith School of Business

Abstract

In Gantler v. Stephens (2009), the Delaware Supreme Court makes explicit that corporate officers owe the same fiduciary duty to the firm and shareholders as do board members. The decision increased the risk of non-board-serving officers being added as named defendants to investor litigation but did not change the risk of corporate litigation. Analyzing the effect of the Gantler ruling on non-board-serving CFOs, we find a significant change in their behavior as well as in their firms’ disclosure and accounting choices. Specifically, CFOs’ speech tone during earnings calls becomes more negative and their firms disclose bad news earlier and report more conservatively. Results are stronger for firms incorporated in Delaware. Our findings suggest that CFOs respond to personal litigation risk over and above corporate litigation risk.

Jensen Comment
I like this study in that it's not just another purchased database (e.g., CRSP, Compustat, or AuditAnalytics) multiple regression fishing expedition.

Crude Inventory Accounting and Speculation in the Physical Oil Market
SSRN. July 26, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2814943

Authors

Ivan Diaz-Rainey University of Otago - School of Business

Helen Roberts University of Otago

David H. Lont University of Otago - Department of Accountancy and Finance

Abstract

This paper uses inventory data from financial accounts to explore whether companies involved in the physical oil market were speculating in the run-up to 2008. Using quarterly inventory data over the period 1990Q4 to 2012Q1 and a sample of 15 of the largest listed oil companies in the world, we derive an Index of Scaled Physical Inventories (ISPI). We find declining ISPI up to the early 2000s is consistent with firms minimizing inventory for efficiency sake; then ISPI starts to increase, suggesting physical inventories could have contributed to the run-up in oil prices between 2003 and 2008. Highlighting heterogeneity in inventory behaviors amongst the large oil companies, the structural break test on the ratio of inventory to sales and the days to sales for individual companies shows that five companies had positive structural breaks during the speculation period, while the other companies had no or negative structural breaks. Contrary to declining inventory expectations due to a tightening oil market, the positive structural breaks suggest speculative behavior. We also examine the relationship between changes in profitability and changes in oil inventory over the pre-speculation and speculation period. Though some coefficients for inventory do switch from negative to positive over the two periods as hypothesized, they are on the whole not significant. The conclusion based on these models is that inventory ‘positions’ have not materially affected performance of most companies, save for a few exceptions.

Jensen Comment
The article makes passing reference to Contango and Carry trade hedging of inventories, but I would think that if companies were speculating in oil prices that more mention would be made of other types of derivatives used for speculation.

Where to Hide in Bad Times: Or Should One Still Diversify Internationally?
SSRN, July 1, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2812623

Authors

Redouane Elkamhi University of Toronto - Rotman School of Management

Denitsa Stefanova Universite du Luxembourg - School of Finance

Abstract

Among the stylized features of international equity markets is the pronounced asymmetric nonlinear dependence and upward trend in correlations. Such features call into question investors' efforts to diversify internationally. We propose a model to capture those well understood characteristics of international equity index returns. Casting them in a dynamic portfolio problem, we evaluate the gains for a home-biased investor from including foreign assets in her portfolio. We find that accounting for the optimal dynamic demand for hedging on top of a standard mean-variance portfolio policy brings substantial benefits from international portfolio exposure. Such benefits become increasingly sizeable over long investment horizons.

Senate Bill Proposes Shot in Arm for Career and Technical Education ---
https://thejournal.com/articles/2016/07/27/senate-bill-proposes-shot-in-arm-for-cte.aspx

How to Claim a Loss Deduction on Worthless Stocks ---
http://www.accountingweb.com/tax/individuals/how-to-claim-a-loss-deduction-on-worthless-stocks?source=tx080816

A Useful Excel Reporting Feature ---
http://www.businessinsider.com/link-your-reports-to-excel-word-powerpoint-2016-8
Also see
Excel 2016 Forecasting Tool --- "
http://www.journalofaccountancy.com/issues/2016/aug/excel-forecast-sheet.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=17Aug2016

How to Use Excel 2016 for Forecasting ---
http://www.journalofaccountancy.com/issues/2016/aug/excel-forecast-sheet.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=08Aug2016

Accounting Again Leads as Most Profitable Industry ---
http://www.accountingweb.com/practice/growth/accounting-tops-list-of-most-profitable-industries

"Economic Slump Sends Big Ships to Scrap Heap," by Ben Fritz, The Wall Street Journal, August 15, 2016, Page B1 ---
http://www.wsj.com/articles/economic-slump-sends-big-ships-to-scrap-heap-1471192256

Up until a year ago, the shipping industry was ordering ships in droves. This year, orders of new vessels have fallen to a record low and companies can’t get rid of ships fast enough.

About 1,000 ships that have the combined capacity to haul 52 million metric tons of cargo will be dragged onto beaches, cut into pieces and sold for scrap metal this year. That is second only to the record amount of capacity of 61 million so-called dead weight tons that were scrapped and recycled in 2012.

The global economic slowdown is putting shipping through its most bruising period since the 2008 financial crisis. Companies including Maersk Line, a unit of Danish conglomerate A.P. Møller Maersk A/S, Germany’s Hapag-Lloyd AG and China Cosco Bulk Shipping Co. have 30% more capacity in the water than cargo. As the companies, mostly based in Europe and Asia, fight for bigger shares of the global market, freight rates have dropped so low they barely cover fuel costs.

In the five years through 2015, owners ordered an average of 1,450 ships annually. This year orders through July fell to 293 vessels, or 11.6 million tons, according to U.K. marine data provider Vessels Value.

“Given the tremendous overcapacity, it will take much more recycling and at least two to three years of no growth in capacity to see some balance between supply and demand,” said Basil Karatzas, chief executive of New York-based Karatzas Marine Advisors Co.

Continued in article

Here's An Illustration of Grade Inflation

"Nearly Half Of Detroit’s Adults Are Functionally Illiterate, Report Finds," Huffington Post, July 8, 2013 ---
http://www.huffingtonpost.com/2011/05/07/detroit-illiteracy-nearly-half-education_n_858307.html

Detroit’s population fell by 25 percent in the last decade. And of those that stuck around, nearly half of them are functionally illiterate, a new report finds.

According to estimates by The National Institute for Literacy, roughly 47 percent of adults in Detroit, Michigan — 200,000 total — are “functionally illiterate,” meaning they have trouble with reading, speaking, writing and computational skills. Even more surprisingly, the Detroit Regional Workforce finds half of that illiterate population has obtained a high school degree.

The DRWF report places particular focus on the lack of resources available to those hoping to better educate themselves, with fewer than 10 percent of those in need of help actually receiving it. Only 18 percent of the programs surveyed serve English-language learners, despite 10 percent of the adult population of Detroit speaking English “less than very well.”

Additionally, the report finds, one in three workers in the state of Michigan lack the skills or credentials to pursue additional education beyond high school.

In March, the Detroit unemployment rate hit 11.8 percent, one of the highest in the nation, the U.S. Bureau of Labor Statistics reported last month. There is a glimmer of hope, however: Detroit’s unemployment rate dropped by 3.3 percent in the last year alone.

Continued in article

Jensen Question
Will nearly all the illiterate high school graduates in Detroit get a free college diploma under the proposed "free college" proposal?

My guess is that they will get their college diplomas even though they will still be illiterate, because colleges will graduate them in order to sop up the free taxpayer gravy for their college "education."
Everybody will get a college diploma tied in a blue ribbon.

I doubt that illiteracy is much worse in Detroit than in other large USA cities like Chicago and St Louis.

In Europe less than have the Tier 2 (high school) graduates are even allowed to to to college or free trade schools ---
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_degre

For CPAs: The next frontier in data analytics ---
http://www.journalofaccountancy.com/issues/2016/aug/data-analytics-skills.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Aug2016

Top Heavy in Data Analytics
KPMG to pay entry-level employees to earn Villanova and Ohio State's master’s in accounting ---
http://www.bizjournals.com/philadelphia/news/2016/08/04/kpmg-paying-villanova-masters-accounting-degree.html

Jensen Questions

Have Villanova and OSU relegated admissions decisions for this program to KPMG?

Have Villanova and OSU relegated curriculum decisions to KPMG regarding such things as using KPMG software, KPMG datasets, and KPMG proprietary audit procedure literature?

Is an entire semester of internship in KPMG offices for academic credit under this program top heavy on non-academic credit in reality?

In other words is this just a KPMG training program?

This KPMG program most certainly is outside the original stated purpose of the fifth year accounting program that was supposed to broaden the curriculum of accounting majors with non-accounting content (e.g., in communications, ethics, critical thinking etc.) without adding significantly more technical accounting, tax, and auditing content. Is this program with 50% auditing data analytics in the spirit of the fifth year program as originally designed?

Teaching Case
Cost Accounting and Inventory Valuation by Bob Jensen:
Differences Between Mark-to-Market Accounting for Derivative Contracts Versus Commodity Inventories ---
http://faculty.trinity.edu/rjensen/Mark-to-MarketCorn.htm

Fair value of inventory before a sale may differ from net realizable value because of unknowable future selling and delivery costs. For example, future deliver costs are unknowable until the location of the customer is known.

For these and other reasons (such as different underlyings) the value of a hedging instrument like a forward, futures, or option contract may differ from the value of hedged-item fair value of inventory. This difference gives rise to hedging instrument ineffectiveness. Both the FASB (in FAS 133) and the IASB (in IFRS 9) require testing for hedge ineffectiveness although the IFRS tests are more subjective.

Here are some helpers for learning about testing for hedge ineffectiveness.

IFRS Hedge Ineffectiveness ---
http://www.ifrs.org/Current-Projects/IASB-Projects/Financial-Instruments-A-Replacement-of-IAS-39-Financial-Instruments-Recognitio/Phase-III-Hedge-accounting/edcl/Pages/Hedge-Effectiveness.aspx

Bob Jensen's illustrations of hedge ineffectiveness ---
http://www.cs.trinity.edu/rjensen/000overview/mp3/000ineff.htm

Ira Kawaller's illustrations of inventory hedging strategies ---
http://kawaller.com/taking-stock-hedging-inventories-hedging-sales/

KPMG summary of testing for hedge ineffectiveness ---
https://www.cmegroup.com/education/files/basics-of-hedge-effectiveness.pdf

Teaching Cases: Hedge Accounting Scenario 1 versus Scenario 2
Two Teaching Cases Involving Southwest Airlines, Hedging, and Hedge Accounting Controversies ---
http://faculty.trinity.edu/rjensen/caseans/SouthwestAirlinesQuestions.htm

Short Summary
"Hedge Effectiveness: The Wild Card in Accounting for Derivatives," by Ira C. Kawaller --- http://www.kawaller.com/pdf/AFP-Hedge Effectiveness.pdf
Also see http://www.cs.trinity.edu/~rjensen/Calgary/CD/HedgeEffectiveness.pdf

Neither the FASB nor the IASC specify a single method for either assessing whether a hedge is expected to be highly effective or measuring hedge ineffectiveness. Tests of hedge effectiveness should be conducted at least quarterly and on financial statement dates. The appropriateness of a given method can depend on the nature of the risk being hedged and the type of hedging instrument used. See FAS 133 Appendix A, Paragraph 62 and IAS 39 Paragraph 151.

Wells Fargo: The Sunny Side of Hedge Ineffectiveness
By Ed Rombach
Link --- http://www.fas133.com/search/search_article.cfm?page=61&areaid=439

How Wells Fargo's hedge selection benefits from current climate.

Recent media coverage of deflationary indicators like the recent CPI announcement of -.3% in October has prompted some analysts to differentiate between "bad" deflation caused by monetary policy mistakes and "good" deflation attributable to increases in labor productivity. Similarly, when it comes to risk management as practiced in accordance with FAS 133, a case can be made for differentiating between "bad" and "good" hedge ineffectiveness. Since the beginning of the year, with the most aggressive Federal Reserve rate cutting in memory, financial institutions involved in mortgage originations, securitization and retention of mortgage servicing rights (MRS) have been consistently the most prone to reporting significant hedge ineffectiveness. As the Fed cut the over night funds rate another 100 basis points during the third quarter, Wells Fargo & Co, which is included in the Portfolio of '33' took the prize for hedge ineffectiveness - the good kind.

A windfall
Specifically, Wells Fargo recognized a gain of $320 million for the third quarter in non-interest income, representing the ineffective portion of fair value hedges of mortgage servicing rights. This excess hedging gain boosted quarterly EPS by $.19 to $.68, accounting for over 23% of third quarter earnings. If only hedge ineffectiveness was always so kind.

How did Wells Fargo manage to rack up such robust fair value hedging gains relative to their mortgage servicing rights? Did they over hedge, or did the actual prepayment speed of home mortgage re-financing turn out to be less than anticipated? Perhaps it was a little bit of both.

Wells Fargos's third quarter 10Q provides some insights about their hedging methodology, indicating that the ineffectiveness windfall was primarily related to yield curve and basis spread changes that impacted favorably on the derivative hedges relative to the hedged exposures in the volatile interest rate environment.

Divergent spread movement
Subsequent, to June 30 and especially after the September 11 attacks, swap spreads were volatile but generally tended to narrow in the falling interest rate environment, as ten-year swap spreads narrowed from 90 basis points on 7/2/01 to 63 basis points on 9/28/01. If the bank had used Treasury instruments to hedge the prepayment risk on its MRS assets instead of LIBOR based products, the hedges would have under performed. However, Wells Fargo's third quarter 10Q discloses that the company uses a variety of derivatives to hedge the fair value of their MSR portfolio including futures, floors, forwards, swaps and options indexed to LIBOR.

The yield curve steepens
Moreover, the yield curve continued to steepen during the third quarter with the yield spread between ten and thirty year Treasuries widening from 33 basis points out to 88 basis points while the spread between 10yr and 30yr LIBOR swap rates widened from 28 basis points to 65 basis points. Since the ten-year maturity is the duration of choice for mortgage hedgers, it follows that these hedges would have out performed hedges with longer durations.

In connection with this, the company reported that all the components of each derivative instrument's gain or loss used for hedging mortgage servicing rights were included in the measurement of hedge ineffectiveness and was reflected in the statement of income. However, time decay (theta) and the volatility components (vega) pertaining to changes in time value of options were excluded in the assessment of hedge effectiveness. As of September 30, 2001, all designated hedges continued to qualify as fair value hedges. In addition, all components of each derivative instrument's gain or loss used to convert long term fixed rate debt into floating rate debt were also included in the assessment of hedge effectiveness.

Ineffectiveness cuts both ways
There was also some of the bad kind of hedge ineffectiveness which showed up in Wells Fargo's cash flow hedges which include futures contracts and mandatory forward contracts, including options on futures and forward contracts, all of which are used to hedge the forecasted sale of its mortgage loans. During the third quarter the company recognized a net loss of $54 million (-$.03 per share), accounting for ineffectiveness of these hedges, all component gains and losses of which were included in the assessment of hedge effectiveness.

It would appear that this hedge ineffectiveness was the flip side of the coin of the ineffectiveness on the fair value hedges because the futures contracts most commonly used to hedge this kind of pipeline risk are ten year Treasury note futures which would have tended to under-performed relative to the value of the mortgage loans, given the steepening of the yield curve and the general spread widening of mortgage rates relative to treasuries.

For example, ten year constant maturity treasury yields fell 86 basis points, from 5.44% on 7/5/01 to 4.58% on 9/27/01 in contrast to the Freddie Mac weekly survey of mortgage rates reports average 30-year fixed rate mortgages at 7.19% on 7/05/01 or a spread of 1.75% over the ten-year constant maturity treasury rates, vs. average fixed mortgage rates of 6.72% on 9/27/01 or a spread of 2.14% over ten-year treasury rates.

The net impact of the $320 million of excess gains in the fair value hedges vs. net losses of $54 million in the cash value hedges weighs in at a net hedge ineffectiveness of $271 million or almost $.16 (16 cents) per share courtesy of a Federal Reserve policy cutting interest rates with a vengeance. However, the unprecedented interest rate volatility of this period could well turn this quarter's ineffectiveness windfall into next quarter's shortfall. Risk managers should at least be able to take some comfort though from the fact that the fed can't lower interest rates below zero percent.

A Great Article!
"A Consistent Approach to Measuring Hedge Effectiveness," by Bernard Lee, Financial Engineering News --- http://www.fenews.com/fen14/hedge.html

Another Great Article With Formulas
"Complying with FAS 133 Accounting Solutions in Finance KIT," Trema, http://www.trema.com/finance_online/7/2/FAS133_FK.html?7

During the past year Trema has worked with clients, partners and consulting firms to ensure that all Finance KIT users will be FAS 133 compliant by Summer 2000, when the new U.S. accounting standards come into effect. In Finance Line 3/99, Ms. Mona Henriksson, Director of Trema (EMEA), addressed the widespread implications the FAS 133 accounting procedures will have on the financial industry (see ‘Living Up to FAS 133’ in Finance Line 3/99). Now, in this issue, Ms. Marjon van den Broek, Vice President, Knowledge Center – Trema (Americas), addresses specific FAS 133 requirements and their corresponding functionality in Finance KIT.
See software

We tend to think of commodity prices (think corn) in derivatives has highly competitive because there are so very many buyers and sellers of options, forwards, futures, and swaps.

However, what fail to do is think of the commodity prices (again think corn) of physical inventories as highly concentrated.

This is something to think about when it comes to speculating in physical inventories versus commodity derivatives.

From Agueconomics on April 26, 2008 ---
http://www.aguanomics.com/2008/04/who-benefits-from-ethanol.html

Concentrations are significant: DuPont, Monsanto, Novartis and Dow sell 69 percent of (corn) seeds; ADM, Cargill and two others companies control 74 percent of buying side of the corn market. This level of market share means that these industries are "highly concentrated oligopolies."

Law School Tax Clinic Wins Big Case For Students Seeking To Deduct MBA Expenses ---
http://taxprof.typepad.com/taxprof_blog/2016/08/law-school-tax-clinic-wins-big-tax-court-case-for-students-seeking-to-deduct-mba-expenses.html

Jensen Comment
If this trend continues for MBA degrees then it may increase demands from other professions such as accountants, nurses, pharmacists, physicians, engineers, etc.
I can't imagine the IRS giving up fighting the deduction of graduate degree expenses.
Of course since the bottom half of taxpayers pay almost no income taxes, the majority of students seeking graduate degrees may not need to deduct graduate school expenses since they don't pay any income taxes in the first place. The sticking point would be those substantially employed who are already in the top half of the income ladder for taxpayers or spouses who are not employed but are parties to higher income joint returns.

Beta Coefficient --- https://en.wikipedia.org/wiki/Capital_asset_pricing_model

Also see https://en.wikipedia.org/wiki/Beta_(finance)

"Do Portfolio Managers Underestimate Risk by Overanalyzing Data? New research questions whether “smart” beta is always smart," by Louise Lee, Insights from the Stanford University Graduate School of Business, July 25, 2016 ---

Criticism of Beta ---
https://en.wikipedia.org/wiki/Beta_(finance)#Criticism

How to Mislead With Statistics

The following two articles show how economists can put two different spins on the same data (something that seems to be taught in social sciences in general whenever politics gets involved).

The City of Seattle hired a group of economists to study the transitory impact of minimum wage hikes on labor and business firms in Seattle. I say "transitory" because the wage hikes are being phased in and won't reach the $15 level until

The Study
REPORT ON THE IMPACT OF SEATTLE’S MINIMUM WAGE ORDINANCE ON WAGES, WORKERS, JOBS, AND ESTABLISHMENTS THROUGH 2015 The Seattle Minimum Wage Study Team1 University of Washington
July 2016
http://evans.uw.edu/sites/default/files/MinWageReport-July2016_Final.pdf

This report presents the short-run effects of the Seattle Minimum Wage Ordinance on the Seattle labor market. The Seattle Minimum Wage study team at the University of Washington analyzed administrative records on employment, hours, and earnings from the Washington Employment Security Department to address two fundamental questions: 1) How has Seattle’s labor market performed since the City passed the Minimum Wage Ordinance, and particularly since the first wage increase phased in on April 1, 2015? 2) What are the short-run effects of the Minimum Wage Ordinance on Seattle’s labor market? While quite similar at first glance, these two questions address very different issues and require very different methods to answer. The first question can be studied with a simple before/after comparison. Although the comparison is simple, it risks conflating the impact of the minimum wage with other local trends. Many things have happened in Seattle’s labor market since June 2014, most of them having little or nothing to do with the minimum wage itself. The City has enjoyed steady expansion in tech sector employment, and a construction boom fueled by rising residential and commercial property prices. Even the weather – a key determinant of economic activity in the Puget Sound region – was favorable in 2015, with record-low precipitation in the early months of the $11 minimum wage. The before-after comparison can tell us the net impact of all these simultaneous trends, but this comparison cannot distinguish among them. Our second question – the more important one for purposes of evaluating the policy – aims to isolate the impact of the minimum wage from all the other regional trends seen over the same time period. Whereas the first question asks “are we better off than we were when Seattle raised the minimum wage” and requires only a simple comparison of yesterday to today, the second asks “are we better off than we would have been if Seattle had not adopted a higher minimum wage?” To answer it requires imagining how the local economy would look in absence of a Minimum Wage Ordinance. While it is impossible to directly observe what would have happened if no wage ordinance had been implemented, this report uses widely accepted statistical techniques to compare Seattle in its current state—with the presence of the Minimum Wage Ordinance—to an image of what Seattle might have looked like today if not for the Minimum Wage Ordinance. We take advantage of data going back to 2005 to build a model of the way Seattle’s labor market typically works. We also take advantage of data on nearby regions that did not increase the minimum wage to better understand how other factors might have influenced what we observe in the City itself.

3 In this report, we present findings on wages, workers, jobs, and establishments. Our findings can be summarized as follows: Wages:  The distribution of wages shifted as expected.  The share of workers earning less than $11 per hour declined sharply.  This decline began shortly after the ordinance was passed.  However, similar declines were seen outside of Seattle, suggesting an improving economy may be the cause of the change in the distribution of wages. Low-Wage Workers:  In the 18 months after the Seattle Minimum Wage Ordinance passed, the City of Seattle’s lowest-paid workers experienced a significant increase in wages.  The typical worker earning under $11/hour in Seattle when the City Council voted to raise the minimum wage in June 2014 (“low-wage workers”) earned $11.14 per hour by the end of 2015, an increase from $9.96/hour at the time of passage.  The minimum wage contributed to this effect, but the strong economy did as well. We estimate that the minimum wage itself is responsible for a $0.73/hour average increase for low-wage workers.  In a region where all low-wage workers, including those in Seattle, have enjoyed access to more jobs and more hours, Seattle’s low-wage workers show some preliminary signs of lagging behind similar workers in comparison regions.  The minimum wage appears to have slightly reduced the employment rate of low-wage workers by about one percentage point. It appears that the Minimum Wage Ordinance modestly held back Seattle’s employment of low-wage workers relative to the level we could have expected.  Hours worked among low-wage Seattle workers have lagged behind regional trends, by roughly four hours per quarter (nineteen minutes per week), on average.  Low-wage individuals working in Seattle when the ordinance passed transitioned to jobs outside Seattle at an elevated rate compared to historical patterns.  Seattle’s low-wage workers did see larger-than-usual paychecks (i.e., quarterly earnings) in late 2015, but most— if not all—of that increase was due to a strong local economy.  Increased wages were offset by modest reductions in employment and hours, thereby limiting the extent to which higher wages directly translated into higher average earnings.  At most, 25% of the observed earnings gains—around a few dollars a week, on average—can be attributed to the minimum wage.  Seattle’s low-wage workers who kept working were modestly better off as a result of the Minimum Wage Ordinance, having $13 more per week in earnings and working 15 minutes less per week.

4 Jobs:  Overall, the Seattle labor market was exceptionally strong over the 18 months from mid2014 to the end of 2015.  Seattle’s job growth rate tripled the national average between mid-2014 and late 2015.  This job growth rate outpaced Seattle’s own robust performance in recent years.  Surrounding portions of King County also had a very good year; the boom appears to fade with geographic distance.  Job growth is clearly driven by increased opportunities for higher-wage workers, but businesses relying on low-wage labor showed better-than-average growth as well.  For businesses that rely heavily on low-wage labor, our estimates of the impact of the Ordinance on the number of persistent jobs are small and sensitive to modeling choices. Our estimates of the impact of the Ordinance on hours per employee more consistently indicate a reduction of roughly one hour per week.  Fewer hours per employee could reflect higher turnover rather than cutbacks in staffing.  Reductions in hours are consistent with the experiences of low-wage workers. Establishments:  We do not find compelling evidence that the minimum wage has caused significant increases in business failure rates. Moreover, if there has been any increase in business closings caused by the Minimum Wage Ordinance, it has been more than offset by an increase in business openings. In sum, Seattle’s experience shows that the City’s low-wage workers did relatively well after the minimum wage increased, but largely because of the strong regional economy. Seattle’s low wage workers would have experienced almost equally positive trends if the minimum wage had not increased. Although the minimum wage clearly increased wages for this group, offsetting effects on low-wage worker hours and employment muted the impact on labor earnings. We strongly caution that these results show only the short-run impact of Seattle’s increase to a wage of $11/hour, and that they do not reflect the full range of experiences for tens of thousands of individual workers in the City economy. These are “average” effects which could mask critical distinctions between workers in different categories. Our future work will extend analysis to 2016, when Seattle’s minimum wage increased a second time and began to distinguish between businesses of different sizes and industries. It will also incorporate more detailed information about workers by linking employment records to other state databases. This will give us a greater capacity to answer key questions, such as whether the workers benefiting most from higher minimum wages are more likely to be living in poverty. We are also in the process of collecting additional survey information from Seattle businesses and conducting interviews with a worker sample tracked since early 2015. The next report, expected in September, will focus specifically on how the minimum wage has affected nonprofit organizations.

Continued in article

Spin From Investors Business Daily
The Bitter Lesson From Seattle's Minimum Wage Hike
August 10, 2016
http://www.investors.com/politics/commentary/the-bitter-lesson-from-seattles-minimum-wage-hike/

Spin From a Respected, Albeit Very Liberal Economist --- Jared Bernsten
So far, the Seattle minimum-wage increase is doing what it’s supposed to do
August 10, 2016
https://www.washingtonpost.com/posteverything/wp/2016/08/10/so-far-the-seattle-minimum-wage-increase-is-doing-what-its-supposed-to-do/?utm_term=.d5bf0bcad438

Jensen Comment
The issue of minimum wage became an enormous political issue when the workers receiving the wage changed. When I grew up in the 1950s and 1960s and those McJobs having low pay were primarily intended to be temporary jobs where students could earn a little outside the classroom and where younger people in general could get a start in the work place. Nobody with normal capabilities intended to make careers out of those very low paying McJobs. Somewhere along the way things changed to where now those McJobs became careers for many folks who are not destined for bigger and better careers in the economy. With that change came increasing demands to increase the minimum wage to a more suitable wage for longer-term careers.

The real question that the Seattle study is trying to answer is whether raising the minimum wage in Seattle had a positive or negative impact on employers, employees, and low-skilled unemployed. The answer seems to be varied (depending upon what economist and what workers you consult.) Impact on is hard to isolate statistically because Seattle is a relative boom town due to the high tech economic sector. Thus just because a lot of McJob employers are still thriving is confounded by the boom times apart from the minimum wage increase. McJob employers are likely to be hit harder in communities having less boom success in general. Also the wage increases are being phased in over time (until 2021)such that there is not one big boom to study.

It's hard judge impact on some McJob employers in very large or otherwise isolated communities relative to those surrounded by competition not required to raise minimum wage. For example, restaurant customers in in Seattle are not likely to go elsewhere because their favorite restaurant had to raise prices slightly. Restaurant customers on the very edge of Seattle might drive a bit further for better prices.

Thus the impact of the Seattle's minimum wage hike focuses more on labor/employment impact than on employer impact. And herein commences the lying or possible lying with statistics. I would dwell on all the issues since you can read them for your self in the above links.

Personally, I think the $15 minimum wage eventually is a good idea in a high cost city like Seattle.

But I would like to conclude with what I think is trickery in Jared Bernstein's rejoinder. He skirts important issues like how entry level employees without skills (like students in need of part-time jobs and employees who messed up their early years (e.g., with drugs and crime) get a start without higher turnover in the minimum wage jobs that open up entry-level jobs.

At times he totally ignores the study's findings such as:

Wages:
 The distribution of wages shifted as expected.
 The share of workers earning less than $11 per hour declined sharply.
 This decline began shortly after the ordinance was passed.
 However, similar declines were seen outside of Seattle, suggesting an improving economy may be the cause of the change in the distribution of wages.

Second he seems to imply without more data or foresight that in larger firms the minimum wage is an even better idea than it is at fast-food restaurants. What he fails to note that it is in the larger firms where robotics alternatives to low-paying jobs are exploding. :

Wal-Mart Has An Army Of Robots That Pick, Pack, and Send in Their 130 Distribution Centers ---
http://www.businessinsider.com/wal-mart-warehouse-robots-2013-12

McJobs in those Wal-Mart distribution centers have already disappeared with advances in robotics. Perhaps this was inevitable but eliminating McJobs with higher minimum wages will speed up job sacrices to robots and drive more and more low skilled workers to welfare rolls and crime.

Also see
The Automated Wal-Mart: A Thought Experiment
http://faculty.washington.edu/sandeep/automated/walmart.pdf

The Seattle experiment is hard to extrapolate to every town and city in the USA. I think higher minimum wages where the cost of living is very high is probably a good idea. For example, the cost of living is even high in the suburbs of Seattle and San Francisco. But the same minimum wage successes for those metropolitan areas can be a disaster in rural America where the job losses are likely to be enormous, For example, down the road from our mountain cottage is an old fashioned hardware store that is already struggling to compete with stores 10 miles away (in Littleton, NH), stores like Wal-Mart, Home Depot, and Lowes. A $15 minimum wage might close the doors on my favorite and struggling little hardware store that now makes almost zero profit. The workers in this store are typically part-time spouses who supplement the family income with a bit of added wage within walking distance of the store.

The main conclusion from this illustration is that professional economists cannot agree on much of anything!

"PwC faces 3 major trials that threaten its business (existence)." by Francine McKenna, Marketwatch, August 17, 2016 ---
http://www.marketwatch.com/story/pwc-faces-three-major-trials-that-could-put-firm-out-of-business-2016-08-12?mod=mw_share_twitter

Bob Jensen's threads on Big Four lawsuits ---
http://faculty.trinity.edu/rjensen/fraud001.htm

The Women's Library @ LSE --- http://digital.library.lse.ac.uk/collections/thewomenslibrary

The library seems to overlook the vast literature on gender issues in accounting ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm#Women

Social-science researchers don’t need to be nearly as afraid of the Institutional Review Board process as they usually are ---
http://chronicle.com/article/Does-This-Have-to-Go/237476?cid=at&utm_source=at&utm_medium=en&elqTrackId=523b59dd1962441f8a807798fce2666d&elq=f9442a4087aa4f53a76e0cd63bed7868&elqaid=10288&elqat=1&elqCampaignId=3852

Jensen Comment
The IRB reviews also apply to disciplines other than the the social sciences. For example, accounting researchers using human subjects generally face IRB reviews as well.

"Science Isn’t Broken." By Christie Aschwanden, Nate Silver's 5:38 Blog, August 19, 2015 ---
http://fivethirtyeight.com/features/science-isnt-broken/#part1

If you follow the headlines, your confidence in science may have taken a hit lately. Peer review? More like self-review. An investigation in November uncovered a scam in which researchers were
researchers were rubber-stamping their own work,
circumventing peer review at five high-profile publishers. Scientific journals? Not exactly a badge of legitimacy, given that the International Journal of Advanced Computer Technology recently accepted for publication a paper titled “Get Me Off Your Fucking Mailing List,” whose text was nothing more than those seven words, repeated over and over
for 10 pages. Two other journalsallowed an engineer posing as Maggie Simpson and Edna Krabappel to publish a paper, “Fuzzy, Homogeneous Configurations.” Revolutionary findings? Possibly fabricated. In May, a couple of University of California, Berkeley, grad students discovered irregularities in
Michael LaCour’s influential paper suggesting that an in-person conversation with a gay person could change how people felt about same-sex marriage. The journal Science retracted the paper shortly after, when LaCour’s co-author could find no record of the data.Taken together, headlines like these might suggest that science is a shady enterprise that spits out a bunch of dressed-up nonsense. But I’ve spent months investigating the problems hounding science, and I’ve learned that the headline-grabbing cases of misconduct and fraud are mere distractions. The state of our science is strong, but it’s plagued by a universal problem: Science is hard . . .
Continued in article

Jensen Comment
Accounting researchers have a bit easier since it's almost certain their research will never be subjected to replicaWhy Pokémon Go’s technology is no fad tion ---
http://faculty.trinity.edu/rjensen/TheoryTaR.htm

“The Unraveling of Harvard’s Star Trading Desk,” by Michael McDonald, Bloomberg, July 28, 2016 ---
http://www.bloomberg.com/news/articles/2016-07-28/behind-harvard-shakeup-a-star-trading-desk-that-unraveled-fast?cmpid=BBD072916_BIZ&utm_medium=email&utm_source=newsletter&utm_campaign=

. . .

After years of missteps, controversy and even crisis, Harvard Management Corp., which oversees the university’s $37.6 billion endowment, began assembling a new corps of equity traders and analysts in 2014, in hopes of recapturing a part of the investment magic that had once made the fund the envy of the world.

Only now, just two years later, that plan has collapsed. Stephen Blyth, 48, the former bond trader behind that effort, stepped down as HMC’s chief executive Wednesday for personal reasons after just 18 months on the job. His resignation follows the departure in June of Michael Ryan and Robert Howard, the two former Goldman Sachs Group Inc. partners he had brought in to guide the new equity strategy.

Pulled Plug

While Blyth’s exit was said to be unrelated to those of his star hires, the talk inside HMC’s offices at the Federal Reserve Bank of Boston centered on why management had pulled the plug on the team so quickly amid a volatile equities market.

According to people familiar with the matter, some traders in Ryan’s group posted losses in 2015 significant enough to trigger internal temporary stop-loss orders. Ryan also lost money in a portfolio he managed. The extent of the losses is unclear, however, and came at a time when most hedge funds were struggling to beat market indexes.
But now, Harvard is once again confronting the same, uncomfortable question that has dogged it for years: why can’t the world’s richest university, for all its brains, make smarter investments?

The IRS Scandal, Day 1180
World Tribune, ‘Smoking-Gun Documents’ Show IRS Knew About Targeting of Conservatives Before 2012 Election ---
http://taxprof.typepad.com/taxprof_blog/2016/08/the-irs-scandal-day-1180.html

Top IRS officials knew the agency was targeting conservatives because of their ideology and political affiliation two years before disclosing it to Congress and the public, according to a Judicial Watch report released on July 28.

“Senior IRS officials knew that agents were targeting conservative groups for special scrutiny as early as 2011,” the report said.

Lois Lerner revealed the targeting in May 2013 when she responded to a planted question at an American Bar Association conference.

Continued in article

Jensen Comment
Lois Lerner continues to refuse to testify whether or not the conservative targeting was at the behest of somebody in the Whitehouse (not necessarily President Obama who was up for re-election).

The IRS admits to destroying the evidence in Virginia that might answer the question of who instigated the targeting of the conservative fund raising groups.

It would become a tremendous scandal if the Whitehouse manipulated the IRS or any other government agency to aid in the election of a USA President. But without testimony and other evidence the genuine scandal cannot be proven. The shadow of scandal will probably last long into history after President Obama leaves office. By not investigating the scandal himself he has not cleared his own record.

As a minor scandal, Lois Lerner was given a bonus by the IRS after her resignation in disgrace.

VAT Tax --- https://en.wikipedia.org/wiki/Value-added_tax

Corporate Income/Revenue Taxes Increases Are Either Avoided (such as sweetheart deals from the Illinois Governor)
or They Get Passed Along in Higher Prices
or They Drive Companies Out of State (as Wisconsin learned the hard way)

"Oregon’s Regressive Tax Referendum: A gross-receipts levy would punish the 99% to help public unions," The Wall Street Journal, August 11, 2016 ---
http://www.wsj.com/articles/oregons-regressive-tax-referendum-1470958010?mod=djemMER

Progressives claim they can pay for their grand spending ambitions by soaking the rich, but the little guy invariably gets wet. The latest illustration is Oregon, where unions are campaigning for a gross-receipts tax on large corporations that even state budget analysts warn will drench the 99% too.

Last week Governor Kate Brown endorsed a November referendum that would impose a 2.5% tax on corporate sales exceeding $25 million. Oregon’s top income tax rate of 9.9% is the second highest in the country after California, and it hits at an income of only $125,000 for a single tax filer.

The Beaver State last raised income taxes in 2009, and state revenues have grown by nearly 30% in the last four years. But unions say the new business tax is needed to close a $1.4 billion deficit and pay for baked-in spending—the same justification for the last tax increase.

Health-care costs will rise by $1 billion in the next two-year budget thanks in part to the state’s ObamaCare Medicaid expansion. Generous new union contracts that increase worker pay and reduce their health-care premium contributions will add hundreds of millions to the fisc, while public pension costs are projected to swell by 150% to $4.5 billion by 2021.

The gross-receipts tax, which would throw off $3 billion annually and expand the budget by a third, would be a revenue gusher because of its pyramiding effect. As the Tax Foundation notes, “In effect, the tax gets built into prices and compounded as a product moves through the production process.” So low-margin businesses at the end of the supply chain—particularly retailers—get walloped.

Only five states assess a gross-receipts tax. Many including Michigan and New Jersey have dumped theirs due to its economic distortions. Oregon’s would be the highest and most onerous since it wouldn’t include deductions or differential rates to ameliorate the burden on low-margin industries. For instance, Texas allows businesses to deduct the cost of goods sold and employee compensation—and the Lone Star State has no income tax.

Businesses will respond by raising prices, reducing investment and laying off workers. The state Legislative Revenue Office estimated that the tax would cost 38,200 jobs in the private economy including 13,600 in retail trade while increasing government employment by 17,700. By 2022 state income would decline by 0.17% while prices would edge up 0.89% relative to the office’s baseline forecast.

The analysts also forecast that the measure would increase the state’s per capita tax burden by $600, and that “the marginal impact of the tax will be regressive.” Households making less than $21,000 in income would experience a 0.9% decline in after-tax income—about twice as much as those earning more than $206,000.

Continued in article

Jensen Comment
Actually I favor a VAT tax to replace the easily-avoided corporate income tax, but the VAT tax will only work well if it is imposed nationally.

GAO: IRS Faulted for Lax Housing Tax Credit Oversight ---
http://www.accountingweb.com/tax/irs/irs-faulted-for-lax-housing-tax-credit-oversight?source=tx080116

Bogus Tax Return Refund Fraud: GAO Finds Holes in IRS Taxpayer Protection Program (TPP) ---
http://www.accountingweb.com/tax/irs/gao-finds-holes-in-irs-taxpayer-protection-program?source=tx080116

Some interesting real world company illustrations of negative goodwill are listed at
https://www.scheller.gatech.edu/centers-initiatives/financial-analysis-lab/files/2011/gatech_finlab_bargainpurchase_4apr2011.pdf

Pokemon Go --- https://en.wikipedia.org/wiki/Pok%C3%A9mon_Go

Augmented Reality --- https://en.wikipedia.org/wiki/Augmented_reality

MAAW's Blog by Jim Martin: Why Pokémon Go’s technology is no fad ---
http://maaw.blogspot.com/2016/07/why-pokemon-gos-technology-is-no-fad.html

Learning maps, diagrams, and flowcharts. A sampling of illustrations from MAAW ---
http://maaw.info/LearningMapsandFlowCharts.htm

These are Not Your Average Business Cards ---
https://www.moo.com/us/products/business-cards.html?cvosrc=ppc content.bidtellect.bid-4054-How To Geek LLC-393367-jul16&cvo_campaign=28259&utm_source=bidtellect&utm_medium=native&utm_campaign=us_soho_bidtellect_camp28259_4054_How To Geek LLC_393367_jul16&utm_content=393367&utm_term=4054

Questions
How do WebLedgers differ from other types of accounting software"
How is this difference changing in the era of cloud storage?
How is there still a difference betwee WebLedgers and other accounting software in this era of cloud storage?

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

Oracle plans to acquire NetSuite for $9.3 billion ---
http://www.usatoday.com/story/tech/news/2016/07/28/oracle-acquires-netsuite-93-billion/87652732/?AID=10709313&PID=6147589&SID=ir6rex3qep005fwm00dth

Oracle continues expanding the size of its cloud.

The software giant, which has its own growing cloud computing business, is making a $9.3 billion bid to acquire NetSuite, another cloud software provider, the companies said Thursday.

Oracle will pay $109 in cash per NetSuite share in the transaction, expected to close in 2016, a 19% percent premium to NetSuite's closing share price of $91.57 Wednesday. NetSuite's board has unanimously approved the deal, the company said.

Shares of NetSuite (N) were up 18% in midday trading Thursday to $108.15 after rising 9% Wednesday on speculation of a deal.

Oracle (ORCL) shares were up 0.13% to $40.99 midday.

Redwood Shores, Calif.-based Oracle has been growing its cloud business beyond its traditional corporate software offerings. In NetSuite, Oracle gets the company that became the first to a full suite of enterprise resource planning (ERP) applications, said Ray Wang, principal analyst and founder at Constellation Research.

Located in San Mateo, Calif., NetSuite was co-founded in 1998 by current NetSuite Chairman and Chief Technology Officer Evan Goldberg and Oracle founder Larry Ellison as NetLedger, a cloud accounting company. Ellison, who stepped down as Oracle CEO two years ago, is now Oracle's executive chairman. He and his family remain the largest shareholders of NetSuite, owning more than 45% of outstanding shares as of March 31, 2016, according to filings with the Securities and Exchange Commission.

With NetSuite’s IPO in 2007, the company was valued at $2.1 billion and had grown to $7.7 billion by the end of 2013. Today, NetSuite has more than 30,000 companies in more than 100 countries using its cloud-based business management software. Current NetSuite CEO Zach Nelson, who handled global marketing for Oracle from 1996 to 1998, has said he expects NetSuite to hit $1 billion in revenue for the first time.

Continued in article

Jensen Comment
Cloud computing as we know it today was nonexistent in 1998 when NetLedger and other WebLedger accounting systems were formed. NetLeger was probably the most successful of the WebLedger ventures. WebLedgers like NetLedger differed from other accounting software in that the ledgers and journals of a company were remotely stored databases such as huge Oracle databases. The good news is that the expensive costs of acquiring and maintaining accounting databases were provided by WebLedger systems thereby relieving clients, especially smaller clients, from having to install accounting systems and hire the IS experts to maintain local databases. The bad news, of course, was the loss of some controls that arise from having your own databases locally.

I wrote about WebLedger alternatives at the time at
http://faculty.trinity.edu/rjensen/webledger.htm

In those days students could get free access to NetLedger and set up an accounting system for a hypothetical company. You can read the resulting project for one of my student teams at
http://faculty.trinity.edu/rjensen/acct5342/projects/NetLedger.pdf

Today cloud storage offers some of the WebLedger advantages of offsite storage and maintenance. However, WebLedgers still offer the advantages and disadvantages of offsite accounting software.

Friends, Partners, or Dummies on the Inside Are More Important Than Hacking Skills

A new study suggests many data breaches are caused by insider threats -- whether through malice or accident ---
http://www.zdnet.com/article/data-theft-rises-sharply-insiders-to-blame/

Jensen Comment
The enormous problem is a disgruntled employee with a key to the kingdom.

How to Mislead With Statistics

"The Great Productivity Puzzle," by John Cassady, The New Yorker, August 10, 2016 ---
http://www.newyorker.com/news/john-cassidy/the-great-productivity-puzzle

What's the difference between "John Doe, CPA" versus "John Doe, CPA, ABV?"

AICPA Answer ---
http://www.aicpa.org/Membership/Join/Pages/credentials.aspx#tab-5?utm_source=mnl:cpald&utm_medium=email&utm_campaign=23Aug2016

Jensen Comment
Note the other certifications in the tabs at the top of the page.

Badges and certifications will probably replace college diplomas in terms for both landing jobs and obtaining promotions in the future.

But not all badges and certifications are created equally. The best ones will be those that have both tough prerequisites and tough grading and tough experience requirements. There's precedence for the value of certifications in medical schools. The MD degree is now only a prerequisite for such valuable certifications in ophthalmology, orthopedics, neurology cardio-vascular surgery, etc.

What will be interesting is to see how long it will take badges/certifications to replace Ph.D. degrees for landing faculty jobs in higher education. At present specializations are sort of ad hoc without competency-based testing. For example, accounting professors can advance to specialties like auditing and tax corporate tax accounting with self-study and no competency-based testing. This may change in the future (tremble, tremble).

Watch this video link forwarded by Denny Beresford ---
Watch the video at
https://www.youtube.com/watch?v=5gU3FjxY2uQ
The introductory screen on the above video reads as follows (my comments are in parentheses)

In Year 2020 most colleges and universities no longer exist (not true since residential colleges provide so much more than formal education)

Academia no longer the gatekeeper of education (probably so but not by Year 2020)

Tuition is an obsolete concept (a misleading prediction since badges will not be free in the USA that already has $100 trillion in unfunded entitlements)

Degrees are irrelevant (yeah, one-size-fits-all diplomas are pretty much dead already)

What happened to education?

What happened to Epic?

Bob Jensen's threads on the future of badges and certifications ---
http://faculty.trinity.edu/rjensen/assess.htm#ConceptKnowledge

From the CFO Journal's Morning Ledger on August 26, 2016

Europe's radical copyright reform trains cross hairs on Google
The European Commission is finalizing reforms that will allow European news publishers to levy fees on internet platforms such as Alphabet Inc.’s Google if search engines show snippets of their stories, the Financial Times reports. The proposals, to be published in September, aim to dilute the power of big online operators that can lead to imbalanced commercial negotiations between search engines and content creators, officials say.

Jensen Comment
What's a snippet?

If this restricts anything from being quoted it Europe will be shutting down academic debate. The whoe purpose of allowing "short" quotations is to allow scholars to write critiques and inspire debate.

As a rule copyright holders cannot prevent you from quoting their published works as long as the quotations are short in length. One of the main reasons is that authors cannot use copyright law to put their works above criticism. Sometimes it's really not effective to criticize a work without quoting some parts of that work. Europe's "radical copyright reform" will hopefully not make authors' works above criticism.

Will the largest for-profit training school (with 130 campuses) be thrown under the bus?

ITT --- https://en.wikipedia.org/wiki/ITT_Technical_Institute

From the CFO Journal's Morning Ledger on August 26, 2016

This could be it for ITT
The Obama administration took steps Thursday that could effectively force the closure of one of the nation’s largest for-profit college chains, banning ITT Technical Institute from enrolling new students who receive federal aid. ITT, which has about 43,000 students nationwide, is facing accusations from its accreditor of chronic mismanagement of its finances and using questionable recruiting tactics. The company is also under investigation by state and federal authorities. Parent ITT Educational Services Inc.’s stock plunged.

Bob Jensen's threads on fee-based training alternatives ---
http://faculty.trinity.edu/rjensen/Crossborder.htm

From the CFO Journal's Morning Ledger on August 23, 2016

U.S. and German audit regulators sign cooperation pact
The Public Company Accounting Oversight Board and the German Auditor Oversight Body agreed to cooperate in oversight of audit firms subject to both regulatory jurisdictions, the Journal of Accountancy reports. The deal provides a framework for joint inspections and allows the regulators to exchange confidential information in accordance with German laws and the Dodd-Frank Act.

From the CFO Journal's Morning Ledger on August 23, 2016

Court rules against EY in overtime case
A federal appeals court has ruled in favor of two Ernst & Young employees who wanted to participate in a class-action lawsuit against the firm about overtime pay rather than submit to mandatory arbitration, Accounting Today reports. The U.S. Court of Appeals for the Ninth Circuit handed down an opinion Monday in favor of two EY employees, vacating a district court’s order that would have compelled they submit to individual arbitration of their claims. The class-action lawsuit they wished to participate in alleged that EY misclassified employees in order to deny them overtime wages, in violation of the Fair Labor Standards Act and California labor laws.

From the CFO Journal's Morning Ledger on August 23, 2016

BofA gets nod against DOJ appeal
An appellate court on Monday declined to reconsider its decision to throw out a mortgage-fraud case against Bank of America Corp., a blow to the Justice Department as it tried to rescue one of its highest-profile cases tied to the financial crisis. Judges for the Second U.S. Circuit Court of Appeals in New York said in a filing that they had considered the Justice Department’s request and would deny it. The judges didn’t elaborate on their decision.

From the CFO Journal's Morning Ledger on August 23, 201

Wells Fargo settles with CFPB
Wells Fargo Bank agreed to pay $4 million to resolve allegations by the Consumer Financial Protection Bureau that it used illegal payment-processing practices resulting in higher costs for some borrowers. The settlement includes a $410,000 refund to affected consumers and a $3.6 million civil penalty to the CFPB, which has recently stepped up its scrutiny of student-loan servicing companies. The unit of Wells Fargo & Co. said it disagreed with the CFPB’s assertions.b

From the CFO Journal's Morning Ledger on August 19, 2016

FASB tweaks nonprofit reporting
The Financial Accounting Standards Board’s updated rules aim to make it simpler for nonprofits to classify and report their assets. The new rules also make it easier for donors, creditors and other interested parties to see how a nonprofit’s funds are being used. Nonprofits will now report two classes of assets, instead of three, which should reduce some of the burden of deciding which charitable assets can be used, and when. The new reporting will separate cash that is available now from cash that may have time contingencies or other strings attached.

Record Dividend Payouts Hurting Bond Investing Since the Fed Drove Interest Rates to Virtually Zero

From the CFO Journal's Morning Ledger on August 19, 2016

Big companies are handing more of their profits to shareholders than at any time since the financial crisis, as record-low bond yields put a premium on dividends, Mike Bird, Vipal Monga and Aaron Kuriloff write. Payouts at S&P 500 companies for the 12 months were nearly 38% of net income. Moreover, 44 of those firms paid more than they earned over the previous year, the most in a decade and a practice some analysts deem unsustainable. The dividend yield on the S&P 500, or annual payouts as a share of the current price, has been steadily above the 10-year U.S. Treasury yield for most of 2016, after only occasionally doing so for decades.

The shift has forced many investors to conclude there is no alternative to investing in stocks, a mantra that has accompanied the rise this year of the Dow Jones industrial Average and S&P 500 to records.The increase also underscores the intense pressure on corporate earnings. Earnings at S&P 500 companies are set to decline from a year earlier in five straight quarters, a retreat not seen since in the financial crisis. Companies paying more than their income over the past 12 months included drug firm Pfizer Inc., aluminum smelter Alcoa Inc., toy maker Mattel Inc. and food companies Kellogg Co. and Kraft Heinz Co.

From the CFO Journal's Morning Ledger on August 19, 2016

Harley settles on emissions probe
Harley-Davidson Inc. reached a $15 million settlement to resolve U.S. claims that it violated air-pollution laws amid growing government scrutiny of vehicle emissions on the road. The company made or sold 340,000 “super tuner” devices that improved engine performance but increased engine exhaust to levels beyond the emissions levels the company had certified with regulators, according to a complaint and consent decree, both filed Thursday by the Justice Department on behalf of the Environmental Protection Agency.

From the CFO Journal's Morning Ledger on August 17, 2016

Hain’s problematic revenue accounting
Something could be rotten in Hain Celestial Group Inc.’s revenue, Miriam Gottfried writes for Heard on the Street. Hain, which specializes in natural and organic foods, said Monday it will delay its earnings report because of a potential problem with how it has accounted for revenue. Hain is evaluating whether revenue associated with concessions it granted certain U.S. distributors was recorded in the correct period. The company has historically recognized it at the time products are shipped to distributors, but is examining whether that revenue should have been recognized when products were sold through distributors to stores

Bob Jensen's threads on revenue accounting frauds and errors ---
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm

From the CFO Journal's Morning Ledger on August 17, 2016

Health care a sticky wicket
Many companies are cutting jobs in response to rising health-care costs spurred by the Affordable Care Act, according to a new survey by the Federal Reserve Bank of New York. Roughly one-fifth of service sector and manufacturing company executives said they are reducing the number of workers in response to provisions in the health-care law, Vipal Monga reports. The results add to a bevy of bad news related to the Obama administration’s signature health-care law.

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

From the CFO Journal's Morning Ledger on August 16, 2016

Aetna bails on many Obamacare exchanges
Aetna Inc. will withdraw from 11 of the 15 states where it currently offers plans through the Affordable Care Act exchanges, becoming the latest of the major national health insurers to pull back sharply from the law’s signature marketplaces after steep financial losses. Aetna’s move will sharpen concerns about competitive options in the exchanges—and it puts at least one county at risk of having no insurers offering exchange plans in 2017.

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

Home Equity Loan --- https://en.wikipedia.org/wiki/Home_equity_loan

From the CFO Journal's Morning Ledger on August 12, 2016

Home equity loans come back to haunt borrowers, banks
The bill is coming due for many homeowners on a type of loan that was widely popular in the run-up to the housing bust, causing a rise in delinquencies at banks. More homeowners are missing payments on their home-equity lines of credit, or Helocs, a type of loan that allows borrowers to withdraw cash from their house to pay for renovations, college tuition or almost any other expense. These loans typically require interest-only payments for the first 10 years, but then principal payments kick in for the next 15 or 20 years. Borrowers who signed up for Helocs in early 2006 were at least 30 days late on $2.8 billion of balances four months after principal payments kicked in this year, according to Equifax Roughly 840,000 Helocs taken out in 2006 are resetting this year, with principal payments on an additional nearly one million loans expected to hit in 2017.

Reverse Mortgage Calculator ---
http://reversemortgageguides.org/?leadint_source=BingPPC

From the CFO Journal's Morning Ledger on August 12, 2016

GM continues to seek shield from ignition-switch suits
General Motors Co. sought a rehearing of an appeals court ruling that exposes it to hundreds of potential lawsuits and some $10 billion in liabilities from faulty ignition switches. Lawyers for the nation’s largest auto maker said the court made two “fundamental errors” last month when it ruled against the company’s efforts to use its 2009 bankruptcy to shield itself from the litigation over the ignition switches. GM said the court’s decision, if not reversed, would permanently damage the bankruptcy process that saved it from collapse in 2009.

Reminds me of the 1990s when companies reported bartering of Website advertising as revenue

From the CFO Journal's Morning Ledger on August 11, 2016

Comscore delays quarterly report on accounting probe, names new leadership
ComScore Inc. on Wednesday said it needs more time to file its June quarterly report, as the media measurement and analytics company completes an internal investigation into its accounting. Separately, comScore named a new management team, including replacing its chief executive Serge Matta, who has been accused of benefiting from the company’s boosted results from the recording of “nonmonetary” revenue. This reflects revenue from barter agreements, where actual cash doesn’t change hands. As the WSJ’s Anne Steele writes, comScore replaced finance chief Melvin Wesley with chief revenue officer David Chemerow. Mr. Chemerow was CFO for Rentrak Corp., which ComScore bought in January.

Bob Jensen's threads on bartering and other creative accounting ploys to jack up revenues ---
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm

From the CFO Journal's Morning Ledger on August 10, 2016

Tipsters are poised for big payouts.
U.S. government settlements with State Street Corp. and Bank of New York Mellon Corp. could produce a windfall for three former employees who blew the whistle on the banks’ alleged mistreatment of foreign-currency-trading clients. The awards could exceed a combined $100 million, the largest such awards on record, according to an analysis by The Wall Street Journal. Harry Markopolos, the forensic accountant who repeatedly blew the lid off Bernard Madoff’s Ponzi scheme, assembled the group and advised them. He could reap a slice of any payouts awarded to the whistleblowers, according to people familiar with the matter.

Bob Jensen's threads on whistle blowing ---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

From the CFO Journal's Morning Ledger on August 4, 2016

Age is more than just a number for the U.S. economy.

New research by Harvard economists shows that an aging population not only reduces the labor force, it also robs U.S. companies of critical knowledge and experience as skilled workers retire. And that, in turn, undermines productivity across the whole economy.

As the WSJ’s Greg Ip reports, demographics could be a crucial factor in why the current economic expansion is the weakest on record. The new paper by Nicole Maestas of Harvard University and Kathleen Mullen and David Powell of the Rand Corp. think tank, was able to analyze the impact of aging on economic growth, because the 50 states are aging at different rates.

On average, every 10% increase in the share of a state’s population over the age of 60 reduced per capita growth in gross domestic product by 5.5%, it found.

There were two reasons for this. First, as more workers retire, the labor force grows more slowly, accounting for one-third of the 5.5% hit to growth. The bigger effect, however, resulted from the lower productivity of the remaining workers. This couldn’t be explained by emigration, mortality or an influx of younger, inexperienced workers. Rather, the researchers found that everyone became less productive in an aging state. “An older worker’s experience increases not only his own productivity but also the productivity of those who work with him,” the authors noted. By applying their state-level findings to the whole country, the authors estimate that aging will reduce growth by 1.2 percentage points between 2010 and 2020, with two-thirds of the effect attributable to reduced productivity.

From the CFO Journal's Morning Ledger on August 3, 2016

IASB pressed to fix 'wishy-washy' accounting rules
The Australian Accounting Standards Board is urging the international accounting standards watchdog to tighten up the language used for global regulations, which the local body says is injecting ambiguity into the rules. Following research in conjunction with its South Korean counterpart, the AASB is urging the International Accounting Standards Board to fix indecisive language that leaves too much room for interpretation. According to AASB research director Angus Thomson, increasing use of terms like "probable", "likelihood" and "remote" creates confusion on when firms should recognize assets and liabilities. Researchers picked 13 out of about 30 different terms used in international accounting standards to infer the likelihood of an event occurring or not.

From the CFO Journal's Morning Ledger on August 3, 2016

Washington State files $100 million lawsuit against Comcast
Washington State Attorney General Bob Ferguson has filed a $100 million lawsuit against Comcast Corp. saying the cable giant deceived customers into paying tens of millions of dollars in fees for a “near-worthless” service protection plan. Mr. Ferguson also accused Philadelphia-based Comcast of committing more than 1.8 million violations of the state’s Consumer Protection Act, by charging improper service call fees and using improper credit screening practices. “This case is a classic example of a big corporation systematically deceiving Washington state consumers and putting profits above those consumers,” said Mr. Ferguson.

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

A Billion Here a Billion There: Facebook May Owe an Additional $3-$5 Billion in Taxes

From the CFO Journal's Morning Ledger on July 29, 2016

Speaking of Facebook
Facebook Inc. said it could be on the hook for $3 billion to $5 billion in additional taxes as a result of an Internal Revenue Service investigation into how the social network transferred assets overseas. The company said in a quarterly filing that the IRS had issued a “statutory notice of deficiency” saying Facebook owes more taxes for 2010. The IRS earlier this month sued Facebook for documents related to the transfer, saying it suspected that Facebook’s accountants had undervalued some of those assets by “billions of dollars.”

A Billion Here a Billion There: Amazon Doubles Profit

From the CFO Journal's Morning Ledger on July 29, 2016

Amazon doubles profit
Amazon.com Inc. on Thursday reported in its third consecutive record profit, nearly doubling its prior high-water mark, and its fifth straight quarter in the black. Amazon’s revenue jumped by almost a third, and it also more than doubled its operating margin, which historically has been razor thin, and issued a cheery outlook for the coming quarter. The results show Amazon moving toward investors’ long-held hope of consistent profitability after a lengthy period of heavy investments and quarterly losses. The Seattle company hasn’t had five consecutive profitable quarters since 2012.

From the CFO Journal's Morning Ledger on July 27, 2016

FASB proposes tax-reporting tweaks
The Financial Accounting Standards Board has proposed a new accounting standards update that would require companies to change the way they report income taxes, Accounting Today reports. Companies would have to disclose more about the differences between foreign and domestic taxes, plus more surrounding decisions about indefinitely reinvested foreign profits and the effects of new tax laws, plus a better breakdown of where cash is parked among foreign subsidiaries.

"The New York Times uses the same accounting techniques the paper critiques,' by Francine McKenna, May 5, 2016 ---
http://www.marketwatch.com/story/the-new-york-times-uses-the-same-accounting-techniques-the-paper-critiques-2016-05-04

The New York Times has highlighted the use of made-up financial metrics that have resulted in “phony-baloney financial reports.” However, even the New York Times Company can’t resist using a few non-GAAP numbers each quarter to present its earnings in a flattering way.

In its press release accompanying first-quarter earnings The New York Times Company says that the measures “provide useful information to investors.”

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 29, 2016

Understanding Disclosure Controls over Non-GAAP Measures
by: Deloitte CFO Journal Editor
Jul 22, 2016
Click here to view the full article on WSJ.com

TOPICS: Financial Reporting, Financial Accounting, GAAP, Internal Controls, Non-GAAP

SUMMARY: As part of its current focus on non-GAAP measures, the SEC has questioned whether companies and audit committees have implemented appropriate controls regarding the disclosure of such measures. The article discusses the types of controls that could be established and provides high-level examples of control issues and related responses for consideration in connection with non-GAAP measures.

CLASSROOM APPLICATION: This article addresses the increased concerns regarding popular non-GAAP/pro forma financial reporting articles by discussing the use of internal controls.

QUESTIONS:
1. (Introductory) What is GAAP? How is it determined? What entities use GAAP?

2. (Advanced) What is non-GAAP reporting? Why do companies engage in non-GAAP reporting? What are the benefits of this type of reporting?

3. (Advanced) What are internal controls? What are the benefits of establishing and enforcing good internal controls?

4. (Advanced) How can internal controls be used for non-GAAP reporting? What benefits does it offer?

5. (Advanced) What is ICFR? What are DCPs? How do they differ? How do they relate to controls over non-GAAP measures?

6. (Advanced) What does the SEC say about Section 302 of the Sarbanes-Oxley Act? How does this affect companies that use non-GAAP measures? What procedures should companies consider?

Reviewed By: Linda Christiansen, Indiana University Southeast

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"Understanding Disclosure Controls over Non-GAAP Measures," by Deloitte CFO Journal Editor, The Wall Street Journal, July 22, 2016 ---
http://deloitte.wsj.com/cfo/2016/07/22/understanding-disclosure-controls-over-non-gaap-measures/?mod=djem_jiewr_AC_domainid

As part of its current focus on non-GAAP measures, the SEC has questioned whether companies and audit committees have implemented appropriate controls regarding the disclosure of such measures.* Deloitte’s Heads Up newsletter discusses the types of controls that could be established and provides high-level examples of control issues and related responses for consideration in connection with non-GAAP measures. In addition, the Heads Up outlines a sample approach for consideration. Following is an excerpt from the full newsletter.

Disclosure Controls and Procedures versus Internal Control over Financial Reporting

Before diving into a detailed discussion about types and examples of controls, the stage should be set by clarifying whether controls over non-GAAP measures are related to disclosure controls and procedures (DCPs), to internal control over financial reporting (ICFR) or to both.

ICFR, which is defined in both SEC and PCAOB rules (see Appendix B in the full Heads Up newsletter), focuses on controls related to the “reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.” DCPs, on the other hand, are more broadly defined and pertain to all information required to be disclosed by the company (see Appendix B).

Because the starting point for a non-GAAP measure is a GAAP measure, ICFR would be relevant to consider up to the point at which the GAAP measure that forms the basis of the non-GAAP measure has been determined. However, regarding controls over the adjustments to the GAAP measure and the related calculation of the non-GAAP measure—including the oversight and monitoring of the non-GAAP measure—it is appropriate to consider such controls within the realm of DCPs.

For a discussion of controls over non-GAAP measures in which the Committee of Sponsoring Organizations (COSO) Internal Control—Integrated Framework is considered, see Appendix A.

Non-GAAP Measures, Earnings Releases and DCPs

The SEC’s final rule on certifications states that Section 302 of the Sarbanes-Oxley Act of 2002 requires management to certify on a quarterly basis that DCPs are effective “to ensure that information required to be disclosed by the issuer in the reports filed or submitted by it under the Exchange Act [footnote omitted] is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.” Earnings releases containing non-GAAP measures are often furnished on Form 8-K, which does not require certifications of the effectiveness of DCPs. However, the final rule also indicates that “[d]isclosure controls and procedures . . . are required to be designed, maintained and evaluated to ensure full and timely disclosure in current reports.”

Therefore, registrants that use non-GAAP measures in earnings releases furnished on Form 8-K—or those that use them in Forms 10-Q and 10-K (outside the financial statements), which would be explicitly covered by Section 302 certifications—should consider the appropriateness of their DCPs in the context of their non-GAAP information. Registrants should, at a minimum, consider designing DCPs to ensure that procedures are in place regarding:

1. Compliance—Non-GAAP measures are presented in compliance with SEC rules, regulations and guidance.

2. Consistency of preparation—Non-GAAP measures are presented consistently each period, and potential non-GAAP adjustments are evaluated on an appropriate, consistent basis each period.

3. Data quality—Non-GAAP measures are calculated on the basis of reliable inputs that are subject to appropriate controls.

4. Accuracy of calculation—Non-GAAP measures are calculated with arithmetic accuracy, and the non-GAAP measures in the disclosure agree with the measures calculated.

5. Transparency of disclosure—Descriptions of the non-GAAP measures, adjustments and any other required disclosures are clear and not confusing.

6. Review—Non-GAAP disclosures are reviewed by appropriate levels of management to confirm the appropriateness and completeness of the non-GAAP measures and related disclosures.

7. Monitoring—The registrant’s monitoring function (e.g., internal audit, disclosure committee or audit committee) appropriately reviews the DCPs related to non-GAAP disclosures. The audit committee is involved in the oversight of the preparation and use of non-GAAP measures.

A critical aspect of such DCPs is the involvement of the appropriate levels of management and those charged with governance. Depending on the registrant, this may include reviewing the selection and determination of non-GAAP measures with a disclosure committee, the audit committee or both.

Establishing a written policy that clearly describes the nature of allowable adjustments to GAAP measures, defines the non-GAAP measure(s) to be used under the policy, and explains how potential changes in the inputs, calculation or adjustments will be evaluated and approved may help management identify its DCPs.

For example, a policy might describe qualitatively the types of adjustments that are nonrecurring and abnormal and thus within the defined policy. It may also outline specific quantitative thresholds for which income or expense items might be evaluated in the determination of whether they should be included in non-GAAP adjustments. This could help ensure that appropriate non-GAAP measures are used as well as eliminate the need for numerous immaterial adjustments in the reconciliation that may confuse investors.

Disclosure Committee Considerations

Some companies may find it helpful to use a disclosure committee to assist the CEO, CFO and audit committee in preparing and overseeing disclosures, including those related to non-GAAP measures. Disclosure committees are typically management committees, although some companies prefer that the disclosure committee function as a subcommittee of the board and audit committee.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 29, 2016

Congratulations on the Summer Job! Here's What You Owe the Government
by: Laura Saunders
Jul 23, 2016
Click here to view the full article on WSJ.com

TOPICS: Individual Taxation

SUMMARY: This article offers information regarding the tax issues students should know about their summer jobs. Beyond the basics, the article includes: being employed by a parent, employment status, taking care of the W-4, shifting an education tax break, and funding an IRA.

CLASSROOM APPLICATION: This article is a nice addition to an individual tax class for its content, but also because it is full of helpful information for all of our students, regardless of class or major.

QUESTIONS:
1. (Introductory) What are the basic requirements for filing a tax return? What is the threshold of earned income required to file? Who must pay Social Security and Medicare taxes?

2. (Advanced) What are the rules regarding parents employing their children? Do the tax rules offer advantages or cause disadvantages for this situation? Is this something parents should consider doing?

3. (Advanced) What is an employee? What is an independent contractor? How do they differ for tax purposes?

4. (Advanced) What is a W-4? What should a student choose on a the W-4?

5. (Advanced) What are education tax breaks are available? What options should parents and students consider to maximize tax benefits?

6. (Advanced) What is an IRA? What are the types of IRAs? How can students fund an IRA to maximize the tax benefits?
Reviewed By: Linda Christiansen, Indiana University Southeast

"Congratulations on the Summer Job! Here's What You Owe the Government," byLaura Saunders, The Wall Street Journal, July 23, 2016 ---
http://www.wsj.com/articles/congratulations-on-the-summer-job-heres-what-you-owe-the-government-1469179802?mod=djem_jiewr_AC_domainid

Some children’s returns are as complicated as their parents’

Summertime living is supposed to be easy, but for those who take seasonal jobs the taxes can be tricky.

Now is a good time for a checkup if you are a student with a summer job or have a young worker in the family.

“Some children’s returns are almost as complex as their parents’, even though they don’t have much income,” says Ken Rubin, a certified public accountant with RubinBrown in St. Louis.

One common complication is the need for multiple state returns if a child’s home is in one state, a college or on-campus job is in another and a summer job is in a third.

Slip-ups can mean aggravation later or lost opportunities, so here are tax tips for summer earners.

Know the basics. For many young workers who are dependents—meaning that someone else provides more than half their support—the threshold for federal income tax in 2016 will be $6,300 of earned income. That’s the amount of the standard deduction.

Employees typically owe 7.65% in Social Security and Medicare tax on all earned income, while self-employed workers generally owe 15.3% for these levies on earned income above about $430, according to Troy Lewis, a CPA who practices in Draper, Utah.

If the employee is your child. Parents who hire children under 18 to work in a sole proprietorship, a spousal partnership or a single-member limited-liability company can deduct the child’s pay, and no payroll taxes are due.

Payroll taxes are due if the child is 18 or older, but children under 21 who are employed by a parent are exempt from federal unemployment taxes and possibly state unemployment taxes as well.

Parents who plan to deduct a child’s pay should pay fair wages for real work, says Mr. Lewis, and be sure to keep careful records. Many tech-savvy teens have expertise in building or maintaining business websites or marketing via social media.

Check employment status. Young workers may not know whether they are employees or independent contractors, but there’s a big difference. Contractors don’t have income or payroll taxes withheld, so these workers could have a surprise tax bill if a 1099 form arrives next spring.

Independent contractors should also track deductible expenses for mileage, special uniforms or equipment used in their work, says Mr. Lewis, because such expenses can be hard to reconstruct.

Take care with the W-4. If an employee won’t have taxable income for 2016, the W-4 form should say “exempt” on line 7, to avoid having to file a return next spring. Payroll taxes due will still be withheld.

Consider shifting an education tax break. Last year, Congress made permanent the American Opportunity Tax Credit, which is often the best college tax break. Those claiming it can use up to $4,000 of college expenses for tuition, books and equipment to reduce their income taxes by as much as $2,500.

The catch: This benefit isn’t available to most couples who have more than $160,000 of adjusted gross income or singles with more than $80,000.

If the parents have too much income to claim the American Opportunity Credit for college costs, the young worker may be able claim it instead, says Mr. Rubin, even if the employee is still a dependent of his or her parents. Often families are unaware of this option, according to Mr. Rubin.

In this case, neither the parents nor the child claim the personal exemption for the child. This benefit may be of little value to the parents because of a phaseout for affluent taxpayers.

The student then claims the American Opportunity Credit on his or her own return, which offsets up to $2,500 of taxes. The student doesn’t have to pay the college costs to use this benefit.

Mr. Rubin adds that the credit can apply to the student’s “unearned” income (as from investments or a trust) as well as his or her earned income, even if the unearned income is taxed at the parents’ rate due to a provision known as the “kiddie tax.”

Fund an IRA. Summer workers can contribute their earned income up to $5,500 this year to either a traditional or a Roth individual retirement account. Assets in either account compound tax free.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 29, 2016

SEC Proposes to Eliminate Outdated and Duplicative Disclosure Requirements
by: Deloitte Risk Journal Editor
Jul 22, 2016
Click here to view the full article on WSJ.com

TOPICS: Disclosures, Financial Accounting, GAAP, IFRS, SEC

SUMMARY: The SEC issued a proposed rule that would amend some of its disclosure requirements that may be redundant, duplicative or outdated, or may overlap with other SEC, U.S. GAAP or IFRS disclosure requirements. The proposal also seeks comment on whether certain SEC disclosure requirements that overlap with U.S. GAAP requirements should be retained, modified, eliminated or referred to the FASB for potential incorporation into U.S. GAAP. The proposed amendments are the next step in the SEC's ongoing disclosure effectiveness initiative, which is a broad-based review of the commission's disclosure, presentation and delivery requirements for public companies.

CLASSROOM APPLICATION: This summary of the SEC's proposal is appropriate for use in a financial accounting class when covering disclosure requirements.

QUESTIONS:
1. (Advanced) What is the SEC? What are it areas of authority? What types of disclosures does it require?

2. (Introductory) What is GAAP? What is its purpose? What body determines GAAP? To what companies does it apply?

3. (Introductory) What is IFRS? What is its purpose? To what companies does it apply?

4. (Advanced) What new rule is the SEC proposing? What is the reason for this new rule? What issues is the SEC attempting to address?

5. (Advanced) What are the details of the new proposal? What companies would be affect by these changes?

6. (Advanced) Why do some reporting requirements overlap? Is this overlap beneficial for users of this information or is the overlap burdensome for companies?
Reviewed By: Linda Christiansen, Indiana University Southeas

"SEC Proposes to Eliminate Outdated and Duplicative Disclosure Requirements," by Deloitte Risk Journal Editor, The Wall Street Journal, July 22, 2016 ---
http://deloitte.wsj.com/riskandcompliance/2016/07/22/sec-proposes-to-eliminate-outdated-and-duplicative-disclosure-requirements/?mod=djem_jiewr_AC_domainid

The SEC issued a proposed rule¹ that would amend some of its disclosure requirements that may be redundant, duplicative or outdated, or may overlap with other SEC, U.S. GAAP or IFRS disclosure requirements. The proposal, issued on July 13, also seeks comment on whether certain SEC disclosure requirements that overlap with U.S. GAAP requirements should be retained, modified, eliminated or referred to the FASB for potential incorporation into U.S. GAAP.

Following is an excerpt from the latest Deloitte Heads Up newsletter covering the SEC proposal, which includes a table summarizing some of the proposed changes.

The proposed amendments are the next step in the SEC’s ongoing disclosure effectiveness initiative, which is a broad-based review of the commission’s disclosure, presentation and delivery requirements for public companies. As part of the initiative, the SEC also issued a concept release² in April of this year that sought feedback on modernizing certain business and financial disclosure requirements of Regulation S-K as well as a request for comment³ last September on the effectiveness of certain financial disclosure requirements in Regulation S-X.⁴

The proposed amendments to the disclosure requirements would affect U.S. issuers, foreign private issuers (FPIs), investment advisers, investment companies, broker-dealers and nationally recognized statistical rating organizations. The effect on each type of issuer varies depending on the amendment proposed. The SEC intends to improve the disclosure requirements and simplify registrants’ compliance efforts without significantly altering the total mix of information that is ultimately provided to investors.

The proposal’s request for comment on overlapping requirements notes that “proposals related to some topics would result in the relocation of disclosures from outside to inside the financial statements, subjecting this information to annual audit and/or interim review, internal control over financial reporting, and XBRL tagging requirements.”

For example, the requirements in Regulation S-K, Item 103,⁵ to disclose certain legal proceedings can in certain cases be more expansive than those in U.S. GAAP, under which loss contingencies must be disclosed. The commission is seeking input on whether incorporation of Item 103, among other requirements, into U.S. GAAP may impose greater burdens on issuers and auditors related to the development and auditing of additional estimates and disclosures. The SEC also notes that the location of some disclosures in a filing could change as a result of the proposal to address overlapping requirements, which might affect users by changing the prominence of the disclosures.

The proposal may result in the removal or addition of a bright-line disclosure threshold (i.e., a threshold below which no disclosure is required), which may change the disclosure burden on issuers and the amount of information disclosed to investors. For example, unlike U.S. GAAP, Regulation S-K&⁶ requires disclosure of the amount of revenue from any class of similar products and services that account for 10% or more of revenue.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 29, 2016

tDeloitte Resigns as 1MDB Auditor
by: Michael Rapoport
Jul 27, 2016
Click here to view the full article on WSJ.com

TOPICS: Accounting, Auditing, Big Four, Fraud

SUMMARY: The departure of a third auditor for a Malaysian government investment fund is putting focus on another global company that apparently failed to raise questions about what investigators are calling a large-scale fraud. The fund, 1Malaysia Development Bhd. or 1MDB, said that its auditor, Deloitte Touche Tohmatsu Ltd., resigned in February. Earlier disputes over the fund's accounts led to the firing of 1MDB's previous auditors, KPMG and Ernst & Young. The fund also said its 2013 and 2014 financial statements, which were audited by Deloitte, should no longer be relied on. Deloitte joins a long list of financial firms that have worked with 1MDB without identifying the alleged fraud there.

CLASSROOM APPLICATION: This article is appropriate for an auditing class or as part of a discussion on these topics in a financial accounting class.

QUESTIONS:
1. (Introductory) What is auditing? What is it purpose? What companies are audited?

2. (Introductory) What are the Big Four firms? What services do they offer? Geographically, where do they offer these services?

3. (Introductory) What is 1MDB? What are the facts of the legal issues facing 1MDB?

4. (Advanced) What Big Four firms have worked with 1MDB? What services did they provide? Why did they fail to detect the fraud? Should they have done additional work to detect it? Should they have reported the issues they found?

5. (Advanced) What are auditor responsibilities for fraud detection? Should the auditors in this case have detected the fraud? Could they be found liable for not finding it? Why or why not?

6. (Advanced) Why were these U.S. firms auditing a Malaysian government investment firm? If they had not taken on the audit engagement, who would have done the auditing? Should U.S. firms do this kind of work?

Reviewed By: Linda Christiansen, Indiana University Southeast
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"Deloitte Resigns as 1MDB Auditor," by Michael Rapoport, The Wall Street Journal, July 27, 2016 ---
http://www.wsj.com/articles/deloitte-resigns-as-1mdb-auditor-1469579900?mod=djem_jiewr_AC_domainid

Malaysian government investment fund says Deloitte Touche Tohmatsu resigned in February

The departure of a third auditor for a Malaysian government investment fund is putting focus on another global company that apparently failed to raise questions about what investigators are calling a large-scale fraud.

The fund, 1Malaysia Development Bhd. or 1MDB, said Tuesday that its auditor, Deloitte Touche Tohmatsu Ltd., resigned in February. Earlier disputes over the fund’s accounts led to the firing of 1MDB’s previous auditors, KPMG and Ernst & Young, according to a Malaysian auditor general’s report last year.

The fund also said its 2013 and 2014 financial statements, which were audited by Deloitte, should no longer be relied on.

Deloitte joins a long list of financial firms that have worked with 1MDB without identifying the alleged fraud there. These include Goldman Sachs Group, Swiss private banks Falcon Private Bank Ltd. and BSI SA, and other banks such as DBS Bank Ltd, Standard Chartered PLC and UBS Group AG. All have said they were unaware of the alleged fraud at 1MDB, though investigators have said they could have done more to spot it.

The Swiss attorney general’s office said earlier this year it suspected $4 billion had been misappropriated from 1MDB. Last week, the U.S. Justice Department filed a civil lawsuit aiming to seize assets that it said were bought with $3.5 billion misappropriated from the fund. The Wall Street Journal has reported that hundreds of millions of dollars originating with 1MDB flowed into the personal bank account of Malaysian Prime Minister Najib Razak .

Deloitte said in a statement Tuesday that the information in the Justice Department lawsuit against 1MDB “would have impacted the financial statements and affected the audit reports” if it had been known at the time, and so its audit reports for 2013 and 2014 should no longer be relied upon.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 29, 2016

Videogames: Knowing What Really Sells
by: Dan Gallagher
Jul 26, 2016
Click here to view the full article on WSJ.com

TOPICS: Deferred Revenues, Financial Accounting, GAAP, Non-GAAP, Revenue Recognition

SUMMARY: Most videogames these days have online functions that demand continual upgrades and, hence, bear costs for publishers. So accounting rules require some of the revenue generated from the sale of such games to be deferred over several months, and even more than a year in some cases. Videogame publishers have gotten around this by reporting a form of adjusted revenue every quarter that includes the effect of deferrals. The practice doesn't alter reported cash flows of the businesses. But those days are ending as regulators cast a more critical eye on metrics that don't conform to generally accepted accounting principles, or GAAP.

CLASSROOM APPLICATION: This fact situation is a good example to use when covering deferred revenues and non-GAAP reporting.

QUESTIONS:
1. (Introductory) What revenue recognition issues do videogame companies face? How do these differ from revenue recognition of most products and services?

2. (Introductory) What is GAAP? How is it determined? What entities use GAAP?

3. (Advanced) What is non-GAAP reporting? Why do companies engage in non-GAAP reporting? What are the benefits of this type of reporting?

4. (Advanced) What has Electronic Arts announced it will do regarding its financial reporting? Why did the company make this decision? What impact will this decision have on the company's financial reporting?

5. (Advanced) The article says that the differences tend to smooth over time. What does that mean? What differences? What was does the smoothing do for financial reporting purposes? How are users of the financial statements affected?

Reviewed By: Linda Christiansen, Indiana University Southeast

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"Videogames: Knowing What Really Sells," by Dan Gallagher, The Wall Street Journal, July 26, 2016 ---
http://www.wsj.com/articles/videogames-knowing-what-really-sells-1469460997?mod=djem_jiewr_AC_domainid

Revenue recognition rules make tracking videogame sales activity a challenge

Many things about the videogame business have changed in the past decade. One very important thing hasn’t: Gamers still need to actually buy the games.

But tracking this important activity has become rather difficult, and not just because fewer games are being sold at retail stores. Most games these days have online functions that demand continual upgrades and, hence, bear costs for publishers. So accounting rules require some of the revenue generated from the sale of such games to be deferred over several months, and even more than a year in some cases.

Videogame publishers have gotten around this by reporting a form of adjusted revenue every quarter that includes the effect of deferrals. The practice doesn’t alter reported cash flows of the businesses. But those days are ending as regulators cast a more critical eye on metrics that don’t conform to generally accepted accounting principles, or GAAP.

Electronic Arts said last week that it will stop including such non-GAAP figures in its quarterly reports. Other videogame publishers are likely to follow suit. EA, Activision Blizzard and Take-Two Interactive will all report quarterly results next week.

To be sure, there are plenty of good reasons to be suspicious of non-GAAP numbers. But one problem in the videogame business is that revenue recognition rules tend to obfuscate how much game content is actually sold in a given period. This is an important metric, given that it is the economic activity on which the entire industry is based.

Take the case of EA, which has been reporting adjusted revenue in the same way for the past nine years. Online-enabled games have grown to account for the majority of its business, which still follows the seasonal fluctuations common in the industry. So the spread between GAAP and non-GAAP revenue can be wide in quarters when the release of a big game like “Madden NFL” causes more revenue to be deferred.

But these differences tend to smooth out over time. For EA, the difference between annual GAAP and non-GAAP revenues has averaged only 4% over the last nine years.

Continued in article