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
can be changed to corrected link
However in some cases files had to be removed to reduce the size of my Website
Contact me at if you really need to file that is missing


New Bookmarks
Year 2016 Quarter 4:  October 1 - December 31 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

For earlier editions of New Bookmarks go to 
Tidbits Directory --- 

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

Bob Jensen's Threads ---

574 Shields Against Validity Challenges in Plato's Cave ---


Choose a Date Below for Additions to the Bookmarks File








December 2016


Bob Jensen's New Additions to Bookmarks

December 2016 

Bob Jensen at Trinity University 

For earlier editions of Fraud Updates go to
For earlier editions of Tidbits go to
For earlier editions of New Bookmarks go to 
Bookmarks for the World's Library --- 

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

Bob Jensen's Blogs ---
Current and past editions of my newsletter called New Bookmarks ---
Current and past editions of my newsletter called Tidbits ---
Current and past editions of my newsletter called Fraud Updates ---


Bob Jensen's Pictures and Stories


All my online pictures ---

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: 

Scholarpedia (a cross between Wikipedia and Google Scholar) ---

Google Scholar ---

Wikipedia ---

Bob Jensen's search helpers ---

Bob Jensen's World Library ---

From the December 2016 Edition of Accounting Horizons
The Abstracts are Free, but the Full Text and PDF Versions are Not Free Without Subscriptions from the AAA
Especially note the presentation by Tom Linsmeier who was a long-time academic member of the FASB
Tom is now listed as being on the faculty of the University of Wisconsin at Madison. Years ago he was on the faculty of Michigan State University




A Synthesis of Three Commentaries on Measurement and Performance Reporting

Jeffrey Hales, Lynn Rees and T. Jeffrey Wilks
Abstract | Full Text | PDF (121 KB) 

No Access




Revised Model for Presentation in Statement(s) of Financial Performance: Potential Implications for Measurement in the Conceptual Framework

Thomas J. Linsmeier
Abstract | Full Text | PDF (399 KB) 

No Access




The Reporting of Income and Expense and the Choice of Measurement Bases

Roger Marshall and Andrew Lennard
Abstract | Full Text | PDF (139 KB) 

No Access




The Definitions of Net Income and Comprehensive Income and Their Implications for Measurement

Ikuo Nishikawa, Takao Kamiya and Yasunobu Kawanishi
Abstract | Full Text | PDF (82 KB) 

Securing Big Data Provenance for Auditors: The Big Data Provenance Black Box as Reliable Evidence
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)


Deniz Appelbaum --- Rutgers, The State University of New Jersey, Newark


The purpose of this article is to highlight a main issue regarding reliable audit evidence derived from Big Data—that of secure data provenance. Traditionally, audit evidence external to the client has been regarded as superior to other forms of evidence. However, regarding external “messy” Big Data sources that may be material to aspects of the audit, these sources may lack provenance and verifiability. That is, the origins of the data may be unclear and its log files incomplete. According to the standards, such evidence should be considered as less reliable for audit evidence. External auditors, as outsiders of the client, should be able to reproduce the data lifecycle or transaction path, which may not be possible in an electronic environment with incomplete provenance. Furthermore, this mapping or provenance of the data origins and history should be securely maintained so that it cannot be thwarted. This need for secure data provenance has been largely ignored by the business community in its haste to utilize Big Data, but has been acknowledged by extant systems research as being an area that requires attention. This paper contributes to the discussion of Big Data provenance through the lens of public company auditing, where the provenance and reliability of data sources and audit evidence are of paramount importance. This paper also proposes a system of secure provenance collection, the Big Data Provenance Black Box, which is derived from several streams of extant research.

The Development of AudEx: An Audit Data Assessment System
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)


Danielle R. Lombardi --- Villanova University

Richard B. Dull --- West Virginia University


Tools to assist auditors in making sound, complete, and consistent judgements have become increasingly important due to regulation, litigation, and the desire to increase audit effectiveness. Historically, expert systems have been problem specific and created from scratch. Such systems were challenging to update and had limited adaptability when applied to additional problem spaces. If an adaptable system is possible, then costs and time may be reduced related to production, testing, and implementation of quality audit tools. Increased availability of such tools could be a tremendous benefit to auditors. Using a design science research method, this paper describes the process used to create a fraud risk assessment audit tool by embedding audit rules into a generic expert system shell that is widely used in the medical field. The resulting decision and training aid can assist auditors in making fraud risk assessments. While prior research has addressed many components of the issue, the current system was created to address the current risk environment, and a variety of contexts of interest, as the risk environment changes. The system was evaluated by practicing auditors while completing a series of cases. Evaluation results support the benefits of the artifact when used to assist in fraud risk assessments.

Computer-Assisted Functions for Auditing XBRL-Related Documents
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)


J. Efrim Boritz --- University of Waterloo

Won Gyun No --- Rutgers, The State University of New Jersey, Newark


The increasing global adoption of XBRL and its potential to replace traditional formats for business reporting create a need for quality assurance for XBRL-tagged data. Although prior studies have addressed assurance issues on XBRL-related documents (i.e., instance documents and extension taxonomy) and related audit objectives, they primarily focus on the U.S. and, thus, may not be comprehensive enough for use in other countries. Furthermore, no prior literature discusses what and how computer-assisted audit functions can help auditors while they are performing assurance on XBRL-related documents. The main goal of this paper is to introduce computer-assisted audit functions that can be used by auditors to perform audit tasks to attain identified audit objectives. Based on professional guidelines and prior academic studies, this study introduces a set of audit objectives and related audit tasks that auditors might confront if they are asked to provide assurance on XBRL-related documents. The study then demonstrates a set of related computer-assisted audit functions for conducting the audit tasks and discuss how the identified audit objectives could be achieved using these functions.

Bob Jensen's threads on XBRL ---

Cutting-Edge Technologies in the Classroom
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)


Hui Du --- University of Houston–Clear Lake


In 2015, the editorial team of Journal of Emerging Technologies in Accounting (JETA) called for papers on cutting-edge technologies in the classroom. Among all the American Accounting Association (AAA) journals and various conferences, we are the first to call papers in a special section to provide an opportunity for accounting academics to publish “cool” technologies used in the classroom. We now proudly present five papers in this theme issue.

As the technology and innovation move business forward, the accounting industry and the business world in general demand changes in accounting education (PricewaterhouseCoopers [PwC] 2015) with information technology (IT) skills and knowledge (Association to Advance Collegiate Schools of Business International [AACSB] 2014) to prepare a new generation of accounting professionals. G. Coyne, E. Coyne, and Walker (2016) provide a timely update of accounting curricula for emerging technologies to meet the challenge. An architecture is constructed with compliance, business model, and technological feasibility laying the foundation of accounting curricula. Technologies and controls are no longer add-on functions to help the creation, use, and maintenance of accounting information, pictorially as the top piece in the architecture. Instead, technologies that include the understanding of hardware, software, data storage, and information services, and controls that cover the crucial importance of accounting system security availability, integrity, and confidentiality, become two pillars to uphold the entire domain of accounting information. When accounting and business data in a rapidly changing world are captured, processed, stored, made use of, and made secure by computer technology and control, this novel architecture integrates emerging technologies in accounting curricula for academics to explore and consider. The unifying framework in the architecture along with corresponding teaching topics will help us prepare students with relevant professional competencies.

Continued in article

Book Review

Audit Analytics and Continuous Audit: Looking towards the Future

Reviewed by Jagdish S. Gangolly
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)

The Advent of IFRS in Canada: Incidence on Value Relevance
Journal of International Accounting Research
Article Volume 15, Issue 3 (Fall)


Denis Cormier --- University of Quebec at Montreal

Michel L. Magnan  --- Concordia University


The paper focuses on Canada's enactment of IFRS for publicly accountable firms. We investigate whether IFRS meet one of their stated goals, which is to improve financial statements' relevance for stock markets. Results show that migrating from Canadian GAAP to IFRS enhances the value relevance of earnings but the effect is concentrated among firms that are cross-listed in the U.S. (and that do not report according to U.S. GAAP). The advent of IFRS enhances the value relevance of information contained in footnotes but attenuates the need for non-GAAP measures' disclosure. Stock market prices also embed more precise anticipations about future IFRS earnings. Additional analyses suggest that less earnings management accompanies IFRS adoption. Our results suggest that, for cross-listed firms, the adoption of IFRS enhanced the comparability of their financial statements and, ultimately, their value relevance.

An Understanding of the Differences between Internal and External Auditors in Obtaining Information about Internal Control Weaknesses ---
Journal of Management Accounting Research
Volume 28, Issue 3 (Fall 2016)


Ian Burt --- Niagara University


The Institute of Internal Auditors (IIA) argues that internal auditors often have a strong “employee” identity within their organization. While external auditors are concerned that this employee identity might negatively impact internal auditors' objectivity, the IIA argues this identity can actually be beneficial as employees may be more willing to share sensitive and audit-relevant information with the internal auditor than they would with the external auditor. Through an experiment relying on the social identity and organizational silence literatures, I test the prediction that non-audit employees will identify more highly with the internal than the external auditor and they will thus, be willing to share more information about internal control weaknesses with the internal than the external auditor. The results from a moderated mediation analysis support this prediction and also show the effect is stronger as the severity of the internal control weakness increases. Overall, this research informs external auditors and regulators about conditions under which the internal auditor may have an advantage over the external auditor in obtaining information that could help improve audit quality. It also informs managers about an important role played by their internal auditors that may result in increased quality of the internal control system while also potentially lowering audit fees.


McGill University Neurology will no longer patent researchers' findings, instead everything will be open access ---

As the Drive to Share Data Intensifies, Can Standards Keep Up? ---

Patrick J. Curran struggles with the problem when studying alcoholism in families. Quynh C. Nguyen sees it when analyzing housing-voucher programs. And the Nobel laureate Harold E. Varmus encounters it while developing genomic databases for cancer patients.

Their trouble isn’t with sharing their data — all three professors are eager participants in the open-data revolution.

Instead, the problem is confidently sharing and interpreting data — huge amounts of it — with relevance and accuracy.

As they and other scientists embrace sharing, they’re finding that computer systems are quite good at storing and easing access to the enormous quantities of information they generate. But comparing and synthesizing all that data, in differing formats and styles and methods, requires human skill and judgment. And even the best aren’t sure how to do it, raising questions of whether the nationwide rush toward open data will really mean a momentous revolution in scientific progress or just a whole new level of gnarly reproducibility issues.

Mr. Curran is a professor of psychology at the University of North Carolina at Chapel Hill who studies the effects of alcoholic parents on their children. He combines findings from multiple studies and sees a challenge lurking in the varied scientific meanings and assessments that professional colleagues apply to terms such as "anxiety" and "depression."

"The thing that keeps me up at night," he said, "is, Am I making a substantive theoretical conclusion that is based on some artifact of how we scored the scale?"

Continued in article

Jensen Comment
One of the huge problems in finance and accounting is that empirical researchers often use the same purchased databases like CompuStat, CRSP, and AuditAnalytics. Efforts to replicate/reproduce research findings are rare, really rare, in financial accounting, and when they do happen they usually use the same data. Errors in that data happen a lot, and any research conclusions drawn from faulty data are likely to be the same conclusions drawn in replication attempts,. This is why findings that contradict earlier findings are so rare in accounting research.

Bob Jensen's threads on why replications are rare in financial accounting research ---

When is the last time you saw an accountics scientist in financial accounting collect his or her own data?
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"

Obama's Parting Shot at Birds
nearly four times the current limit
"Final wind-turbine rule permits thousands of eagle deaths," Matthew Daly, Associated Press, San Francisco Chronicle, December 14, 2016 ---

The Obama administration on Wednesday finalized a rule that lets wind-energy companies operate high-speed turbines for up to 30 years — even if means killing or injuring thousands of federally protected bald and golden eagles.

Under the new rule, wind companies and other power providers will not face a penalty if they kill or injure up to 4,200 bald eagles, nearly four times the current limit. Deaths of the more rare golden eagles would be allowed without penalty so long as companies minimize losses by taking steps such as retrofitting power poles to reduce the risk of electrocution.

The new rule will conserve eagles while also spurring development of a pollution-free energy source intended to ease global warming, a cornerstone of President Barack Obama's energy plan, said Fish and Wildlife Service Director Dan Ashe.

"No animal says America like the bald eagle," Ashe said in a statement, calling recovery of the bald eagle "one of our greatest national conservation achievements."

The new rule attempts to build on that success, Ashe said, adding that the Fish and Wildlife Service is trying to balance energy development with eagle conservation. Wind power has increased significantly since Obama took office, and wind turbines as tall as 30-story buildings are rising across the country. The wind towers have spinning rotors as wide as a passenger jet's wingspan, and blades reach speeds of up to 170 mph at the tips, creating tornado-like vortexes.

The surge in wind power has generally been well-received in the environmental community, but bird deaths — and eagle deaths in particular — have been a source of contention.

The birds are not endangered species but are protected under the Bald and Golden Eagle Protection Act and the Migratory Bird Treaty Act. The laws prohibit killing, selling or otherwise harming eagles, their nests or eggs without a permit.

 It's unclear what toll wind energy companies are having on eagle populations, although Ashe said as many 500 golden eagles a year are killed by collisions with wind towers, power lines, buildings, cars and trucks. Thousands more are killed by gunshots and poisonings.

Continued in article

Sure, it’s green energy—but it also results in hundreds of thousands of bird deaths each year
Audubon Society

Wind turbines kill an estimated 140,000 to 328,000 birds each year in North America, making it the most threatening form of green energy.

And yet, it’s also one of the most rapidly expanding energy industries: more than 49,000 individual wind turbines now exist across 39 states. The wind industry has the incentive to stop the slaughter: Thanks to the Migratory Bird Treaty Act, it’s illegal to kill any bird protected by the Act—even if the death is "incidental," meaning it occurs unintentionally on the part of the wind farm.

The Bald and Golden Eagle Protection Act recommends that to avoid eagle deaths, specifically, companies seriously consider where they site their wind developments, and that they also limit turbines’ impact using techniques like radar to detect incoming birds. But as the accident at the Peñascal wind farm shows, it’s unclear if deterrents like these actually work. The Ways Wind Farms Try to Scare Birds Away There are many kinds of retrofits that people are testing to hopefully make wind turbines better for birds.

Here are some of the options (the Audubon Society thinks clean energy is more important that the banning of windmills).

Continued in article

Photographs from Rhode Island:  America's first offshore wind farm just launched with GE turbines twice as tall as the Statue of Liberty ---

Jensen Comment

Here in New England many environmentalists see the Block Island wind farm as a horrid example of dirty politics ---

Environmentalists complain that Deep Water picked this island so because they would not be regulated properly ---

Having made his living in the utility industry, Warfel, a 17-year island resident, said he analyzed the project as well as Block Island’s power problems, and concluded that they could have been solved much more cheaply with energy conservation and on-island resources. He accused the Block Island Power Co. of being a “rogue utility” not properly regulated by the state that left the island vulnerable to Deepwater’s pitch. “I see no joy in taking this historic viewshed and adulterating it for the benefit of D.E. Shaw,” he said

Budget Adjustments and Spending Patterns: A Transaction Cycle View
SSRN, December 24, 2016


Akhilesh Chandra University of Akron - The George W. Daverio School of Accountancy

Birendra K. Mishra University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

Nirup M. Menon George Mason University


Organizational- and departmental-level budgeting suffer from various shortcomings, such as asymmetric ratcheting. In this regard, we theorize, and propose, budgeting at the transaction-cycle level for effective budget designs. The transaction-cycle level budget requires management justification for resource assignment to business processes, often spanning multiple departments. The transaction-cycle typology consists of five cycles: production, expenditure, financial, revenue, and human-resources. In order to distinguish among transaction cycles, we use their relative positions within the value chain and technology content in their business processes. As a proof-of-concept, we develop theoretical arguments for asymmetric ratcheting in operating budgets at the transaction-cycle level in hospitals, and empirically examine this phenomenon using longitudinal archival data. Our hypotheses examine budgetary responses to over- and under-spending variances in operating budgets for fixed and variable costs. Our findings suggest that a transaction cycle’s position in the value chain and its technology content play a role in determining asymmetric ratcheting during budgeting. We discuss our contributions from the perspectives of theory and practice of accounting, budgeting, and accounting information systems.

The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
SSRN. December 23, 2016


Matthew J. Bloomfield University of Chicago - Booth School of Business

Ulf Brüggemann Humboldt University of Berlin - School of Business and Economics

Hans Bonde Christensen University of Chicago - Booth School of Business

Christian Leuz University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research



The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting harmonization can have a meaningful effect on cross-border migration.

Strategic Reactions in Corporate Tax Avoidance
SSRN, December 23, 2016


Chris Armstrong University of Pennsylvania - Accounting Department

Stephen Glaeser University of Pennsylvania - Accounting Department

John D. Kepler University of Pennsylvania - Accounting Department


We find that the tax avoidance of firms in the same industry exhibit strategic complementarities: a change in a firm’s tax avoidance leads to a direct change in its industry-competitors’ tax avoidance, and vice versa. We document evidence of these strategic complementarities in several measures of corporate tax avoidance using multiple sources of exogenous variation in competitors’ tax avoidance. We also find evidence that firms’ strategic response to their competitors’ tax avoidance stems from concerns about appearing more tax aggressive than their industry competitors and drawing unwanted scrutiny as a result.

Soft Information in Loan Agreements
SSRN, December 22, 2016


Zahn Bozanic Ohio State University (OSU) - Department of Accounting & Management Information Systems

Lin Cheng The University of Arizona - Eller College of Management

Tzachi Zach Ohio State University (OSU) - Fisher College of Business


In this study, we seek to understand whether soft information conveyed by contracting language found in private loan agreements is informative regarding borrower risk. We proxy for credit-risk-relevant soft information using Loughran and McDonald’s (2011) uncertainty measure. We first examine initial contract terms and find that, incremental to traditional summary measures of credit risk, increased contractual uncertainty is associated with higher initial loan spreads and a greater likelihood of using dynamic and performance pricing covenants. We then turn to examine realized credit risk over the life of the loan and find that increased uncertainty is associated with a higher likelihood of future loan downgrades and loan amendments. We corroborate our results on the risk relevance of soft information by showing that the bid-ask spreads of loans trading on the secondary loan market are increasing in uncertainty. Overall, the evidence we provide is consistent with embedded linguistic cues in loan agreements publicly revealing the credit risk assessments of privately informed lenders.

Ranking Accounting Authors and Departments in Accounting Education: Different Methodologies – Significantly Different Results
SSRN. Dececember 22, 2016


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

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

Taylor L. Delande Roger Williams University


This research tests whether Holderness et al.’s (2014) accounting-education rankings are sensitive to a change in the set of journals used. It provides updated rankings for accounting-education authors from Australia, Canada, New Zealand, the Republic of Ireland, the United Kingdom, and the United States using a sample that included the publications in 13 accounting-education journals. Our analysis indicated that Holderness et al.’s rankings of authors and departments were significantly different from our rankings. This research provides rankings of the top 50 authors and departments for three periods: 2010 to 2015, 2004 to 2015 and 1992 to 2015. We provide data indicating the distribution of authors for these periods to assist authors not listed in the most-prolific lists in determining their relative ranking. Finally, we provide data on the distribution of journal choices for accounting-education publications for the authors from each country.

Is Bank Supervision Effective? Evidence from the Allowance for Loan and Lease Losses ---
SSRN, December 22, 2016


Ling Yang University of Chicago - Booth School of Business


I investigate whether bank supervision is effective in enforcing written rules on the estimations of the allowance for loan and lease losses (ALLL) consistently between public and private banks, which have different intensity of incentives to misreport the ALLL. Results suggest that bank supervision of the ALLL estimations was effective between 2002 and 2012, but has become lax recently. State-chartered public banks underestimated the ALLL by about 13% annually between 2013 and 2015. Bank regulators are willing to cater to banks’ private interests when the economic environment is good and the regulatory emphasis is weak, but not during the crisis.

Strategic Reporting of Fair Value Estimate Levels
SSRN. December 22, 2016


Kathleen Weiss Hanley Lehigh University - College of Business & Economics

Alan D. Jagolinzer University of Colorado - Leeds School of Business

Stanislava Nikolova University of Nebraska - Lincoln


We investigate whether firms strategically report Levels that indicate reliance on lower quality inputs to allow flexibility to bias fair value estimates, or higher quality inputs to convey better asset liquidity. Specifically, we examine the dispersion of year-end fair value estimates and Levels for identical fixed-income securities held by multiple insurers. We find that insurers inflate estimates more when they report these estimates at Levels indicative of lower quality inputs than the consensus. Relatedly, insurers deviate from consensus Levels to indicate reliance on lower quality inputs, when they switch to carrying an asset at fair value and when they have less regulatory capital. When insurers face a decrease in liquid assets, they deviate from the consensus to a Level indicative of higher quality inputs likely to convey better asset liquidity. Collectively, our findings suggest that insurers exploit the ambiguity in the fair value estimate Level hierarchy consistent with financial reporting incentives.

Public Tax-Return Disclosure ---
SSRN, December 20, 2016


Jeffrey L. Hoopes University of North Carolina (UNC) at Chapel Hill

Leslie A. Robinson Tuck School of Business at Dartmouth

Joel B. Slemrod University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)


We investigate the effect of public disclosure of information from corporate tax returns filed in Australia on consumers, investors, and the corporations themselves that were subject to disclosure. Supporters of more disclosure argue that increased transparency will improve tax compliance, while opponents argue that it will divulge sensitive information that is, in many cases, misunderstood. Our results show that large private companies are likely to experience consumer backlash and are also, perhaps as a consequence, more likely to act to avoid disclosure. We also fail to detect any material increase in tax payments, one objective of legislating the disclosure regime. Finally, we find that investors react negatively to anticipated and actual disclosure of tax information, most likely due to anticipated policy backlash than the revelation of negative tax information. These findings are important for both managers and policymakers as the trend towards increased tax disclosure continues to rise globally.

The Effects of Tone-At-The-Top Messaging and Specialists on Auditors' Judgments during Complex Audit Tasks ---
SSRN. April 2016


 SSRN, DJonathan S. Pyzoha Miami University - Department of Accountancy

Mark H. Taylor Case Western Reserve University - Department of Accountancy

Yi-Jing Wu Texas Tech University - Rawls College of Business


PCAOB inspection findings indicate that audit firms overemphasize firm performance goals as opposed to audit quality in their tone-at-the-top messaging, which can suppress auditors’ professional skepticism when performing audit tasks at the engagement level. We investigate the effect of firm-level tone-at-the-top messaging on auditors’ judgments when auditing a complex audit area susceptible to management bias. We also examine whether management’s use of a specialist can influence the effect of tone-at-the-top messaging. Consistent with nonconscious goal conflicts theory, we find that when management does not engage a specialist inducing two competing goals equally (performance and audit quality) decreases auditors’ tendency to assess a complex estimate as reasonable in the presence of contradictory evidence as compared to when messaging overemphasizes performance goals. However, when management does engage a specialist, we find that an audit quality messaging approach reduces auditors’ tendency to over-rely on management’s specialists. Our results have important implications for regulators, standard setters, audit firms, and practitioners.

A Checklist for Reviewing a Paper ---
SSRN, December 21, 2016


Jonathan Berk Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Campbell R. Harvey Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

David A. Hirshleifer University of California, Irvine - Paul Merage School of Business


Despite the crucial importance of high quality reviewing for the scientific process, new scholars often learn how to do this based on casual advice and trial-and-error learning. We offer a checklist that helps referees systematically develop high quality referee reports and avoid some of the common pitfalls, in the spirit of the checklists used with success by surgeons and airplane pilots.The specific format in our checklist is not the only or `best’ one, but we believe it is useful, especially for junior scholars, to have access to at least one effective format laid out in a very specific form. This checklist is based upon ideas in Berk, Harvey and Hirshleifer (2016; 2017 forthcoming).

The Number of Professionally Certified Accounting Experts on Audit Committees and Confidence in Earnings: A Study of Retail Investors’ Perceptions
SSRN, December 21, 2016


Alan Levitan University of Louisville - College of Business and Public Administration

David A. Dubofsky University of Louisville - Department of Finance

Lyle Sussman University of Louisville


The purpose of this study is to determine whether the composition of a company’s audit committee affects decisions by retail (non-institutional) investors. We examine if these investors’ confidence in reported earnings is affected by the number of committee experts under the U. S. Securities and Exchange Commission’s original, more restrictive definition of an expert (accountants and auditors), the expanded definition, or those who do not qualify under either definition. A sample of AAII (American Association of Independent Investors) members responded to an Internet-based questionnaire and assessed their confidence in the earnings quality of a hypothetical company, contingent on the financial expertise represented in the committee. Results suggest that as the number of Certified Public Accountants (experts under the more restrictive definition) on an audit committee increases, there is a general tendency for confidence in earnings to increase also. The statistical significance of this trend however is illuminated by both demographic and behavioral characteristics of the investors.

The Effective Income Tax Experience of U.S. and Non-U.S. Multinationals ---
SSRN, December 19, 2016


Eric J. Allen University of Southern California - Leventhal School of Accounting

Susan C. Morse University of Texas at Austin - School of Law


In this paper we examine how the incorporation of a parent firm outside the United States affects the effective income tax rates of global firms with material business operations in the U.S. We find that for profit firm years, firms with a non-U.S. parent corporation have lower effective tax rates than firms with a U.S. parent. However, in loss firm years we find that these non-U.S. firms report smaller negative tax expense. We find no statistically significant difference in outcomes if the non-U.S. firm engaged in an inversion transaction. We provide evidence that earnings stripping opportunities available to non-U.S. firms and the worldwide tax law applicable to U.S. firms contribute to the better tax results of non-U.S. firms in profit years. For loss firm years, we find evidence that the U.S. worldwide tax law and differences in valuation allowance practice support better tax outcomes for U.S. firms.

Probability Weighting and Analyst Bias: Theory and Evidence
SSRN, December 16, 2016


Kathryn Elizabeth Warner Brightbill University of Iowa - Department of Accounting

Cristi A. Gleason University of Iowa - Department of Accounting

Mark Penno University of Iowa - Henry B. Tippie College of Business


Analyst forecasting bias is frequently attributed to opportunism. We argue that opportunism is not a necessary condition for bias and propose a simple model, based on research in behavioral economics and psychology, of belief-based probability weighting. The model is used to develop benchmarks which we test empirically. Our model explains the change in the magnitude of forecast bias over the forecast horizon, the percentage of optimistic and pessimistic forecast errors at long horizons, and seemingly counter-intuitive findings around the implementation of Regulation Fair Disclosure. Our results may inform regulators as they attempt to reduce or eliminate analyst forecast bias; eliminating incentives to bias may not lead to statistically unbiased forecast

Earnings Announcements and Option Returns
SSRN, April 2016


Sung Gon Chung Wayne State University

Henock Louis Pennsylvania State University - Smeal College of Business


While prior studies find that returns on option straddles are generally negative, we show that returns on straddles purchased prior to earnings announcements are actually positive. The earnings announcement impact is compounded when the pre-portfolio formation volatility is low (high) and the pre-expiration realized volatility is high (low). Apparently, the average option trader underestimates future volatility before forthcoming earnings announcements, particularly after a period of relatively low volatility, and overestimates future volatility after recent earnings announcements, particularly after a period of relatively high volatility. The overestimation of future volatility after recent earnings announcements also increases with the magnitude of the earnings surprise.

Accounting Quality and Cost of Debt and Equity Capital in Deregulated Electric Utilities
SSRN, December 12, 2016


Emily Ping Yang University of Arizona, Department of Accounting


Electric utilities play an important role in the economy and the general public’s life quality, and have caught lots of attention in the literature of Economics. However, the accounting research seems to be lacking in this area. In this paper, I use the national deregulation in electric utilities as an exogenous shock for the information uncertainty/asymmetry and analyze how accounting quality can help mitigate this information asymmetry and affect a firm’s cost of debt and equity capital, and its external financing choices. I find that accounting quality is negatively associated with cost of debt and cost of equity capital in the years after deregulation in electric utilities while such association does not exist between accounting quality and cost of debt and equity in the years before deregulation. This result shows that accounting quality serves as effective instrument to mitigate the negative effects of information uncertainty.

Andy Fastow is a liar who stole $60 million from his employer:  After six years in prison he's still a liar.

Cheryl Hall: Enron culprit Andy Fastow's ugly tale and sobering warning ---

Jensen Comment
After prison Andy still cannot resist telling lies or cherry picking the facts.

What set Andy Fastow and Michael Kopper apart from most of the other Enron executives prior to the illegal self declarations of bonuses from a secret bank account set up just before Enron declared bankruptcy?
Who were the phony versus the real female whistleblowers at Enron?
See Number 10 at

What was the first SPE formed by Enron that was approved by the Board of Directors?  What did Andy Fastow promise the Board, a promise that he violated in the worst of possible terms?
See Number 13 at

What is most unusual and actually unethical about the way Enron's SPEs were managed? 
How were these related party dealings disclosed and yet obscured in the infamous Footnote 16 of Enron's Year 2000 Annual Report?
What did Professors Hartgraves and Benston conclude with respect to accounting fraud and failings of both Enron and the external auditors (Andersen) after a detailed analysis of the Powers Report commissioned by the former Chairman of the Board of Directors at Enron?
See Number 13 at

In round numbers, what is the amount Andy Fastow ultimately admitted to skimming from over 3,000 SPEs he set up in Enron?
What is the best estimate of the actual amount he stole from his company?
Hint:  It is tens of millions more than the $30 million fine he eventually paid
See Number 17 at

Was Andy Fastow considered a financial genius by financial experts within Enron?  Elaborate.
See Number 17 at

Aside from Andy Fastow's suggested use of SPEs for off-book transactions, who was the main instigator of accounting irregularities for items on the books of Enron?  What were some of the most typical types of accounting irregularities? Also mention some of Fastow's accounting irregularities.
See Number 27 at

The boss of one of the largest accounting firms in the world says his biggest concern for Europe isn't Brexit ---

KPMG is one of the world's biggest accounting firms and its clients, which include some of the world's largest banks and financial institutions, are of course worried about Brexit — but the global chairman of KPMG says this is not his main concern.

John Veihmeyer told Business Insider that the rise of populism in Europe is far greater a threat to the continent's stability than Britain's exit from the European Union.

"We can all have our own views and it is going to be a personal view, but when I look at my role in the global economy and my concerns about it, I am more concerned about Europe than the UK," Veihmeyer told BI.

"The elections [in Europe] and the decisions [that are going to be made in 2017], like what will happen in France, could be very impactful for the rest of Europe — especially if we begin to see a trend or more similar activity in the Netherlands and other countries. It could threaten the [European] union. It would mean a disruptive period for years especially since there will be a focus more on Brexit.

"I wouldn't underestimate the concern I have for the health of the global economy and how this can become the biggest impediment of growth. The world is facing a lot of major uncertainties."

Republicans have a massive plan to overhaul the tax code — here's how it would work ---

Jensen Comment
The plan retains controversial itemized deductions like mortgage interest and charity deductions. This surprises me since proposing those will bring millions in extortion fees from lobbyists to the coffers of legislators. The plan does propose a larger standard deduction wich probably does not make those lobbyists happy.

David Giles:  More on the History of Distributed Lag Models ---
Jensen Comment
Especially note the parts about non-linear relationships

David Giles:  Top Econometrics Posts of 2016 ---

The Emergence of Commercial Drones ---

Harvard Business:  Why We’re Seeing So Many Corporate Scandals ---

Why Low Interest Rates Failed to Boost Business Investments ---
Jensen Comment
If you look at the graphic on corporate investment as a share of GDP it's obvious that low interest rates most likely did not totally fail to boost business investment. But it gets complicated when the economy is in a recession. The problem is finding business investments. Certainly some companies like Tesla took on enormous investments and enormous debt. Virtually all companies have been investing in alternative sources of energy, particularly solar panels.

The crash in oil prices distorts statistics on business investment since the oil industry cut back so much on oil exploration, drilling, and development (such as cutbacks in new refineries around the world).

What's your balance with the IRS?  Do you owe anything or have any unclaimed refunds?
Has a thief already beat you to accessing your account?

New online tool allows taxpayers to check IRS account information ---

The IRS announced on Thursday that it has launched an online tool that allows individuals to check their tax account balances online, including tax due, penalties, and interest, after they complete an online registration process called Secure Access. To register for Secure Access the first time, taxpayers must have an email address, a text-enabled cellphone in the taxpayer’s name, and specific account information for the taxpayer, such as credit card accounts and loan account numbers. Each time a taxpayer returns to use the service, he or she will be required to enter a code received from the IRS by email or text. The IRS, mindful of the many scams that try to obtain taxpayers’ information, noted that it will not send emails or texts asking for personal information or login credentials—it will only send codes for one-time use. Taxpayers who previously registered with the IRS for Get Transcript Online or through the online Get an Identity Protection Personal Identification Number (IP PIN) service can use the same usernames and passwords.

Jensen Comment
In 2014, following a Turbo Tax breach of tax data on millions of people who filed returns, a thief filed a tax return in my name using my Social Security number and my IRS PIN number. The IRS paid a refund to the thief based upon this fake tax return, just like the IRS has paid out billions every year on fake tax returns since the IRS commenced to allow electronic filings. Before electronic filings it was possible for thieves to file fake tax returns, although the IRS started getting ripped off much more after the era of electronic filing commenced. Since 2014 I will never file electronically again in my lifetime.

I detected the fraud before April 15, 2014 when the IRS refused to accept my genuine electronic filing. I immediately suspected what happened and mailed by genuine return to the IRS via snail mail. Since I had all my 1099 forms attached the IRS recognized that my mailed return was genuine and that the IRS had paid out an earlier refund to a fake Bob Jensen. The IRS then sent me my genuine (and much smaller) refund.

My question is whether this new 2016 online tool will reveal phony and well as genuine activity in my IRS account?
I've not yet tried the tool, but would love to hear from anybody is already using this tool.

What's worrisome is the thought that a thief beat me to using this tool for my IRS account.

Deloitte gives up on millions of pounds worth of government business to atone for leaked memo ---

Francine McKenna:  At Deloitte, the problems with audit quality and professionalism start at the top ---

Jensen Comment
Over the years Francine has had it in for Deloitte more than the other largest firms for some unknown reason in spite of evidence (think KPMG) to the contrary.

KPMG is the Worst of the Big Four Auditors (again and again)

The PCAOB released its inspection report of KPMG for 2015 yesterday and, sorry to say, it was the worst-performing Big 4 firm of the cycle with a deficiency rate of 38 percent ---

Jensen Comment
This of course does not mean that in every city or country KPMG is the worst in a particular audit market. Auditing depends a great deal on local office talent and standards.

I read where KPMG is going to soon have a KPMG University that is bigger and better than Deloitte University. That we it will be easier to find out how KPMG screws up auditing better than Deloitte screws up auditing.

Bob Jensen's thread on the woes of KPMG and Deloitte and the other big firms ---

Senate Uncovers 'Troubling' Aspects Of IRS Travel Policy ---

Jensen Comment
This reminds me of a former student who became an internal auditor for a large multinational company. She traveled so much she did not have a home other than the house where her parents lived. The company even paid her travel expenses not to come home on week ends (saved on air fares). I don't know how long she endured this type of life, but my guess is that she eventually wanted a home and family.

How to Screw Up a Political Poll ---
19 Things We Learned from the 2016 Election ---
Also read the comments

Sears is on the brink of catastrophe as stores closures loom and top execs flee the company ---

Jensen Comment
It might be interesting for accounting students to track such things as going concern disclosures and sustainability reporting.

Erika and I were in the Concord Mall recently where there's now always parking next to mall entrances. Sears is still one of the three large anchor stores along with JC Penney and Bon Ton. The mall's anchor stores are like empty tombs. About half the mall's other stores are already emptied out, and the center food court is dark with no food service stores except a hopeful Dunkin Donut shop that has a few tables in front of the shop. Judging from the lack of shoppers I don't know how this mall continues to pay for lights and heating.

Anchor store closings have  tremendous repercussions in terms of what economists call externalities. Sears often has anchor stores in large and small malls across the USA. We might say that when anchor stores go there's a smaller or non-existent Gap --- a Gap store that is.

Nationwide Black Friday shopping was down over 3.5% while there were millions of new online shoppers ordering from more than just Amazon. Sears now sends me announcements of online deals daily, and the deals make me wonder if there's any profit left in the sales. The problem is that Amazon sells stuff that I use daily like my rice bran and peanut butter and sweat suits. Sears sold me heavy appliances that I probably won't replace during the rest of my life.

December 4, 2016 reply from Beryl Simonson

And many of these malls have co-tenancy provisions in the non-anchor store leases that convert fixed rent to a percentage rent if the anchors go dark.  How do these provisions effect not only going concern considerations (which may be mitigated by financial support from the owners), but also impairment considerations.  Is this a triggering event that requires the first step in an impairment test?  What assumptions does management use for this test when an anchor goes dark and the smaller stores convert to percentage rent?

The US is $19.9 trillion in debt — here are the countries we owe the most ---
Jensen Comment
I remember the Jane Fonda1981  movie called "Rollover" where the Arabs refuse to rollover their investment in US debt ---
China has since overtaken the Arabs in holding Uncle Sam somewhere below the belt.

What does political science have in common with accountics science in academic accountancy?

"At the moment the field applies this uniform methodological bar by which it (political science)  judges what’s good work," Mr. Mounk said. "It’s led by methods rather than by important questions."
After Trump’s Election, Political Scientists Feel New Urgency ---

"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"

The demarcation between science and pseudoscience is part of the larger task to determine which beliefs are epistemically warranted ---
For examples see

"Richard Feynman on the Universal Responsibility of Scientists," by Maria Popover, Brain Pickings, March 6, 2013 ---

. . .

It is our responsibility as scientists, knowing the great progress and great value of a satisfactory philosophy of ignorance, the great progress that is the fruit of freedom of thought, to proclaim the value of this freedom, to teach how doubt is not to be feared but welcomed and discussed, and to demand this freedom as our duty to all coming generations

Metaphorical Meaning of the Phrase "Cargo Cult Science" ---

The term "cargo cult" has been used metaphorically to describe an attempt to recreate successful outcomes by replicating circumstances associated with those outcomes, although those circumstances are either unrelated to the causes of outcomes or insufficient to produce them by themselves. In the former case, this is an instance of the post hoc ergo propter hoc fallacy.

The metaphorical use of "cargo cult" was popularized by physicist Richard Feynman at a 1974 Caltech commencement speech, which later became a chapter in his book Surely You're Joking, Mr. Feynman!, where he coined the phrase "cargo cult science" to describe activity that had some of the trappings of real science (such as publication in scientific journals) but lacked a basis in honest experimentation.

Later the term cargo cult programming developed to describe computer software containing elements that are included because of successful utilization elsewhere, unnecessary for the task at hand.


Examples of Junk Science: A Pseudoscience Whistleblower Story ---

"The Sad Story of the Battery Breakthrough that Proved Too Good to Be True," by Kevin Bullis, MIT's Technology Review, December 6, 2013 ---

"The Replication Myth: Shedding Light on One of Science�s Dirty Little Secrets
," by Jared Horvath, Scientific American, December 4, 2013 ---

"Is Economics a Science?," by Robert Shiller, QFinance, November 8, 2013 --- Click Here shiller/2013/11/08/nobel-is-economics-a-science?utm_source=November+2013+email&utm_medium=Email&utm_content=Blog2&utm_campaign=EmailNov13

NEW HAVEN � I am one of the winners of this year�s Nobel Memorial Prize in Economic Sciences, which makes me acutely aware of criticism of the prize by those who claim that economics � unlike chemistry, physics, or medicine, for which Nobel Prizes are also awarded � is not a science. Are they right?

One problem with economics is that it is necessarily focused on policy, rather than discovery of fundamentals. Nobody really cares much about economic data except as a guide to policy: economic phenomena do not have the same intrinsic fascination for us as the internal resonances of the atom or the functioning of the vesicles and other organelles of a living cell. We judge economics by what it can produce. As such, economics is rather more like engineering than physics, more practical than spiritual.

There is no Nobel Prize for engineering, though there should be. True, the chemistry prize this year looks a bit like an engineering prize, because it was given to three researchers � Martin Karplus, Michael Levitt, and Arieh Warshel � �for the development of multiscale models of complex chemical systems� that underlie the computer programs that make nuclear magnetic resonance hardware work. But the Nobel Foundation is forced to look at much more such practical, applied material when it considers the economics prize.

The problem is that, once we focus on economic policy, much that is not science comes into play. Politics becomes involved, and political posturing is amply rewarded by public attention. The Nobel Prize is designed to reward those who do not play tricks for attention, and who, in their sincere pursuit of the truth, might otherwise be slighted.

The pursuit of truth

Why is it called a prize in �economic sciences�, rather than just �economics�? The other prizes are not awarded in the �chemical sciences� or the �physical sciences�.


Fields of endeavor that use �science� in their titles tend to be those that get masses of people emotionally involved and in which crackpots seem to have some purchase on public opinion. These fields have �science� in their names to distinguish them from their disreputable cousins.

The term political science first became popular in the late eighteenth century to distinguish it from all the partisan tracts whose purpose was to gain votes and influence rather than pursue the truth. Astronomical science was a common term in the late nineteenth century, to distinguish it from astrology and the study of ancient myths about the constellations. Hypnotic science was also used in the nineteenth century to distinguish the scientific study of hypnotism from witchcraft or religious transcendentalism.

Crackpot counterparts

There was a need for such terms back then, because their crackpot counterparts held much greater sway in general discourse. Scientists had to announce themselves as scientists.


In fact, even the term chemical science enjoyed some popularity in the nineteenth century � a time when the field sought to distinguish itself from alchemy and the promotion of quack nostrums. But the need to use that term to distinguish true science from the practice of impostors was already fading by the time the Nobel Prizes were launched in 1901.

Similarly, the terms astronomical science and hypnotic science mostly died out as the twentieth century progressed, perhaps because belief in the occult waned in respectable society. Yes, horoscopes still persist in popular newspapers, but they are there only for the severely scientifically challenged, or for entertainment; the idea that the stars determine our fate has lost all intellectual currency. Hence there is no longer any need for the term �astronomical science.�


Critics of �economic sciences� sometimes refer to the development of a �pseudoscience� of economics, arguing that it uses the trappings of science, like dense mathematics, but only for show. For example, in his 2004 book,
 Fooled by Randomness, Nassim Nicholas Taleb said of economic sciences:
�You can disguise charlatanism under the weight of equations, and nobody can catch you since there is no such thing as a controlled experiment.�

But physics is not without such critics, too. In his 2004 book,
The Trouble with Physics: The Rise of String Theory, The Fall of a Science, and What Comes Next, Lee Smolin reproached the physics profession for being seduced by beautiful and elegant theories (notably string theory) rather than those that can be tested by experimentation. Similarly, in his 2007 book, Not Even Wrong: The Failure of String Theory and the Search for Unity in Physical Law, Peter Woit accused physicists of much the same sin as mathematical economists are said to commit.


Exposing the charlatans

My belief is tha
t economics is somewhat more vulnerable than the physical sciences to models whose validity will never be clear, because the necessity for approximation is much stronger than in the physical sciences, especially given that the models describe people rather than magnetic resonances or fundamental particles. People can just change their minds and behave completely differently. They even have neuroses and identity problems - complex phenomena that the field of behavioral economics is finding relevant to understand economic outcomes.


But all the mathematics in economics is not, as Taleb suggests, charlatanism. Economics has an important quantitative side, which cannot be escaped. The challenge has been to combine its mathematical insights with the kinds of adjustments that are needed to make its models fit the economy�s irreducibly human element.

The advance of behavioral economics is not fundamentally in conflict with mathematical economics, as some seem to think, though it may well be in conflict with some currently fashionable mathematical economic models. And, while economics presents its own methodological problems, the basic challenges facing researchers are not fundamentally different from those faced by researchers in other fields. As economics develops, it will broaden its repertory of methods and sources of evidence, the science will become stronger, and the charlatans will be exposed.

More examples and debate

Jensen Comment
The problem with economics is that most economists like Paul Krugman and Art Laffer also have political agendas.

Is Jagdish correct?

Is there really not one scholarly economist who advocated tax reductions among the 30+ developed  nations of the world that reduced marginal tax rates for three decades?
Note the listing of nations and the amount of the top marginal tax rate reductions
The fact of the matter is that many economists around the world supported those tax reductions

Jensen Comment
The Laffer Curve is not crap, but there's risk of crappy misuse by progressive and conservative decision makers who have only studied one side of the economic debate, analytics, and empirical research regarding the Laffer Curve

Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries
SSRN, Posted March 20, 2013


Alex Brill American Enterprise Institute (AEI)

Kevin A. Hassett American Enterprise Institute (AEI


Corporate tax rates among industrialized nations have been declining steadily since the mid 1980s. Theories of globalization, capital mobility and tax competition have been proposed to explain these changes. Less attention has been paid to the changes in corporate tax receipts during this period and their relationship to tax rates. This note explores these changes and finds, similar to Clausing (2007), strong statistical evidence of a Laffer curve in the international corporate tax data. This conclusion remains even when significant potential outlier countries, such as Ireland, Switzerland and Norway, are excluded from the sample. We extend her work by exploring the time variation in the revenue maximizing corporate income tax rate from 1980 to 2005. We find robust evidence that a Laffer curve has existed in the corporate tax sphere throughout most of our sample period. It is not merely a recent phenomenon. We also find that the revenue maximizing corporate tax rate was about 34 percent in the late 1980s, and that this rate has declined steadily to about 26 percent for the most recent period. In addition, we confirm our finding when using combined central and sub-central (i.e. federal plus average state) tax rates.

Jensen Comment
The problem with economics is that most economists like Paul Krugman and Art Laffer also have political agendas.

It's naive to think of the Laffer Curve as being all about reducing taxes.
Economists sometimes find the Laffer Curve useful in estimating how much they can safely increase taxes.

"Willingness to pay tax: The Laffer curve revisited for 12 OECD countries," by W.J.M. Heijman  and J.A.C. van Ophem, Journal of Socio-Economics, Volume 34, Issue 5, October 2005, Pages 714–723 ---

According to Laffer, economic activities are a decreasing function of the taxation rate. As a consequence, total tax revenue increases with the taxation rate at its lower levels and decreases against it at its higher levels. The result is the Laffer curve. According to him, the reason for this decrease lies in decreasing economic activities. Although this may be true for activities in the official (white) sector, in the unofficial (black) sector they can increase under the influence of an increasing taxation rate. Part of the Laffer effect may be nothing more than an activity switch away from the white towards the (hidden) black sector. This paper takes both effects into account: decreasing activities in the white sector combined with increasing activities in the black sector. It examines the computation of the maximum tax revenue generating taxation rate for a number of OECD countries. It concludes that, with the exception of Sweden, the marginal taxation rate in these countries is below its optimum.

"The Laffer Curve Revisited," Mathias Trabandta, et al, Journal of Monetary Economics, Volume 58, Issue 4, May 2011, Pages 305–327

"Dynamic Laffer Curves," by Alfonso Novalesa and Jesús RuizbJournal of Economic Dynamics and Control, Volume 27, Issue 2, December 2002, Pages 181–206

Five Things You Need to Know About IRS Form 990 (listing tax-exempt organizations ---

History Corner
DYI ---- Do It Yourself
The University of Iowa Libraries: DIY History (Iowa history) ---

Jensen Comment
DYI could be a feature added to an accounting history library such as the great accounting history library at the University of Mississippi.

The Hagley Vault (USA History of Business and Fashion) ---
This site needs a better search engine

Not All Measures of GDP Are Created Equal ---

Wal-Mart's Huge Experiment With Higher Wages and Work Schedules ---

Jensen Comment
Wal-Mart has always tended to pay the managers within stores quite well and tended to promote employees to managers from within.

This is more of an experiment with paying higher wages to non-managers. Wal-Mart has always had pretty good fringe benefits such as free college (on-line) and employee training. The most controversial fringe was health care that in the past had a substantial waiting period between the date of hire and the date health care benefits became available. This tended to weed out employees who were not going to stay on the job such as those with addiction problems and high absenteeism..

Proposed Destination Tax:  A plan to tax US imports has better odds of becoming law than many people think ---

A controversial proposal to tax all goods and services coming into the United States has a better chance of becoming law than many on Wall Street suspect.

The so-called "border-adjusted" tax is part of the House tax overhaul plan that also would reduce the corporate rate from 35 percent to 20 percent. The idea is to tax goods as they come into the country from overseas, but to avoid taxing U.S. exports at all. For instance, a car imported into the U.S. from Mexico would be taxed, but the American-made steel sent to Mexico would not.

Continued in article

Jensen Comment
It's unrealistic to assume that other nations buying USA exports would not similarly react with their own border-adjusted taxes.

The net effect will be to severely restrain world trade. This in my opinion is a lousy idea.

Yeah Right!
PLOS One: Quantity and/or Quality? The Importance of Publishing Many Papers

Jensen Comment
As "research and publication" took over as the leading criterion for promotion and tenure the academic world experienced and exposion of so-called refereed journals, many of them from profit-seeking publishers. The result was an explosion in quantity and an a bifurcation of quality from extremes of highest quality to garbage with sham refereeing. The good news was an increase in specialty journals. The bad news was a shortage of dedicated referees.

One controversial factor was the impact of technology on publication and distribution costs, especially in the rise of e-journals that did not even entail hard copy printing of journals. This made it possible for libraries to be almost the entire source of revenue for some journals. My point here is that journals no longer had to rely on reader subscriptions to foot the bill in a market of supply and demand. Interestingly, the market of supply and demand now applies to blogs rather than "refereed" publications. For a blog to be successful it has to satisfy the needs of readers rather than libraries that fail to allocate resources based upon user demand. For example, one faculty member may be responsible for a campus library's subscription to an obscure journal.

What the above PLOS One Website fails to get across is that opposing the benefits of publishing many papers are the frauds perpetrated by making it so easy for faculty to get promotions and tenure based on the many P&T committees and administrators who are willing to count publication records rather than read the publications.

Commercial Scholarly and Academic Journals and Oligopoly Textbook Publishers Are Ripping Off Libraries, Scholars, and Students ---

Gaming for Tenure as an Accounting Professor ---
(with a reply about tenure publication point systems from Linda Kidwell)

The IRS may have a gift for a couple that waits until 2017 to get married ---

EY:  Technical Line --- A closer look at the FASB’s hedge accounting proposal ---$FILE/TechnicalLine_04482-161US_Hedging_20December2016.pdf

EY:  Financial Reporting Briefs, December 2016 ---$FILE/FinancialReportingBriefs_04353-161US_15December2016.pdf

EY:  FASB proposes new ‘down round’ guidance (Distinguishing Liabilities from Equity)  ---$FILE/FASBProposal_DistinguishingLiabilities_7December2016.pdf

EY:  Statement of Cash Flows (Accounting Standards Codification 230) ---$FILE/FinancialReportingDevelopments_42856_CashFlows_15December2016.pdf

Reply from Scott Bonacker on December 18, 2016
There are quite a few documents available ---: 

Bob Jensen's threads on Debt versus Equity (including mezzanine issues) ---

Fatal flaw found in PricewaterhouseCoopers SAP security software Instead of fixing the issue, PwC lawyered up ---

Bob Jensen's threads on PwC scandals ---

EY:  Highlights of the 2016 AICPA National Conference on Current SEC and PCAOB Developments ---$FILE/AICPACompendium_04331-161US_12December2016.pdf

ERISA of Lack Thereof:  The Supreme Court Case That Can Bankrupt Schools and Hospitals ---

FinREC issues revenue recognition working drafts for airline, gaming industries ---

Common Income Tax Accounting Pitfalls ---

AICPA's Most Popular Tax Resources (not free) ---

Economist Magazine:  India's Road to Robin Hood Monitory Hell is Paved With Good Intentions

Jensen Comment
In the USA a huge underground (cash-only) economy allows criminals to launder money, rich folks to avoid income taxes, and laborers to avoid payroll taxes.

In India the underground economy is even more of a problem.

"Modi's Bungle:  Narendra Modi needs to take measures to mitigate the damage his rupee reform has done," Economist Magazine, December 3, 2016 ---

. . .

Not the way to do it

The plan has laudable aims. Its initial popularity was based on the idea that the greedy rich, with their ill-gotten “black money” stored in stacks of banknotes, will get their comeuppance. Those who cannot justify the sources of their wealth will face punitive taxes. It also accords with Mr Modi’s manifesto pledge to normalise India’s black economy, estimated by the World Bank in 2010 to be worth about one-fifth of official GDP. The idea is that India will become more efficient, as more people and more money enter the banking system; counterfeit currency will become worthless; India’s woefully low tax base will expand; and government coffers will enjoy a windfall of cash expropriated from the corrupt.

It is a pity, then, that Mr Modi’s scheme to achieve these aims is so flawed. Banknotes are not just a way for the rich to store their wealth; they are also how the unbanked survive. As so often, the burden of this reform has fallen most heavily on the poor (see article). Over four-fifths of India’s workers are in the “informal” sector, paid in cash. Untold numbers have been laid off because their employers cannot pay them. Tens of millions have queued for hours at cash machines and bank branches, to get rid of the useless notes and get hold of some spending money. A new business has sprung up in laundering cash for a fee for those without the time or inclination to queue, or with more notes than they can account for.

Cash is used for 98% by volume of all consumer transactions in India. With factories idle, small shops struggling and a shortage of cash to pay farmers for their produce, the economy is stuttering. There are reports that sales of farm staples have fallen by half and those of consumer durables by 70%. Guesses at the effect on national output vary wildly, but the rupee withdrawal could shave two percentage points off annual GDP growth (running at 7.1% in the three months to September).

With a bit of forethought, much of the mayhem could have been avoided. It turns out that the new notes are smaller and require all the country’s ATMs to be reconfigured, which takes 45 days. Some 22bn notes are affected, but printing capacity is said by the previous finance minister to amount to only 3bn a month. So even if fewer notes are needed, because more money will be in banks, printing them will take some time. The banks were ill-prepared to handle about 8.5trn rupees in new deposits in the three weeks after demonetisation. After they used the deposits to buy bonds, lowering interest rates, the central bank had to order them to park the new money with it, in zero-interest accounts.

If Mr Modi’s plea for patience for a 50-day period until the end of the year looks optimistic, so does the promise of “the India of your dreams”, purged of the corrupt and their loot. In India’s black economy of undeclared, untaxed income, all sorts of transactions, from medical bills to house purchases, are sometimes settled with suitcase-loads of banknotes. Yet even if the hoarders will be wary of another confiscation in the future, they will be tempted to make use of the new 2,000-rupee note just as they used the old 1,000-rupee one.

Moreover, Mr Modi was wrong when he said that the rich now need sleeping pills, while the poor sleep peacefully. In past seizures of illegal wealth, only between 3.75% and 7.3% was found to be kept in cash. The sleepless are those who need cash to get by; the truly rich are laughing all the way to their flats in London. The punitive taxes levied on black money that is deposited will feel like flea-bites. As for the counterfeiters, most estimates of the value of fake rupees are in the tens of millions of dollars, out of $250bn in circulation.

Both for the sake of Indians and for his premiership, Mr Modi needs to mitigate some of the harm he has caused. He should find ways of printing the new money more quickly. More important, he should also lengthen the period over which notes may be exchanged or deposited and allow the old notes to remain valid as payments for a range of goods and services (tax payments, say, would seem logical).

Somewhat too sensational

Much in India needs reform—abolishing restrictive labour rules, for example. In the past such reform has often been stymied by a system that favours government by committee. Mr Modi has lurched to the other extreme. The perceived need for secrecy (to take cash-hoarders by surprise) fed into the innate sense he has of his own infallibility and his misplaced faith in his technocratic skills. By designing a scheme that was needlessly callous and which is becoming increasingly unpopular, he has squandered political capital. In future he needs to consult more widely, centralise less decision-making in his own hands and acknowledge that not all criticism is partisan or special pleading from the corrupt rich. India, fortunately, is not North Korea, and is aware that leaders are fallible. Its federal, democratic system will give voters plenty of chances to let it be known how badly Mr Modi has messed up his rupee rescue.


NCAA Rules Ex-Official at Cal State-Northridge Committed Academic Misconduct ---

Punishment includes infractions for helping two players cheat in courses
NCAA Wipes Out 2 Years of Notre Dame Wins in Football ---

When the Coaches Pass the Courses Instead of Football Players
Georgia Southern U. Staff Members Helped Athletes Cheat, NCAA Rules ---

Former U. of Southern Mississippi Coach Directed Cheating Ring, NCAA Says ---

The worst offender in history, basketball powerhouse University of North Carolina, got off easy after nearly 20 years of fake courses and illegal grade changes. It's a little like stealing where you get probation for stealing $10 million and a year in jail for stealing $100.

The higher the average annual performance of the college's teams the more frequent are the repeat academic cheating offenses.

And when a repeat offender like SMU finally gets serious about academic integrity the average annual performances go down the tubes.

 Bob Jensen's threads on athletics scandals in higher education ---

How to Mislead With Statistics

Here's how much surgeons, lawyers, and 18 other top-earning professionals make per hour ---

Jensen Comment
This articles is one of the best/worst articles I've seen lately on how to lie with statistics.

Here are a few things to point out to your students if you want to highlight how not to report survey results.

First and foremost when you define the total populations (apart from sample sizes) and don't mislead about the sizes of the populations.
For example, the above article says there are 24,000 employed psychologists and 15,650 physicists.  Aren't professors and other teachers in these fields "employed?" There are more employed specialists in these disciplines employed only in academia than the numbers shown above. Most likely the average hourly wage would be greatly pulled down if academics were included in the population and the sample.

Secondly the article ignores standard deviations and kurtosis of the distributions from which averages are reported. For example, outliers in millions of dollars of compensation to attorneys and other professionals tend to skew averages upward. Even medians can be misleading for highly skewed distributions with outliers on both sides of the medians. Think of all those lawyers who will work for food.

How random are the samples from the populations identified in the study. My guess is not very random.

Watch definitions.
What is a "chief executive?" The manager-owner of our local hardware store is a "chief executive" as is the CEO of a Fortune 500 Corporation.
What's the definition of a "financial manager versus a "sales manager?" Why are there twice as many financial managers as sales managers?
What's the definition of "public relations and fundraising managers" and why are there only 60,380 of them when there are 531,161 financial managers? Many financial managers and chief executive officers and are also the public relations and fund raising managers. My guess is that the sampling population totally ignored public relations and fund raising managers for colleges, universities, churches, and charities where compensation is often quite low or contingent upon funds raised.

What's the difference between a pharmacist and the chief executive. Many pharmacists also own and manage the entire drug store?

What's "compensation?" Most CEO's of Fortune 500 companies get paid on performance-based contracts depending upon such things as corporate earnings reports. In other words what a CEO makes one year may be doubled or tripled the next year and then taken way down the following year.

What's "compensation?" Most CEOs are paid in many ways including stock options, stock awards programs, living benefits (use of the corporate jets and ski chalets), wine, women, and song.

There's an enormous difference between what a physician makes before or after malpractice insurance and other expense expenses. Those that work for much lower annual salaries often do not have to pay their own malpractice insurance, nurse expenses, receptionist expenses, accounting expenses, office rental expenses, etc.

I could go on and on, but I think students will catch my drift.

This article is so misleading it's worse than garbage.

How to Mislead With Statistics

"This graph shows how much money you can earn from each college major," by Abby Jackson, Business Insider, December 24, 2015 ---

Jensen Comment
This graph is a great illustration of an interactive graphs, although you have to play around with it some to get the hang of it. For example, if you want to see the graphs for just "Accounting" click off the box for "All," click the box for "Accounting," and then scroll down and click on "Apply."

By now many of you are weary of my warnings about such things as definitions, averages without standard deviations, skewness (kurtosis), etc. For example, means or medians for "accounting" can be misleading without knowing how accounting is defined. For example, there's a big difference between what lowly bookkeepers make versus CPA firm partners and executives in major corporations. There's a huge difference between what accounting Ph.D. graduates make in struggling small private colleges versus what they make at Ivy League universities. Also there's a huge difference in fringe benefits such as housing subsidies, research stipends, summer pay, and fringe benefits such as contributions to TIAA/CREF. Also Ph.D. graduates tend to have opportunities for outside income in book writing and consulting. At a prestigious university like Harvard, a professor's Harvard salary is likely to be only a small part of total income.

In general, the biggest problem is in career tracking combined with income standard deviations. Comparing the lifetime earnings of a cost accountant in General Electric cannot really be compared with the lifetime earnings of a partner in a small local public accounting firm really cannot be compared because some of these partners may top out at $50,000 or more per year whereas others top out at $500,000 per year after their retirement buyouts are factored into compensation.

A top accounting graduate typically goes to work for 5-10 years with a large public accounting firm or the government. However, 80% or more of those graduates leave (most never intended to stay in public accounting or government employment) and go to work for in private industry such as when an IRS agent goes to work at a high level in a corporate tax department. At such time they often make much more than others who stay in public accounting or government. The problem is that in studies like the one cited above these "former" accountants are no longer classified as accountants such as when a public accountant becomes the CFO or CEO of a large or small corporation. Hence in studies like the one above a former accountant is excluded from the 20-year survey of "accountants."

The same problem arises when examining accountants who only have "associates" degrees. Typically these accounting graduates are no longer "accountants" ten or 20 years out. Some may be CEOs of their own companies and some might earn over $200,000 per year in stores or plumbing companies that they own. Hence, I'm extremely suspicious of graphs that compare the benefits of getting a Ph.D. versus an associates degree in accounting. The problem is that most associates  or bachelors degree holders either dropped out of the labor market (such as to have babies) or became entrepreneurs who are no longer classified as "accountants."

Problems like those mentioned above become exacerbated when comparing types of degrees such as accounting versus culinary arts versus creative writing.

The bottom line is that studies like this are so misleading and dangerous that I wish they did not get published.

Bob Jensen's threads on careers are at

2016:  Explore What Private-College Presidents Make ---

Information about presidents' tenures and prior employment was obtained from college websites, newspaper archives, or university offices. Photographs were obtained from university websites.

Jensen Comment
The above quotation raises a red flag about the data. The data were not collected in a statistical survey with consistent definitions and findings. For example, is it possible that the definition of "compensation" varies with the highly varied sources of the data? In some cases "compensation" may have included the value of a free house, a free car, and even a free airplane or use of an airplane (such as when a Trustee's private jet is used to ferry the president's family on vacations). In other cases "compensation" may exclude some of those fringe benefits.

There's a big change happening to Social Security in 2017 — here's what you need to know ---

 If this was such a good deal Chicago and Detroit would've imposed such a surtax years ago.

Portland city council passes tax on CEOs who earn 100 times more than staff ---

. . .

The Portland, Oregon, city council has voted to pass a first-of-its-kind measure that would levy a tax on public companies whose CEO-to-workers pay ratio is more than 100-1. Portland to vote on taxing companies if CEO earns 100 times more than staff Read more

The new tax, which seeks to address income inequality, was voted in 3-1 by the council on Wednesday. It increases corporate income tax by 10% if a company’s CEO has a salary ratio of above 100-1, and by 25% if the CEO has a ratio of 250-1 or more.

Officials expect that the measure will raise $2.5m a year from January 2018, with former environmental lawyer Steve Novick, the city commissioner who proposed the measure, saying that the revenue is intended to be used to pay for programs for homeless people.

There are around 540 publicly traded companies that do enough business in Portland to be subject to the business income tax under current law, Novick said. It is unclear how many of those have CEO-to-worker pay ratios that would make them subject to the increased surcharge.

Novick said he had decided to come up with a measure to address the problems of income inequality while reading French economist Thomas Piketty’s book Capital.

Continued in article

Jensen Comment
Keep in mind that this is not a tax on those fat-corporations. It's a regressive tax on shoppers in the City of Portland. The people paying most of the tax will be the poor and middle-class residents of Portland. For example, the prices of things like groceries may end up higher in Portland than its surrounding suburbs. Affected companies may lay off some Portland workers to protect profits. For example, inside the city the checkout lines and service counter lines may be longer than in similar stores in the suburbs.

And to the extent that the affected companies avoid investing in real estate and new jobs in Portland the city hurts in spite of the revenue raised by this new corporate income tax.

 It's probable that homeless people and panhandlers in Portland's suburbs and nearby cities like Eugene, Tacoma, and  Seattle will be attracted to the better free food and facilities for them in downtown Portland.

The criterion of taxing only businesses having highly-paid CEOs is just a smoke and mirrors excuse to tax the poor and middle class workers in Portland, Oregon.

The roses were previously wilting in the City of Roses after the surtax on large corporation operations in Portland (irrespective of CEO pay). This new surtax simply adds to the wilt.

I'm reminded that over half the license plates in our closest Wal-Mart parking lot are green due to shoppers seeking to avoid Vermont's sales tax, especially on big ticket items like tires, television sets, and computers. In return many of the homeless people moved from New Hampshire to Vermont because of the much better welfare benefits in Vermont. Meanwhile physicians and other high income people in Vermont moved across the border into New Hampshire to avoid Vermont's high state income tax. There's a big Morgan Stanley investment firm building in Lebanon, New Hampshire serving thousands of physicians, some of whom set up private practices just across the border from Vermont. There's no Morgan Stanley building on the other side of the Connecticut River.

The CEO of Ford just perfectly summarized the biggest problem for electric cars ---

Jensen Comment
CEO Mark Fields contends the sales demand just isn't there.

Sure there are rich people in warm climates providing a niche market for Tesla electric cars as long as taxpayers are stupid enough to continue paying huge subsidies for purchase prices and provide free roads and bridges for electric cars. But those rich folks have gasoline cars for longer trips beyond the limited ranges of electric cars.

Sure there are rich people not worried about what Trump's angry China might do to the price of lithium. Rich folks have other cars.

I suspect there will be an increased market for hybrids since they have longer ranges. Those cars make sense.

All eyes are on the forthcoming Chevy Bolt since the Bolt is cheaper than the Tesla and has a worldwide network of dealers.

Ford's CEO Mark Fields does not seem to be losing sleep over competition from Tesla or Bolt.

FASB Takes Aim (long term) at How to Keep Accountancy in Pace With Technological Change ---

The Financial Accounting Standards Board will focus over the next few years on figuring out how financial reporting can keep pace with advances in technology, FASB Chairman Russell Golden said.

Ph.D. Degrees in the USA for Selected Years 2005-2015 ---

Jensen Comment
Some of the points to note.
Less than 3% of the Ph.D. degrees in the USA are in Business Administration (not shown is that less than 0.3% of the total each year (only slightly over 100) are in accountancy. Life Sciences take the lion's share of the total due mostly to necessity to get a Ph.D. for many of the outstanding Life Science careers outside academe. In comparison, there's virtually no need to get a Ph.D. in Business Administration for careers outside academe where professional certifications (like CPA and CFA licenses) are more valuable.

The largest Ph.D. mills (e.g., the Universities of Michigan, Texas. and Wisconsin) identified in the above 2005-2015 article plus the University of Illinois were also the largest accounting Ph.D. mills before the 1990s. Then the number of accounting Ph.D. students in those mills collapsed to the miniscule numbers shown in the table at 
Reasons are complicated but the main reason is that accounting was no longer the focus of accounting Ph.D. programs across the USA after the 1980s ---
Professional accountants lost interest in applying for Ph.D. programs and many mathematicians (especially from Asia) started applying for accounting Ph.D. degrees in the USA.

EY Tax Guide 2017 now available ---
Not free

6 million Americans have stopped paying their car loans, and it's becoming a 'significant concern' ---

FASB Considers Slowdown in Standard Setting ---

Jensen Comment
It's hard to slow down when so many innovative accountants are finding ways to bend the rules. For example, think of all the clever ways accountants devised for non-GAAP reporting and cheating on revenue recognition.

Examples of revenue recognition cheating --- 

Elder abuse – Often the kin did it: Feds to collect data.---

What kind of people cheat and financially abuse incapacitated older folks?

Sons, daughters, nieces, nephews and lawyers – people who act as guardians for their relatives and clients.

What can the federal government do about it?

Currently not much, because elder abuse generally is considered a state and local problem. But at least the federal government can help with the important step of defining the problem. The Department of Health and Human Services (HHS) plans to soon launch a data collection program that will assist experts combating elderly exploitation.

“Unfortunately, the extent of elder abuse by guardians is relatively unknown to us due to the limited data that we have available,” Sen. Claire McCaskill (D-Mo.) said at a Senate Special Committee on Aging hearing last week.

The title of the hearing gets to the point — “Trust Betrayed: Financial Abuse of Older Americans by Guardians and Others in Power.”

“The amount of money lost through exploitation of elders is staggering and growing,” said Cathy “Cate” Boyko, Minnesota judicial branch conservator account auditing program manager. She cited a 2015 study indicating the estimated national annual financial loss at $36.5 billion. “There is no question these losses are increasing at an alarming rate.”

Early next year, HHS will begin the National Adult Maltreatment Reporting System (NAMRS), which the department describes as “the first comprehensive national reporting system” for Adult Protective Service (APS) programs. The data collection will include information from investigations into the mistreatment of older adults and adults with disabilities. “The absence of data for research and best practice development has been cited by numerous entities, including the Government Accountability Office (GAO), as a significant barrier to improving APS programs,” says the HHS Administration for Community Living.

Committee Chairwoman Susan Collins (R-Maine) agrees. “There is no doubt financial abuse against our seniors is a problem—and a very serious one made even more difficult by a lack of data that makes it difficult to quantify,” she told The Washington Post. “But I think this is only the tip of the iceberg.”

Read on for examples of elder abuses

Jensen Comment

Although not intended as such, maybe this new government initiative will slightly discourage appropriation of grandma's estate so she qualifies for Medicaid to pay for her years in a nursing home.

Positive Demonstrations are Better Than Negativism

Toward a More Appropriate Objective for the FASB (and IASB)
by Tom Selling
December 4, 2016

Jensen Comment
I don't think Tom wants me to rehash our old debates where we can't agree on some of these matters ---

Suffice it to say that the Number 1 topic on which we do not agree is his claim that
"The only relevant basis of measurement for the assets and liabilities that are recognized can be current value.  Comparative amounts must presented in constant units of purchasing power."

He has never convinced me of this claim, and I do not think Tom provides evidence that replacement costs (entry values, current costs) are the "only relevant" choices among the alternatives. Firstly, replacement costs suffer from the necessity of arbitrary accruals (like depreciation and depletion) that he criticizes in historical costs. Secondly, replacement cost accounting can easily mislead when replacement options are quite unlike operating assets in use. Thirdly, replacement cost accounting entails recognition of transitory market changes in inventory replacement costs that will never be realized as long as the inventory remains on hand.

Entry value accounting has never gained much traction in the academic community, certainly not like exit value accounting expounded by various leading professors in the 20th Century. Historical cost accounting is not really "value accounting," which is a point made over and over again by AC Littleton in his time. An exception is Bill Paton who broke away from Littleton later in life, but Paton's advocacy of replacement costing  never caught on in the financial analyst community.

The great FAS 33 experiment in practice certainly never excited financial analysts.  Beginning in 1979, FAS 33 required large corporations to provide a supplementary schedule of condensed balance sheets and income statements comparing annual outcomes under three valuation bases --- Unadjusted Historical Cost, Price Level Adjusted (PLA) Historical Cost, and Current Cost Entry Value (adjusted for depreciation and amortization). Companies complained heavily that users did not obtain value that justified the cost of implementing FAS 33. Analysts complained that the FASB allowed such crude estimates that the FAS 33 schedules were virtually useless, especially the Current Cost estimates. The FASB rescinded FAS 33 when it issued FAS 89 in 1986. FAS 33 failed largely because financial analysts had little interest in the supplementary FAS 33 tables.

Tom Selling can't explain why, in the many years of replacement cost (entry value, current value) measurement advocacy (going back at least as far as John Canning's thesis), replacement cost accounting never really found traction in academe or the world in investment analysts who never put up pleas to for companies to incur the huge costs of meaningful current cost financial statements.

If Tom is going to "sell" his replacement cost (entry-value) basis of accounting he's not going to do so by continued whipping the FASB in what is now his accustomed negativism style where the FASB is concerned. Negativism seldom sells in practice or academe.

If Tom Selling is going to "sell" his replacement cost basis of accounting he's going to have to convince the user community, especially financial analysts, that the benefits of replacement cost accounting to them greatly exceeds the considerable cost of generating "objective" replacement cost measurements of assets, liabilities, revenues, expenses, and net income.

I appeal to Tom to begin by writing cases, preferably focused on real world companies, that make a sales pitch to the financial analyst constituency of the FASB/IASB. Then let the analysts carry the ball demanding change by the FASB/IASB. I'm skeptical that Tom's excellent blog for accounting thought is a must-read site for financial analysts. He's going to have to make his case in their literature.

It will take a whole lot of positive demonstration instead of negativism.

Tom could begin by identifying the best of the best in the literature of replacement cost accounting. John Canning's thesis is a good place to start.
Jim Martin's MAAW site has a pretty good archive on replacement cost accounting
Entry-value accounting never got the support of leading academics to the extent that exit-value accounting got some traction.

Jim Martin's references in the past did not alter academic or practitioner opinion markedly.

The next step for Tom is to make financial analysts blink and take note. He should make his case with financial analysts who in turn have influence on the SEC and FASB and IASB.

From MAAW's Table of Contents Service Compiled by Jim Martin

Updates from the Journal of Accountancy

Journal of Accountancy 2016 January - December 

Journal of Accountancy1905-1925 and 2005 -  December 2016

Updates from Accounting Horizons

Accounting Horizons 2016 - March-December

Accounting Horizons 1987-2016 -

Updates from the Harvard Business Review

Harvard Business Review January/February - December 2016 

Harvard Business Review 1922-1930 and 2002 - December 2016

Updates from MIT Sloan Management Review


Updates from the Journal of International Accounting Research

Journal of International Accounting Research Volumes 15(1) and 15(2) 2016 

Journal of International Accounting Research 2002-2016

Undates on Environmental, Social, and Sustainability Accounting ---

Updates from the Review of Accounting Studies
From MAAW's Blog Compiled by Jim Martin

Review of Accounting Studies - Volumes 21(1) - 21(3) 2016

Review of Accounting Studies - Volume 1(1) 1996 - Volume 21(3) 2016

Updates from the Journal of Management Accounting Research
From MAAW's Blog Compiled by Jim Martin

Journal of Management Accounting Research - Volumes 28(1)-28(3) 2016

Journal of Management Accounting Research - Volumes 1989-2016

Updates From the CPA Journal 2016 Update
From MAAW's Blog Compiled by Jim Martin

The CPA Journal 2016

 The CPA Journal 2008-2016

Updates From the International Journal of Accounting Information Systems 2016 Update
From MAAW's Blog Compiled by Jim Martin

International Journal of Accounting Information Systems 2016 --- 

International Journal of Accounting Information Systems 2000-2016 ---

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

Journal of Accounting and Economics 2016 

Journal of Accounting and Economics 1979 - August 2016

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 --- 

Contemporary Accounting Research 1984-1992 and 2010-2016 ---

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

Decision Sciences Volume 47(1) - 47(4) 2016 

Decision Sciences Volume 1(1) 1970 - Volume 6(4) 1975 and Volumes 41(1) 2010 - 47(4) 2016

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

Advances in Management Accounting Volume (26) 2016 

Advances in Management Accounting Volumes (1) 1992 - (26) 2016

Google Lowered 2015 Taxes by $3.6 Billion Using 'Double Irish With A Dutch Sandwich' Tax Structure ---

Jensen Comment
Sounds like Google did everything to win except deflate the footballs.

Comparisons between SEC's SAB 101 and 104 Revenue Recognition Rules with the New Converged Revenue Recognition Standard Effective for Periods Beginning after December 15, 2017
SSRN. December 5, 2016


Muhammad Mehedi Hasan --- Texas Woman's University, School of Management


This paper is the discussion and side by side comparisons between existing and proposed revenue recognition standards "Comparisons between SEC’s SAB 101 and 104 Revenue Recognition rules 
with the new converged Revenue Recognition standard effective for periods beginning after December 15, 2017."

SEC Rule 10b5-1 Plans and Strategic Trade around Earnings Announcements
SSRN, December 5, 2016


Artur Hugon --- Arizona State University

Yen-Jung Lee --- National Taiwan University


We examine how corporate insiders profit from private information about future earnings performance through SEC Rule 10b5-1 trading plans. We first provide evidence consistent with insiders using 10b5-1 plans to sell stock in advance of disappointing earnings results. We then examine insiders who not only currently use 10b5-1 plans, but also actively traded their own company’s stock prior to the availability of such plans. We find that this group traded aggressively on earnings information prior to 10b5-1, but then shifted their aggressive trading into 10b5-1 plans after the availability of planned trading. We also document several questionable patterns associated with their trading behavior. Namely, their trades tend to be irregularly timed, close to the plan initiation date, infrequent in nature, and executed during traditional earnings blackout periods. In terms of firm characteristics, these insiders are more likely to be employed at firms with weaker firm governance and lower institutional ownership.

From the CFO Journal's Morning Ledger on December 7, 2016

Supreme Court backs government up (on insider trading)
The Supreme Court handed the government a significant win Tuesday in its pursuit of insider trading, ruling prosecutors in such cases don’t always have to show that something valuable changed hands to prove a crime was committed. The unanimous opinion restores some of the power the government lost in a 2014 federal court case. That two-year-old decision had cast doubt on just what constituted insider trading and forced law-enforcement officials to drop a number of high-profile cases, including several against associates of hedge-fund billionaire Steven A. Cohen.

An Investigation of Wholly‐Owned Foreign Subsidiary Control Through Transaction Cost Economics Theory
SSRN, December 2016
Also see
Accounting & Finance, Vol. 56, Issue 4, pp. 1041-1070, 2016


Francesco Giacobbe --- University of Technology Sydney (UTS) - School of Accounting; Financial Research Network (FIRN)

Zoltan Matolcsy---  University of Technology, Sydney; Financial Research Network (FIRN)

James Wakefield --- University of Technology Sydney (UTS)


This paper investigates the management control systems used by multinational corporation headquarters to control wholly‐owned foreign subsidiaries. Our theory development is based on transaction cost economics. First, we conduct a series of exploratory interviews, providing an insight into the context, and second, we provide empirical evidence based on cross‐sectional survey data. Our results indicate that activity traits (uncertainty, asset specificity and post hoc information impactedness) have significant implications on control choices, in particular the control archetype combinations chosen by headquarters, although not all results are consistent with theory predictions. Our findings are supported by extensive alternative testing.

Audit Data Analytics Use: An Exploratory Analysis
SSRN, December 1, 2016


Clark Hampton --- University of Waterloo

Theophanis C. Stratopoulos --- University of Waterloo - School of Accounting and Finance


The goal of this study is to understand the current state of audit data analytics use (i.e., the leveraging of data analytics in the performance of audits) within the Canadian audit profession. Based on survey results from 394 Canadian audit practitioners, we explore the following three questions: What is the locus of motivation behind audit data analytics (ADA) use? Does the creation of a supporting environment (e.g., training opportunities) mater in ADA use? What is the tradeoff between two potential ADA training strategies (diversity of ADA tools vs. development ADA expertise)? Research questions are examined using path models estimated with components based structural equation modeling. Our study provides guidance to audit practitioners, professional organizations, and educators concerning current and future ADA initiatives.

From Assurance to Insurance: Making Audit Relevant Again
SSRN, December 1, 2016


Christian Mouillon --- Independent

François René Lherm --- ESCP Europe and Deloitte Research Chair; Excellency Laboratory for Financial Regulation (LabEx RéFi)


In a context of overarching concerns about the value of an audit and the relevance of the accounting profession, regulators have reported numerous failures in the audit of estimates and interpreted it as a lack of professional skepticism by auditors. This report addresses this conundrum with a view to inform regulators’ and standard-setters’ efforts to reduce the information and expectation gaps.

Based on the results of an investigation into how experienced auditors actually address the most challenging estimates, it suggests that a shift from an assurance approach of audit to an insurance approach would structurally ensure the relevance of an audit in addressing challenging estimates and enhance communication to investors.

This would provide an unprecedented opportunity to reduce the expectation and information gaps, and unleash audit’s full potential in the best interest of its stakeholders and society as a whole.

Jensen Comment

From an insurance perspective a lot depends upon what is being "insured." In general, however, I'm opposed to having audit firms shift from assurance to insurance. I think the term "insurance" should be limited to risks for which actuary science can and will assess risk probabilities and costs. I don't think actuary science will touch audit "insurance" with a ten-foot pole. Actuary science is limited to statistical analysis of reasonably stationary systems such a mortality, hazard losses, and weather systems where the past is more predictive of the future.

Josh Ronen at NYU is a long-time advocate in replacing  assurance with insurance --- -  
CPA audit firms in essence would become insurance firms that reimburse investors and creditors for a client's violations of GAAP. Such insurance schemes would probably not totally eliminate client audits but insurance might change many auditing procedures, e.g., more analytical reviews and less detail testing. Presumably small auditing firms would not necessarily be driven out of business if they participated in insurance pools.
Josh never convinced me that this was a good idea for financial auditing.

5 ways to overcome procrastination ---

Jensen Comment
I cannot seem to find the time to read this article.

A new Institute of Internal Auditors report reveals that 23 percent of practitioners worldwide have been asked at least once to change or suppress an important audit finding ---

Internal Auditors Pressured to Violate Ethics and Professionalism

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

Be your best selves, bookkeepers
Internal auditors say management is often asking them to leave out the bad news, Tatyana Shumsky reports. Nearly one in four internal auditors surveyed globally by the Internal Audit Foundation said they’ve been pressured to suppress or change their findings. The main motivation is censorship.

One internal auditor hero is Cynthia Cooper who, in spite of heavy pressures from her bosses, blew the whistle on the enormous WorldCom fraud and its horrid audits by Andersen---

Quicken Loans ---

United States Files Lawsuit Alleging that Quicken Loans Improperly Originated and Underwrote Federal Housing Administration-Insured Mortgage Loans ---

The United States has filed a complaint in the U.S. District Court for the District of Columbia against Quicken Loans Inc. under the False Claims Act for improperly originating and underwriting mortgages insured by the Federal Housing Administration (FHA), the Justice Department announced today.  Quicken is a mortgage lender headquartered in Detroit.

“Those who do business with the United States must act in good faith, including lenders that participate in the FHA mortgage insurance program,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “To protect the housing market and the FHA fund, we will continue to hold responsible lenders that knowingly violate the rules.”

Quicken participated in the FHA insurance program as a direct endorsement lender (DEL).  As a DEL, Quicken had the authority to originate, underwrite and certify mortgages for FHA insurance.  If a DEL such as Quicken approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to the U.S. Department of Housing and Urban Development (HUD), FHA’s parent agency, for the losses resulting from the defaulted loan.  Under the DEL program, neither the FHA nor HUD reviews the underwriting of a loan before it is endorsed for FHA insurance.  HUD therefore relies on DELs to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance. And, to that end, a DEL must certify that every loan endorsed for FHA insurance is underwritten according to the applicable FHA standards.

The government’s complaint alleges that, from September 2007 through December 2011, Quicken knowingly submitted, or caused the submission of, claims for hundreds of improperly underwritten FHA-insured loans. The complaint further alleges that Quicken instituted and encouraged an underwriting process that led to employees disregarding FHA rules and falsely certifying compliance with underwriting requirements in order to reap the profits from FHA-insured mortgages.  For example, Quicken allegedly had a “value appeal” process where, when Quicken received an appraised value for a home that was too low to approve a loan, Quicken often requested a specific inflated value from the appraiser with no justification for the increase– even though such a practice was prohibited by the applicable FHA requirements.  Quicken also allegedly granted “management exceptions” whereby managers would allow underwriters to break an FHA rule in order to approve a loan.

The government’s complaint alleges that Quicken’s senior management was aware of these and other problems.  The complaint alleges that Quicken’s Divisional Vice President for Underwriting, the second most senior executive in Quicken’s Operations Department, wrote in an email discussing the value appeal process that “I don’t think the media and any other mortgage company (FNMA, FHA, FMLC) would like the fact we have a team who is responsible to push back on appraisers questioning their appraised values.”  In another email, the same Divisional Vice President for Underwriting wrote to a group of Quicken executives stating that 40 percent of the management exceptions on FHA’s early payment defaults should not have been granted, adding: “we make some really dumb decisions when it comes to client service exceptions.  Example, purchase loan we pulled new credit and the client stopped paying on almost everything and the scores fell by 100 points, we [still] closed it.”  In yet another email discussing an FHA loan, the Operations Director, a senior level executive, explained that the loan was approved based on “bastard income,” which he described as “trying to put some kind of income together that is plausible to the investor even though we know its creation comes from something evil and horrible.”

The government’s complaint alleges that as a result of Quicken’s knowingly deficient mortgage underwriting practices, HUD has already paid millions of dollars of insurance claims on loans improperly underwritten by Quicken, and that there are many additional loans improperly underwritten by Quicken that have become at least 60 days delinquent that could result in further insurance claims on HUD.  For example, the government’s complaint identifies a borrower whose bank account statement showed overdrafts in multiple months and during the loan application process requested a refund of the $400 mortgage application fee so that the borrower would be able to feed the borrower's family.  Nevertheless, Quicken allegedly approved the loan.  The borrower made only five payments before becoming delinquent and as a result, HUD ultimately paid an FHA insurance claim of $93,955.19.  In another example, the complaint identifies a loan where the borrower was cashing out equity through a cash-out refinance.  Allegedly, Quicken originally received an appraised value of $180,000, but because the borrower wanted to receive more cash, Quicken requested the appraiser to inflate the value by $5,000.  The appraiser allegedly provided Quicken’s requested value of $185,000 even though the only difference between the two appraisals was the appraised value – the comparable sales analysis, and even the date of the appraiser’s signature, remained the same.  Quicken allegedly used the inflated appraisal value to approve the loan.  The borrower was delinquent on his first payment and as a result, HUD ultimately paid an FHA insurance claim of $204,208. 

The complaint further alleges that Quicken failed to implement an adequate quality control program to identify deficient loans, and that Quicken failed to report to HUD the loans it did identify.  In particular, according to the government's complaint, despite its obligation to report to HUD all materially deficient loans, during the period from September 2007 to December 2011, Quicken concealed its deficient underwriting practices and failed to report a single underwriting deficiency to the agency. 

“As the complaint alleges, Quicken violated HUD’s quality standards when obtaining HUD insurance for mortgage loans,” said U.S. Attorney John Walsh of the District of Colorado, whose office helped to lead the investigation.  “Quicken issued hundreds of defective mortgage loans, and left HUD – and the taxpayer – to pay for the loans that defaulted.  Quicken’s alleged fraudulent conduct affected communities nationwide.  This case is the latest step in our commitment to hold accountable mortgage lenders who profit by taking advantage of HUD insurance and issuing defective loans that do not meet HUD’s standards.”

“Quicken needs to be held accountable for violations of HUD requirements in the origination of FHA loans, as alleged in the complaint,” said HUD General Counsel Helen R. Kanovsky.  “HUD will continue to take action to protect the FHA and American homebuyers.

Continued in article

Deloite's Hollywood-Style Intelligence Gathering Service:  It's a Stinky Job But Somebody's Got to Do It

According to a person familiar with the operation, the two agents also spent a considerable amount of time in the men's and women's bathrooms — hiding out to avoid detection, and taking notes on conversations they overheard. "You can't believe what people will say while they're in there," said a person who participated in the operation ---

. . .

According to a person familiar with the operation, the two agents also spent a considerable amount of time in the men's and women's bathrooms — hiding out to avoid detection, and taking notes on conversations they overheard. "You can't believe what people will say while they're in there," said a person who participated in the operation.

From Going Concern on December 20, 2016

Accountants behaving badly

James Carey, a CPA and forensic accountant in Boston, was charged with tax fraud after he helped himself to money that wasn't his. Specifically, he administered bank accounts for insurance companies and in one case it's alleged that "a customer of one of the insurance companies sent [Carey] a payment of $594,217 intended for the insurance company, but found that almost all of that money had been used by Carey for his own purposes."

Elsewhere in ABB: Roberta Czap allegedly pulled off an elaborate scheme for quite awhile at her employer. It involved moving company funds to her personal accounts and laundering it through local casinos. 

Also! A PwC tax partner, William O’Hagan, has been charged with tax fraud and failure to file in a timely manner for his 2010-2012 tax returns.

Previously, on Going Concern...

Rachel Andujar wrote about firms that say they're "paperless" but still use processing sheets. In Open Items, someone wants to know if their offer will get rescinded

Billions of Pension Funds Diverted:  Another Corrupt Public Servant
Another Government Pension Fund Scandal

No, we’re not writing about the scandal (all too legal) that state and local pension funds have run up more than $1 trillion in unfunded liabilities. Today’s news concerns a single government pension official and the way he allegedly abused taxpayers and the workers who depended on him to guard their retirement savings.

On Wednesday U.S. Attorney Preet Bharara announced the indictment of New York State Common Retirement Fund portfolio manager Navnoor Kang for fraud and obstruction of justice. The government says Mr. Kang participated in a “pay-for-play” scheme in which he steered billions of dollars in pension-fund bond trades to two brokerage firms. In exchange, the government says the erstwhile public servant took bribes that included cocaine, prostitutes, event tickets, travel and luxury items, as well as cash to pay for strippers and other personal expenses.

Mr. Kang’s lawyer declined comment to the Journal, and he deserves the presumption of innocence, though one of the brokers involved has pleaded guilty and is cooperating with prosecutors. “This was an age-old and classic tale of quid-pro-quo corruption,” said Mr. Bharara. He might have called it a classic tale of public pension management that keeps repeating.

In October 2010, former New York State Comptroller Alan Hevesi pleaded guilty to a felony corruption charge in another pay-to-play scandal—one of several criminal convictions in the case. In November 2010 financier Steven Rattner agreed to pay more than $6 million to settle a case with the Securities and Exchange Commission. In December 2010 he agreed to pay $10 million to make New York State’s civil case go away. Among other allegations, the SEC had accused Mr. Rattner of helping arrange for the distribution of a film called “Chooch,” produced by the brother of the pension fund’s chief investment officer. Mr. Rattner denied any wrong-doing.

Two years ago the former chief executive of the California Public Employees’ Retirement System, Fred Buenrostro, admitted to accepting more than $250,000 in cash and other bribes from a former board member seeking Calpers investments with outside money managers. Buenrostro had accepted money to pay for his wedding—and later took money to pay for his divorce.

The problem here is the opportunity for corruption that comes from giving politicians and bureaucrats power over retirement money. That money belongs to workers and ought to be in individual accounts that the workers can control. It’s a great way to “drain the swamp.”

Bob Jensen's Fraud Updates --- 

How to Hide $400 Million ---

In any given year, trillions of dollars sit safely in the offshore financial world, effectively stateless, protected by legions of well-compensated defenders and a tangle of laws deliberately designed to impede creditors and tax collectors. Even the United States government finds it challenging: A special Internal Revenue Service division known as the “wealth squad,” set up in 2010 to crack down on high-end tax evaders with multinational holdings, today has enough manpower to assess only about 200 cases a year.

Fisher wondered whether Oesterlund’s transfers were really legal. He called Gregg D. Polsky, a law professor now at the University of Georgia, who occasionally worked for Fisher as an expert witness. Polsky knew a lot about tax law, but as he later explained to me, he did not have a satisfying answer for Fisher. In theory, Polsky says, federal rules require that related companies charge themselves the same price they would charge some other company. But in practice, the prices can be difficult to second-guess. Who can really say exactly what Apple’s intellectual property is worth? “The sophisticated people will hire high-priced advisers who will come up with a study that will give them the value they want,” Polsky says. “The I.R.S. has to decide if they disagree with that value and if they can both challenge it and prevail in court.” (In August, European regulators ordered Ireland to collect $15 billion in unpaid taxes from Apple, charging that the company’s special tax rate violated European Union rules.) ...

[L]ike many wealthy people who hire expensive help to execute complex tax transactions, Pursglove had considered herself to be avoiding taxes, not evading them — precisely the distinction wealthy people hire an accounting firm like Daszkal Bolton to observe on their behalf, however finely.

Continued in article

More Women Are Their Family’s Sole Breadwinner Than Ever Before ---

Bob Jensen's threads on women in the professions ---

Jensen Comment
In the dark ages when I got my first job in a CPA firm (the Denver Office of Ernst & Ernst) the CPA profession was virtually a male profession. We had one woman in the back room doing tax returns who was not allowed to see clients. Now CPA firms hire more women than men --- in part because more women than men graduate in accounting. Because of the 150-hour requirement most graduates aspiring to become CPAs earn masters degrees in accounting. CPA firms are also making a concerted effort to break the glass ceiling to partnership status. The largest CPA firms have family leave programs and flexible work scheduling where client work can often be done at home using modern networking technology.

The sticking point for men and women is that usually less then 20% of the new hires become partners in larger CPA firms. However, most of those new hires don't aspire to become partners subject to high tension and pressures to obtain and maintain clients for their firms. What new hires typically want most from CPA firms are experience, costly training in specialties, and exposure to clients who often offer higher paying jobs with less travel and workload pressures.

Professors of accounting usually like the high turnover in the first ten years of CPA firm employment. This creates the openings for our latest graduates to get experience, costly training in specialties, and placement in a corporate world reluctant to hire new graduates who have no experience and specialty training. It seems to be win-win as far as turnover is concerned.

Not surprisingly some of our accounting graduates start their own small firms after being well-trained by the larger CPA firms. Firms specializing in tax services and investment consulting services are especially popular for younger professionals seeking to go out on their own. CPAs are often much more trusted than brokers and other finance consultants who are not CPAs with tax specialties. Often law firms secretly outsource their tax return preparations to CPA specialists.

One would think there there would be more wanting to go back for accounting Ph.D. degrees, but the huge pre-requisites in mathematics and statistics in virtually all respected accounting doctoral programs are barriers to entry, especially since life in academe is in most instances less financially rewarding. Accounting doctoral programs are no longer about accounting.

The good news is, however, that most accounting doctoral programs are free, including room and board allowances. Even so, there are now less than 150 Ph.D. graduates in accounting annually across the USA ---
Accounting doctoral programs were larger when accounting doctoral programs were about accounting and there was less publish or perish pressure for non-tenured accounting faculty.

There are no incentives to earn an accounting Ph.D. for graduates who do not want academic careers. Certificates of specialty are much more important for non-academic careers such as CPA certificates, CMA certificates. forensic accounting certificates, CFA certificates, etc. The world of accounting can be a very, very technical world much like the world of medicine is a very technical world of sub-specialties.

Harvard:  9 Sustainable Business Stories That Shaped 2016 ---

Costs Environmentalists Don't Like to Measure or Disclose

EV = Electric Vehicle

Washington Post:  Indigenous people are left poor as tech world takes lithium from under their feet --- "
And we give taxpayer subsidies so the 1% won't have to pay quite so much for their luxuray Tesla elecric cars.

. . .

The silvery-white metal is essential for the lithium-ion batteries that power smartphones, laptops and electric vehicles, and the popularity of these products has prompted a land rush here. Mining companies have for years been extracting billions of dollars of lithium from the Atacama region in Chile, and now firms are flocking to the neighboring Atacama lands in Argentina to hunt for the mineral known as “white gold.” But the impoverished Atacamas have seen little of the riches.

. . .

In visits to all six of the indigenous communities, which lie on a mountain-ringed desert about 25 miles from Argentina’s northwest border with Chile, The Post found a striking contrast — faraway companies profiting from mineral riches while the communities that own the land struggle to pay for sewage systems, drinking water and heat for schools.

“We know the lithium companies are taking millions of dollars from our lands,” said Luisa Jorge, a leader in Susques, one of the six communities around the salt flats. “The companies are conscious of this. And we know they ought to give something back. But they’re not.”

Many in the communities also are worried that the lithium plants, which use vast amounts of water, will deepen existing shortages in the region, which receives less than four inches of rain a year. At least one of the six communities, Pastos Chicos, already has to have potable water trucked in.

Continued in article

Your Tesla might be worse for the environment than a gas car 

. . .

Where did that battery come from?

Carl Sagan is famed for saying, “We live in a society exquisitely dependent on science and technology, in which hardly anyone knows about science and technology.” He could have been talking directly about lithium-ion batteries. Chances are you are sitting within three feet of something that uses lithium-ion technology, heck you are probably reading these words thanks to lithium-ion batteries. Yet, not that many people really understand what goes into them.

So how do they work? Like any battery, lithium-ions work by creating a flow of current (electrons) between a positively charged (missing electrons) cathode and a negatively charged anode (extra electrons), through a conductive electrolyte. Lithium makes a great battery because it is both very conductive, making it a good electrolyte, allows for extremely high electrical potential. And of course, because this electrochemical reaction is reversible, the batteries are readily rechargeable.

As great as lithium is for batteries, it has a dark side as well: The stuff is downright nasty. Lithium is flammable and highly reactive, as anyone who has seen photos of burning a Tesla can attest, but that’s the least of our worries. The EPA has linked the use of extremely powerful solvents in the creation of lithium electrolytes and cathodes to everything from cancer to neurological problems. Specifically, the cobalt used in the creation of the most energy dense lithium-ion batteries is poisonous and extremely carcinogenic. Pulmonary, neurological, and respiratory problems have all been connected to cobalt exposure.

A good rule of thumb is that any industrial process that makes liberal use of the word ‘slurry’ is not good for pandas, or for that matter people. And, boy, does slurry come up a lot in the battery-making process.

Other combinations of lithium are not as bad, but none is exactly good. The lithium-iron phosphate used in lower energy density batteries is better in terms of its carcinogenic effect, but might be worse in terms of the impact on the biosphere.

Is it getting hot in here?

Clearly then, EVs and plug-in hybrids have environmental costs. What effects however, do lithium-ion batteries have on John Q. Polar Bear? Well, a recent study from Norway looked at the global-warming potential of the complete lifecycle of EVs, from mining to recycling. Previous studies hadn’t accounted for the energy-intensive process of building EVs, and missed the point: They’re not that much better than gasoline cars.

The best outcome for EVs was a 24-percent improvement in global-warming potential over the average gas powered car, and between 10 percent and 14 percent over diesel. These numbers are nothing to sneeze at, but they change radically depending on the source of electricity that EVs are powered on.

The above numbers rely on the European power mix, which more heavily favors nuclear, hydroelectric, and renewable sources of energy than other parts of the world.

The global warming potential for EVs that rely on natural gas – generally considered to be the cleanest fossil fuel – show an improvement of only 12 percent over gasoline, and break even with diesel.

Most alarming, EVs that depend on coal for their electricity are actually 17 percent to 27 percent worse than diesel or gas engines. That is especially bad for the United States, because we derive close to 45 percent of our electricity from coal. In states like Texas, Pennsylvania, and Ohio, that number is much closer to 100 percent. That’s right folks; for residents of some of the most populous states, buying an EV is not only toxic, it’s warming the planet more than its gas-powered counterparts.

With cars that supposedly generate “zero tailpipe emissions,” how are these pollution numbers even possible? The simple answer is that as well as being messy to produce; battery production requires a tremendous amount of electricity. The initial production of the vehicle and the batteries together make up something like 40 percent of the total carbon footprint of an EV – nearly double that of an equivalent gasoline-powered vehicle.

Continued in article

Jensen Comment
In fairness coal is on it's way out is some nations, but not in India, China, and various coal-rich nations. Cleaner natural gas, propane, nuclear fuel, and hydrogen will still be major power sources on the grid for years to come  All these sources of grid power to recharge batteries are relatively costly..

Examples of How Both Files and Backup Files Can Be Lost Forever

1. There are 30,000+ emails lost forever in the Hillary Clinton email scandal. They were apparently destroyed before the Wikileaks backup system obtained access.

2. The IRS lost Lois Lerner's backup files after being ordered by Congress to protect those backup files in a scandal where President Obama is suspected of illegally using the IRS to help his 2012 re-election campaign.

3. The Australian government lost over 1 million gigabytes of taxpayer files and the backup files ---

Moral of Story
Backup file protection is not always what it's cracked up to be.

In fact the thriving ransomware industry is evidence of the frequent failure of backup systems.

Goodwill Impairment Skyrocketed in 2015, Study Finds---

Speakers at meeting for graduate deans warn about the pitfalls of big data-driven research ---

Jensen Comment
For example, statisticians sometimes warn that stratified sampling is better than costly big data sampling in compliance testing. I had a friend who, before he died, became quite wealthy consulting on stratified sampling in compliance testing:
Will Yancey's Legacy ---

The FTC’s complaint said those claims, used in DeVry’s marketing material and advertisements, were exaggerated and deceptive (mostly about post-graduate employment opportunities)
DeVry University and its parent company will pay $100 million to settle a lawsuit with the Federal Trade Commission

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

Ikea settles with U.S. families
Ikea, the Swedish furniture group, has agreed to pay a total $50 million to three families in the U.S. whose children died when an Ikea dresser fell on them, Reuters reports.

Jensen Comment
It's heresy to say this but at those prices there are some families in the USA that would've pushed those dressers on top of babies. And there most certainly be lawyers advising them to do so.

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

The flaws in U.S. corporate tax are legion: It encourages debt, outsourcing and tax avoidance while punishing investment, writes Greg Ip. Republicans in the House of Representatives may have found a way to solve all of this. They have an ambitious plan, which besides revamping individual taxes, would replace the current corporate tax with a tax on cash flow that exempts exports while taxing imports.

It faces the usual hurdles of any tax overhaul: losers, in this case importers, who won’t go quietly, and a potential increase in the budget deficit. It also has one unusual obstacle. Even though it’s economically similar to, and probably better than, the value-added taxes (VATs) many other countries use, it may be illegal under World Trade Organization rules. An international clash over taxes is something the world can ill afford when protectionist sentiment is already running high.

The current U.S. corporate tax rate, at 35%, is the developed world’s highest and is charged on profits earned abroad when they are repatriated (minus foreign tax paid). This incentivizes companies to rearrange their operations to book profit in low-tax countries like Ireland and avoid repatriating them. An alternative “territorial” system wouldn’t tax foreign profits, but that also encourages outsourcing to low-tax countries since operations there won’t incur U.S. taxes.

Under the House plan, companies could expense all capital investments immediately instead of over time, but no longer expense net interest, removing the current bias of debt over equity financing and old over new investment. A 20% tax rate would be applied to revenue minus costs such as labor and parts. Exports wouldn’t count toward revenue, while imports wouldn’t count toward costs. In theory, this “border adjustability” sweeps away the distortions that encourage companies to slash their tax bills to almost nothing by shifting profits and operations around the world, while other businesses pay the full rate.

Continued in article

Jensen Comment
My main beef with current USA corporate tax law is that, with the assistance of high priced accountants and lawyers, so many corporations either avoid taxes or defer them ad infinitum. The collectible tax that worries businesses the most is the VAT tax because it's so hard to play games with using expensive accountants and lawyers. And yes Jagdish, I know it's regressive.

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

FASB to issue new guidance
Real estate investment trusts, pharmaceutical companies and electric-power producers face new rules in early 2017 on how to account for certain sales on non-financial assets, Bloomberg BNA reports. The U.S. Financial Accounting Standards Board approved plans to issue new guidance on the topic.

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

Ford to import Indian SUV to U.S
Ford Motor Co. will start exporting small sport-utility vehicles to the U.S. from India starting late next year. The auto maker will export the EcoSport—the smallest SUV in Ford’s global lineup—from its plant near the southern Indian city of Chennai. It will be the first time Ford sells vehicles in the U.S. from its Indian factories, which have been making cars for more than 20 years.

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

Whistleblowers welcome
The Securities & Exchange Commission has penalized a company for impeding outgoing employees from communicating with the agency, the latest violation of a rule protecting would-be whistleblowers. NeuStar Inc. violated the rule by routinely entering into severance agreements that contained a nondisparagement clause forbidding former employees from engaging with the SEC, the agency said

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

IASB to focus on use of infrequent items
The International Accounting Standards Board will provide stricter guidance on the use of so called infrequent items on company income statements, the organization’s chairman Hans Hoogervorst said. In the next two to three years the IASB will also specify how it wants companies to state subtotals, such as operating profit and earnings before interest and taxes, or ebit, and other special line items, Nina Trentmann reports.

Another White Collar Criminal Off the Hook
From the CFO Journal's Morning Ledger on December 15, 2016

Off the hook
The U.K. Serious Fraud Office has dropped its case against former Tesco PLC group commercial director Kevin Grace without charging him, Bloomberg reports. The company in September 2014 admitted that its accounting practices have led to an overstatement of profits by as much as £326 million ($407 million).

White Collar Crime Pays Big Even If You Know You Will Get Caught ---
Kevin Grace will live the rest of his life in luxury

Quickly close your old Yahoo account
From the CFO Journal's Morning Ledger on December 15, 2016

Yahoo discloses second, larger data theft
Yahoo Inc. said a third party stole data connected to more than one billion user accounts in August 2013, a previously unreported theft that is separate from and twice as large as the one it disclosed earlier this year.


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

Starbucks lashes out against EU regulators
Starbucks Corp. has attacked European Union competition watchdogs over a €30 million ($32 million) tax-repayment order, Bloomberg reports. Starbucks criticized the order, citing “manifest errors,” according to a summary of the appeal published this week.

Other than underfunding, nothing hurt pension funds more than low interest rates since the 2007 financial crisis
From the CFO Journal's Morning Ledger on December 14, 2016

As the Dow flirts with 20,000, U.S. public and corporate pensions still face funding challenges, write Vipal Monga and Heather Gillers. Corporate pensions were left with a $414 billion funding deficit in November, $10 billion larger than it was at the end of last year, according to Mercer Investment Consulting. Pensions still haven’t recovered from the chronic deficits created by the financial crisis and perpetuated by low interest rates.

Companies must reallocate cash typically used for other purposes to close pension funding gaps. General Motors Co., International Paper Co. and CSX Corp. all have borrowed money this year to pump funds into their pension plans. S&P 1500 businesses have contributed $550 billion into their pension plans between 2008 and Nov. 30 of this year, according to Mercer. Even with those contributions, their funded status was 81.3% as of Nov. 30.

Although pension-funding levels fluctuate during the year, most companies lock in their pension obligations at the end of the year for accounting purposes. November’s run-up, if it continues into December, could help lessen the burden of what had been shaping up to be a drag on 2016 financial results.

Jensen Comment
In addition to providing less financial risk to pension investing, relative to equities, high bond interest provided liquidity needed for pension payouts. Cashing in on equity investments for liquidity entails higher transactions costs.

Low interest rates also hurt senior citizens forced to consume more savings themselves when they became unable to live on the interest income of those savings. In the 1990s my parents loved those long-term CDs paying around 6%. Since 2007 those long-term CDs pay almost nothing in interest.

New Hampshire, Amazon, and LL Bean Breathe Easier
USA Supreme Court Refuses to Settle Disputes Over Sales Taxes and Customer Information That Crosses State Lines
From the CFO Journal's Morning Ledger on December 13, 2016

We are not touching this
The U.S. Supreme Court on Monday turned aside a chance to revisit the rules governing sales taxes on purchases across state lines, an issue at the center of efforts by states to collect tax on online sales. The court declined, without comment, to take up appeals on a Colorado law that requires retailers without a physical location in the state to report their customers’ names and total purchases to the government.

U.S. public companies have told shareholders precious little about what to expect from new revenue recognition accounting rules
From the CFO Journal's Morning Ledger on December 13, 2016

It is almost showtime for new revenue-recognition rules, but the largest U.S. public companies have told shareholders precious little about what to expect, Tatyana Shumsky writes in today’s Business section. Just 15 companies in the S&P 100 have so far disclosed how they plan to make the transition to the new accounting standard, according to a Wall Street Journal review of most recent quarterly filings.

Finance executives say they are working on plans to tell investors more about how the rules will affect their business, but admit they are in uncharted waters. “You literally have to take a clean sheet of paper and start from scratch,” said Lara Long, vice president for corporate accounting and reporting at agricultural-equipment maker AGCO Corp.

From the CFO Journal's Morning Ledger on December 12, 2016

IMF chief to stand trial
Christine Lagarde, managing director of the International Monetary Fund, will go on trial following a €405 million ($428.8 million) payout by the French state to a businessman during her time as finance minister, the Financial Times reports. Ms. Lagarde is accused of negligence in public office in relation to the misuse of public funds.

Trump's Impossible Sugar Plum Dreams

From the CFO Journal's Morning Ledger on December 12, 2016

Despite his pledges to renegotiate trade deals in order to better protect American workers, President-elect Donald Trump will have a tough time reversing the decline of U.S. manufacturing, Josh Zumbrun writes. After hitting a record of nearly 20 million in 1979, the number of American factory workers has plunged during each of the last five recessions and each time has never recovered. Today, 12.3 million people are employed in U.S. factories, a loss of nearly eight million jobs.

Forecasters in The Wall Street Journal’s monthly survey of economists doubt the numbers of bygone years can be restored. They estimate the U.S. will add about 7,000 manufacturing jobs by the end of 2017, about 40,000 by the end of 2018 and about 50,000 by the end of 2019, according to the average forecast—moving upward in coming years, but at a pace far too slow to replace what has been lost. “Manufacturing employment is now back to 1941 levels and falling,” said James Smith, chief economist of Parsec Financial. “This is a global trend and not at all specific to the U.S. It is caused by labor productivity growth.”

Bumble Bee Gets Stung (for price fixing)

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

Bumble Bee admits price fixing
A Bumble Bee Foods LLC executive has agreed to plead guilty to fixing prices on canned tuna, the first criminal charges in an ongoing Justice Department probe in the packaged seafood industry. Prosecutors on Wednesday said Walter Scott Cameron would plead guilty to one felony charge for fixing prices on packaged seafood from 2011 to 2013.


In my viewpoint the SEC should resist the temptation to continue approving departures from GAAP on a case-by-case basis

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

SEC to allow adjusted revenue metrics under ‘unusual circumstances
 The Securities and Exchange Commission will allow some companies to report adjusted revenues under special circumstances, but these must clear it with the regulator first, said Mark Kronforst, chief accountant for the division of corporation finance. The SEC in May issued new guidelines on the use of financial figures that don’t conform with U.S. generally accepted accounting principles, a push to rein in the practice, Tatyana Shumsky reports.

SEC Allows Some Adjusted Revenue Metrics Under “Unusual Circumstances” ---

The Securities and Exchange Commission will allow some companies to report adjusted revenues under special circumstances, but these must clear it with the regulator first, said Mark Kronforst, chief accountant for the division of corporation finance.

“If you do have unusual circumstances, please do come and talk to us,” Mr. Kronfrost said, speaking on a panel at the American Institute of CPAs conference in Washington D.C. “We don’t want to suggest that there’s no circumstance under which revenue can be adjusted.”

The SEC in May issued new guidelines on the use of financial figures that don’t conform with U.S. Generally Accepted Accounting Principles, a push to rein in the practice. The guidelines targeted the prominence of non-GAAP figures in earnings releases and specifically prohibited certain adjustments to revenue.

The SEC’s focus on revenue adjustments prompted several companies in the video game industry, for example, to drop their non-GAAP revenue figures from financial filings.

Moreover, the regulator has criticized companies, including Tesla Motors Inc., for continuing the practice despite the new guidelines.

By contrast, Microsoft Corp. has continued to report adjusted revenue due to unusual business circumstances, Mr. Kronforst said.

Microsoft is transitioning its Windows business from a license sale model to a software as a service model at the same time as U.S. rules governing revenue accounting are on the cusp of change, said Frank Brod, Microsoft’s chief accounting officer, speaking on the same panel.

Under current revenue accounting rules, Microsoft recognizes its license sales revenues upfront, but must recognize its growing pool of subscription revenue over time, Mr. Brod said.  But the timing of subscription revenue recognition will change under the new accounting rules, so the company has provided non-GAAP revenue metrics as way of helping investors bridge the two standards, Mr. Brod said.

Microsoft sought input from its audit committee members, and held discussions with the SEC’s corporation finance division as well as with the office of the chief accountant to ensure it could keep reporting that non-GAAP measure while also complying with the new non-GAAP guidelines, Mr. Brod said.

“As Frank has demonstrated, there situations where we think it’s just fine [to adjust revenue],” Mr. Konforst said.

Continued in article

Jensen Comment

In my viewpoint the SEC should resist the temptation to continue approving departures from GAAP on a case-by-case basis.

Firstly, the SEC may find itself overwhelmed. For example, think of how the IRS would be swamped if it approved tax deductions for taxpayers with assurances they would not be audited for those deductions.

Secondly, this is corporate lobbying taken to extremes. It encourages payola.
We already have evidence (remember how Bernie Madoff could've been stopped early on) by SEC officials who were vulnerable to unethical behavior.

An exception is when, for a new standard, the standard setter has a special task force for implementation guidance. This happened big time when the FASB formed a Derivatives Implementation Group (DIG) when SFAS 133 was put into place. You can read many of the DIG pronouncements at

FASB issues technical corrections ---

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

SEC to allow adjusted revenue metrics under ‘unusual circumstances
The Securities and Exchange Commission will allow some companies to report adjusted revenues under special circumstances, but these must clear it with the regulator first, said Mark Kronforst, chief accountant for the division of corporation finance. The SEC in May issued new guidelines on the use of financial figures that don’t conform with U.S. generally accepted accounting principles, a push to rein in the practice, Tatyana Shumsky reports.


From the CFO Journal's Morning Ledger on December 7, 2016

Supreme Court backs government up (on insider trading)
The Supreme Court handed the government a significant win Tuesday in its pursuit of insider trading, ruling prosecutors in such cases don’t always have to show that something valuable changed hands to prove a crime was committed. The unanimous opinion restores some of the power the government lost in a 2014 federal court case. That two-year-old decision had cast doubt on just what constituted insider trading and forced law-enforcement officials to drop a number of high-profile cases, including several against associates of hedge-fund billionaire Steven A. Cohen.


From the CFO Journal's Morning Ledger on December 7, 2016

Non-GAAP violations under scrutiny
The Securities and Exchange Commission’s enforcement division is looking closely at violations of rules governing custom accounting metrics, said Michael Maloney, chief accountant of the division. The SEC this year stepped up its campaign to rein in the use of accounting metrics that don’t conform to the U.S. generally accepted accounting principles, known as non-GAAP figures, Tatyana Shumsky reports.

Protecting Business Value from the Hidden Costs of Intellectual Property Theft ---

Jensen Comment
As we watch the many rounds thus far in the Apple Verus Samsung intellectual property war we realize even more how it's impossible to measure and disclose the hidden costs of intellectual property rights. Add this to the vague listing of the many intangibles that accountants don't know how to measure or even disclose since even known disputes (let alone unknown future disputes) and you begin to question the sum total of assets and liabilities that are reported on a balance sheet, especially for technology firms.

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

SEC accounting chief wants increased disclosures
U.S. companies should increase disclosures about their progress toward implementing new revenue accounting rules to help investors assess the impact, said Wesley Bricker, chief accountant at the SEC. The new rules, which govern when companies can record revenue for the goods and services they sell, become effective for public companies after Dec. 15, 2017, a year later than the original implementation date. Separately, the SEC won’t switch to International Financial Reporting Standards in the near term, but will continue reviewing a proposal to allow IFRS information to supplement U.S. financial filings, said Mr. Bricker. The SEC has been mulling for years whether to switch U.S. companies over to using IFRS instead of generally accepted accounting principles.

"Accounting for Contingent Liabilities: What You Disclose Can Be Used Against You," by Linda Allen, SSRN, June 20, 2014 --- 

Accounting standards require disclosure of estimable losses from contingent liabilities such as litigation expenses. However, revelation of the firm’s private estimates of the probability of loss and possible legal damages can be detrimental to the firm by encouraging litigation and increasing the costs of settlement. In this paper, I propose a model (the US-patented TMTM) that uses publicly-available data to provide accurate and unbiased estimates of litigation damages without requiring firms to publicly disclose their private assessments or litigation reserves. This provides valuable information to the users of financial statements without undermining the firm’s right to preserve sensitive internal information

Bob Jensen's threads on accounting for intangibles and contingencies ---

Sustainability of Sustainability Accounting

Sustainability Accounting ---

From the CFO Journal's Morning Ledger on December 1, 2016

That isn’t what investors want
A majority of U.S. listed companies are disclosing sustainability risks to investors, but not in any meaningful detail, according to a study by the Sustainability Accounting Standards Board. The SASB analyzed annual reports of more than 700 top companies across 79 industries. It found that 81% addressed social and environmental risks. However, 52% of the companies used vague, boilerplate language to flag the risks without articulating management response strategies, Tatyana Shumsky writes.

From the CFO Journal's Morning Ledger on July 21, 2015

Investors: sustainability disclosures are mostly fluff ---
About 75% of companies in the S&P 500 index published sustainability reports last year, CFO Journal’s Emily Chasan reports. But U.S. investors say they are mostly disappointed in the information companies are releasing on greenhouse gas emissions or waste reduction.

Jensen Comment
Accountants do not know, and probably will never know, hot ot put verifiable numbers in sustainability forecasts. For one thing they are non-stationary. For example, today on December 1, 2016 it was announced that the State of California will seriously commence to regulate cow farts. Dairy farmers contend that these new regulation expenses seriously alter the sustainability of dairy farms and businesses. Previous statements on sustainability now have to be re-written.

Bob Jensen's threads on sustainability accounting ---

On December 5, 2016 China is Probably More Unhappy With President Obama (for blocking a China acquisition) Than President Elect Trump (for a 10 minute courtesy call with Taiwan)

President Barack Obama on Friday took the rare step of forbidding a foreign company from buying a firm with U.S. assets, telling a Chinese investment fund that it cannot complete a deal for German technology company Aixtron SE. Mr. Obama’s move, only his second outright ban on a foreign acquisition, shows the increasing suspicion the U.S. harbors toward Chinese acquisitions of certain U.S. firms. In a statement released on Friday, the Treasury Department said Mr. Obama had issued an order barring Fujian Grand Chip Investment Fund LP, part-owned by the Chinese government, from buying Aixtron. The Chinese Foreign Ministry expressed displeasure, Reuters reports.

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

Carnival fined
Carnival Corp.’s Princess Cruise Lines will need to pay $40 million penalty after pleading guilty to several charges for disposing oil in the ocean, the Guardian reports. U.S. attorney Wifredo Ferrer told a news conference the penalty was the largest ever of its kind. A plea agreement filed in federal court also requires the company to submit 78 cruise ships across its eight brands to a five-year environmental compliance program overseen by a judge.

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

Obamacare’s bright spots and drawbacks
Here’s the good news: Thanks to the Affordable Care Act, or Obamacare, more Americans have access to health care than ever before, Leemore Dafny and Dr. Thomas Lee write for Harvard Business Review. The bad news? The care itself hasn’t improved much. Despite the hard work of dedicated providers, our health-care system remains chaotic, unreliable, inefficient and crushingly expensive.

The State of AIS as an Academic Major

Hi Bill,

One problem with AIS is that it does not seem to have a well-defined home. For example, the Bureau of Labor Statistics does not list it under "Computer and Information Systems" or 'Accountants and Auditors."

Note that AIS is not listed under "Related Areas" in each of the following BLS categories.

AIS has never been well defined in terms of number of courses, course content,  credentials of specialization, and career paths.

Michigan State is somewhat unique, due heavily to your outstanding leadership, in the AIS concentrations and the number of AIS course offerings. You may be trying to do what most other accounting education programs in the USA are not trying to do.


My bottom line worry if I were going to major in AIS is that my entire career path is very uncertain relative to related majors. When students put AIS on their resumes, nobody is quite certain what that means.


From the Bureau of Labor Statistics
Computer and information systems managers

MIS ---

Related areas (note that AIS is not listed) ---


From the Bureau of Labor Statistics
Accountants and Auditors (four-year degrees)

Related areas (note that AIS is not listed) ---


Jensen Comment
The salary differential of $131,600 versus $67,190 lead us to question why accounting and auditing are so popular among USA colleges relative to computer and information systems?


My off-the-wall answer is that first there are the numbers of jobs shown above for accountants and auditors who are not even CPAs having masters degrees (remember the 150-hour requirement).


Secondly, I think accounting/auditing affords more opportunities to branch outward and upward. Not are there only good "related" opportunities, but there are opportunities for setting up a private practice in such specialties as tax and investment advising.


Foreign students may have fewer opportunities for both outward and upward mobility. For example, an Asian Senior Tax Accountant in a large CPA firm may have a harder time setting up a local-practice in Small Town, USA.


I have an anecdotal suspicion of why IT and even computer science is not taking over the with hoards of student majors in USA colleges. One of our close friends (Dorothy) up here who, with two somewhat useless degrees in etymology, formed her own landscaping, painting, and decorating business that thrived (for over 30 years and counting) for miles around in these mountains. Customers will wait months and months to get her to finally get to them (many of whom want her wonderful New Hampshire rock walls or her wall-papered rooms) ---


Her valedictorian son Alex majored for four years in IT and easily found a job in as a tech support specialist for a popular kind of business software. After the first month on the job he was bored out of his mind and abhorred the thought of spending years and years  answering tech support questions on line and on the phone. He stuck it out for two years and decided he could not spend the rest of his life answering tech support questions. So he went to work for two years at minimum wage in organic farming --- summers here in our Ski Hearth Organic Farm in Franconia and winters on an organic farm in Hawaii


After those two years in organic farming at minimum wage he decided his life was going nowhere. So he is now back at answering tech support questions --- this time in North Carolina.


He now hates his job and wishes he'd become a CPA.

When I asked him why he did not major in AIS?
He answered:  "What's AIS?"

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

Dodd-Frank Rules: Up for a Rethink
by: Richard Teitelbaum and Kimberly S. Johnson
Nov 29, 2016
Click here to view the full article on

TOPICS: Disclosure, Regulation

SUMMARY: CFOs sort the costly provisions from the beneficial ones following talk of dismantling the Dodd-Frank law under a Trump administration. The law appears unlikely to be overturned in its entirety. Negotiating between Democrats and Republicans will be required because "Senate rules, in effect, would require 60 votes to bring any legislation overhauling Dodd-Frank and Republicans currently stand to control 52 seats in the coming Senate."

CLASSROOM APPLICATION: The article may be used in a financial reporting course--more likely at the intermediate level and above.

1. (Introductory) What are the main provisions of the Dodd-Frank Act discussed in this article?

2. (Introductory) Which of the Dodd-Frank law's requirements do corporate CFOs see as "common sense and easy to implement"?

3. (Advanced) What is the say-on-pay regulation?

4. (Introductory) Why is it likely that companies will continue the say-on-pay governance practice and its related disclosure?

5. (Advanced) What are conflict minerals? What is difficult about the requirements of Dodd-Frank in relation to conflict minerals?

Reviewed By: Judy Beckman, University of Rhode Island

The Morning Ledger: Dodd-Frank Rules May Linger, Even if Dismantled
by Maxwell Murphy
Nov 29, 2016
Online Exclusive


"Dodd-Frank Rules: Up for a Rethink," by Richard Teitelbaum and Kimberly S. Johnson, The Wall Street Journal, November 29, 2016 ---

President-elect Donald Trump campaigned partly on a vow to dismantle the 2010 Dodd-Frank law, which supercharged bank oversight with myriad regulations. Corporate finance chiefs outside the sector, however, are focusing on the fate of the law’s nonbank provisions, which range from directives on executive pay to rules on hedging disclosure. Implementing some of those Dodd-Frank rules is costly, time-consuming and fails to help investors, say financial executives and experts.

Other rules are seen as reasonable by some executives—even exuding common sense—and may be continued by companies, regardless of the law’s future. “There are a lot of things you would do because they’re the right things to do,” said Teri List-Stoll, who was recently named CFO of Gap Inc., at the Financial Executives International conference earlier this month. Ms. List-Stoll, who served CFO stints at Dick’s Sporting Goods Inc. and Kraft Foods, said companies that had invested in complying with the regulations, and whose shareholders are happy with the results, will likely keep some of those measures even if Dodd-Frank were repealed in its entirety. One of the more popular rules to take effect is the so-called say-on-pay regulation the U.S. Securities and Exchange Commission adopted in 2011. It requires companies to hold a shareholder vote on executive compensation at least every three years.

It likely would be maintained by many businesses. “Say-on-pay votes may be continued by companies because investors like it,” said Meredith Cross, a partner at Wilmer Cutler Pickering Hale & Dorr LLP and a former director of the SEC’s corporation finance division. She helped write portions of Dodd-Frank. “The vote itself doesn’t cost anything,” Ms. Cross said, though she added: “The impact of having to change your compensation structure may be costly.” Some Dodd-Frank rules are common sense and easy to implement, experts say. Last year, for example, the SEC approved the issuance of a proposed rule that would require companies to disclose in their proxies whether employees or directors are allowed to hedge the company’s stock. “I assume you had to figure it out to begin with,” said Adam Pritchard, a professor of securities law at the University of Michigan. “It’s just a matter of cutting and pasting.”

On the other hand, beginning in 2018, a pay-ratio disclosure rule will require a company to compare its chief executive’s pay to the median annual compensation of all its other employees. The utility of the pay-ratio rule, however, is seen as questionable. “The CEO-to-median pay ratio may generate unneeded confusion among shareholders across many industries,” Richard Peretz, CFO of United Parcel Service Inc., said in an email. “There are several acceptable means for calculating the median employee pay, thereby rendering the resulting ratio even less valuable as a comparator across companies.”

Others agree. “How you measure it leads to very different conclusions,” said Alon Kalay, an assistant professor of accounting at Columbia Business School. “Do you include foreign workers and part-time workers?” Mr. Kalay cautioned against comparing the pay-ratio figure at two companies even in the same industry, citing Microsoft Corp. and Apple Inc., the latter of which operates a network of stores. “Apple has a lot more retail workers than engineers,” he said. Meanwhile, United Parcel’s Mr. Peretz said a rollback of regulations might simplify business for the logistics company. “If Dodd-Frank is repealed, or replaced, UPS may be able to reduce some additional data collection, analysis and auditing,” he said. Still, Dodd-Frank appears unlikely to be overturned in its entirety. For now, Senate rules, in effect, would require 60 votes to bring any legislation overhauling Dodd-Frank to a vote, and Republicans currently stand to control 52 seats in the coming Senate. So there could be some horse-trading with Democrats over any changes to the law. Some elements of Dodd-Frank have proven to be unwieldy. Some manufacturers, for example, would like to scratch the law’s Section 1502 provision on conflict minerals because of the cost and the difficulty in complying.

Continued in article

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

Cloudy With a Chance of Swimsuit Sales
by: Ray A. Smith
Nov 28, 2016
Click here to view the full article on

TOPICS: Forecasting, Managerial Accounting

SUMMARY: Fashion Institute of Technology (FIT) in New York City, " of the largest and best-known fashion schools...this semester launched a new, 15-week course called 'Predictive Analytics for planning and Forecasting: Case Studies with Weatherization." The course is designed to develop students' skills in understanding analytical procedures, such as regression analysis, to use them in better predicting product needs and thus improving sales.

CLASSROOM APPLICATION: Questions ask the students understand the meaning of predictive analytics, tying to their statistical studies, and considering topics covered in managerial accounting that relate to the article.

1. (Advanced) Based on the description and context in the article, how would you define predictive analytics?

2. (Introductory) Why are the topics of predictive analytics and other business subjects of increasing importance to fashion students at the Fashion Institute of Technology and other schools?

3. (Advanced) Why does the author of the article say weather is a "topical business issue"? Have you studied weather as a "topic" in a business course?

4. (Introductory) What is linear regression? How is this statistical tool used in making forecasts or predictions?

5. (Advanced) Consider managerial accounting topics such as fixed versus variable costs, the theory of constraints, activity-based costing, or another of your choosing. Describe how accounting information in one of these areas can be used in a predictive modeling process to help solve issues such as the weather-related sales issues described in the article.

Reviewed By: Judy Beckman, University of Rhode Island


"Cloudy With a Chance of Swimsuit Sales," by Ray A. Smith, The Wall Street Journal, November 28, 2016 ---

As temperature fluctuations catch designers and retailers off-guard, a major fashion school wants students to learn more about predicting what’s ahead

At a recent class at the Fashion Institute of Technology in New York City, students were asked—and promised a Dunkin’ Donuts gift card for the right answer to—the question: When should a Los Angeles store stock swimsuits? Sarah Corcoran, a senior, explained she would use a “maximum temperature metric” to figure out the problem. “Yes,” cheered her professor, Calvin Williamson. And she earned the gift card. FIT, one of the largest and best-known fashion schools, with alumni including Calvin Klein, Norma Kamali and Brian Atwood, this semester launched a new, 15-week course called “Predictive Analytics for Planning and Forecasting: Case Studies with Weatherization.” The course, geared toward students interested in retail and merchandising careers, is part of a broad overhaul of FIT’s curriculum to include more topical business issues, and weather is a prime one.

Weather fluctuations have increasingly been putting fashion designers and clothing retailers on the defensive. Merchandise is often ordered months in advance based on what the weather typically is at that time of year. But when temperatures are different from what was predicted—milder-than-usual winters, cold springs or otherwise inconsistent weather—clothes that are all wrong for the climate stay on racks and get discounted, hurting sales.

Last winter was the warmest on record for the contiguous U.S., says Jake Crouch, a climate scientist at the National Oceanic and Atmospheric Administration’s National Centers for Environmental Information. The average temperature was 36.8 degrees Fahrenheit, 4.6 degrees above average, with some parts of the country even higher above average. That led to less demand for heavy winter coats.

J.C. Penney Co. Chief Executive Marvin Ellison recently told analysts warm weather hurt apparel sales for the quarter that ended Oct. 29. He cited the “warmest September ever on record” as a factor. Some mass retailers hire or consult climatologists to help them make such predictions.

Designer Michael Kors makes a point of including a range of fabric weights for his resort collections, instead of limiting them to the lightweight clothing and beachwear those collections have historically featured. Mr. Kors has cited the reality of unexpectedly chilly days or nights and unpredictable weather.

Continued in article

Jensen Comment
Remember that Burkinis help prevent deadly melanoma cancer --- seriously!

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

Trump's Treasury Pick Hedges on Taxes
by: Richard Rubin
Dec 01, 2016
Click here to view the full article on

TOPICS: Individual Income Taxation

SUMMARY: President-elect Donald Trump turned to former Goldman Sachs banker and movie financier Steven Mnuchin to be the next Treasury secretary. Mr. Mnuchin told CNBC on Wednesday that high income households won't receive an overall tax cut because any proposed " upper-income tax [rates] will be offset by less deductions" so that the middle class will receive the biggest tax cut. That promise "is at odds with tax proposals from Donald Trump and House Republicans."

CLASSROOM APPLICATION: The article may be used in a tax class. It builds on coverage from the next article covered in this review which provides a clear graphic of the current tax rates and maximum deductions under current law, the Trump proposal and the House GOP proposal. Questions ask students to differentiate between the effects of tax rate reductions, marginal and effective tax rates, and tax deductions.

1. (Advanced) What are top marginal tax rates for individuals? Does that rate reflect actual tax amounts when multiplied by taxable income? Explain, including a definition of effective tax rate.

2. (Advanced) Define the term tax deduction. According to the article, how does President-elect Donald Trump propose to limit the amount of deductions that U.S. individual taxpayers may take?

3. (Introductory) According to Mr. Trump's selection for Treasury Secretary (yet to be confirmed for the position) Steven Mnuchin, how do the effects of tax rate reductions and deduction limits offset for high income earners? What is the comparison for middle class taxpayers?

4. (Introductory) What evaluations of these proposed tax plans are given in the article? Who conducts these evaluations?

5. (Advanced) Define the term "distribution of the tax burden."

6. (Advanced) Why does reduction in overall taxation benefit high income earners due to the tax burden distribution you defined above?

Reviewed By: Judy Beckman, University of Rhode Island

Deduction Limits Pose Test for Tax-Cut Proposals
by Richard Rubin
Dec 01, 2016
Page: A4


"Trump's Treasury Pick Hedges on Taxes." by Richard Rubin, The Wall Street Journal, December 1 , 2016 ---

High-income households won’t receive an “absolute tax cut” under a Trump tax plan, the president-elect’s new pick for Treasury secretary said on Wednesday, a promise that is at odds with tax proposals from Donald Trump and House Republicans.

Steven Mnuchin said that “Any reductions we have in upper-income taxes will be offset by less deductions, so that there will be no absolute tax cut for the upper class.” The big tax cut, he told CNBC, will go the middle class.

The comments echo occasional remarks from Mr. Trump, but not the tax plan he campaigned on, and point to the political and arithmetic challenges that lawmakers will face as they try to turn those promises into legislation.

Aside from moving ahead on a large tax rewrite next year, Mr. Mnuchin also said he would roll back parts of the landmark 2010 Dodd-Frank financial overhaul enacted by the Obama administration and congressional Democrats in the wake of the financial crisis. Mr. Mnuchin called that “the No. 1 one priority on the regulatory side.”

Mr. Trump’s tax plan would lower top rates dramatically, providing such large benefits to high-income households that analysts say they can’t be covered with limits on tax breaks, such as the $100,000-a-person limit on itemized deductions already in Mr. Trump’s plan. The largest deductions typically are for mortgage interest, state and local taxes and charitable contributions.

“I don’t think there is a way to make it work with the current marginal rates that they’re working with,” said Kyle Pomerleau, director of federal projects at the conservative-leaning Tax Foundation.

Under Mr. Trump’s plan, the corporate tax rate would drop from 35% to 15%. The estate tax and alternative minimum tax would be repealed. Capital-gains rates would drop. The top rate on business income reported on individual tax returns would fall from 39.6% to 15%, and the top rate on ordinary income would fall from 39.6% to 33%.

The Tax Foundation says Mr. Trump’s plan would boost after-tax incomes for the top 1% of households by at least 10%, even before accounting for any potential economic growth. The Tax Policy Center, a think tank run by a former Clinton administration official, estimates that the top 1% of households would pay an average of $214,690 less in taxes in 2017 under Mr. Trump’s plan than they would otherwise. Stephen Moore, who helped develop Mr. Trump’s tax plan, said it was designed so that the deduction cap offsets the revenue loss from lowering the top tax rate on ordinary income from 39.6% to 33%. The cap wasn’t written to offset the tax cuts on business income, estates and capital gains, which independent analyses all say flow disproportionately to top earners.

It wasn’t immediately clear on Wednesday whether Mr. Trump and his team were actually changing their tax plan. The transition team didn’t respond to a request for comment. “Trump’s plan was independently scored as giving more tax cuts to the top 1% than the bottom 99% combined,” said Gene Sperling, a former economic-policy aide to President Barack Obama. “So, we’ll watch what they do.” In response to a question about studies showing Mr. Trump’s plan would raise taxes on millions of single parents, Mr. Mnuchin said the plan would be “very clear” in ensuring a middle-class tax cut when it emerges from Congress.

Mr. Mnuchin’s comments on the distribution of the tax burden also show a potential difference with Republicans in the House, who are developing their own tax plan to lower rates and limit tax breaks.

House Speaker Paul Ryan (R., Wis.) and Ways and Means Chairman Kevin Brady (R., Texas) have brushed aside questions about a study showing that their plan would deliver most of its benefits to the top 1%. Instead, they say they are focusing on encouraging economic growth.

That is a change from Republicans’ positioning just a few years ago. In 2012, presidential candidate Mitt Romney said he would make sure taxes wouldn’t go up for high-income households, though he had trouble making the math work. In 2014, then-Rep. Dave Camp (R., Mich.) produced a plan that didn’t change the distribution of the tax burden.

A challenge for Republicans is navigating the tension between economic theories that emphasize lower tax rates and the fact that the income-tax burden is concentrated at the top of the income distribution. Cutting marginal tax rates necessarily helps the top 1%, but Mr. Trump’s campaign plan gives them a bigger share of the tax cuts than their share of income or tax payments.

The top 1% of households receives 17.2% of all U.S. pretax income and pays 28.7% of all federal taxes, according to Tax Policy Center estimates for 2017. That group would be the beneficiary of about half of Mr. Trump’s tax cuts. Mr. Mnuchin’s comments on Dodd-Frank are consistent with those made by Mr. Trump and other advisers. But they are significant since

Mr. Mnuchin himself has said little publicly about policy matters, and his Wednesday remarks offer a fresh window into his thinking and priorities.

Mr. Mnuchin, a former Goldman Sachs Group Inc. executive, said the Volcker rule provision in Dodd-Frank—named after former Federal Reserve Chairman Paul Volcker—is too complicated and signaled the Trump administration may try to roll it back. The rule is aimed at trying to stop banks from betting with deposit-insured funds. Goldman and other Wall Street firms have complained that the rule is too complex.

Continued in article

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

Years of Turmoil Forged Tax Plan
by: Richard Rubin
Nov 21, 2016
Click here to view the full article on

TOPICS: Tax Reform

SUMMARY: Republicans have spent years working on U.S. tax overhaul legislation that may now pay off following Donald Trump's election as president of the U.S. and election results maintaining the Republican majorities in both houses of Congress.

CLASSROOM APPLICATION: The article may be used in a tax policy class. It emphasizes the years of work on failed proposals that may now lead Congress to implement a tax overhaul.

1. (Introductory) What are the Republican goals with respect to the U.S. tax code?

2. (Introductory) Refer to the graphic "GOP Tax Proposals Gain Momentum." How do the two proposals by the House GOP (Republicans, or "Grand Old Party") and President-elect Trump (during his campaign) reflect the Republican goals described in answer one above?

3. (Introductory) Who is former Representative Dave Camp? How did his work on overhauling the tax code fare through 2014?

4. (Advanced) What have Republicans learned from the failures of the legislation championed by former Representative Dave Camp?

5. (Advanced) Based on the context of the discussion in the article, what is 'dynamic scoring" in estimating the impact of tax law changes on the U.S. federal budget?

6. (Advanced) Refer to the related article. Summarize some of the concerns in corporate reactions to the House GOP tax plan described in the earlier article.

Reviewed By: Judy Beckman, University of Rhode Island

House GOP Business-Tax Plan Upends U.S. Policy, Bares Corporate Fault Lines
Nov 24, 2016
Online Exclusive


"Years of Turmoil Forged Tax Plan," by Richard Rubin, The Wall Street Journal, November 21, 2016 ---

GOP brings hard-fought experience to effort to pass rate-lowering, base-broadening revamp

Republicans’ race to rewrite the U.S. tax code on the heels of this month’s election relies on years of work that is suddenly—and quite unexpectedly—poised to pay off.

A 2017 tax overhaul would be a case study in the benefits of dead ends and behind-the-scenes preparation. Failure would show again how hard it is to reshape the U.S. tax system, even with rare political momentum and one-party control of government.

Republicans have long sought a rate-lowering, base-broadening revamp of the tax code, fusing differing business interests within the GOP coalition. Corporations would get a rate cut and lighter taxes on foreign income. So would small businesses, who report profits on their owners’ individual tax returns. Individuals would get those lower rates and simpler annual tax filing.

Graphic not copied here

Whether the overhaul would give the economy a big lift is open to question. The conservative-leaning Tax Foundation says it would boost investment, after-tax income for all groups and create 1.7 million jobs in the long run. That's an optimistic view. Economic models that are more sensitive to budget deficits suggest more modest results.

The challenge is trade-offs, deciding which breaks get curtailed to prevent budget deficits from exploding.

The landmark 1986 tax overhaul took years of planning to get past those problems. Republicans are now partway through that work. “We’ve grappled with this stuff,” says conservative tax activist Ryan Ellis. “It’s ripe.” Ex-Rep. Dave Camp, a Michigan Republican who took over the House Ways and Means Committee in 2011, put out a series of detailed drafts on foreign income, derivatives and partnerships over several years.

When he unveiled a complete bill in 2014, political momentum had flagged, and some ideas—a bank tax and longer depreciation schedules—flopped inside the GOP.

Continued in article

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

Deduction Limits Pose Test for Tax-Cut Proposals
by: Richard Rubin
Dec 01, 2016
Click here to view the full article on

TOPICS: Deductions, Individual Taxation

SUMMARY: Changes to existing tax breaks may not offset revenue loss from lower rates according to analysis the Brookings Instituttion and by WSJ reporter Richard Rubin. The article focuses on itemized deductions, standard deductions, and limits to deductions.

CLASSROOM APPLICATION: The article may be used in an individual tax class to discuss policy changes proposed by the incoming administration.

1. (Advanced) What types of items may be included as itemized deductions in an individual tax return?

2. (Introductory) According to the congressional Joint Committee on Taxation, what are the three largest itemized deductions?

3. (Advanced) What is the standard deduction? Does it limit the amount of itemized deductions that individuals may take? Explain.

4. (Introductory) How does President-elect Trump propose to limit deductions in his tax plan?

5. (Introductory) According to President-elect Donald Trump, what is the overall effect on the federal budget of his proposed tax changes? According to reporting in the article from Brookings Institution analysis, what is the likely overall effect of these proposed changes?

Reviewed By: Judy Beckman, University of Rhode Island

"Deduction Limits Pose Test for Tax-Cut Proposals," by Richard Rubin, The Wall Street Journal, December 1, 2016 ---

Changes to existing tax breaks may not offset revenue loss from lower rates

Itemized deductions are on the chopping block as President-elect Donald Trump looks for ways to offset the revenue loss from his proposed tax-rate cuts.

Experts say the challenge—besides the political popularity of tax breaks for mortgage interest and charitable contributions—is that there isn’t enough money there to accomplish his goal.

“There’s just no way that restricting the deductions that Trump has talked about comes anywhere close to eliminating the tax cut for the wealthy in his plan,” said Bill Gale, a senior fellow at the Brookings Institution. “It’s just arithmetic.”

Steve Mnuchin, Mr. Trump’s pick for Treasury secretary, said Wednesday that high-income households would get no absolute tax cut, a statement that is either imprecise or at odds with every analysis of Mr. Trump’s plan.

Stephen Moore, who helped develop Mr. Trump’s tax plan, said the proposal was designed so the deduction cap offsets the revenue loss from lowering the top tax rate on ordinary income from 39.6% to 33%.

The idea is that high-income households would get no net tax advantage from that swap. But that approach means the deduction limits don’t offset the tax cuts on business income, estates and capital gains, which all flow disproportionately to top earners.

Tax cuts on capital gains, dividends, businesses and estates are especially skewed to the high end of the income and wealth distribution, said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a group that advocates for low-income families.

“You have all these other tax cuts that are disproportionately targeted to the wealthiest people in the country,” he said. “That’s the core element of the plan.”

Taxpayers under current law can itemize their deductions if they exceed the standard deduction, which this year is $6,300 for individuals and $12,600 for married couples. Most taxpayers don’t exceed that threshold, and fewer than 30% are projected to itemize in 2017.

The largest deductions are those for mortgage interest, charitable contributions and state and local taxes. Those three breaks alone total $200 billion in forgone revenue in 2017, according to the congressional Joint Committee on Taxation.

Mr. Trump would squeeze deductions from both ends. He would more than double the standard deduction and limit itemized deductions to $100,000 for individuals and $200,000 for married couples.

That deduction cap would raise about $559 billion over a decade, according to the Tax Policy Center, a project of Brookings and the Urban Institute. Even with that cap, Mr. Trump’s plan would reduce government revenues by about $6.2 trillion over a decade.

One thing that will become more apparent as Mr. Trump’s plan moves through Congress is that the impact of deduction limits doesn’t fall evenly. The state and local tax deduction tends to benefit residents of high-tax states such as California and New York.

The mortgage interest deduction helps the upper middle class, especially in areas with high housing costs. More than 60% of the tax break goes to households between the 80th and 99th percentiles of income, according to the Tax Policy Center.

And the charitable deduction helps the highest earners. According to Internal Revenue Service data, the top 0.001%—that is about 1,400 households—reported 9.5% of charitable contributions.

The focus on deductions ignores other tax benefits that high-income households get. They receive the bulk of capital gains and dividends, which are taxed at preferential rates.

They also control the timing of those gains, deferring taxes for years and not paying anything as the value of their stocks and other assets appreciate.

Mr. Trump’s plan is the latest attempt to curb deductions as part of a tax code overhaul. The House Republican plan would eliminate the state and local tax deduction while preserving write-offs for mortgage interest and charity.


Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on December 9, 2016

Cash for Closing-Day Surprises
by: Robyn A. Friedman
Dec 02, 2016
Click here to view the full article on

TOPICS: Asset Acquisition

SUMMARY: This article is written for the benefit of individual home buyers but may be used to introduce the accounting concept of capitalizing all costs necessary to acquire property, plant, and equipment by businesses.

CLASSROOM APPLICATION: The article may be used in an introductory or intermediate financial reporting class or in a personal finance class.

1. (Advanced) Define the term closing of a real estate purchase, either when a business buys a building or an individual or couple buys a home.

2. (Introductory) What are closing costs? What types of items are included in this category?

3. (Advanced) How must businesses account for closing costs when buying real estate? Be specific, listing each of the items you identified in answer to question 2.

4. (Introductory) Consider homebuying by individuals or couples. Besides a downpayment to purchase the home, what are all of the items listed in this article for which homebuyers must save?

5. (Advanced) What is an "estoppel" letter? How can this letter help avoid concern about being surprised by hidden fees that come to light at closing or errors in assigning fees to buyer and seller?

Reviewed By: Judy Beckman, University of Rhode Island


"Cash for Closing-Day Surprises," by Robyn A. Friedman, The Wall Street Journal, December 2, 2016 ---

Home buyers typically know how much money they’ll need for the closing. But mortgage experts say that might not be enough.

Note to house hunters on a budget: A home’s sale price isn’t really the sale price—there are lots of closing costs and expenses that jack up the final number.

According to online real-estate listings site Zillow, buyers typically pay between 2% and 5% of the purchase price in closing costs. So if a home costs $300,000, that buyer can expect to pay between $6,000 and $15,000. Since the financial crisis, there’s more transparency on the part of lenders when disclosing the costs associated with a mortgage, so buyers know in advance how much they’ll need for the closing. But experts say that might not be enough.

Lender fees are only one part of the total cost of homeownership. Buyers must also pay appraisers, home inspectors and settlement agents, as well as the cost of title insurance, homeowners insurance and property taxes. And the fees don’t stop at the closing. Utilities, regular home maintenance and unexpected repairs add up as well—and can derail even the most experienced buyer.

“Many of the hidden fees associated with financing have been eliminated,” says Jay Parker, chief executive officer of Douglas Elliman’s Florida brokerage. “But that does not eliminate some of the potential expenses associated with the homebuying process.”

In a survey of 1,300 U.S. homeowners conducted for TD Bank in March, 62% spent close to $2,000 in unexpected costs during the mortgage process. For millennials, those born between 1982 and 2004, the number is higher; 44% incurred up to $5,000 in unexpected costs.

“Millennials, in particular, go online and do their research first, but may not understand about closing costs and escrow accounts,” says Ray Rodriguez, regional mortgage sales manager for the metro New York market for TD Bank. Lenders create escrow accounts to pay insurance and tax bills on a mortgaged property when they come due.

Mr. Rodriguez recently closed a $700,000 mortgage in Connecticut where the borrower had to post $10,600 just to set up escrow accounts. Utility bills can come as a surprise as well. Some utilities and other service providers may require a deposit when an account is opened.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on December 9, 2016

Inventory Check: We Went to the Stores
by: Miriam Gottfried
Dec 03, 2016
Click here to view the full article on

TOPICS: Inventory

SUMMARY: This article follows on one covered in this review from November 14, 2016 and listed as the related article. As reported in the related article, retailers have claimed they will maintain lower inventories in order to increase gross profit margins by implementing fewer markdowns, potentially at the loss of some sales for high-demand products. The WSJ is tracking their results through lists of products at 4 retailers ranging across price points: Macy's, JC Penney, Ralph Lauren, and Gap. Observations are being made at mid-town Manhattan stores so prices may not be representative of those found elsewhere but the article includes the argument that the pricing trends should be representative.

CLASSROOM APPLICATION: The article may be used in discussing managerial issues of discounting and gross profits or to introduce markdowns when covering inventory accounting. Questions also ask a statistical concept about generalizability of the results of the price tracking.

1. (Introductory) What is gross profit or gross margin?

2. (Advanced) Why would companies want to maintain low levels of inventory going into the Christmas shopping season? Hint: you may refer to the related article to help with this question.

3. (Introductory) What is a markdown? What is the purpose of the WSJ tracking markdowns? Over what time period will they track?

4. (Advanced) Where is the WSJ monitoring these inventory pricing trends? Do you think prices at those locations will represent price trends across the U.S.?

5. (Introductory) Explain the reasoning given by the WSJ that tracking these prices should provide useful information to any reader, not just those located where the WSJ is conducting its tracking.

Reviewed By: Judy Beckman, University of Rhode Island

Lighter Inventory Helps Lift Retailers' Fortunes for Now
by Miriam Gottfried
Nov 14, 2016
Page: B12



"Inventory Check: We Went to the Stores," by Miriam Gottfried, The Wall Street Journal, December 3, 2016 ---

Retailers claim that low inventory will mean less discounting for the holidays

Holiday 2016 is supposed to be the year of clean inventory, but you wouldn’t know that from the looks of many stores.

U.S. retailers, including Macy’s, Nordstrom, Gap, J.C. Penney and Kohl’s, have touted lower inventory heading into the most important shopping period of the year. That has driven up stock prices for many of them as investors hope for fewer markdowns and better margins in the fourth quarter. Meanwhile, vendors such as Michael Kors, Coach and Ralph Lauren have tried to stem discounting by cutting back sales to department stores and streamlining the number of styles they sell to them.

To gauge how this war on promotions is going, Heard on the Street visited the physical stores of four retailers—Macy’s, J.C. Penney, Gap and Ralph Lauren—and selected a basket of items to monitor. We plan to check back every week through early January to see how the prices of those items change. Our first visit occurred on Tuesday, Nov. 29, after the buzz surrounding Black Friday had died down.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on December 9, 2016

Tax Returns Show Rise for the Rich
by: Richard Rubin
Dec 02, 2016
Click here to view the full article on

TOPICS: Individual Income Taxation

SUMMARY: Based on information from the Internal Revenue Service that removes taxpayer identification, this article presents the share of the overall tax burden and average effective tax rate of the top 400 U.S. taxpayers.

CLASSROOM APPLICATION: The article may be used in a personal income tax class to discuss tax equity, effective tax rates, and the impact of capital gains tax rates.

1. (Introductory) What is adjusted gross income? What level of adjusted gross income is the minimum reported by the top 400 taxpayers in the U.S. in 2014?

2. (Advanced) What has been the trend of the share of total income and total income taxes paid by this group of taxpayers?

3. (Introductory) What type of income typically is reported by this top group of taxpayers?

4. (Advanced) What is the average effective tax rate for this group of taxpayers? How do you think that is influenced by the type of income reported by this group?

5. (Introductory) What does the author Richard Rubin mean when he writes that increases in incomes might be "skewed" by tax increases that took effect in 2013? Does this mean that tax increases themselves are included in income? Explain.

Reviewed By: Judy Beckman, University of Rhode Island



"Tax Returns Show Rise for the Rich," by Richard Rubin, The Wall Street Journal, December 2, 2016 ---

Total income reported on the top 400 individual tax returns rose 20% in 2014

The total income reported on the top 400 individual tax returns rose 20% in 2014, according to Internal Revenue Service data released Thursday.

The figures reveal the concentration of earnings at the pinnacle of the income distribution, in a club that required $126.8 million of adjusted gross income to enter. That group, out of nearly 150 million tax returns in 2014, received 1.3% of income and 10% of capital gains that get preferential rates. The same 400 households also claimed 6.9% of all deductions for charitable contributions.

The top 400 households paid 2.13% of all individual income taxes, their highest share in the data series that goes back to 1992. Their average tax rate was 23.13%, the highest since 1997, when Congress cut capital-gains taxes.

The increases in incomes for the top 400 in 2014 may be somewhat skewed by the tax increases that took effect in 2013. Those changes encouraged taxpayers to realize capital gains in 2012 instead of 2013, causing a spike in reported income in 2012 and a dip in 2013.

The top 400 are measured by income, not wealth, and the individuals change from year to year.

Many wealthy people can avoid annual income taxes by not selling assets and wouldn’t be part of the list, which doesn’t include taxpayers’ names.

The IRS also said  on Thursday that it would no longer release data on the top 400, which it compiled going back to 1992.


Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on December,9, 2016

Rising Rates Trigger Losses on Banks' Bond Portfolios
by: John Carney
Dec 08, 2016
Click here to view the full article on

TOPICS: Available-for-Sale, Banking, Investments

SUMMARY: "Rising interest rates have sent bank stocks soaring. But there is a dark side...banks in the fourth quarter are likely to report losses on their large bond portfolios." The article discusses information take from reporting on available-for-sale investments, including other comprehensive income.

CLASSROOM APPLICATION: The article may be used when covering accounting for investments.

1. (Advanced) What is the difference between realized and unrealized gains and losses on security holdings?

2. (Advanced) What are the three categories of investments identified in authoritative accounting literature? Cite the authoritative guidance you are referencing.

3. (Advanced) What is the difference in accounting treatment of unrealized gains and losses across these three categories of investments? Cite the authoritative guidance you are referencing.

4. (Advanced) Why do unrealized losses affect a bank's book value but "don't immediately diminish a banks profits"? In your answer, define the "special bucket...called 'accumulated other comprehensive income.'"

5. (Advanced) What are required disclosures for unrealized gains and losses? Cite the authoritative guidance you are referencing.

6. (Introductory) How does the analysis in this article use the information required in financial statements and related disclosures? List all items you find that are taken from financial statement amounts and disclosures for investments.

Reviewed By: Judy Beckman, University of Rhode Island



"Rising Rates Trigger Losses on Banks' Bond Portfolios," by John Carney Dec 08, 2016, The Wall Street Journal, December 3, 2016 ---

These losses are unrealized, however, and over time they will be offset by higher net interest income

Rising interest rates have sent bank stocks soaring. But there is a dark side to this kind of market move—banks in the fourth quarter are likely to report losses on their massive bond portfolios.

U.S. banks suffered a $6.5 billion unrealized loss on the value of securities they hold as investments as of Nov. 23, according to the most recent data from the Federal Reserve. This was the first time since 2014 that the Fed data for the banking system as a whole showed a loss on these securities. As recently as early July, banks had total unrealized gains on these portfolios of $33.8 billion.

They key is that these losses, or gains, are unrealized and don’t hit earnings. While they do affect a bank’s book value, or net worth, the losses over time will be offset by increasing net interest income. That is a trade-off banks and their investors will take in stride, and even welcome.

Speaking at a financial industry conference Tuesday, Wells Fargo & Co. chief Timothy Sloan said that while there was likely to be short-term unrealized losses in the bank’s securities portfolio, higher interest rates were an overall “positive” for the bank.

When rates rise, the value of debt securities tends to fall because the relatively low rates on existing bonds will look unattractive compared with the higher rates of new bonds. The decline in bond prices brings the yields of similar bonds in line with each other.

Banks classify a big portion of their bond holdings as investment holdings, or “available for sale,” distinguishing them from those held for trading purposes. These investment holdings were $2.66 trillion for U.S. banks at the end of the third quarter, or about 16% of total assets, according to data from the Federal Deposit Insurance Corp. As well, there is a smaller group of bonds banks classify as being held to maturity.

When investment securities lose value, the losses are described as “unrealized” and don’t immediately diminish a bank’s profits. Instead, the losses go into a special bucket in shareholders’ equity called “accumulated other comprehensive income.”

This cuts into banks’ book value as well some measures of regulatory capital. That can be a problem for banks with thin capital cushions. But with many banks comfortably above required minimum capital levels, this isn’t likely to be a cause for concern today.

“I don’t hear many investors concerned about [investment-security] losses and the impact on capital because the stocks seem to be trading much more on price to earnings than price to book value and capital ratios are so strong,” said Sanford C. Bernstein analyst John McDonald.

The losses will only cut into a bank’s profits if they are realized through a sale, meaning a bank sells bonds for a price lower than what it paid. Or a hit to profit could result if a bank determines a bond has become permanently impaired—typically because it is unlikely to pay the promised cash flow.

During the financial crisis, some investors believed banks were hiding losses on permanently impaired securities in their investment portfolios. That is unlikely to be the case now. Mostly, bonds are losing value simply because of interest rate moves.

Any knock to bank balance sheets will also be cushioned by the fact that many large banks have substantially increased the portion of their securities portfolios they classify as “held to maturity.” Those bonds don’t get marked to market prices unless there is a permanent impairment.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on December 9,,2016

China's Banks are Hiding More Thank $2 Trillion in Loans
by: Lingling Wei
Dec 07, 2016
Click here to view the full article on
Click here to view the video on WSJ Video

TOPICS: Loan Loss Allowance

SUMMARY: The Chinese Bank of Nanjing reports "$39 billion in investment receivables in the third quarter, nearly as big as its loan portfolio...." The article indicates that the bank includes in this category some banking loans in order avoid estimating losses from expected uncollectible amounts under regulatory requirements. This practice is widespread among Chinese banks although the average amount in investment receivables is approximately 20% of these banks' total loan portfolios.

CLASSROOM APPLICATION: The article may be used in covering banking, contingent losses, or receivables and investments. It is appropriate for an intermediate level or above. Questions ask students to understand the need for reporting contingent losses when they can be estimated and the impact of the practices described in the article.

1. (Advanced) What are contingent losses in general? In relation to loans receivable held by banks?

2. (Introductory) According to the article, how are many Chinese banks avoid reporting contingent loan losses?

3. (Introductory) Refer to the related video. How do Chinese banks classify loans as investments rather than loans receivable?

4. (Introductory) Refer to the graphic entitled "Booming Business." If loan balances are nearly 250 billion yuan and greater than the investment receivables balance of just over 200 billion yuan, how does the graphic support the statement that "Bank of Nanjing's investment receivables have grown much faster than its loans"?

5. (Advanced) According to your understanding of accounting requirements, should banks report contingent losses related to collectibility issues associated with any asset--either an investment or a loan? What differences between investment and loan accounting might result in the situation described in this article?

6. (Introductory) Why do Bank of Nanjing officials say they are not worried about non-collectibility of the loans and investments they hold? How does this affect bank managers' behavior in lending decisions?

Reviewed By: Judy Beckman, University of Rhode Island



"China's Banks are Hiding More Thank $2 Trillion in Loans," by Lingling Wei, The Wall Street Journal, December 7, 2016 ---

Accounting sleight of hand means banks don’t have to set aside capital for potential losses, sowing fears of a crisis; new apartments with no residents

In 2014, the Chinese city of Haimen on the mouth of the Yangtze River set out to build a large apartment complex and turned to Bank of Nanjing Co. for about $29 million in financing.

The bank was happy to oblige but it didn’t call the money a loan, according to people familiar with the matter. It was added to Bank of Nanjing’s balance sheet as an “investment receivable,” a loosely regulated category of assets that allows bank officials to set aside little or nothing for potential losses.

Bank officials aren’t shy about the accounting sleight of hand, which is rampant across China. The bank had about $39 billion in investment receivables in the third quarter, nearly as big as its loan portfolio, and profits have climbed by more than 20% a year.

As of June, 32 publicly traded Chinese banks had a total of $2 trillion in investment receivables as of June, up from $334 billion at the end of 2011, according to a tally by The Wall Street Journal of the latest available information from data provider Wind Information Co.

The investments are equivalent to 20% of the same banks’ total loans in dollar terms, up from 6% at the end of 2011. The 32 banks have about 70% of all the banking assets in China.

The surge shows how Chinese banks are trying to keep the credit spigot open to support the country’s slowing economy. Structuring financing deals as investments instead of loans frees up bank capital and makes it easier to extend loan deadlines or new credit to borrowers. The strategy has been especially popular at small and midsize banks, said executives and analysts.

The epidemic of investment receivables has created a parallel buildup of debt in addition to China’s rising official debt levels, now 2½ times gross domestic product. “The rapid growth in banks’ off-balance-sheet and investment activities, in essence, means hidden credit risks and could threaten financial safety,” said Shang Fulin, China’s top banking regulator, in an unusually blunt speech in September.

Economists at Swiss bank UBS AG estimate as much as $2.4 trillion (16.5 trillion yuan) was “missing” from the broadest measurement of credit disclosed by China’s central bank last year, up from $712 billion (4.9 trillion yuan) in 2014. The discrepancy is largely because Chinese commercial banks use so-called shadow lenders to mask loans as investments, the economists said.

In November, China’s top banking regulatory agency proposed rules that could force financial institutions like Bank of Nanjing to apply more-stringent accounting standards to investments that are essentially loans.

Continued in article

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

It is Crunch Time for New Accounting Rules
by: Tatyana Shumsky
Dec 13, 2016
Click here to view the full article on

TOPICS: Revenue Recognition

SUMMARY: The article discusses the status of implementing the new revenue recognition requirements-or lack thereof given that only 15 of the S&P 100 have made disclosures about the expected impact of the new accounting requirements. It also includes quotes from U.S. Securities and Exchange Commission leaders in accounting, Chief Accountant Wes Bricker and Cicely LaMothe, Associate Director in the Division of Corporation Finance, emphasizing that companies must be ready for this implementation and required disclosure or expect to face SEC comment letters.

CLASSROOM APPLICATION: The article may be used in an intermediate or advanced financial reporting class addressing revenue recognition.

1. (Introductory) When must the new revenue recognition accounting standard be implemented?

2. (Advanced) How extensive are the changes required by the new accounting standard?

3. (Introductory) How prepared are companies to implement these new requirements?

4. (Advanced) What must publicly-traded companies disclose now in their filings with the U.S. Securities and Exchange Commission? How many, or few, have begun to make this disclosure?

Reviewed By: Judy Beckman, University of Rhode Island


"It is Crunch Time for New Accounting Rules," by Tatyana Shumsky, The Wall Street Journal, December 13, 2016 ---

Just 15 companies in the S&P 100 have signaled how they plan to transition to new revenue-recognition rules

It is almost showtime for new revenue-recognition rules, but the largest U.S. public companies have told shareholders precious little about what to expect.

Just 15 companies in the S&P 100 have so far disclosed how they plan to make the transition to the new accounting standard, according to a Wall Street Journal review of most recent quarterly filings.

Finance executives say they are working on plans to tell investors more about how the rules will affect their business, but admit they are in uncharted waters. “You literally have to take a clean sheet of paper and start from scratch,” said Lara Long, vice president for corporate accounting and reporting at agricultural-equipment maker AGCO Corp.

Public companies are required to file quarterly and annual reports using the new guidelines for fiscal years that begin after Dec. 15, 2017. The new rules replace industry-specific practices with a unified five-step model to make revenue booking for similar transactions more comparable. It also is an effort to more accurately depict the timing, uncertainty and volatility of doing business.

Using a new standard for revenue recognition will reshape the income statements for some companies. For others, the change will be minimal, accounting experts say. As part of the transition, businesses also must provide comparative figures.

Either way, finance chiefs must begin explaining to investors how, if at all, the new accounting methods and the transition will impact their financial reports.

“I would encourage everyone, as you’re going through the technical issues and evaluating them, at the same time to think about the disclosure implications that it’s going to have,” said Josh Paul, director of accounting at Alphabet Inc., the parent company of Google.

The Securities and Exchange Commission wants coming year-end or quarterly reports to contain detailed information about the impact of the new revenue-recognition rules, said Wesley Bricker, chief accountant for the SEC.

“Revenue is one of the most significant measures used by investors in assessing a company’s performance and its prospects,” Mr. Bricker said at an accounting conference in Washington, D.C., last week.

The SEC expressed concern that preparing for this transition has overshadowed work on company disclosures. It is turning up the pressure now in part because companies have had ample time to prepare.

And there are no plans to delay implementation. Even though the SEC’s priorities likely will be reshaped under President-elect Donald Trump, the rules are set by a separate body, the Financial Accounting Standards Board. The group already pushed the start date out by a year in response to widespread lobbying from companies. Another extension to the implementation deadline isn’t in the cards, said Susan Cosper, FASB’s technical director.

The SEC’s division of corporation finance will issue comment letters on these disclosures—or lack thereof—if found to be “materially deficient,” said Cicely LaMothe, associate director of the division.

Still, Alphabet and AGCO are among the many companies that have yet to provide investors with this information.

At AGCO, Ms. Long says she has been working on implementing the new accounting rules since the fall of 2014, a few months after they were passed, and began working on new disclosures at the end of last year.

Ms. Long’s initial assessment of how the rules would affect AGCO included reviewing the contracts under which it sells tractors and combines to dealers. Ms. Long had to establish a special process for the legal team to flag any deviation from standard contracts to the finance team because it could impact the accounting.

The review and its conclusions will form the basis of AGCO’s new disclosures, which must first pass an audit. Part of the challenge is that Ms. Long had to start from scratch and describe what it is the company is promising its customers. “You have to go through all your conclusions and say whether it impacted you or whether it didn’t, and if it didn’t you have to say why,” she explained.

In its November earnings, Alphabet said it would decide how to transition to the new accounting rules this quarter, a signal the company likely will soon expand its discussion of the rules and their impact.

Still, the sense of urgency isn’t lost on Mr. Paul.

Continued in article

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

LendingClub Prodded on Disclosure
by: Michael Rapoport
Dec 08, 2016
Click here to view the full article on

TOPICS: Non-GAAP Reporting

SUMMARY: In May 2016, the U.S Securities and Exchange Commission (SEC) issued Compliance & Disclosure Interpretations (C&DIs) on the use of non-GAAP measures. They are available on the web at The agency also indicated at that time that companies should work to improve their non-GAAP disclosures in 2016 quarterly reporting. This article reports on one company who has received comment letters from the SEC in June and October of this year. The comment letters are available on the SEC's web site by searching the EDGAR database for UPLOAD documents. For the company's responses, search for CORRESP. The SEC comment letter sent to this company in June 2016 can be found at

CLASSROOM APPLICATION: The article is useful to help students learn about nonGAAP reporting and the SEC's comment letter process in a financial reporting class at the intermediate level or above. The comment letter to LendingClub discusses, among other measures, the non-GAAP measure contribution margin, so faculty teaching that measure in a managerial accounting course also may find the article useful.

1. (Advanced) What are non-GAAP measures?

2. (Introductory) Who is Mark Kronforst? What is his general reaction to the SEC's review of non-GAAP reporting in recent filings?

3. (Advanced) Access the SEC comment letter to LendingClub about the company's non-GAAP measures, available at Proceed to items 7, 8, and 9. What non-GAAP measures does LendingClub report?

4. (Advanced) According to the article and the actual SEC comment letter, what other reporting questions has the SEC raised with LendingClub?

5. (Advanced) What was LendingClub's reaction to the SEC's questions?

Reviewed By: Judy Beckman, University of Rhode Island


"LendingClub Prodded on Disclosure," by Michael Rapoport, The Wall Street Journal, December 8, 2016 ---

Commission’s comment letters question firm’s use of ‘non-GAAP’ financial metrics

The Securities and Exchange Commission has urged LendingClub Corp. to disclose more about its lending operations and has questioned the company’s use of tailored “non-GAAP” financial measures, according to newly released correspondence between the regulator and the online lender.

In comment letters in June and October, the SEC asked the company to provide more detail about its loan portfolio and sources of funds. The commission also suggested that some of LendingClub’s non-GAAP metrics could run afoul of a provision requiring that such measures not mislead investors.

LendingClub told the SEC that it would provide some more information about its lending and funding, according to the letters. But the company pushed back against the commission’s requests in some respects, and insisted its metrics were “not misleading.”

LendingClub is the latest high-profile company to face SEC criticism over its use of non-GAAP metrics—unofficial measures of earnings that don’t comply with generally accepted accounting principles, or GAAP. They strip out one-time or noncash items to provide what companies consider to be a truer measure of performance, but critics fear the metrics can be used to make companies look healthier than they really are.

The SEC has been trying to rein in use of non-GAAP metrics across many industries, and many companies have revised their disclosures in response to new guidance on the issue that the SEC issued in May. Dozens of companies like LendingClub have received comment letters in which the SEC raises questions about whether they’re using the measures properly.

“It’s not every day we look at an issue like this and issue that many comment letters,” Mark Kronforst, chief accountant of the SEC’s corporation finance division, told reporters Wednesday at an accounting conference in Washington. Speaking about non-GAAP issues in general, he added: “We thought there were problems.”

In a Nov. 4, letter to LendingClub, the SEC said that it had finished its review, and it hasn’t taken any further action against the company. A LendingClub spokeswoman declined to comment on the SEC letters.

On LendingClub’s funding and lending, the SEC asked the company to provide a fuller analysis of its loan portfolio, broken down by loan type and including information such as charge-off rates and loan-delinquency rates. The commission also asked for more information on how much of LendingClub’s loans were funded by its largest investors. LendingClub has begun providing some more information in both those areas in its SEC filings.

The SEC also asked LendingClub to disclose its loan funders’ reinvestment rates, because the company had touted high reinvestment rates as an indication of the investors’ confidence. But the company told the SEC it would remove that reference altogether, after some of the funders curbed their activity.

The commission said LendingClub was featuring its non-GAAP measures too prominently, and that it should explain more about why the company considers them useful—both matters that LendingClub said it would address. The SEC also questioned LendingClub’s use of “contribution” and “contribution margin,” which gauge the profitability of the company’s loans but strip out some of its regular operating costs—a situation the SEC has said could be misleading.

But LendingClub said the measures aren’t meant to measure the company’s overall profitability in the first place, and hence it isn’t misleading to investors if they omit regular operating costs. LendingClub said it would make that clear in its disclosures.

LendingClub also pushed back against the SEC’s request for more information about the investments that some of the company’s officers and directors had made in its loans. The company said it wasn’t required to provide such information under SEC regulations.

The commission’s questions were part of its regular examination of LendingClub’s SEC filings and are separate from its scrutiny of the company over issues that arose when LendingClub ousted Chief Executive Renaud Laplanche in May, after the company found he presided over errors related to loan sales and hadn’t disclosed a personal stake in an outside investment fund. The company has said in filings that it is cooperating with that SEC inquiry and with the Justice Department and the Federal Trade Commission, which also contacted LendingClub after it revealed those events.

Continued in article

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

Japanese Brewer Taps into Europe
by: Megumi Fujikawa and Atsuko Fukase
Dec 14, 2016
Click here to view the full article on

TOPICS: Antitrust, Asset Acquisition

SUMMARY: NOTE: THIS SUMMARY ANSWERS SOME INTRODUCTORY QUESTIONS AND PROFESSORS USING THIS REVIEW MAY WANT TO DELETE PRIOR TO DISTRIBUTING TO STUDENTS. Following the regulatory requirements for AB InBev's merger with SABMiller (previously covered in this review on October 13, 2016), ABInBev is selling off brewery assets. Asian brewer Asahi, facing declining sales in Japan identified with demographics in the article, is looking to expand its global market reach. The Asian company won a bidding war involving a private equity firm and other investment firms, leading to a high price tag for the purchase. Asahi and AB InBev's shares reacted accordingly.

CLASSROOM APPLICATION: The article may be used in an intermediate or advanced financial reporting class to cover business combinations or lump sum purchases of assets.

1. (Introductory) Why is AB InBev selling off brewing assets in Eastern European nations?

2. (Introductory) Why is Asian brewer Asahi buying these beer operations? List all of the regulatory and strategic reasons you find referenced in the article.

3. (Introductory) What other beers also will be acquired by Asahi?

4. (Advanced) What are investors' concerns with the price paid by Asahi for these brewing assets? How does the market reaction to this announcement evidence that concern?

5. (Advanced) How could Asahi explain the price paid in a way that would lead to investors viewing the transaction more favorably?

6. (Advanced) Note the correction at the bottom of the article: previous versions of the article indicated that Asahi had agreed to buy beer brands from AB InBev. Asahi actually agreed to buy brewing assets from AB IBev. What is the difference between these two statements? How do they both differ from saying Asahi acquired an entire business? Specifically describe the different accounting implications for each type of transaction.

Reviewed By: Judy Beckman, University of Rhode Island

SABMiller, AB InBev Shareholders Approve $100 Billion-Plus Merger
by Tripp Mickle
Sep 28, 2016



"Japanese Brewer Taps into Europe," by Megumi Fujikawa and Atsuko Fukase, The Wall Street Journal, December 14, 2016 ---


Continued in article

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

Dow 20000 Won't Wipe Away Pension Problems
by: Vipal Monga and Heather Gillers
Dec 14, 2016
Click here to view the full article on

TOPICS: Pension Accounting, Pension Smoothing

SUMMARY: Even after the stock market has soared, increasing plan assets, and interest rates have increased, reducing calculated plan liabilities, "corporate pensions were left with a $414 billion funding deficit, $10 billion larger than it was at the end of last year, according to Mercer [a consulting firm focusing on pension plans]." The article specifically delves into the smoothing processes in accounting for pensions leading to a delay in reflecting the favorable impact of these market forces.

CLASSROOM APPLICATION: The article may be used in an advanced financial reporting class covering pension accounting.

1. (Introductory) What is the funded status of a defined benefit pension plan?

2. (Advanced) What factors determine the funded status of pension plans? Name all that you can identify and briefly describe the influence of each.

3. (Advanced) "Almost all public retirement systems engage in an accounting practice known as 'smoothing' returns." Explain how smoothing occurs in pension accounting.

4. (Advanced) Why does the smoothing you discussed above mean that today's positive market factors have not been fully reflected in improving pension plans' overall funded status?

5. (Advanced) Refer to the related article. How does the need to reduce expected returns on plan assets impact accounting for pension plans and the funded status of these plans?

6. (Advanced) Refer again to the related article. Why does the change in expected return on plan assets by Calpers result in "real life consequences" for cities and towns in California?

Reviewed By: Judy Beckman, University of Rhode Island

Calpers: A 7.5% Annual Return is No Longer Realistic
by Heather Gillers
Dec 14, 2016
Online Exclusive

"Dow 20000 Won't Wipe Away Pension Problems," by Vipal Monga and Heather Gillers, The Wall Street Journal, December 14, 2016 ---

Higher share prices and bond yields aren’t yet enough to close yawning funding gaps

The 2016 surge in stocks and bond yields is a rare positive for U.S. company and public pensions. But it doesn’t solve their problems.

In November large corporate retirement plans gained back $116 billion needed to pay out future benefits largely because of dramatic market movements following Donald Trump’s Nov. 8 election win, according to consulting firm Mercer Investment Consulting LLC.

The S&P 500 soared and long-term interest rates rose, boosting asset values and lowering liabilities for pensions at 1,500 of the largest U.S. companies. The present-day value of future obligations owed by companies falls when interest rates rise.

Even with November’s gains, corporate pensions were left with a $414 billion funding deficit, $10 billion larger than it was at the end of last year, according to Mercer. Funding deficits occur when the value of assets in pension plans don’t equal the projected future payments to retirees.

“It’s been good, but not great,” said Michael Moran, pension strategist at Goldman Sachs Asset Management. “Things are better than where we were a month ago, but it’s still too early to declare victory.”

That tempered reaction indicates the magnitude of the funding gap faced by managers of retirement assets across the U.S. Pensions still haven’t recovered from the chronic deficits created by the financial crisis and perpetuated by low interest rates.

The largest corporate-pension funds lost more than $300 billion during the 2008 downturn, according to consulting firm Milliman Inc., and that loss wiped out the previous five years of gains.

Pension deficits are a big deal for companies, because firms must close funding gaps with cash they could use for other purposes. Companies such as General Motors Co., International Paper Co., and CSX Corp. have all borrowed money this year to pump funds into their pension plans.

Companies in the S&P 1500 have contributed $550 billion into their pension plans between 2008 and Nov. 30 of this year, according to Mercer. Even with those contributions, their funded status was 81.3% as of Nov. 30.

Although pension-funding levels fluctuate during the year, most companies lock in their pension obligations at the end of the year for accounting purposes. November’s run-up, if it continues into December, could help lessen the burden of what had earlier been shaping up to be a big drag on 2016 financial results.

Funding holes are a trickier problem for funds that manage the pension assets of public workers because market rallies don’t automatically help close the gap.

Continued in article

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

Rally Spurs Investors to Donate Stock
by: Chana R. Schoenberger
Dec 12, 2016
Click here to view the full article on

TOPICS: Charitable Contributions, Tax Planning

SUMMARY: The article describes donations of appreciated stock in the current favorable stock market conditions along with discussion of tax planning for charitable donations. The tax planning underway reflects the possibility of tax rate decreases and itemized deduction limitations under campaign proposals by President-elect Donald Trump. The online article includes links to many related articles, not listed in this review, on donation behavioral research, financial gifts, and other tax-related wealth management topics.

CLASSROOM APPLICATION: The article may be used in an individual income tax class covering itemized deductions and charitable donations.

1. (Introductory) What does the election of Donald Trump imply about expected tax rates, both individual and corporate?

2. (Advanced) How do charitable donations affect individual taxpayers? What is the current limit on this deductibility?

3. (Introductory) Why does the expected tax rate in the future affect donations to charitable organizations now?

4. (Advanced) How might other changes proposed by President-elect Trump influence the tax benefit of charitable donations in future years?

5. (Introductory) Why is it "almost always better to donate [appreciated] stock rather than selling the stock and giving cash"?

Reviewed By: Judy Beckman, University of Rhode Island


"Rally Spurs Investors to Donate Stock," by Chana R. Schoenberger, The Wall Street Journal, December 12, 2016 ---

The strategy assumes that President Trump is going to cut tax rates

As the stock market reaches new heights after the presidential election, more investors are looking at their portfolios to see which securities have gone up the most—and then donating them to charity.

“We’ve seen an uptick in charitable giving using appreciated stock,” says Paul Stark, a wealth and estate-planning strategist at SunTrust Banks Inc.

That uptick is being fueled by assumptions about what a Trump administration will do.

“With Trump being elected, there’s more certainty that tax rates will be lower” in the years ahead, Mr. Stark says. That means investors who donate appreciated stock before the end of December will be able to deduct their gift’s value from a 2016 tax bill that could be higher than their 2017 tax bill.

What’s more, the Trump campaign discussed changing the limits on itemized deductions, which could make charitable giving less valuable as a tax advantage in future years, says Adrienne Penta, a senior vice president at Brown Brothers Harriman in Boston. Currently, taxpayers typically can roll forward unused charitable deductions for five years. It’s unclear if that will change, she says.

For those looking for a tax break from a donation, “it’s almost always better to donate the stock rather than selling the stock and giving cash, in a taxable account,” says Russell Rivera, president of Voice Wealth Management in New York.

That’s because investors who sell appreciated stock held in a taxable account owe taxes on those gains. They would get a tax deduction for donating those proceeds, but it might not offset the tax bill from the share sale. If those investors instead donated appreciated stock, they would pay no taxes on the gains and get a tax deduction for the full market value of the shares.

If stock has lost value, it’s a different story. In that case, investors may want to sell the shares at a loss and donate the cash proceeds, since they could write off that loss against other capital gains.

Continued in article

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


", The Wall Street Journal, December , 2016 ---


Continued in article

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


", The Wall Street Journal, December , 2016 ---


Continued in article








Humor for December 2016

Hear “Twas The Night Before Christmas” Read by Stephen Fry & John Cleese ---

Bill Murray & Gilda Radner Deliver the Laughs in Two 1970s Skits for National Lampoon  ---

SNL's Effort to Help the GOP Win Bigger in 2018 and 2020 ---
Pissing off a shirtless Putin even more is not a good way to stop the hacking
SNL = Sore Nighttime Losers on NBC

Country Singer Ray Stevens Reveals How Election Fraud Typically Takes Place ---

An Arranged Marriage is a Family Affair ---

Acclaimed Japanese Jazz Pianist Yōsuke Yamashita Plays a Burning Piano on the Beach ---
Jensen Comment
The last time I saw a piano on fire was at the end of the "Great Balls of Fire" clip from the life of Jerry Lee Lewis movie
Try to not move your hands and  legs while this clip plays.

More About Social Correctness Than Political Correctness
Lake Superior State University's 41st Annual List of Banished Words ---
Jensen Comment
Much depends upon context. Motivational speakers make millions of dollars beating socially incorrect words to death. Rappers make millions beating politically incorrect words to death.

The Real Obituary of Chris Connors, Age 67
Irishman Dies from Stubbornness, Whiskey

Forwarded by Paula
The Miracle of Sister Tarasita ---

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
I'm My Own Grandpa ---

Humor December 2016 --- 

Humor November 2016 --- 

Humor October 2016 ---

Humor September 2016 ---

Humor August  2016 ---

Humor July  2016 ---  

Humor June  2016 ---

Humor May  2016 ---

Humor April  2016 ---

Humor March  2016 ---

Humor February  2016 ---

Humor January  2016 ---

Humor December 1-31,  2015 ---

Humor November 1-30,  2015 ---

Humor October 1-31,  2015 ---

Humor September 1-30,  2015 ---

Humor August 1-31,  2015 ---

Humor July 1-31,  2015 ---

Humor June 1-30,  2015 ---

Humor May 1-31,  2015 ---

Humor April 1-30, 2015 ---

Humor March 1-31, 2015 ---

Humor February 1-28, 2015 ---

Humor January 1-31, 2015 ---

Tidbits Archives ---

And that's the way it was on December 31, 2016 with a little help from my friends.


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November 2016


Bob Jensen's New Additions to Bookmarks

November 2016 

Bob Jensen at Trinity University 

For earlier editions of Fraud Updates go to
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Bookmarks for the World's Library --- 

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

Bob Jensen's Blogs ---
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Bob Jensen's Pictures and Stories


All my online pictures ---

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: 

Scholarpedia (a cross between Wikipedia and Google Scholar) ---

Google Scholar ---

Wikipedia ---

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Accounting Hall of Famer and JAR Editor Ray Ball
10 years on, are international standards helping financial reporting? ---

Bob Jensen's threads on rules-based bright lines versus principles-based standards ---

Bob Jensen's threads on accounting standards controversies ---

Another Accounting Hall of Famer
Aiming for Global Accounting Standards: The International Accounting Standards Board, 2001-2011
ISBN-13: 978-0199646319
ISBN-10: 0199646317

Stepen A. Zeff

Jensen Comment
Not many folks are aware that Ray Ball is also a tremendous expert on wine. I think I've already told a Ray Ball anecdote on the AECM about wine and a restaurant in Italy that mistakenly brought an extremely rare vintage to his table. Unlike the waiter Ray recognized immediately that it was a very rare bottle of wine based on an exceptional wine year in history.

IFRS 9 and IFRS 7 Disclosure Requirements – An Analysis of the IASB Taxonomy
SSRN, November 16, 2016 


Dirk Beerbaum Aalto University --- Department of Accounting and Finance

Maciej Piechocki --- Independent


Main topic: This study concentrates on those disclosure requirements, which are defined by he new IFRS 9 and IFRS 7 related IASB Taxonomy. IASB has introduced a new standard (IFRS 9) on impairment, which requires a three-step approach, which in general replaces the current incurred impairment model with a new expected loss model. This new standard als requires additional complex disclosures. The study provides early insights into implementation of IFRS 9 disclosure requirements on impairment, as IFRS 9 will become applicable 2018.

There is a large debate ongoing about the the interpretation of the implementation of the IFRS 9 and IFRS 7 disclosure requirements. However, the IFRS Taxonomy is not very much part of this debate, although several advantages relate to the IASB taxonomy: principle-based accounting standard does very often not define specifically disclosure rules for each and every topic, therefore to derive reporting elements would be very difficult to accomplish. A robust taxonomy development and governance process leading to the IFRS taxonomy simplifies the task of interpretations and the actual expression of reporting elements.

Results: The IFRS 9 and IFRS 7 corresponding IFRS Taxonomy is not easy to read, as it involves particularly a large multidimensional table for the impairment rollforward, which without the use of an XBRL taxonomy software is very difficult to understand. The provided illustrative IASB Taxonomy as a PDF can not sufficiently replace the transparency of an XBRL taxonomy software as it can not display multidimensional tables. This also due to the fact that the roll-forward is a matrix of columns and rows, which go over more than ten pages. Due to these very detailed and sophisticated requirements, however annual reports as they still have to printed out have “natural” limits with regard to size and maximum number of columns for multinational tables, the question will arise how larger banks cn cope up with these requirements

Pride against Prejudice?: The Stakes of Concealment and Disclosure of a Stigmatized Identity for Gay and Lesbian Auditors
SSRN, November 13, 2016


Sébastien Stenger HEC Paris --- Management & Human Resources

Thomas J. Roulet --- King's College London


How do individuals choose to conceal a stigmatized attribute and what are the consequences of such choice? We answer this question by looking at how gay and lesbian employees make sense of their homosexuality in the highly normative context of audit firms. As a first step, we unveil the subtle pressures exerted on those who possess concealable stigmatized identities. Homosexual auditors engage in partial or full concealment of their sexuality. They live in the fear of being misjudged and casted out of a context in which male values are tantamount. However, the efforts required to conceal create a situation of unrest, which eventually interferes with their social integration at work. We draw on rich ethnographic material in French audit firms, benefitting from the exogenous shock of a gay marriage bill. The study’s findings shed new light on audit as a gendered profession and the cost of concealing stigmatized invisible identities

A New Approach for Measuring Shareholder Value Creation
SSRN, July 2016
Also see
Journal of Modern Accounting and Auditing, July 2016, Vol. 12, No. 7, 388-396 doi: 10.17265/1548-6583/2016.07.004 


Eleftherios Aggelopoulos --- University of Patras, Department of Business Administration

Dimitris Grypeos --- Dolphin Capital Partners


This paper introduces a new approach for measuring shareholder value creation (called adjusted economic profit (EP)) which combines the advantages of both EP and APV (adjusted present value) methods. In particular, the shareholder value creation over a period is derived as the sum of two components: the EP relating purely to the operations of the company and the EP generated each period due to the tax benefit that arises from debt financing. We consider our results to be important for analysts and decision makers involved in appraising business performance or making investment decisions and HR professionals as well.

Is There a Conflict between Principles-Based Accounting and Structured Electronic Reporting? – A Literature Review
SSRN, November 13, 2016


Dirk Beerbaum --- Aalto University - Department of Accounting and Finance

Maciej Piechocki---  Independent


National standard-setters continue to express concerns over a principles-based developed IFRS taxonomy. Recent comments to the IASB consultation on the "IFRS Taxonomy Due Process" contain more arguments why principles-based accounting and the IFRS taxonomy are perceived as a conceptual conflict.

A comment from the Accounting Standards Committee of Germany: "Whilst we acknowledge that standard-setting and taxonomy development can and should inform each other, we are concerned that mandatorily bearing taxonomy constraints and limitations in mind when developing standards bears the risk of the standards themselves becoming more rules- and less principles-based. We certainly agree that the pronouncements must be articulated clearly enough to enable appropriate representation through the taxonomy; however, a taxonomy’s requirements should not be the key driver for developing standards and interpretations."

Similar arguments are expressed by the Accounting Standards Council Singapore: "We are particularly concerned that the prescriptive nature of IFRS Taxonomy would not align well with the principles-based IFRS."

The Swedish Financial Reporting Board wrote, "We fear that bringing XBRL into standard setting will be detrimental to the principles-based approach, particularly as regards the presentation of disclosures."

The Korean Accounting Standards Board also comment, "It should be more conspicuously clarified that the IFRS Taxonomy is not guidance for IFRS in order not to deteriorate the principles-based standard-setting approach."

Another commentator from a Big-4 audit firm: "There is a risk that the design and content of a taxonomy that is intended to be used to capture information in general purpose financial reports will, or be perceived to, influence how those reports are prepared. Filing requirements that used prescribed data structures could undermine principles-based reporting requirements. We understand and share those concerns. However, this is the very reason that the IASB should be involved with the development and maintenance of the IFRS Taxonomy. If the IASB is not, others will develop taxonomies and we are more concerned about the risk that those taxonomies pose to the application of IFRS."

"EFRAG has expressed on several occasions the view that the development of the IFRS taxonomy should not drive the IASB standard-setting process, because it risked moving away from a principles-based approach, in particular in the area of disclosures."

Considering the Italian Standard Setter, "However, we reiterate our comments made with references to the Request for Views Trustees' Review of structure and Effectiveness: Issues for the Review that the Taxonomy should not be integrated in the IASB standard-setting process because we see the risk that this may take the IASB away from a principles-based approach when it develops accounting standards, in particular in the area of disclosures. IFRS taxonomy-related issues should be kept separate from the standard setting process as we fear that considerations that regard the Taxonomy may have a negative impact on the principles-based approach."

Bob Jensen's threads on principles-based standards versus bright-line standards ---

Mixing Fair-Value and Historical-Cost Accounting: Predictable Other-Comprehensive-Income and Mispricing of Bank Stocks
SSRN, October 1, 2016


Peter D. Easton --- University of Notre Dame - Department of Accountancy

Xiao-Jun Zhang --- University of California, Berkeley; China Academy of Financial Research (CAFR)


Other comprehensive income (OCI) items are often considered to be transitory (Chambers et al. 2007; IASB 2013; CFA2014). In this paper we show that a significant portion of OCI, namely unrealized gains and losses (UGL) from available-for-sale securities (AFS), is non-transitory: a negative correlation between accumulated UGL in the current period and next period UGL is predicted and we show that this correlation is economically and statistically significant. This correlation is due to a mix of accounting methods of measurement of income from fixed-income securities: UGL are recognized based on fair values, whereas interest income is measured based on historical cost. We document that: (1) this negative correlation explains a previously unexplained negative correlation in other comprehensive income (OCI); and, (2) investors seem to price total UGL disregarding (or not realizing) the fact that reported UGL includes a predictable, accounting-driven component.

Accruals Management to Avoid Losses
SSRN, October/November 2016
Also see
Journal of Business Finance & Accounting, Vol. 43, Issue 9-10, pp. 1095-1120, 2016


Weihong Xu --- State University of New York (SUNY) - Accounting & Law


This study examines whether firms engage in accruals management to beat the zero earnings benchmark from the perspective of earnings per share (EPS). Based on net income scaled by lagged market value of equity (E/MV) to define just‐miss and just‐beat test bins, previous studies provide no or inconclusive evidence of accruals management to beat the zero earnings benchmark. I conjecture that because managers focus on shares scaled earnings performance rather than market value scaled earnings performance, forming test bins based on EPS instead of E/MV is a better approach to detect accruals management. As expected, I find evidence of accruals management to beat the zero EPS benchmark. I also find that firms are more likely to manipulate accruals when managers have stronger incentives to beat the zero EPS benchmark. In addition, accruals of firms just beating the zero EPS benchmark are more likely to reverse the next year, resulting in relatively lower future earnings for firms just beating the benchmark compared with firms just missing the benchmark.

Information‐Hedging Disclosures and Insider Trading
SSRN, November 10, 2016
Also see
Journal of Business Finance & Accounting, Vol. 43, Issue 9-10, pp. 1280-1296, 2016 Stephen L. Lenkey Pennsylvania State University


Stephen L. Lenkey --- Pennsylvania State University


I model the effect of disclosure on the tradeoff between information risk, liquidity risk, and price risk for a well‐informed, risk‐averse insider. Revealing some information before trading decreases the variability of the insider's information advantage and thus reduces his information risk. Disclosure also lowers adverse selection costs for market makers, which reduces the insider's liquidity risk by increasing his trading flexibility. However, disclosure increases price risk for the insider because the price fully reflects the revealed information. The reduction in information and liquidity risks outweigh the rise in price risk when the insider is less risk averse because a less risk‐averse insider's information‐based motive for trading is stronger than his hedging motive. The opposite relation holds when the insider is more risk averse. Therefore, a less (more) risk‐averse insider experiences an increase (decrease) in welfare when he discloses some information before trading. Cost of capital and policy implications are identified.

National Taxpayer Advocate Nina Olson minced few words in a recent assessment of the future of the IRS and its current interactions with taxpayers: The agency’s growing disconnect from the people it serves will lead to its failure ---

Despite the IRS’s focus on its “future state” initiative, which is laden with goals of easier transactions through digitalization of services, the agency must focus more on physically engaging with taxpayers, Olson said during the American Institute of CPAs’ National Tax Conference in Washington, DC, on Nov. 15. Her year of nationwide travel, interacting with taxpayers and listening to focus groups, provided an overarching mantra: Improving the IRS’s current state preempts its future state. “Go online to the IRS website, and they have these vignettes of how they envision different taxpayers interacting [with the agency] in the future, and it’s all through computers and digital notifications,” she said. “People think it’s arrogant, that it shows taxpayers losing and the taxpayer being wrong.”


Continued in article

Saudi Arabian companies face fresh challenge from new (IFRS) accounting standards ---

Saudi Arabian companies face fresh challenge from new accounting standards
Who Pays for White-Collar Crime? (an accountics science study based on questionable use of p-values)

SSRN, June 29, 2016


Paul M. Healy --- Harvard Business School; National Bureau of Economic Research (NBER)

George Serafeim --- Harvard University - Harvard Business School


Using a proprietary dataset of 667 companies around the world that experienced white-collar crime we investigate what drives punishment of perpetrators of crime. We find a significantly lower propensity to punish crime in our sample, where most crimes are not reported to the regulator, relative to samples in studies investigating punishment of perpetrators in cases investigated by U.S. regulatory authorities. Punishment severity is significantly lower for senior executives, for perpetrators of crimes that do not directly steal from the company and at smaller companies. While economic reasons could explain these associations we show that gender and frequency of crimes moderate the relation between punishment severity and seniority. Male senior executives and senior executives in organizations with widespread crime are treated more leniently compared to senior female perpetrators or compared to senior perpetrators in organizations with isolated cases of crime. These results suggest that agency problems could partly explain punishment severity.

Jensen Comment
This is a perfect example (perhaps a poster child) of an accountics research paper that relies almost entirely on p-values computed from relatively large samples. In real science such p-values have fallen from favor because they tend to be so misleading ---

P-Value ---

ASA = American Statistical Association
The ASA's statement on p-values: context, process, and purpose ---

The ground is shaking beneath the accountics science foundations upon which all accounting doctoral programs and the prestigious accounting research journals are built. My guess is, however, that the accountics scientists are sleeping through the tremors or feigning sleep because, if they admit to waking up, their nightmares will become real!
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
 by Bob Jensen

Misleading Statistical Significance Reporting
Statisticians Found One Thing They Can Agree On: It’s Time To Stop Misusing P-Values ---

How many statisticians does it take to ensure at least a 50 percent chance of a disagreement about p-values? According to a tongue-in-cheek assessment by statistician George Cobb of Mount Holyoke College, the answer is two … or one. So it’s no surprise that when the American Statistical Association gathered 26 experts to develop a consensus statement on statistical significance and p-values, the discussion quickly became heated.

It may sound crazy to get indignant over a scientific term that few lay people have even heard of, but the consequences matter. The misuse of the p-value can drive bad science (there was no disagreement over that), and the consensus project was spurred by a growing worry that in some scientific fields, p-values have become a litmus test for deciding which studies are worthy of publication. As a result, research that produces p-values that surpass an arbitrary threshold are more likely to be published, while studies with greater or equal scientific importance may remain in the file drawer, unseen by the scientific community.

The results can be devastating, said Donald Berry, a biostatistician at the University of Texas MD Anderson Cancer Center. “Patients with serious diseases have been harmed,” he wrote in a commentary published today. “Researchers have chased wild geese, finding too often that statistically significant conclusions could not be reproduced.” Faulty statistical conclusions, he added, have real economic consequences.

“The p-value was never intended to be a substitute for scientific reasoning,” the ASA’s executive director, Ron Wasserstein, said in a press release. On that point, the consensus committee members agreed, but statisticians have deep philosophical differences1 about the proper way to approach inference and statistics, and “this was taken as a battleground for those different views,” said Steven Goodman, co-director of the Meta-Research Innovation Center at Stanford. Much of the dispute centered around technical arguments over frequentist versus Bayesian methods and possible alternatives or supplements to p-values. “There were huge differences, including profoundly different views about the core problems and practices in need of reform,” Goodman said. “People were apoplectic over it.”

The group debated and discussed the issues for more than a year before finally producing a statement they could all sign. They released that consensus statement on Monday, along with 20 additional commentaries from members of the committee. The ASA statement is intended to address the misuse of p-values and promote a better understanding of them among researchers and science writers, and it marks the first time the association has taken an official position on a matter of statistical practice. The statement outlines some fundamental principles regarding p-values.

Among the committee’s tasks: Selecting a definition of the p-value that nonstatisticians could understand. They eventually settled on this: “Informally, a p-value is the probability under a specified statistical model that a statistical summary of the data (for example, the sample mean difference between two compared groups) would be equal to or more extreme than its observed value.” That definition is about as clear as mud (I stand by my conclusion that even scientists can’t easily explain p-values), but the rest of the statement and the ideas it presents are far more accessible.

One of the most important messages is that the p-value cannot tell you if your hypothesis is correct. Instead, it’s the probability of your data given your hypothesis. That sounds tantalizingly similar to “the probability of your hypothesis given your data,” but they’re not the same thing, said Stephen Senn, a biostatistician at the Luxembourg Institute of Health. To understand why, consider this example. “Is the pope Catholic? The answer is yes,” said Senn. “Is a Catholic the pope? The answer is probably not. If you change the order, the statement doesn’t survive.”

A common misconception among nonstatisticians is that p-values can tell you the probability that a result occurred by chance. This interpretation is dead wrong, but you see it again and again and again and again. The p-value only tells you something about the probability of seeing your results given a particular hypothetical explanation — it cannot tell you the probability that the results are true or whether they’re due to random chance. The ASA statement’s Principle No. 2: “P-values do not measure the probability that the studied hypothesis is true, or the probability that the data were produced by random chance alone.”

Nor can a p-value tell you the size of an effect, the strength of the evidence or the importance of a result. Yet despite all these limitations, p-values are often used as a way to separate true findings from spurious ones, and that creates perverse incentives. When the goal shifts from seeking the truth to obtaining a p-value that clears an arbitrary threshold (0.05 or less is considered “statistically significant” in many fields), researchers tend to fish around in their data and keep trying different analyses until they find something with the right p-value, as you can see for yourself in a p-hacking tool we built last year.

Continued in article

Significance Testing: We Can Do Better
Abacas, June 13, 2016
This is not a free article

Thomas R. Dyckman Professor Emeritus Cornell University


This paper advocates abandoning null hypothesis statistical tests (NHST) in favor of reporting confidence intervals. The case against NHST, which has been made repeatedly in multiple disciplines and is growing in awareness and acceptance, is introduced and discussed. Accounting as an empirical research discipline appears to be the last of research communities to face up to the inherent problems of significance test use and abuse. The paper encourages adoption of a meta-analysis approach which allows for the inclusion of replication studies in the assessment of evidence. This approach requires abandoning the typical NHST process and its reliance on p-values. However, given that NHST has deep roots and wide “social acceptance” in the empirical testing community, modifications to NHST are suggested so as to partly counter the weakness of this statistical testing method.

Extended Quotation
. . .
2. Why The Frequentist Approach (NHSTs) Should be Abandoned in Favor of a Bayesian Approach

Frequentist Approach:
The frequentist NHST relies on rejecting a null hypothesis of no effect or relationship based on the probability, or “p-level”, of observing a specific sample result X equal to or more extreme than the actual observation X₀, conditional on the null hypothesis H₀ being true. In symbols, this calculation yields a p-level = Pr(X≥X₀|H₀), where ≥ signifies “as or more discrepant with H₀ than X₀”. The origin of the approach is generally credited to Karl Pearson (1900), who introduced it in his χ²-test (Pearson actually called it the P, χ²-test). However, it was Sir Ronald Fisher who is credited with naming and popularizing statistical significance testing and p-values as promulgated in the many editions of his classic books Statistical Methods for Research Workers and The Design of Experiments. See Spielman (1974), Seidenfeld (1979), Johnstone et al. (1986), Barnett (1999), Berger (2003) and Howson and Urbach (2006) on the ideas and development of modern hypothesis tests (NHST).

The Bayesian Approach:
Probabilities, under the Bayesian approach, rely on informed beliefs rather than physical quantities. They represent informed reasoned guesses. In the Bayesian approach, the objective is the posterior (post sample) belief concerning where a parameter, β in our case, is possibly located. Bayes’ theorem allows us to use the sample data to update our prior beliefs about the value of the parameter of interest. The revised (posterior) distribution represents the new belief based on the prior and the statistical method (the model) applied, and calculated using Bayes theorem. Prior beliefs play an important role in the Bayesian process. In fact, no data can be interpreted without prior beliefs (“data cannot speak for themselves”).

Bayesians emphasize the unavoidably subjective nature of the research process. The decision to select a models and specific prior or family of priors is necessarily subjective, and the sample data are seldom obtained objectively (Basturk et al., 2014). Indeed, data quality has become a major problem with the advent of “big data” and with the recognition that the rewards for publication tend to induce gamesmanship and even fraud in the data selected for the study.

When the investigator experiences difficulty and uncertainty in specifying a specific prior distribution, the use of diffuse or “uninformative” prior is typically adopted. The idea is to impose no strong prior belief on the analysis and hence allow the data to have a bigger part in the final conclusions. Ultimately, enough data will “swamp” any prior distribution, but in reality, where systems are not stationary and no models is known to be “true”, there is always subjectivity and room for revision in Bayesian posterior beliefs.

The Bayesian viewpoint is that this is a fact of research life and needs to be faced and treated formally in the analysis. Objectivity is not possible, so there is no gain from pretending that it is. Formal Bayesian methods for coping with subjectivity are easy to understand. For example, one approach is to ask how robust the posterior distribution of belief about β is to different possible prior distributions. If we can say that we come to essentially the same qualitative belief over all feasible models and prior distributions, or across the different priors that different people hold, then that is perhaps the most objective that a statistical conclusion can claim.

Continued in article

Academic psychology and medical testing are both dogged by unreliability. The reason is clear: we got probability wrong ---

. . .

For one, it’s of little use to say that your observations would be rare if there were no real difference between the pills (which is what the p-value tells you), unless you can say whether or not the observations would also be rare when there is a true difference between the pills. Which brings us back to induction.

The problem of induction was solved, in principle, by the Reverend Thomas Bayes in the middle of the 18th century. He showed how to convert the probability of the observations given a hypothesis (the deductive problem) to what we actually want, the probability that the hypothesis is true given some observations (the inductive problem). But how to use his famous theorem in practice has been the subject of heated debate ever since.

Take the proposition that the Earth goes round the Sun. It either does or it doesn’t, so it’s hard to see how we could pick a probability for this statement. Furthermore, the Bayesian conversion involves assigning a value to the probability that your hypothesis is right before any observations have been made (the ‘prior probability’). Bayes’s theorem allows that prior probability to be converted to what we want, the probability that the hypothesis is true given some relevant observations, which is known as the ‘posterior probability’.

These intangible probabilities persuaded Fisher that Bayes’s approach wasn’t feasible. Instead, he proposed the wholly deductive process of null hypothesis significance testing. The realisation that this method, as it is commonly used, gives alarmingly large numbers of false positive results has spurred several recent attempts to bridge the gap.

There is one uncontroversial application of Bayes’s theorem: diagnostic screening, the tests that doctors give healthy people to detect warning signs of disease. They’re a good way to understand the perils of the deductive approach.

In theory, picking up on the early signs of illness is obviously good. But in practice there are usually so many false positive diagnoses that it just doesn’t work very well. Take dementia. Roughly 1 per cent of the population suffer from mild cognitive impairment, which might, but doesn’t always, lead to dementia. Suppose that the test is quite a good one, in the sense that 95 per cent of the time it gives the right (negative) answer for people who are free of the condition. That means that 5 per cent of the people who don’t have cognitive impairment will test, falsely, as positive. That doesn’t sound bad. It’s directly analogous to tests of significance which will give 5 per cent of false positives when there is no real effect, if we use a p-value of less than 5 per cent to mean ‘statistically significant’.

But in fact the screening test is not good – it’s actually appallingly bad, because 86 per cent, not 5 per cent, of all positive tests are false positives. So only 14 per cent of positive tests are correct. This happens because most people don’t have the condition, and so the false positives from these people (5 per cent of 99 per cent of the people), outweigh the number of true positives that arise from the much smaller number of people who have the condition (80 per cent of 1 per cent of the people, if we assume 80 per cent of people with the disease are detected successfully). There’s a YouTube video of my attempt to explain this principle, or you can read my recent paper on the subject.

Notice, though, that it’s possible to calculate the disastrous false-positive rate for screening tests only because we have estimates for the prevalence of the condition in the whole population being tested. This is the prior probability that we need to use Bayes’s theorem. If we return to the problem of tests of significance, it’s not so easy. The analogue of the prevalence of disease in the population becomes, in the case of significance tests, the probability that there is a real difference between the pills before the experiment is done – the prior probability that there’s a real effect. And it’s usually impossible to make a good guess at the value of this figure.

An example should make the idea more concrete. Imagine testing 1,000 different drugs, one at a time, to sort out which works and which doesn’t. You’d be lucky if 10 per cent of them were effective, so let’s proceed by assuming a prevalence or prior probability of 10 per cent. Say we observe a ‘just significant’ result, for example, a P = 0.047 in a single test, and declare that this is evidence that we have made a discovery. That claim will be wrong, not in 5 per cent of cases, as is commonly believed, but in 76 per cent of cases. That is disastrously high. Just as in screening tests, the reason for this large number of mistakes is that the number of false positives in the tests where there is no real effect outweighs the number of true positives that arise from the cases in which there is a real effect.

In general, though, we don’t know the real prevalence of true effects. So, although we can calculate the p-value, we can’t calculate the number of false positives. But what we can do is give a minimum value for the false positive rate. To do this, we need only assume that it’s not legitimate to say, before the observations are made, that the odds that an effect is real are any higher than 50:50. To do so would be to assume you’re more likely than not to be right before the experiment even begins.

If we repeat the drug calculations using a prevalence of 50 per cent rather than 10 per cent, we get a false positive rate of 26 per cent, still much bigger than 5 per cent. Any lower prevalence will result in an even higher false positive rate.

The upshot is that, if a scientist observes a ‘just significant’ result in a single test, say P = 0.047, and declares that she’s made a discovery, that claim will be wrong at least 26 per cent of the time, and probably more. No wonder then that there are problems with reproducibility in areas of science that rely on tests of significance.


Continued in article

Jensen Comment
Especially note the many replies to this article

. . .

David Colquhoun
I think that it’s quite hard to find a really good practical guide to Bayesian analysis. By really good, I mean on that is critical about priors and explains exactly what assumptions are being made. I fear that one reason for this is that Bayesians often seem to have an evangelical tendency that leads to them brushing the assumptions under the carpet. I agree that Alexander Etz is a good place to start. but I do wonder how much it will help when your faced with a particular set of observations to analyze

Henning Strandin ---
Thank you for a good and useful article on the pitfalls of ignoring the baseline. I have a couple of comments.
Bayes didn’t resolve the problem of induction, even in principle. The problem of induction is the problem of knowing that the observations you have made are relevant to some set of (perhaps as-yet) unobserved events. In his Essay on Probabilities, Laplace illustrated the problem in the same paragraph in which he suggests  . . .

Karl Young
Nice article; as a Bayesian who was forced to quote p values in a couple of medical physics papers for which the journal would have nothing else, I appreciate the points made here. But even as a Bayesian one has to acknowledge that there are a number of open problems besides just how to estimate priors. E.g. what one really wants to know is given some observations, how one’s hypothesis fares against as complete a list of alternative hypothesis as can be mustered. Even assuming that one could come up with such a list, calculating the probability that one’s hypothesis best fits the observations in that case requires calculation of a quantity called the evidence that is generally extremely difficult (the reason that the diagnostic examples mentioned in the piece lead to reasonable calculations is that calculating the evidence for the set of proposed hypotheses, that either someone in the population has a disease or doesn’t, is straightforward). So while I think Bayes is the philosophically most coherent approach to analyzing data (doesn’t solve the problem of induction but tries to at least manage it) there are still a number of issues preventing it

Comments Continued at

"Drawing Inferences From Very Large Data-Sets,"   by David Giles, Econometrics Beat:  Dave Giles� Blog, University of Victoria, April 26, 2013 ---

. . .

Granger (1998; 2003has reminded us that if the sample size is sufficiently large, then it's virtually impossible not to reject almost any hypothesis. So, if the sample is very large and the p-values associated with the estimated coefficients in a regression model are of the order of, say, 0.10 or even 0.05, then this really bad news. Much, much, smaller p-values are needed before we get all excited about 'statistically significant' results when the sample size is in the thousands, or even bigger. So, the p-values reported above are mostly pretty marginal, as far as significance is concerned. When you work out the p-values for the other 6 models I mentioned, they range from  to 0.005 to 0.460. I've been generous in the models I selected.

Here's another set of  results taken from a second, really nice, paper by
Ciecieriski et al. (2011) in the same issue of Health Economics:

Continued in article

"Not Even Scientists Can Easily Explain P-values," by Christie Aschwanden, Nate Silver's 5:38 Blog, November 30, 2015 ---

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

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

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

Continued in article

More on statistical mistakes
Bob Jensen's threads on Common Accountics Science and Econometric Science Statistical Mistakes ---

David Hendry on "Economic Forecasting" ---

Jensen Comment
For those interested in doing research on the technical aspects of economic forecasting, the above module provides a list of researchers to look up and follow.

One question to ask is were economic forecasting stands among the near hopelessness of earthquake forecasting versus the much more hopeful discipline of sales forecasting.

Earthquake Prediction ---

Attendees at the 2017 Annual Meetings Won't Have to Pay a 16.5% Room Tax for the San Diego Chargers' Benefit

Chargers’ stadium vote fails miserably, clouding future in San Diego A ballot measure in San Diego that would have raised hotel taxes to pay for a new Chargers stadium came up far short of the required two-thirds vote Tuesday, leaving the team with an uncertain future in the city. Measure C, as the initiative was known, would have allowed city officials to raise hotel-room taxes from 12.5 percent to 16.5 percent and use that revenue to pay for a new downtown stadium and convention-center annex next to Petco Park, where the Padres play baseball. But the measure received support from...

Jensen Lament
Stupid voters in some city will probably soak visitors to build a gold-plated palace for this relocated NFL team.

The head of the SEC will step down at the end of the Obama administration ---
But not necessarily because Senator Elizabeth Warren screamed for the ouster of Mary Jo White

2 new members appointed to FASB as Golden remains chairman ----

The IRS Scandal, Day 1287
IRS Commissioner Koskinen Urges Trump Transition Team To Name New IRS Commissioner Soon

Federal Judge Block’s Obama’s Overtime-Pay Rule ---

A federal judge in Texas on Tuesday blocked the Obama administration’s effort to extend overtime pay to millions more workers, after 21 states and dozens of business groups asserted that the rule was unlawful and would cause them irreparable harm.

Judge Amos L. Mazzant III of the U.S. District Court in Sherman, Tex., concluded that the U.S. Department of Labor had exceeded its authority and ignored the intent of Congress in issuing the rule, which had been scheduled to take effect on December 1. The regulation sought to raise the salary cutoff below which workers would be eligible for overtime pay, to about $47,000 from about $23,000.

Generally, employees whose primary role can be defined as teaching are exempt from earning overtime pay. But many categories of campus employees — such as early career financial-aid officers and athletics staffers — would have benefited from the rule. This collection of Chronicle articles has more details on how colleges were anticipating the changes.

Since the rule was issued, many colleges have been scrambling to identify which employees would be newly eligible for overtime pay, and to plan institutional budgets around those changes. It’s not yet clear how colleges that had already changed their practices in anticipation of the rule will respond to the judge’s ruling, or whether they will roll back the adjustments they have made. In any case, the rule itself was already among many Obama-administration policies that had been cast into doubt by this month’s election of Donald J. Trump as president.

Judge Mazzant issued a nationwide injunction against rolling out the rule, saying that such an action best served the public interest. The court’s “ability to render a meaningful decision” on the merits of the case was in jeopardy because of the rule’s imminent effective date, he wrote.

 Continued in article

U. of Missouri Investigates Claim of Academic Fraud Involving Athletes ---

Punishment includes infractions for helping two players cheat in courses
NCAA Wipes Out 2 Years of Notre Dame Wins in Football ---

Nearly all infractions pale relative to nearly 20 years of fake courses and illegal grade changes at the University of North Carolina, for which  the NCAA turned wimpy in terms of punishments. In my opinion UNC should be booted out of Division 1 athletics.

Bob Jensen's threads on athletics scandals in higher education ---

Tax Rate of S&P 100 Companies ---
There are some surprises here

Heteroscedasticity ---

Dealing with Heteroskedasticity, Autocorrelation and Endogeneity in German Audit Fee Panel Data - Comparing Approaches
SSRN, November 25, 2014


Balthasar Hoehn --- University of Wuerzburg

Florian Schuberth --- University of Wuerzburg - Business Administration & Economics

Manuel Steiner --- University of Wuerzburg - Business Administration & Economics


In this paper we provide an extensive comparison between commonly used linear econometric methods in the audit fee literature and explicitly address their underlying assumptions. As opposed to common practice in similar papers we explicitly consider violations of the strict exogeneity assumption in terms of unobserved firm-specific effects and argue that endogeneity is likely to be present in audit fee data sets. This leads to significantly different results for magnitude and significance level of most explanatory variables. Additionally, we encourage researchers to use the in the audit fee literature not so widely-spread Hausman-Taylor estimator to benefit from its efficiency.

Economic Uncertainty and Earnings Management
SSRN, August 23, 2016


Luke C.D. Stein --- Arizona State University (ASU) - Finance Department

Charles C. Y. Wang --- Harvard Business School


In the presence of managerial short-termism and asymmetric information about skill and effort provision, firms may opportunistically shift earnings from uncertain to more certain times. We document that firms report more negative discretionary accruals when financial markets are less certain about their future prospects. Stock-price responses to earnings surprises are moderated when firm-level uncertainty is high, consistent with performance being attributed more to luck rather than skill and effort, which can create incentives to shift earnings toward lower-uncertainty periods. We show that the resulting opportunistic earnings management is concentrated in CEOs, firms, and periods where such incentives are likely to be strongest: (1) where CEO wealth is sensitive to change in the share price, (2) where announced earnings are particularly likely to be an important source of information about managerial ability and effort, and (3) before implementation of Sarbanes-Oxley made opportunistic earnings management more challenging. Our evidence highlights a novel channel through which uncertainty affects managerial decision making in the presence of agency conflicts.

Bob Jensen's threads on earnings management ---

November Econometrics Readings Suggested by David Giles ---
The T.W. Anderson references are partly in honor of this great statistician who died on September 17, 2017

Acharya, A., M. Blackwell, & M. Sen, 2015. Explaining causal findings without bias: Detecting and assessing direct effects. RWP15-194, Harvard Kennedy School.

Anderson, T.W., 2005. Origins of the limited information maximum likelihood and two-stage least squares estimators. Journal of Econometrics, 127, 1-16.

Anderson, T.W. & H. Rubin, 1949. Estimation of the parameters of a single equation in a complete system of stochastic equations. Annals of Mathematical Statistics, 20, 46-63.

Cox, D.R., 1972. Regression models and life-tables (with discussion). Journal of the Royal Statistical Society B, 34, 187–220.

Malsiner-Walli, G. & H. Wagner, 2011. Comparing spike and slab priors for Bayesian variable selection. Austrian Journal of Statistics, 40, 241-264.

Psaradakis, Z. & M. Vavra, 2016. Portmanteau tests for linearity of stationary time series. Working Paper 1/2016, National Bank of Slovakia.

Finance Tips from The Math Dude Blog ---
These my be especially interesting when teaching financial literacy modules


1.      What Is Credit Card APR?

is a credit card APR and how is it calculated?" A.  APR is short for Annual Percentage Rate, ... which is the interest you’re charged over a 12-month period. For instance, a card with 24% APR costs 2% ... a single account can have several different APRs. The card company may charge one rate for purchases, one ...

By Laura Adams, MBA, Money Girl - December 18, 2013

2.      What Is a CD and What’s the Best Way to Invest with Them? Audio

a higher rate of interest. Understand APY vs. APR Speaking of interest, there are two main ways that ... interest is expressed for CDs: APY and APR. APY stands for annual percentage yield and it’s the rate you’d ... APY is the rate you’ll get if you never withdraw interest from a CD. APR, on the other hand, stands ...

By Laura Adams, MBA, Money Girl - February 10, 2011

Jensen Comment
CD's have very lousy investment returns since the Federal Reserve drove interest rates to almost zero.
In general these days you have to take on more risk to get better returns.

3.      Can I Save Money Using a Balance Transfer Credit Card?

transfer card with 0% APR for 12 months, no annual fee, no balance transfer fees, plus cash back rewards. ... APR after the 0% APR 12-month promotion period expires. If she continues to make $500 monthly ...

By Laura Adams, MBA, Money Girl - January 08, 2012

4.      Consolidate Credit Card Debt and Save Money

a lower interest rate, you can save a lot of money. The Discover® More Card gives you 0% APR for 15 months ... Lending Club or Prosper —where you can borrow for as little as 6.59% and earn an average of 10.59% APR ...

By Laura Adams, MBA, Money Girl - June 02, 2012

5.      How Is Credit Card Interest Calculated?

typically charged a daily rate that's equal to the card's annual percentage rate (APR) divided by ... 365. For instance, the APR for new purchases could be 11.99%, cash advances 23.99%, and balance ...

By Laura Adams, MBA, Money Girl - December 01, 2011

Jensen Comment
Make every effort to pay more each month than what the credit card billing says is the "minimum" amount.
Better yet always take the monthly amount due down to zero to avoid interest charges altogether.


7.      401(k) Loans

card debt of $6,000. The APR (annual percentage rate) on my card is high at 17% and I'd love to ...

By Laura Adams, MBA, Money Girl - December 21, 2010


9.      Should You Apply for a No-Interest Credit Card?

Otherwise, after the promotion ends, the annual interest rate or APR usually skyrockets on your outstanding ...

By Laura Adams, MBA, Money Girl - September 26, 2013

10.  How to Make a Balance Transfer Pay Off Audio

transfer at 0% APR for a limited time. Should I transfer the balance of my higher-interest card and save ... a balance transfer card, look for the following features: an introductory interest rate of 0% APR for ...

By Laura Adams, MBA, Money Girl - December 18, 2012

The Khan Academy also has some great personal finance tutorials ---

Bob Jensen's threads on personal finance ---

Fraud during the holiday shopping season is costing retailers $2 billion ---

. . .

Thieves use a variety of scams to commit return fraud, but nine in 10 retailers told the NRF for its report last year that they have experienced people returning stolen merchandise. In addition, a little over 70% of stores told the trade organization that they deal with "wardrobing," the practice of someone using/wearing an item then returning it.

Other examples of return fraud and the percentage of retailers that say they have experienced them include:

The return of merchandise purchased with counterfeit money (75.8%).

Return fraud made by "known organized retail crime groups" (71%).

"Employee return fraud or collusion with external forces" (77.4%).

"Retailers have the difficult task of providing superior customer service by always giving the benefit of the doubt to their shoppers when it comes to returns, while simultaneously working to make sure they protect their business assets," said Moraca.

What can stores do?

Retailers must make their return policy clear to consumers, including info on whether they track returns or require an ID. Of course, that info is on receipts, signs posted near registers, and in online disclaimer copy that few people read.

Return tracking has been a controversial practice and ultimately it's effective, but only to a point. Despite new efforts at enforcement by retailers, holiday season return fraud has been cut from an estimated $3.4 billion in 2013 and $3.8 billion in 2014 to $2.2 billion in 2015. This year, the NRF expects a number similar to last year if not slightly higher.

Retailers do not yet have the silver bullet that can end return fraud, which ultimately costs all honest shoppers a little bit more every time they buy something

Bob Jensen's Fraud Updates ---

University Of Rochester B-School Professor Pays $100 Million FBAR Penalty Over Swiss Accounts ---

A Rochester, New York emeritus professor of business administration pleaded guilty today to conspiring with others to defraud the United States and to submitting a false expatriation statement to the Internal Revenue Service (IRS), announced Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division, and U.S. Attorney Dana J. Boente of the Eastern District of Virginia, after the plea was accepted by U.S. District Judge T.S. Ellis III. 

According to documents filed with the court and statements made during the plea hearing, Dan Horsky, 71, is a citizen of the United States, the United Kingdom and Israel and was employed for more than 30 years as a professor of business administration at a university located in New York.  Beginning in approximately 1995, Horsky began investing in numerous start-up businesses through financial accounts at various offshore banks, including one bank in Zurich, Switzerland.  Horsky created “Horsky Holdings,” a nominee entity, to hold some of the investments and he used the Horsky Holdings account, and later, other accounts at the Zurich-based bank, to conceal his financial transactions and financial accounts from the IRS and the U.S. Treasury Department. 

Horsky made investments in Company A through the Horsky Holdings account using his own money, money provided by his father and sister, and margin loans from the Zurich-based bank.  Eventually, Horsky amassed a four percent interest in Company A’s stock.  In 2008, Company A was purchased by Company B for $1.8 billion in an all cash transaction.  Horsky received approximately $80 million in net proceeds from the sale of Company A’s stock, but disclosed to the IRS only approximately $7 million of his gain from that sale and paid taxes on just that fraction of his share of the proceeds.  In 2008, and in subsequent years, Horsky invested in Company B’s stock using funds from his accounts at the Zurich-based bank and by 2013, his investments in Company B, combined with other unreported offshore assets, reached approximately $200 million.

“Despite his extraordinary wealth, Mr. Horsky concealed funds offshore, failed to report substantial income, conspired to submit false expatriation documents to cover up his fraudulent scheme, and evaded paying his fair share of tax,” said Principal Deputy Assistant Attorney General Ciraolo.  “The Department and its partners within the IRS are receiving a tremendous amount of information from a wide variety of sources, and we are using that information to pursue and prosecute individuals like Mr. Horsky, who violate our nation’s tax laws.  Today’s guilty plea proves, once again, that taxpayers will pay a heavy price when they choose to secrete funds in foreign bank accounts and evade tax and reporting obligations.”

“You can’t hide from the IRS,” said U.S. Attorney Boente.  “Horsky went to great lengths to hide assets in secret accounts overseas in order to avoid paying his share of taxes to the IRS.  Today’s plea shows that we will continue to prosecute those who engage in this criminal activity. I want to thank IRS-Criminal Investigation and our prosecutors for their work on this important case.”

Horsky directed the activities in his Horsky Holdings and other accounts maintained at the Zurich-based bank, despite the fact that it was readily apparent, in communications with employees of the bank, that Horsky was a resident of the United States.  Bank representatives routinely sent emails to Horsky recognizing that he was residing in the United States.  Beginning in at least 2011, Horsky caused another individual to have signature authority over his Zurich-based bank accounts, and this individual assumed the responsibility of providing instructions as to the management of the accounts at Horsky’s direction.  This arrangement was intended to conceal Horsky’s interest in and control over these accounts from the IRS. 

In 2013, the individual who had nominal control over Horsky’s accounts at the Zurich-based bank conspired with Horsky to relinquish the individual’s U.S. citizenship, in part to ensure that Horsky’s control of the offshore accounts would not be reported to the IRS.  In 2014, this individual filed with the IRS a false Form 8854 (Initial Annual Expatriation Statement) that failed to disclose his net worth on the date of expatriation, failed to disclose his ownership of foreign assets, and falsely certified under penalties of perjury that he was in compliance with his tax obligations for the five preceding tax years. 

Horsky also willfully filed false 2008 through 2014 individual income tax returns which failed to disclose his income from, and beneficial interest in and control over, his Zurich-based bank accounts.  Horsky agreed that for purposes of sentencing, his criminal conduct resulted in a tax loss of at least $10 million.  In addition, Horsky failed to file Reports of Foreign Bank and Financial Accounts (FBARs) up and through 2011, and also filed false FBARs for 2012 and 2013.

“Federal income tax compliance should be equally shared among all Americans,” said Special Agent-in-Charge Thomas Jankowski of IRS Criminal Investigation (CI), Washington D.C. Field Office.  “Conspiring to defraud the government with an elaborate scheme to underreport taxable income is unlawful.  Mr. Horsky’s plea today serves as an important reminder that IRS-CI is committed to bringing to justice those who shirk their federal income tax responsibilities.”                   

Sentencing is scheduled for Feb. 10, 2017.  Horsky faces a statutory maximum sentence of five years in prison, as well as a period of supervised release and monetary penalties.  As part of his plea agreement, Horsky paid a penalty of $100 million dollars to the U.S. Treasury for failing to file and filing false FBARs, which is separate from any restitution that the court may order.

Principal Deputy Assistant Attorney General Ciraolo and U.S. Attorney Boente commended special agents of IRS-CI, who conducted the investigation, and Senior Litigation Counsel Mark F. Daly and Trial Attorney Robert J. Boudreau of the Tax Division and Assistant U.S. Attorney Mark Lytle of the Eastern District of Virginia, who are prosecuting this case.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website

Bob Jensen's Fraud Updates ---

A comprehensive Accounting of U.S Spending ---

Former Microsoft CEO Steve Ballmer ---

Steve Ballmer’s new project involves lots and lots of Excel spreadsheets. When not on the sidelines of Los Angeles Clippers games, the former Microsoft CEO—along with a team of about 25 data geeks— has been poring over decades of government documents to create a comprehensive accounting of U.S. spending. Ballmer describes it as a “10-K for the government.

The scary part is  the $100+ trillion as yet unbooked obligation for entitlements such as the unsustainable Medicare and Medicaid ---

The Business Women of the Early 20th Century ---

Bob Jensen's threads on women in the professions ---

For accounting teachers who still like use of worksheets ---

Jensen Comment
One of my early accounting teachers named W.S. Shroyer was more commonly known as Work Sheet Shroyer.

Transparency Perhaps Should Have its Limits
Imagine lying in the bathtub and looking up at the sky or out at the buildings across the way ---

Jensen Comment
Perhaps this type of bathroom is only for the superrich who are so ignorant they've not learned about telescopes and drones with video cameras.  Or these bathtubs with a view might be for the aged superrich. I'm reminded of when an oldster wore a transparent see-through suit and nobody wanted to.

In any case for accountants clamoring for more "transparency" this article reminds us that transparency has its sensible limits.

"Perspectives on Past and Future AIS Research as the Journal of Information Systems Turns Thirty, by  Kevin C. Moffitt, Vernon J. Richardson, Neal M. Snow, Martin M. Weisner, and David A. Wood, Journal of Information Systems, Fall 2016, Vol. 30, No. 3, pp. 157-171 ---
This is not a free download but can have controlled free distribution to students in a qualified accounting course

This paper complements a panel session pertaining to past and future AIS research that was held during the 2015 American Accounting Association Annual Meeting. There are two main parts to this commentary. First, using text mining techniques on AIS article abstracts for the period 1986–2014, we identify the top research themes across three leading AIS journals (Journal of Information Systems, International Journal of Accounting Information Systems, and Journal of Emerging Technologies in Accounting). We chart the usage of these themes over time and discuss their shifting popularity. Second, we speculate on the future of AIS research and identify a series of broad research streams that may garner greater importance over the next 30 years. A host of broad research questions accompany the discussion of emerging and anticipated research streams in order to motivate and guide future research.

Why Assessment Is a Waste of Time ---

Jensen Comment
When assessing something like a major change in pedagogy the problem may require mostly subjective opinions of teachers experienced in the former as well as the new pedagogy. For example, in a major experiment (called BAM)  at the University of Virginia experienced professors teaching intermediate accounting (across two semesters) via a lecture pedagogy experimented with a radical change in pedagogy that entailed virtually all self-learning on the part of students. The main assessment was subjective opinion of the professors regarding changed pedagogy plus the subjective opinions of the professors involved. It took years to assess the improvement of students in terms of CPA exam passage rates after they graduated --- where the improvement on memory of what was learned seemed to be dramatic.

Eventually there was little doubt about the superiority of self-learning pedagogy ---

However the assessment process was limited mainly to the impact on student learning. It failed to measure the impact on teachers including increased burnout and the lowering of teaching evaluations for teachers who no longer spoon fed the learning material. Students don't much like the blood, sweat, and tears of self-learning even though they remember what they learned much better later in life.

Competency-Based Learning (where teachers don't selectively assign grades) ---

Western Governors University (with an entire history of competency-based learning) ----
Especially note the Business Administration (including Accounting) degree programs

From a Chronicle of Higher Education Newsletter on November 3, 2016

Over the past 20 years, Western Governors University has grown into a formidable competency-based online education provider. It’s on just its second president, Scott D. Pulsipher, a former Silicon Valley executive, who stopped by our offices yesterday.

WGU has graduated more than 70,000 students, from all 50 states. But a key part of the institution’s growth strategy is local, using its affiliations with participating states (not that all the partnerships start smoothly, mind you). There are six of them, and more growth is on the way; Mr. Pulsipher says WGU is in serious discussions to expand into as many as five more states — he declines to name them — at a pace of one or two per year.

The university's main focus remains students, he says. One example is an effort to minimize student loans. Through better advising, students are borrowing, on average, about 20 percent less than they did three years ago, amounting to savings of about $3,200. “Humans make better decisions,” Mr. Pulsipher says, “when they have more information.” —Dan Berrett

2016 Bibliography on Competency-Based Education and Assessment ---

Bob Jensen's threads on competency-based learning ---

Careers and Pay for PhDs Outside the Education Career Tracks ---
Note that the study includes PhD holders other than humanities PhDs

Jensen Comment
Firstly note that the number of business PhDs employed outside of education is almost negligible such that salary comparisons are probably misleading in that grouping. In some disciplines such as engineering and biological sciences what is learned in PhD programs adds vital skills for professional jobs outside of education. In my field, accountancy, job applicants for employment outside of education benefit much more from attainment of professional skills that are virtually not taught in accounting PhD programs ---

One question I would raise is the dividing line between full-time and part-time work.
Were all subjects included in the study required to work at least 40-hour weeks roughly 50 weeks per year. Personally I doubt it. For example, I know a local housewife and mother with a PhD who works from her home at very high pay in our mountain village for high-flying Booz Allen Hamilton as a report editor. Her hours vary from 10-60 hours per week depending upon the work sent to her. This type of work variability is more common than you might think, especially in certain disciplines such as language translation and tax return preparation where the work loads vary quite a lot.

Gender pay gap may also be driven by many things other than gender prejudice.
For example, the desire to work out of the home may be more common for mothers than fathers. Work-at-home jobs tend to pay less because of savings in commuting costs, elimination of commuting time/stress, and the disproportionate supply of applicants seeking work-at-home jobs.

My point is that the above study probably is comparing apples with walnuts in many instances.

From a November 11, 2016 EY Newsletter

SEC staff updates Financial Reporting Manual

The SEC staff in the Division of Corporation Finance updated its Financial Reporting Manual to add its views on certain SEC reporting issues related to the adoption of new accounting standards as follows:


Registrants filing pro forma financial information in the year they adopt the new revenue recognition standard are not required to reflect the effect of the new standard in the pro forma income statement for the previous year.


The date of initial application for purposes of the new leases standard would not change if a registrant is required to provide financial statements for earlier periods when issuing retrospectively revised financial statements for a registration statement filed in the year of adoption.


         Registrants do not need to disclose a consolidated 10-year loss reserve development table as specified in Industry Guide 6 once they begin disclosing the claims development tables required by the ASU 2015-09, Disclosures about Short-Duration Contracts, after adoption.


Why We Shouldn’t Teach Girls to Code ---

Jensen Comment
This article is mostly bull crap.

Firstly the article associates coding with routine work leading to nowhere. In computer science and information coding alternatives are languages for innovation and creativity.

The professional world that I see is trying desperately to make it easier for women and minorities to advance to the top of their professions. Reasons for failing to do so are much more complicated that the broad brush blaming for failures on prejudices. This article is hugely superficial with little evidence to bolster opinion and little acknowledgement for progress women, including mothers, that is being made in the USA. If you want more evidence of prejudicial barriers to women look to business firms in Scandinavia where breaking the glass ceiling is much more of a rare event than in the public and private sectors of the USA. It's no longer so rare in the USA for women and minorities willing to genuinely compete for executive positions. Of course there are still barriers to be broken in many circumstances, but credit should be give for progress that is being made in the USA. It's absurd to blame some of the failure on learning to code.

The article puts down civil service when in fact civil service in many instances in the public sector is a faster route to high pay and executive statis in the private sector. There's a coziness of the private and public sector such as when government bureaucrats are given fabulous incentives to bail out of government jobs into high paying jobs in the industries they preciously regulated. FDA civil servants hope to become executives in the pharmaceutical industry. SEC, FBI, and Department of Justice employees hope to get plush jobs and offices in big accounting and law firms. It did take long before industries eventually owned the government agencies that regulated and investigated those industries.

The SEC Path to  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 path of advancement 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 officers, and health regulators in the FDA, NIH, etc. And many of those higher-level private sector opportunities are being given to women and minorities in the civil service.

SEC Enforcement Actions Reach Record Highs in 2016 ---

Jensen Comment
Senator Elizabeth rants that the SEC Director should be fired because more violators should have been put in prison (at a time when President Clinton is letting non-violent criminals out of the back door of Federal prisons in record numbers).

Elizabeth Warren:  Obama Needs to Fire the Head of the SEC

New tax calculator shows how taxes would change under Clinton & Trump tax plans ---

Jensen Comment
Playing around with this calculator is pretty much a waste of time since both candidates' tax plans would be twisted and mangled by Congress to a point of being unrecognizable when and if either one becomes law.

November 2, 2016  reply from Hossein Nouri


I am not sure if this calculator is correct. I did a simple tax return for a single person receiving $100,000 salary, and $200,000 business income with nothing else and it calculates a tax of $102,555 under current tax law. I used the my tax software with same information and it calculates $86,300. I thought the difference could be because for business income it calculate Social Security and Medicare for the whole amount of $200,000. But even after I included the $200,000 under other income (which is of course not correct because part of that is subject to SS and MC). I get  $96,420 under current tax law, which is still about $10K more than my software. Therefore, I am not sure if the calculation of taxes under Clinton and Trump are correct. For the first Scenario, it gives the same tax under Clinton  ($102,555) and $69,921 under Trump. When I include $200,000 business income under other, there is not much difference among them (current, Clinton, and trump all about $95K).

Hossein Nouri

November 2, 2016 reply from Bob Jensen

Bravo Hossein,

This just goes to show that sometimes I'm way to trusting of articles in respected journals (er . . . well I only sort of trust Vox that I consider a very left-leaning Website). However, the mistakes in the software that you detected may well have been innocent mistakes rather than intentional bias.

What surprises me is that the author would not have run the facts for the current law through respected software as you have done for us.

May I suggest that you contact the author. Please tell us how he replies to your findings.


From the Washington Post:  AT&T and DurectTV partner to Screw the Public
Full title: AT&T and DirecTV colluded in an illegal plot that kept Dodgers games off the air, DOJ lawsuit alleges AT&T and DirecTV acted as ringleaders in an illegal plot against the Dodgers Channel that kept Los Angeles sports fans from watching their favorite team on television, according to a major lawsuit filed Wednesday by the Justice Department. The anti-collusion suit alleges that DirecTV -- and its corporate parent, AT&T -- shared private negotiating information in 2014 with other TV providers, including Cox Communications and Charter Communications, in order to gain a collective advantage over Time Warner Cable, which was...

No Evidence of Aloe Vera Found in the Aloe Vera at Wal-Mart, CVS ---
Also see

Jensen Comment
Another illustration of how hard it is for auditors to test check inventories. On my first inventory audit assignment I had to count inventories of good pistons and inventories of defective pistons. I had no way of knowing a good piston from a defective piston.

Yardley accountant gets 3 to 6 years for stealing $378K from elderly women ---

. . .

Prosecutors say Swain between December 2008 and September 2015 used her role as the women's accountant and power of attorney to make a number of unauthorized payments to herself from their accounts while in control of their finances.

Much of the money was used to pay health care costs and many of her ex-husband's bills, among other purchases and payments, according to court papers.

"I'm incredibly sorry, and I'm shamed on both a professional and personal level," Swain said.

Swain said her victims, all longtime clients of her accounting services, were people she "genuinely liked" and thought of as friends as well as customers.

She offered a gambling addiction as an explanation for her actions, but said that was not an excuse.

"I blame no one and nothing else for what I have done," she said.

Continued in article

Although the number of Thanksgiving online shoppers increased by 10 million over last year, customer spending in total this year was down nearly 3.5% ---

Jensen Comment
Some travelers are saving up for those cheap winter vacations in Cuba.

Facebook is Doing a $6 Billion Stock Buyback ---

Jensen Comment
It might be a good excercise for students to investigate why some companies are buying back enormous amounts of stock.

The Global Burden of Journal Peer Review in the Biomedical Literature: Strong Imbalance in the Collective Enterprise ---

The growth in scientific production may threaten the capacity for the scientific community to handle the ever-increasing demand for peer review of scientific publications. There is little evidence regarding the sustainability of the peer-review system and how the scientific community copes with the burden it poses. We used mathematical modeling to estimate the overall quantitative annual demand for peer review and the supply in biomedical research. The modeling was informed by empirical data from various sources in the biomedical domain, including all articles indexed at MEDLINE. We found that for 2015, across a range of scenarios, the supply exceeded by 15% to 249% the demand for reviewers and reviews. However, 20% of the researchers performed 69% to 94% of the reviews. Among researchers actually contributing to peer review, 70% dedicated 1% or less of their research work-time to peer review while 5% dedicated 13% or more of it. An estimated 63.4 million hours were devoted to peer review in 2015, among which 18.9 million hours were provided by the top 5% contributing reviewers. Our results support that the system is sustainable in terms of volume but emphasizes a considerable imbalance in the distribution of the peer-review effort across the scientific community. Finally, various individual interactions between authors, editors and reviewers may reduce to some extent the number of reviewers who are available to editors at any point.

Jensen Comment
Peer review is one of those things that's not perfect, but it's hard to find something better at the same price. Open source publishing exposing a non-refereed article to a "world of potential reviewers" is an alternative, but what if experts mostly ignore open source articles and/or are swamped by the flood of non-refereed publications? This may be a special problem in some fields like academic accounting where not much of anybody, especially practicing accountants, have much interest in reading academic accounting research.

And what if authors simply choose to ignore unsolicited reviews? This is not so much of a problem when journals subject submissions to peer reviews, because if the authors ignore those peer reviews the journals are not likely to publish the submissions.

Tom Selling:  Why the FASB Won’t Define “Financial Accounting” ---

Jensen Comment
Nor will the FASB define a lot of other things that the IASB will now try to define over a five-year study period.

Perhaps the IASB will confine definitions to things that are already assigned numbers in financial statements like earnings and measures derived from earnings.

I might note that I do not buy into Lev and Gu dreaming that we should assign numbers to intangibles before we can do more than mislead with intangibles measures drawn from the clouds.

June 20, 2016 Comment from former FASB Chairman Dennis Beresford


Baruch has been preaching that intangibles should be recorded as assets for R&D, etc. for 20 years or more. So the "end" he suggests should have occurred before now. Many agree with him in theory but the numerous implementation issues tend to create too much of a hurdle. The FASB plans to soon issue a request for comment on what should be the next major project to be undertaken and I believe this will be one possibility. It will be interesting to see how much support it gets.

BTW, I wonder if the new book also calls for Human Resource Assets to be recorded - another idea whose time probably hasn't (and shouldn't) come.


Six Tips for Valuation Experts in High Stakes Divorces ----

Jensen Comment
I'm reminded of a true case in Oklahoma where a couple agreed to all aspects of a property settlement except for two choice annual season tickets on the 50-yard line at the University of Oklahoma.

The decision of the judge in the case --- award one ticket to the husband and one to his departing wife. Sometimes decisions in a court of law are lose-lose.

Deloitte Via the WSJ
How Internal Audit Can Strengthen Its Role: Global Study ---


From an EY Newsletter on November 18, 2016

To the Point: FASB addresses the presentation of restricted cash in the statement of cash flows

The FASB issued final guidance, based on an Emerging Issues Task Force consensus, that requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer have to classify transfers between cash and restricted cash.


Comment letter on the FASB’s hedge accounting proposal 

In our comment letter, we applaud the FASB for addressing many of the concerns raised by preparers, users and other stakeholders about the complexity of today’s hedge accounting model and the restrictions it imposes. Overall, we agree that the proposed amendments would better portray the economics of an entity’s risk management activities in its financial statements and simplify the application of hedge accounting in certain situations. However, we believe the FASB should reconsider certain aspects of the proposal and provide additional guidance or clarification in some places.


Comment letter on the FASB proposal on premium amortization on purchased callable debt securities

In our comment letter, we supported the FASB’s proposal to shorten the amortization period for callable debt securities purchased at a premium. However, we recommended that the FASB clarify whether the proposed guidance would apply to callable instruments that do not have definitive call dates.


Updated publications on SEC financial reporting now available

We have updated our SEC Financial Reporting Series to reflect final SEC rules and interpretive guidance issued through 31 October 2016. The series includes the following publications:


·         2016 SEC annual reports – Form 10-K

·         2017 SEC quarterly reports – Form 10-Q

Hard copies will be available soon and can be ordered on EY AccountingLink.


Transition Resource Group for Revenue Recognition (TRG) items of general agreement


We have updated our summary of issues on which members of the TRG generally agreed to include the November 2016 FASB TRG meeting. While the TRG members’ views are non-authoritative, entities should consider them as they implement the new standards. For more information about these issues and issues the TRG discussed but did not reach general agreement on, see our To the Point publications on TRG meetings on EY AccountingLink.


EY Q4 2016 financial reporting update webcast on 15 December


The EY Q4 2016 financial reporting update webcast is scheduled for 15 December 2016 from 1 p.m. to 2:30 p.m. Eastern time. EY panelists will discuss recent standard-setting activities at the FASB, SEC developments and other financial reporting matters.

This I've got to see
The standard setters' (IASB and FASB) balance sheet priority over the income statement totally destroyed the concepts of "income" and "earnings."
I'm anxiously awaiting to see the IASB's operational definition of "earnings" underlying the forthcoming definition of EBIT, etc.
One of my main concerns in this definition is the jumbling of legally earned revenues with unrealized value changes.

From the CFO Journal's Morning Ledger on November 3, 2016

IASB evaluating EBIT
The International Accounting Standards Board said Wednesday it would look at providing new definitions of common financial terms such as earnings before interest and taxes, or ebit. The new definitions will be introduced over the next five years, in order to provide sufficient time for suggestions and comment from market participants, Nina Trentmann reports.

IASB Plans Overhaul of Financial Definitions 

The International Accounting Standards Board, or IASB, which sets reporting standards in more than 120 countries, said Wednesday it would look at providing new definitions of common financial terms such as earnings before interest and taxes, or ebit.

The new definitions will be introduced over the next five years, in order to provide sufficient time for suggestions and comment from market participants.

The changes will not result in new standards but will require the board to overhaul existing ones.

At the moment, terms like operating profit are not defined by the IASB. The aim is to help market participants judge the suitability of a particular investment.

“We want to give investors the right handles to look at a balance sheet,” said IASB chairman Hans Hoogervorst.

Up until now, International Financial Reporting Standards, known as IFRS, leave companies too much flexibility in defining such terms, which often makes it difficult to compare financials, Mr. Hoogervorst said.

“Even within sectors, there is a lack of comparability,” Mr. Hoogervorst said. This affects both investors and companies, he added.

It is too early to tell what the changes will mean for companies reporting under IFRS, according to Mr. Hoogervorst. “They should be less revolutionary than the introduction of new standards but every change results in work”, he said.

Some firms might find that they have less latitude when reporting financial results, he said. That could mean more work.

Firms that decide against adopting the new IASB definition for ebit, for example, could be required to reconcile their own ebit calculation into one based on the IASB’s definition.

The IASB in 2017 also plans to finalize a single accounting model that would be applied to all forms of insurance contracts.

Besides that, the board will work on updating the system through which filers add disclosures to the electronic versions of their financial statements. The system is updated on a regular basis and the IASB produces an annual compilation of all changes each year.

Bob Jensen's threads on conceptual framework controversies ---

This is Big News:  Ireland must pay back $14.12 billion in of its EU tax windfall

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

Ireland appeals against EU Apple ruling
Ireland will today launch a formal appeal against the controversial EU ruling according to which Apple Inc. received an unfair tax deal worth €13 billion ($14.42 billion), and must pay it back with interest, the Irish Independent reports. Finance Minister Noonan has said he would file the appeal against the European Commission's decision to force Ireland to claw back the claimed tax subsidies.

Treasury Secretary Hank Paulson's Bank of America Extortion Scheme (Hustle) Finally Laid to Rest

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

Do the Hustle? Nope
The government’s Hustle case against Bank of America Corp. is finally dead. The case, in which the government accused the bank’s Countrywide Financial Corp. unit of churning out shoddy mortgage securities in the run-up to the financial crisis, already was thrown out by a U.S. appeals court in May. The U.S. attorney’s office in Manhattan, which had first brought the case in 2012, then asked the appeals court to reconsider its decision, a request that was denied.

Jensen Comment

A better word for "Hustle" is Treasury Department "Extortion." When the economy collapsed in 2007 due to poisoned mortgages BofA had no poisoned mortgages. Then Treasury Secretary Hank Paulson came calling like an extortionist according to former BofS CEO Ken Lewis. Paulson gave BofA no choice but to buy Countrywide Financial with its millions of poisoned mortgages. The secret intent was to give Countrywide deeper pockets so that the Federal Government could turn around a sue BofA billions for all the financial crimes of Countrywide Financial.

There was never any doubt about the high crimes of Countrywide Financial on the main streets of cities and towns across the USA. Countrywide issued millions of mortgages to borrowers having no hope of meeting their mortgage obligations.

It makes me feel good that Paulson finally got his just dessert. I only wish he would be sued. As the former CEO of Goldman Sachs he bailed out Goldman with milk and honey and pissed on BofA. Now he's retired on his millions from Goldman and seemingly can't be touched for his extortion crimes.

Paulson Also Forced Merrill Lynch onto Bank of America
Merrill Lynch had a friend in Hank Paulson, but he was no friend to Bank of America shareholders
The ex-US Treasury Secretary has admitted telling the Bank of America boss he might lose his job if he walked away from a merger from Merrill Lynch. The former US Treasury Secretary says the merger was necessary Hank Paulson warned the bank's chief executive Kenneth Lewis that the Federal Reserve could oust him and the board if the rescue did not proceed. But Mr. Paulson insisted that remarks he made were "appropriate." Bank of America bought Merrill during the height of the financial crisis and suffered severe losses.
"Paulson admits bank merger threat," BBC News, July 15, 2009 ---

Tesla's Really Unprofessional Non-GAAP Metrics

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

Not every motor runs
Tesla Motors Inc. has come under fire from the SEC for using prohibited accounting metrics and sharing that information with investors, according to regulatory correspondence. The SEC said Tesla in its August earnings release used “individually tailored” measurements when the electric-vehicle maker added back certain costs to revenue calculated under generally accepted accounting principles. While the SEC allows the use of some non-GAAP metrics, certain figures that adjust revenue are prohibited. The exchange between the SEC and Tesla includes four letters uploaded by the regulator from mid-September to mid-October, Tatyana Shumsky reports.


November 23. 2016 Message from Tom Selling

The CtW Investment Group has filed an SEC complaint against T-Mobile US for not disclosing questionable changes to its accounting that boosted net income by $122 million over four quarters and for likely violations of the SEC’s rules regulating non-GAAP reporting. You can see the complaint here:


The complaint also asks the SEC to look into T-Mobile’s parent company Deutsche Telekom for failing to correct the material lack of disclosure to accounting estimates. The Investment Group raised these issues with DT earlier in the year


Boeing's Illegal Tax Incentive from the State of Washington

From the CFO Journal's Morning Ledger on November 28, 2016

Boeing faces WTO sanctions. The World Trade Organization as early as Monday is expected to rule that Boeing Co. has been granted illegal state subsidies, according to people familiar with the finding. The judgment involves tax incentives Boeing will receive from Washington state to build its new 777X widebody plane, the latest round in a long-running dispute between the U.S. and the European Union over support for Boeing and Airbus Group SE. Boeing said the value of the 777X tax incentive is $50 million a year.

The Lagging Home Building Market

From the CFO Journal's Morning Ledger on November 28, 2016

Home is where the wallet is
The Wall Street Journal reports. U.S. home prices have climbed back above the record reached more than a decade ago, bringing to a close the worst period for the housing market since the Great Depression and stoking optimism for a more sustainable expansion. The average home price for September was 0.1% above the July 2006 peak, according to the S&P CoreLogic Case-Shiller U.S. National Home Price index released Tuesday. Adjusted for inflation, the index still is about 16% below the 2006 high.

It's the Worst for Wurst (and imported cars and other goods from around the world)

From the CFO Journal's Morning Ledger on November 28, 2016

For years, Germans have worn their title with pride. From 2003 to 2008, the world’s fourth-largest economy was dubbed “Exportweltmeister,” German for world export champion, a description of the country’s massive current-account surplus. For 2016, Germany is forecast to regain the title from China, to which it lost it in 2015.

The outlook, however, is less promising, Natascha Divac and Sarah Sloat report. Donald Trump’s victory in the U.S. presidential election, after a campaign attacking free trade, has German companies scrambling to tally the impact. Germany shipped $125 billion in goods to the U.S. last year, 2.5 times what it imported from the U.S. The U.S. is Germany’s largest trading partner, accounting for almost 10% of all German exports. “If Trump can enact the trade limits he has announced, the damage would be substantial,” said Clemens Fuest, president of Germany’s Ifo Institute for Economic Research. He estimates 1.5 million German jobs depend on exports to the U.S.

Jensen Comment

We expect prices will be higher for some German food items we buy through Amazon. But it's not clear how much our next Subaru will increase in price since it's assembled in Indiana. Many of the components, however, come from Japan.

I expect those Midwestern farmers who voted for Trump will be a little unhappy over the decline in farm exports, especially those Asian exports.

I'm vote no on protectionism and tariffs.

Valuation Experts Will Be Held to a New Standard ---

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

While accounting professionals show their stuff by qualifying as certified public accountants, valuation experts lack a similar widely recognized credential, Vipal Monga reports. As a result, they often apply different standards in appraising the assets on corporate balance sheets, and they don’t always spell out the assumptions they use in making their judgments. Now, finance groups are trying to address that issue. They want to bring more consistency to the profession and reduce the number of questions auditors raise about the valuations.

Accounting and appraisal groups are developing a new certification program that would require 30 hours of work, depending on experience, and could cost more than $1,000, according to the AICPA. The accounting trade group is collaborating with the American Society of Appraisers and the Royal Institution of Chartered Surveyors to work out specifics of the program, which could be announced by the end of the year. The program would set standards for how valuation experts should document their analyses and push a company’s management to defend its own judgments. Better documentation would make auditors more comfortable with estimates. But it also comes as a new president promises big changes to accounting and disclosure laws.


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

Fake vs. original Inc. this week filed lawsuits targeting sellers allegedly listing counterfeit goods on its website, publicly cracking down on an issue that has caused increasing friction. The two lawsuits, Amazon’s first legal challenge against its third-party sellers for bogus products, pertain to fake versions of the Forearm Forklift, a strap system that allows users to lift heavy items, and TRX Suspension Trainer workout bands and products.

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

SEC criticizes GE over ‘non-GAAP
The Securities and Exchange Commission has criticized General Electric Co.’s use of tailored, “non-GAAP” financial measures in recent months but has completed a review of the company’s filings without taking any further action. In correspondence between the SEC and GE from June through September, the agency contended that the company’s non-GAAP disclosures could be unclear or confusing to investors and that its metrics may have excluded some costs they shouldn’t have.

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

Pensions can’t handle low interest rates
Central bankers lowered interest rates to near zero or below to try to revive their gasping economies. In the process, though, they have put in jeopardy the pensions of more than 100 million government workers and retirees around the globe.

From the CFO Journal's Morning Ledger on November 3, 2016

New York Times sees earnings drop
New York Times Co.
said its third-quarter earnings fell sharply as print advertising dropped 19%, the latest publisher to signal that spending on newspaper ads is drying up even further. Digital advertising sales, meanwhile, grew 21%, mostly on growth in its mobile platform.

Don't worry about sustainability of the NYT (which was at one time in doubt). A Mexican billionaire will sustain the NYT.

One of the richest men in the world, a Mexican billionaire, is seeking financial control of The New York Times.
As reported by the NYT in 2015 (note the stock buyback program of the NYT that aids in the process)

From the CFO Journal's Morning Ledger on November 3, 2016

Remember when banks controlled the U.S. mortgage market? It seems like yesterday. But banks no longer reign, and accounted for less than half of the mortgage dollars extended to borrowers during the third quarter, AnnaMaria Adriotis writes. Instead, non-bank lenders are more willing to make riskier loans that banks now shun. Time will tell the wisdom of the new paradigm.

Independent mortgage lenders have come close to half of the market before. But they haven’t topped it in recent history, even in the run-up to the housing bust, making this a notable moment for the most important consumer-credit market. The shift reflects banks’ aversion to risk, and they remain fearful of legal and regulatory threats that have cost them tens of billions of dollars in mortgage-related fines and settlements in recent years. Many of the loans these lenders are originating are effectively guaranteed by the U.S. government.

Internal Auditors Pressured to Violate Ethics and Professionalism

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

Be your best selves, bookkeepers
Internal auditors say management is often asking them to leave out the bad news, Tatyana Shumsky reports. Nearly one in four internal auditors surveyed globally by the Internal Audit Foundation said they’ve been pressured to suppress or change their findings. The main motivation is censorship.

Bob Jensen's threads on auditor professionalism and independence ---

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

The SEC? Hasn’t been here
The Securities and Exchange Commission has failed to examine thousands of money managers it oversees, despite adding scores of examiners and doubling spending over the last 13 years. More than one-third of the approximately 12,200 mutual-fund companies, wealth managers and other investment advisers that come under the agency’s sole purview have never had an on-site check for signs of fraud or misconduct.

Jensen Comment
As Andersen relied more and more on analytical review in place of costly detail checking in audits their clients reported decreasing onsite presence of the Andersen's auditors. This is a pet peeve of the PCAOB when finding audit deficiencies.

Harvard Business Review:  Are CEOs Overhyped and Overpaid? ---

Jensen Comment
I think the answer is yes on both counts. Of course CEOs often matter to the success of the firm, but more often than not their compensation is outrageous. Even when linked to performance like stock prices their role is only part of the reason for stock price changes.

Bob Jensen's threads on the outrageous compensation of corporate executives are at
I'm especially upset about golden parachutes that outrageously reward failure.

Contrary to what is implied by Harry Markopolos and Francine McKenna, we will never know what would've happened if the Madoff Ponzi fund was submitted to an audit by a Big Four firm

Francine:  Auditor PwC said to be under investigation (by SEC) for failure to detect fraud in biotech fund embezzlement case ---

Jensen Comment
It's somewhat common for auditors to fail to detect fraud. Often the defense is that the client misled the auditor and well as the public.

This investigation made me recall the somewhat infamous Koss Case.

Grant Thornton Coughs Up $8.5 Million for Not Detecting Fraud
"Koss settles claims against former auditor Grant Thornton," by Gary Spivak, Milwaukee Sentinel Journal, July 5, 2013 ---

Koss Corp. collected $8.5 million from Grant Thornton, the accounting firm that audited Koss' books during a portion of the time that Sujata "Sue" Sachdeva was stealing millions from the company.

The payment made Wednesday settles a lawsuit filed in Cook County, Ill., in which Koss charged Grant Thornton with negligence for not discovering Sachdeva's thievery. Sachdeva's scheme ran for about 12 years and cost Koss, a maker of headphones, about $34 million. Her embezzlement, which financed an extravagant lifestyle that included trips and shopping sprees, intensified in the final years of the scheme.

Sachdeva, who had been the company's vice president of finance, is serving an 11-year federal prison sentence and is expected to be released in August 2020, according to the Federal Bureau of Prisons.

"I don't think it is possible to look at the size of the settlement and conclude that Grant Thornton didn't see some risk if this case came to trial," said Jeremy Levinson, a Milwaukee attorney not involved in the case. "Every story that gets written on this case, including this one, is bad for Grant Thornton."

Grant Thornton charged Koss nearly $700,000 for work it performed from 2004 until it was fired shortly after Sachdeva was arrested in December 2009, according to records filed with the U.S. Securities and Exchange Commission. Baker Tilly, the auditing firm that replaced Grant Thornton, collected $570,679 for its first year of work — a time when the FBI, auditors and company officials scoured Koss' books to determine the level of damages she caused.

Tracy Coenen, a Milwaukee forensic accountant who criticized Koss management on her Fraud Files blog, said the company should shoulder the blame for not detecting Sachdeva's crimes earlier.

"Upper management was at least negligent in not properly overseeing what she was doing and for not having proper internal controls," Coenen said. Koss "management bears the bulk of the responsibility, if not all of it."

Continued in article

Grant Thornton said in a statement that it had met "all of our professional obligations and that our work complied with professional standards."
See below

"Koss embezzlement ran in spurts, lawsuit says $478,735 spent over three days in summer 2006" by Cary Spivak, Milwaukee Journal Sentinel, July 10, 2010 ---

Big Accounting Firms Can't Detect Fraid:  The whistleblower who exposed Bernie Madoff thinks the insurance industry is riddled with fraud ---

The Big Four accounting firms are so bad at catching fraud that they couldn’t even catch a cold, with incentives in the industry totally screwed up. That’s the view of the of the whistleblower who uncovered the $65 billion Madoff Ponzi scheme and he thinks fraud is endemic in the insurance industry as well. 

Harry Markopolos is the former derivatives professional turned independent financial forensic investigator who spent nine years trying to convince the SEC that Madoff needed to be examined, but it was only the onset of the financial crisis and the massive redemptions he faced that forced Madoff to turn himself in.

Since then he has been a vocal critic of the SEC, writing the 2010 book ‘No One Would Listen: A True Financial Thriller’. In a special interview with Real Vision TV, Markopolos now has the institutionalized shortcomings of the audit world in his sights and identified the insurance industry as the next big sector for major financial fraud to come to light. 

In fact, he intends to blow the lid on some major insurance frauds in 2017, which he hopes will lead to stronger regulation in the sector.

Madoff Showed How Easy it is to Fool the Big Four Auditors

The fact that Madoff feeder funds were getting clean audit opinions from the Big Four accountants, when Bernie was stealing every dime from day one, shows how easy it was for Madoff to fool the accountants, Markopolos said, adding that in the history of accounting it’s impossible to name even one multibillion fraud that the Big Four uncovered.

“Now, if I asked you, to name all the big, multibillion-dollar accounting frauds that the Big Four aided and abetted, we could be here all afternoon,” he said.

“The incentives are totally screwed up in the accounting industry. There is no way the company should be paying the audit fees. It should be the shareholders. It should be a fee. Every time you buy a share, a certain number of basis points should be allocated to audit fees. Because the audit fees are currently way too low. Management brags about how low they've gotten the audit fees

Click here to see a clip of the Harry Markopolos interview on Real Vision.

Jensen Comment
In fairness it should be pointed out that the Bernie Madoff fraudulent hedge fund was not audited by a qualified audit firm. Had the auditor been one of the large CPA firms that auditing firm may have had the deep pockets needed to pay off the investors that lost to Madoff's criminal Ponzi scheme.

We'll never know if a large CPA audit firm would've let this Ponzi scheme harm so many investors in such a big way and, if so, whether it would have had to pay off those investors.

What the above article points out is that some of the big investors (a few feeder funds) had Big Four auditors or advisors (e.g., PwC and Deloitte), some of whom had to pay off a small subset of investors in the Madoff Ponzi scheme. This is not the same thing as having the Ponzi scheme itself being audited by a Big Four firm. That would have been an entirely different ball of wax.

In terms of gross negligence the most guilty third party in the Madoff's Ponzi scheme was the SEC that possibly was criminally negligent is stopping the fraud.

"S.E.C. Hid Its Lawyer’s Madoff Ties," by Louise Story and Gretchen Morgenson, The New York Times, September 20, 2011 ---

After Bernard L. Madoff’s giant Ponzi scheme was revealed, the Securities and Exchange Commission went to great lengths to make sure that none of its employees working on the case posed a conflict of interest, barring anyone who had accepted gifts or attended a Madoff wedding.

But as a new report made clear on Tuesday, one top official received a pass: David M. Becker, the S.E.C.’s general counsel, who went on to recommend how the scheme’s victims would be compensated, despite his family’s $2 million inheritance from a Madoff account.

Mr. Becker’s actions were referred by H. David Kotz, the inspector general of the S.E.C., to the Justice Department, on the advice of the Office of Government Ethics, which oversees the ethics of the executive branch of government.

The report by Mr. Kotz provides fresh details about the weakness of the agency’s ethics office and reveals that none of its commissioners, except for Mary L. Schapiro, its chairwoman, had been advised of Mr. Becker’s conflict.

It says Ms. Schapiro agreed with a decision to keep Mr. Becker from testifying before Congress, where he would have disclosed his financial interest in the Madoff account.

Mr. Kotz’s inquiry also produced evidence that at least one S.E.C. employee had been barred from working on Madoff-related matters because of a conflict, suggesting there was a double standard at the agency.

The findings are another black eye for an agency that has tried to be more aggressive in recent years after failing to uncover the Madoff fraud. More recently, the S.E.C. has been criticized for routine destruction of some enforcement documents that might have been useful in later investigations.

The agency has also been criticized for its slow pace in writing new financial regulations mandated by the Dodd-Frank law and for the dearth of cases brought against individuals at major financial companies that were involved in the mortgage crisis.

Federal conflict of interest law requires government employees to be disqualified from participating in a matter “if it would have a direct and predictable effect on the employee’s own financial interests.”

Nevertheless, Mr. Becker “participated personally and substantially in particular matters in which he had a personal financial interest,” Mr. Kotz wrote in his report.

Though the referral was made to the Justice Department’s criminal division, it could be handled as a civil matter. A Justice Department spokeswoman declined to comment, other than confirming the referral.

Mr. Becker’s tie to the Madoff situation came from a Madoff account held by his mother, who died in 2004. Her three sons inherited the account and closed it shortly thereafter, with a $1.5 million profit, based on Mr. Madoff’s fraud.

Mr. Madoff carried out an enormous Ponzi scheme for more than a decade, costing investors more than $20 billion in actual losses. He is now serving a 150-year sentence in a prison in North Carolina.

Mr. Becker’s lawyer, William R. Baker III, said in a statement that the report confirmed that Mr. Becker had notified seven senior S.E.C. officials about his late mother’s Madoff account, including Ms. Schapiro and the agency’s designated ethics officer.

“The inspector general concluded that ‘none of these individuals recognized a conflict or took any action to suggest that Becker consider recusing himself from the Madoff liquidation,’ “ wrote Mr. Baker, a lawyer at Latham & Watkins who worked at the S.E.C. for 15 years, working alongside Mr. Becker at times. He said the report contained “a number of critical factual and legal errors,” but declined to enumerate them. Mr. Becker left the S.E.C. last February.

Continued in article

"The SEC's Ethics:  Washington's double standard on conflicts of interest," The Wall Street Journal, September 23, 2011 ---

Who says partisanship rules Washington? House Republicans showed remarkable forbearance yesterday toward SEC Chairman Mary Schapiro over an ethics flap involving the Bernie Madoff case and conflict-of-interest laws.

"What is clear about this situation is that you did make a mistake. You admitted such and you said had you known then what you now know, you would have acted differently," Rep. Patrick McHenry (R., N.C.) told Ms. Schapiro at a public hearing. We doubt Ms. Schapiro and her SEC cops would have been so forgiving toward someone in private life who made the same "mistake."

We're referring to this week's remarkable report from SEC Inspector General David Kotz disclosing how the SEC's former top lawyer, David Becker, directly handled matters relating to the Madoff fraud case despite his mother's $2 million investment with the firm, to which he and his brothers were heirs.

Mr. Becker's involvement potentially influenced whether investors who got money out of the Madoff operation before it was exposed could be shielded from so-called "clawback" lawsuits brought by those liquidating the Madoff estate. Mr. Kotz says Mr. Becker "participated personally and substantially in particular matters in which he had a personal financial interest" through his inheritance of his mother's estate.

The conflict here would seem to be obvious, and Mr. Becker did at least disclose it—to Ms. Schapiro shortly after arriving at the SEC in February 2009. "I did precisely what I was supposed to do," he told Congress yesterday. "I identified a matter that required legal advice from the SEC's Ethics Office. I sought that advice, received it and followed it."

But that still leaves the role played by Ms. Schapiro, who never told her fellow commissioners about the conflict, going so far as to let them vote on how to divide up the Madoff assets, a change from which Mr. Becker stood to benefit. Only in February, after Mr. Becker was named in a clawback lawsuit by Madoff trustee Irving Picard, did the commissioners learn of the conflicts by reading the press.

Ms. Schapiro declined our request for an explanation this week, but she has said she would have had Mr. Becker recused if she had "understood that he had any financial interest in how this was resolved." But then why did she think he had informed her of his family's Madoff connection? She also said she would have wanted to disclose the Madoff connection if Mr. Becker had testified on the issue "so that we were completely forthcoming with Congress."

Hmmm. The same IG report also highlights that the SEC decided not to have Mr. Becker testify to Congress on Madoff issues lest his conflict become public. Mr. Becker told the IG under oath that after he mentioned the need to disclose the inheritance up front if he did go before Congress, the SEC's Office of Intergovernmental and Legislative Affairs Director Eric Spitler wrote that "now that I think about it, I think it would be better if someone else testified. My concern is not that there's anything wrong with it," but "when you're in a political environment . . . it would be a distraction."

Mr. Spitler has said that Ms. Schapiro agreed that Mr. Becker shouldn't appear before Congress, though she says she does not recall how the matter was settled.

The only word for all of this is astonishing. We don't think all conflicts-of-interest are disqualifying, and they can be managed to avoid trouble. But this one isn't a close call. Imagine how the SEC's enforcement cops would handle a private company that let a general counsel play such a role. For such a conflict to be passed off as inconsequential, and then covered up, by the agency that is supposed to investigate bad financial actors is more than a mistake. It's faulty judgment that suggests an ethical blind spot.

Continued in article


Contrary to what is implied by Harry Markopolos and Francine McKenna, we will never know what would've happened if the Madoff Ponzi fund was submitted to an audit by a Big Four firm


Bob Jensen's Fraud Updates are at

Bob Jensen's threads on lawsuits against large auditing firms are at

Déjà Vu All Over Again
Yogi Berra

What do audit clients Facebook and Enron have in common?
Were Andersen and Ernst and Young auditors going to raise a fuss over their firms' own consulting advice?

IRS Demands $5 Billion From Facebook For Tax Strategy Devised By EY, Approved By Facebook's Auditor (EY) ---

Over the past four years, Facebook paid EY almost $23 million for auditing, plus $21 million for tax planning and other non-audit work. It’s not an uncommon arrangement: More than 100 U.S. companies have hired their auditors to also advise them on tax planning, including the tax implications of mergers, moving intellectual property to offshore subsidiaries, or corporate inversions (deals that move a company’s headquarters overseas). According to a Bloomberg analysis of data from U.S. Securities and Exchange Commission filings compiled by Audit Analytics, these services for audit clients generated more than $613 million in billings for the Big Four accounting firms from 2012 through 2015. About 10 percent of the fees that accounting firms make from audit clients are for non-audit work.

Here's the Déjà Vu part
It seems like after the Andersen implosion firms and SOX were supposed to divest themselves on earning so much consulting revenues on the side from audit clients. Yeah right!

Enron's auditor firm, Arthur Andersen, was accused of applying reckless standards in its audits because of a conflict of interest over the significant consulting fees generated by Enron. During 2000, Arthur Andersen earned $25 million in audit fees and $27 million in consulting fees (this amount accounted for roughly 27% of the audit fees of public clients for Arthur Andersen's Houston office). The auditor's methods were questioned as either being completed solely to receive its annual fees or for its lack of expertise in properly reviewing Enron's revenue recognition, special entities, derivatives, and other accounting practices.[

Bob Jensen's threads on audit firm professionalism are at

From MAAW's Blog Compiled by Jim Martin

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The CPA Journal 2016

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Contemporary Accounting Research 1984-1992 and 2010-2016 ---

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From MAAW's Blog Compiled by Jim Martin

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Updates on the journal Advances in Management Accounting
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The IRS Scandal, Day 1275:
The Impact Of The IRS Scandal On The Investigation Of The Clinton Foundation

. . .

This IRS review has not generated similar waves as Department of Justice probes into the foundation, and has largely been forgotten in the campaign's melee. It's just not as sexy as private email servers, FBI infighting and charges of political pressure applied to law enforcement.

But even though this examination is less scrutinized and is harder to conceptualize, it's impact may be important. The report won't likely be done in time to influence the presidential campaign — even though the review started more than four months ago — but it could certainly influence the first term of a Hillary Clinton presidency.

As with anything tax related, the status of the foundation may be determined using rules few understand. And that makes understanding the work at 1100 Commerce St. in Dallas that much more important. 

In Washington, D.C., many things start with words printed on congressional letterhead. Earlier this year, 64 GOP members of Congress asked the IRS to investigate why the foundation can keep its nonprofit status. The letter includes “media reports” claiming pay-to-play relationships between former President Bill Clinton, who received large speaking fees, and decisions made by Hillary Clinton to approve choices that benefited foundation donors. The sources of these reports range from The New York Times to hit-piece investigative books.

In July, the IRS sent letters back to the Congress informing members the review had begun. The letter also noted that the Tax Exempt and Government Entities Division (TE/GE) office in Dallas would be conducting the review.

IRS spokespeople in Dallas and Washington won’t say why the review is being conducted in Dallas. Spokespeople claim even this information would violate rules — Code 6103, staff make sure to cite — that stop them from discussing ongoing examinations. IRS officials declined to provide details about the Dallas office, including its size, or comment on the TE/GE work in general. ...

The TE/GE focuses on nonprofit groups, which is specialty work that requires experience. “They are pretty much career people,” says Ben Stoltz, an attorney with Perliski Law Group, a Dallas boutique firm with half of its business representing nonprofit groups. “It’s a different side of the IRS than people are used to seeing. ... They're generally very cooperative, but they're also the watchdogs."

The mix of awareness and enforcement dovetails with cases that get publicity. "They have a limited budget, which is a problem, so they have to pick their targets wisely," Stoltz says. "Because this is a high profile case, they can make an example and show that no one is above the law.” ...

Instead of money changing hands, the IRS is looking to see if the Clintons traded money for preferential treatment. The IRS rules lay out what qualifies as inurement:

Any transaction between an organization and a private individual in which the individual appears to receive a disproportionate share of the benefits of the exchange relative to the charity served presents an inurement issue. Such transactions may include assignments of income, compensation arrangements, sales or exchanges of property, commissions, rental arrangements, gifts with retained interests, and contracts to provide goods or services to the organization.

Given this language, citing “gifts” and “quid pro quo benefits” in emails is a pretty bad move for anyone involved in a nonprofit group. Another bad move: When senior Clinton advisers like Doug Bland call the intersection of the foundation fundraising and the former president’s personal activities “Bill Clinton Inc.” ...

This all leaves the IRS investigation in Dallas as a sideshow to the main Clinton Foundation events playing out in the offices of other federal agencies. However, if other investigations expose pay-to-play schemes, the IRS could take that into consideration, strip the foundation of its nonprofit status and seek payment of back taxes.

Continued in article