New Bookmarks
Year 2017 Quarter 2:  Apr 1 - June 30 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

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

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

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

 

Choose a date below for additions to New Bookmarks

2017
June

May

April

 

 

June 2017

Bob Jensen's New Additions to Bookmarks

June 2017

Bob Jensen at Trinity University 


USA Debt Clock --- http://www.usdebtclock.org/ ubl

How Your Federal Tax Dollars are Spent ---
http://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b7c8ee6392970b-popup

To Whom Does the USA Federal Government Owe Money (the booked obligation of $20+ trillion) ---
http://finance.townhall.com/columnists/politicalcalculations/2016/05/25/spring-2016-to-whom-does-the-us-government-owe-money-n2168161?utm_source=thdaily&utm_medium=email&utm_campaign=nl
The US Debt Clock in Real Time --- http://www.usdebtclock.org/ 
Remember the Jane Fonda Movie called "Rollover" --- https://en.wikipedia.org/wiki/Rollover_(film)
One worry is that nations holding trillions of dollars invested in USA debt are dependent upon sales of oil and gas to sustain those investments.

To Whom Does the USA Federal Government Owe Money (the unbooked obligation of $100 trillion and unknown more in contracted entitlements) ---
http://money.cnn.com/2013/01/15/news/economy/entitlement-benefits/
The biggest worry of the entitlements obligations is enormous obligation for the future under the Medicare and Medicaid programs that are now deemed totally unsustainable ---
http://faculty.trinity.edu/rjensen/Entitlements.htm

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

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

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

 

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

 

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

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

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

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

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

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

Possibly the Number 1 Resource for CPA Exam Candidates
AICPA:  Uniform CPA Exam Blueprints ---
http://www.aicpa.org/BecomeACPA/CPAExam/ExaminationContent/DownloadableDocuments/cpa-exam-blueprints-effective-20170401.pdf?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Apr2017

CPA exam will increase focus on higher-order skills
"What Higher Order Skills Will be Tested on the Next CPA Examination," by Ken Tysiac, Journal of Accountancy, April 4, 2016 ---

http://www.journalofaccountancy.com/news/2016/apr/new-cpa-exam-201614166.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Apr2016

Bob Jensen's CPA Exam Helpers ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#010303CPAExam




How Well Do Anomalies in Finance and Accounting Replicate ---
https://replicationnetwork.com/2017/05/19/how-well-do-anomalies-in-finance-and-accounting-replicate/

“The anomalies literature is infested with widespread p-hacking. We replicate the entire anomalies literature in finance and accounting by compiling a largest-to-date data library that contains 447 anomaly variables. With microcaps alleviated via New York Stock Exchange breakpoints and value-weighted returns, 286 anomalies (64%) including 95 out of 102 liquidity variables (93%) are insignificant at the conventional 5% level. Imposing the cutoff t-value of three raises the number of insignificance to 380 (85%). Even for the 161 significant anomalies, their magnitudes are often much lower than originally reported. Out of the 161, the q-factor model leaves 115 alphas insignificant (150 with t < 3). In all, capital markets are more efficient than previously recognized.”

How Accountics Scientists Should Change:  
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

Bob Jensen's threads on the very sorry state of replicated research in accountancy ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm
Validity of research outcomes is not a priority test of academic accountants seeking mostly to add hit lines to resumes. Top journal editors (think The Accounting Review) don't even want to publish readers comments on articles. If TAR referees accept an article for publication it becomes truth ipso facto.


100 Years of CPA Exam as Licensure Requirement ---
http://blog.aicpa.org/2017/06/100-years-of-cpa-exam-as-licensure-requirement.html#sthash.ZixV3eFy.dpbs

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


Elsevier and the 5 Diseases of Academic Research ---
https://www.elsevier.com/connect/5-diseases-ailing-research-and-how-to-cure-them

This article summarizes the “diseases” ailing scientific research as identified in the articleOn doing better science: From thrill of discovery to policy implications by John Antonakis, recently published in The Leadership Quarterly.  
Various Elsevier associates then discuss how they see these problems being addressed.  Given the huge role that Elsevier plays in academic publishing, their view of the problems of scientific research/publishing, and their ideas regarding potential solutions, should be of interest.

The Accounting Historians Journal is now a fee-based AAA Publication like the other section journals of the American Accounting Association ---
http://aaajournals.org/loi/aahj

Here's the Table of Contents for the December 2016 edition ---
http://aaajournals.org/toc/aahj/43/2

Articles

1

EVIDENCE OF WEALTH MANAGEMENT AND FINANCIAL PLANNING BY WOMEN IN 2nd CENTURY CE: CONTRACTS FROM DEAD SEA CAVES

William F. Bowlin and Stephen Reed
Abstract | PDF (259 KB) 

No Access

 

39

POST-CIVIL WAR ACCOUNTING PRACTICES IN NATCHEZ, MISSISSIPPI

Ernest A. Capozzoli and Dan G. Teed
Abstract | PDF (559 KB) 

No Access

 

59

THE ROLE OF NON-GOVERNMENTAL ORGANIZATIONS (NGOs) AS INTERMEDIARIES OF THE EUROPEAN UNION DECISION TO ADOPT INTERNATIONAL ACCOUNTING STANDARDS: 1973–2002

Devrimi Kaya, Robert J. Kirsch and Klaus Henselmann
Abstract | PDF (377 KB) 

No Access

 

129

THE INFLUENCE OF PRICE WATERHOUSE & CO. ON THE CAP, THE APB, AND IN THE EARLY YEARS ON THE FASB

Stephen A. Zeff
Abstract | PDF (95 KB) 

No Access

 

141

Salmagundi


Citation | PDF (45 KB) 

No Access

 

142

An Annotated Bibliography of Published Writings on the U.S. Accounting Principles Board, 1959 – 1973

Stephen A. Zeff
Citation | PDF (75 KB) 

No Access

 

150

Reminiscences of Pescara - 14th World Congress of Accounting Historians - June, 2016

Gloria Vollmers
Citation | PDF (51 KB) 

No Access

 

bmi

THE ACADEMY OF ACCOUNTING HISTORIANS APPLICATION FOR 2017 MEMBERSHIP

 


Consequences of Low-Quality Audits for Engagement Partners ---
SSRN, June 9, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2983900

Authors

Daniel Aobdia---  Northwestern University - Kellogg School of Management

Reining Petacchi Georgetown University - Department of Accounting and Business Law

Abstract

We use unique datasets to investigate the consequences of low quality audits for engagement partners in the US. We find that whether clients change their engagement partners associated with low quality audits depends critically on the visibility of the audit incidents. Highly visible audit incidents such as restatements result in partner changes for both restating and non-restating clients. By stark contrast, audit incidents that are not publicly disclosed, such as engagement deficiencies identified by the Public Company Accounting Oversight Board (PCAOB) inspection program, do not lead to any partner turnover, even for the inspected clients. Additional analyses suggest that due to the opaque information environment in the auditing labor market, clients rely on self-disclosure from the audit firms to identify audit incidents associated with their engagement partners. Our results speak to the importance of disclosing the identity of the engagement partner in the audit report and the identity of the engagement being inspected by the PCAOB.


Auditor Dismissals: Opaque Disclosures and the Light of Timing
SSRN, June 9, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2983218

Authors

Jeffrey J. Burks --- University of Notre Dame

Jennifer Sustersic Stevens --- Ohio University

Abstract

Motivated by the ambiguity of auditor dismissals, this study informs about an alternative signal – the timing of the dismissal – for inferring the implications of dismissals. When dividing the reporting year into five dismissal periods, we find largely monotonic increases in the probability of future restatements, material weaknesses, and delistings across the five periods. Firms that dismiss auditors after the second fiscal quarter have markedly higher rates of future restatements, material weaknesses, and delistings compared to firms that dismiss auditors shortly after filing the prior year’s 10-K. Incremental to other predictors, the period of dismissal has predictive power for restatements and material weaknesses but not for delistings. In contrast, mandatory disclosures about the circumstances of dismissals have little incremental predictive power. Stock price drifts following the mandatory disclosures indicate that the market tends to underreact to them.


Linked Financial Statement Presentation
SSRN, June 9, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2983195

Authors

Lisa Koonce --- University of Texas
Zheng Leitter --- University of Texas at Austin - Department of Accounting
Brian J. White --- University of Texas at Austin - Department of Accounting

Abstract

Certain financial statement items, such as those in hedging relationships, are closely related. Standard setters struggle to define the appropriate presentation format for these related items. Linked presentation — a format that presents financial statement items adjacent to one another at their disaggregated amounts — is often discussed as a possible format for related items, as an alternative to separate or net presentation. In this study, we experimentally test investors’ reactions to a fair value hedge in which the hedged asset and the hedging instrument are presented in linked, separate or net formats. We find that investors’ risk assessments capture differences in hedge effectiveness (low versus high) only under linked presentation; investors do not discriminate between low and high hedge effectiveness under either separate or net presentation. Thus, our results suggest a benefit of linked presentation, in that it helps investors to distinguish between firms facing different economic risks. These results should be informative to standard setters interested in improving reporting for related financial statement items.


Audit Firms Face Downward-Sloping Demand Curves and the Audit Market Is Far from Perfectly Competitive
SSRN, June 8, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2981965

Authors

Joseph J. Gerakos --- Tuck School of Business at Dartmouth College

Chad Syverson --- University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Abstract

We explore how demand estimation can be applied in auditing research and review insights into the market that it has already provided. We set the foundation for the discussion by analyzing difficulties in the interpretation of the audit fee regression, a commonly applied tool in the auditing literature. We then discuss the mechanics of the discrete choice demand estimation approach used by Gerakos and Syverson (2015) and Guo, Koch, and Zhu (2017). We go on to explain how the findings from this work imply that audit firms have market power. That is, the market is not perfectly competitive, and indeed is far from it.


Paul Williams Will Like This One
Few are Called, Fewer are Chosen: Elite Reproduction in U.S. Academic Accounting

SSRN, June 7, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2982143

Authors

Timothy J. Fogarty --- Case Western Reserve University - Department of Accountancy

Aleksandra B. Zimmerman --- Northern Illinois University - Department of Accountancy

Abstract

Previous work on academic accounting in the U.S. has documented impressive concentrations in publications and labor market success by faculty with credentials from a relatively small number of universities. Utilizing the theoretical contributions of Bourdieu, this paper argues that elite institutions constitute a unique positioning that favors a particular type of candidate. Through systematic personnel movements, elites within the discipline are able to reproduce. A study of faculty cultural capital acquired from previous matriculation at elite universities offers empirical support for these ideas. The results suggest that previous studies of concentration are a foredrawn conclusion of a systematic selection process


Financial Regulation for a Better Society
SSRN, June 5, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2980929

Author

Shyam Sunder --- Yale University - School of Management; Yale University - Cowles Foundation

Abstract

The benefits of top down financial reporting regulation over the past eight decades are less obvious than its failures to achieve the purported goals. Perhaps it is time to give a chance to an alternative approach of regulatory competition.

Bob Jensen's threads on derivative financial instruments trading scandals and the need for greatly increased regulation of derivatives markets ---
http://faculty.trinity.edu/rjensen/FraudRottenPart2.htm#DerivativesFrauds 


Efficient Market Hypothesis (EMH) --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2980791

50 Years of Efficient Market Hypothesis (EMH): Benefits and Challenges to Accounting Research and Practice
SSRN, June 7, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2980791

Author

Adzor Nicholas Ibiamke ---- affiliation not provided to SSRN

Abstract

The purpose of this paper is to unravel the benefits and challenges that EMH has to accounting research and practice in the past fifty (50) years of its existence and its probable future influence. The paper is basically a review of literature pertaining to the implications of EMH basically to accounting profession. The review have identified areas benefited by accounting profession with the emergence of EMH to include the standard setting arena, clients advising, capital market research in accounting, level of disclosure in financial reports and for legal evidence to establish claims for damages. On the other hand the review found that the emergence of EMH has change the accounting orientation to forward looking information which is less reliable and fraud tempting.

Jensen Comment
Decades of capital markets research published in top accounting research journals are now called into question if they relied on the CAPM under the EMH ---
https://en.wikipedia.org/wiki/Capital_asset_pricing_model#Problems_of_CAPM


Taxing Capital Appreciation
SSRN, June 4, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2979583

Author

Ari D. Glogower --- Ohio State University (OSU) - Michael E. Moritz College of Law

Abstract

The realization rule — which defers tax on asset gains and losses until a disposition — is a well-known flaw in the income tax. Tax scholars have long recognized that the rule causes inequity, inefficiency, complexity, and revenue loss; allows wealthy taxpayers to avoid the income tax; and distorts the taxation of corporations and capital gains. The realization rule was a problem in the past, and a greater problem now, as financial innovations increase the opportunities for abuse and the need for reform. Prior proposals have generally favored replacing the realization rule with an accrual method accounting for the timing of gains and losses, through mark-to-market taxation, which taxes observed changes in asset value, formulaic taxation, which taxes deemed changes in asset value, or a combination thereof in a mixed regime. While these proposals have attracted much academic interest, they have not gained political traction, due to concerns of administrative feasibility, taxpayer liquidity, behavioral distortions, and public acceptance. This Article first introduces a framework for evaluating realization rule reform proposals, based on the rule’s harms and justifications, and demonstrates that none of the prior proposals adequately satisfies the framework’s criteria. It then introduces a new approach to taxing capital appreciation, “Deferred Tax Accounting,” which integrates accrual principles within the current realization system. Deferred Tax Accounting has two components, a flexible payment rule for traded or regularly valued assets, and a retrospective rule for nontraded assets that are not regularly valued. Deferred Tax Accounting allows taxpayer choice in timing tax payments, and — as under current law — never requires payment of tax prior to a realization event. Unlike prior proposals, Deferred Tax Accounting addresses all the key considerations for effective realization rule reform, and thereby eliminates the biggest obstacle to a more fair and consistently progressive income tax.


Valuation Implications of FAS 159 Reported Gains and Losses from Fair Value Accounting for Liabilities
SSRN, June 3, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2978730

Authors

Sung Gon Chung --- Wayne State University

Gerald J. Lobo University of Houston - C.T. Bauer College of Business

Kevin Ow Yong Singapore Management University - School of Accountancy

Abstract

This study examines the economic implications of fair value liability gains and losses arising from the adoption of Statement of Financial Accounting Standards No. 159 (hereafter, FAS 159). Consistent with the notion that gains and losses contain value-relevant information, we find a positive correspondence between a firm’s FAS 159 fair value liability gains and losses and current period stock returns. However, further analysis indicates that fair value gains and losses from liabilities have a negative association with future returns, suggesting that investors misprice this earnings component. This negative association is stronger for firms with low levels of institutional ownership. While the value-relevance tests provide some evidence that fair value changes from liabilities have information content, the negative association with future stock returns suggests that these gains are eventually not realizable or that the market has overreacted to the initial recognition of these gains. Overall, our study contributes evidence regarding the controversy over the recognition of fair value liability gains and losses by providing direct empirical evidence that such gains and losses are priced by the stock market but subsequently reversed within the next 12 months.


Enhancing the Quality of Reporting in Corporate Social Responsibility Guidance Documents: The Roles of ISO 26000, Global Reporting Initiative and CSR‐Sustainability Monitor
SSRN, June 3, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2979660

Authors

S. Prakash Sethi --- CUNY Baruch College

Janet Rovenpor---  Manhattan College

Mert Demir CUNY Baruch College

Abstract

The intent of this article is to review the phenomenal growth of Corporate Social Responsibility reports published by large corporations around the world. The reports provide companies with an opportunity to inform large segments of society about the impacts of their business operations on the environmental, socio‐political, and governmental (regulatory) aspects of a society. The mostly voluntary nature of these reports, however, places the burden on the corporations creating them to (a) provide an adequate amount of information, (b) cover all the major issues that are relevant to the company and industry, and (c) provide measures of assurance as to the accuracy of information. In this article, we compare and examine three institutional approaches that have played an important role toward improving the quality and consistency of these reports. The institutions involved are ISO 26000, Global Reporting Initiative (GRI), and Corporate Social Responsibility (CSR)‐Sustainability Monitor. We intend to show their different approaches to guiding CSR reporting, and assess their relative strengths and limitations.


Exploring Managers' Accrual-Related Forecast Bias
SSRN, June 2, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2977600

Authors

Sami Keskek University of Arkansas - Sam M. Walton College of Business

Linda A. Myers University of Tennessee, Haslam College of Business, Accounting and Information Management

Thomas C. Omer University of Nebraska at Lincoln - School of Accountancy

Abstract

In this study, we examine the effect of accrual-based earnings management on the association between managers’ earnings forecast errors and accruals, which we label “managers’ accrual-related forecast bias.” We build on extensive research which finds that managers engage in accrual-based earnings management to meet or beat earnings benchmarks and report smooth earnings series. We hypothesize that managers bias their subsequent-year forecasts in the direction of accruals management to increase market confidence in the managed earnings numbers. Consistent with our expectations, we find a positive association between managers’ earnings forecast errors and discretionary accruals, but no association between managers’ earnings forecast errors and nondiscretionary accruals. Furthermore, the association between managers’ earnings forecast errors and discretionary accruals is stronger when managers have limited ability to continue managing subsequent-year accruals to support the bias in their forecasts. We also find a substantial decline in managers’ accrual-related forecast bias following the enactment of the Sarbanes-Oxley Act of 2002 (SOX), which restricted managers’ use of accrual-based earnings management. More importantly, we find that the effect of forecasting difficulty on managers’ accrual-related forecast bias occurs only in the pre-SOX period. Overall, our results suggest that, contrary to claims in prior research, managers’ accrual-related forecast bias is not simply a product of forecasting difficulty related to accruals. Rather, at least in some cases, it appears to be intentional.


Accounting Research in Abacus, A&F, AAR, and AJM from 2008–2015: A Review and Research Agenda
SSRN. June 3, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2979623

Authors

Martina K. Linnenluecke --- University of Queensland - Business School
Jacqueline L. --- Birt University of Queensland - Business School
Xiaoyan Chen --- University of Queensland
Xin Liu  --- University of Queensland
Tom Smith --- University of Queensland; Financial Research Network (FIRN)

Abstract

This paper uses bibliographic mapping techniques to map the research conversation in four Pacific Basin accounting journals listed on the Social Sciences Citation Index (Abacus, Accounting and Finance, Australian Accounting Review, and the Australian Journal of Management). We identify the main research streams in these journals as Accounting Standards, Environmental Accounting, Earnings Management, Disclosure, Conservatism, Auditing, Impairment, Cost of Capital, and Corporate Governance. We critically review each research stream, identify emerging research trends, and suggest an agenda for future research on accounting in the Pacific Basin.


Opportunistic Financial Reporting around Municipal Bond Issues
SSRN, May 17, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2970265

Author

Amanda Beck, Georgetown University - Department of Accounting and Business Law

Abstract

Governments operate under numerous conflicting institutional and economic pressures. Understanding how officials exercise accounting discretion to respond to these pressures is essential for citizens, regulators, and researchers to interpret and monitor financial performance. I address three primary research questions: (1) Do governments employ opportunistic financial reporting (OFR) tactics to manipulate the accrual basis governmental financial statements? (2) Do governments use OFR to respond to credit market scrutiny? And, (3) Do governments behave differently with respect to credit market scrutiny and OFR in the face of deficits versus surpluses? I examine two methods of OFR in the governmental financial statements: the use of discretionary accruals in the full accrual financial statements, and the use of other financing sources and uses in the modified accrual, “fund” financial statements. Using a unique dataset of hand-collected financial data from California, I document empirically that municipal governments use OFR to approach breakeven income in both sets of financial statements, and that they focus particularly on avoiding deficits. Further, I find evidence that municipalities use discretionary accruals to a greater extent before issuing bonds, but use accounting gimmicks in the fund financial statements – which are easier to detect – to a lesser extent. This association also varies between deficit and surplus municipalities. The results highlight the multi-dimensional incentives related to monitoring by government stakeholders, and the reporting strategies employed by municipal officials as they weigh the expected costs and benefits of using accounting gimmicks to report favorable bottom lines.


An Analysis of Glass Ceiling Perceptions in the Accounting Profession
SSRN, May 12, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2966294

Authors

Jeffrey R. Cohen Boston College - Department of Accounting

Derek W. Dalton Clemson University

Lori Holder-Webb Western New England University - Department of Accounting and Finance J

effrey J. McMillan Clemson University - College of Business and Behavioral Science

Abstract

Access to a deep pool of talent is essential to the health of every professional accounting firm. The supply of that talent is contingent upon the available rewards for the exercise of that talent; however, the temporal separation between the rewards and the decision to enter the field means that not only the existence of the rewards, but the beliefs that potential entrants hold about the existence of those rewards, potentially drive the decisions to both enter and withdraw from the field. If potential entrants perceive that rewards will be less available to them than to others due to structural factors, they will be less likely to choose to enter the field and potentially more likely to exit the firm. Gender-based barriers to the receipt of the organizational reward of promotion constitute what is known as the “glass ceiling.” While advances have been made within the accounting profession to address the glass ceiling, the continued existence – and perceptions about the continued existence – of the issue exert adverse effects upon the available talent pool and may generate long-term problems for the profession. In this study, we provide an in-depth exploration of the beliefs about the glass ceiling among a large sample of female accounting professionals employed in both public accounting and private accounting. Our exploration yields the information that there are persistent beliefs in bias-driven effects (e.g., a bias against female promotions to the top level), structural effects (e.g., a lack of mentoring opportunities, networking opportunities, and high-profile job assignments), and cultural effects (e.g., a lack of social support from the male leaders within the organization) among these accounting professionals. Consistent with prior research, glass-ceiling perceptions are also influenced by demographic factors. In addition, we document a professional segmentation effect where by female accounting professionals in private accounting are more likely to report a glass ceiling within their firms than their counterparts who work in public accounting. Finally, we document a belief that making use of the arrangements intended to reduce adverse gender-based effects leads to an intensification of the glass ceiling. The findings are of interest to researchers who explore gender-related issues in the field of accounting, and to senior members of practice who are tasked with ensuring the integrity and quality of the talent pool and the equitable distribution of rewards to employees.

Bob Jensen's threads on the history of women in the accounting professio ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm#Women


Are Today's Young Accountants Different? An Intergenerational Comparison of Three Psychological Attributes
Accounting Horizons. June 2017, Vol. 31, No. 2, pp. 83-104
http://aaajournals.org/doi/full/10.2308/acch-51655?code=aaan-site
This is not a free article

 Authors

Timothy J. Fogarty
Alan Reinstein
Rebekah S. Heath

Abstract

Much has been written about the so-called “millennial generation.” Many commentators believe that Millennials possess values and preferences that render them qualitatively different from the cohorts that preceded them. These writers have suggested, often without benefit of empirical evidence, that such differences will consequentially affect social institutions such as the accounting profession. This paper compares the generation of millennial individuals who are currently entering accounting with previous generational groups, represented by Baby Boomers, who entered the profession in the 1980s, and older students and younger professionals (Generation X). The results suggest that few personality differences exist to support the premise that the millennial generation now entering the accounting profession is truly unique. For the most part, differences are limited to growth need strength, and do not appear in locus of control or need to achieve. Implications for practice management are drawn.


Posted by David Giles (Econometrics)
How to Publish in Academic Journals ---
http://marcfbellemare.com/wordpress/wp-content/uploads/2017/06/BellemareAAEAEarlyCareerWorkshop.pdf

Bob Jensen's
Gaming for Promotion and Tenure as an Accounting Professor ---
http://faculty.trinity.edu/rjensen/TheoryTenure.htm


From David Giles (Econometrics)

Unit Roots & Structural Breaks ---
http://davegiles.blogspot.com/2017/06/unit-roots-structural-breaks.html

The open-access journal, Econometrics (of which I'm happy to be an Editorial Board member), has recently published a special issue on the topic of "Unit Roots and Structural Breaks". 

 

This issue is guest-edited by Pierre Perron, and it includes eight really terrific papers. You can find the special issue here ---
http://www.mdpi.com/journal/econometrics/special_issues/unit_roots_structural_breaks

This Special Issue deals with problems related to unit roots and structural change, especially the interplay between the two. Possible topics include, but are not limited to: testing for a unit root allowing for changes in the trend function, testing for structural changes allowing the noise to be integrated or stationary, improvements of and/or analysis of existing leading unit root procedures; testing for cointegration allowing breaks in the trend function, testing for co-trending among processes with a non-linear (e.g., broken) trend, the problem of non-monotonic power of some classes of structural change tests including possible solutions, tests for change in persistence (e.g., I(1) versus I(0) or I(1) versus explosive), how neglected structural changes affect common inference problems, structural change versus fractional integration.

The issues mentioned above have proved to be of importance to devise procedures that are reliable for inference and forecasting. Several important contributions have been made. Still, there is scope for improvements and analyses of the properties of existing procedures. The aim is to provide contributions that follow up on what has been done and/or offer new perspectives on such issues and related ones.


76 Countries, But Not The U.S., Sign OECD BEPS Convention To Curb International Tax Avoidance ---
http://taxprof.typepad.com/taxprof_blog/2017/06/76-countries-but-not-the-us-sign-oecd-beps-convention-to-curb-international-tax-avoidance.html

Caterpillar’s $4.2 Billion (Criminal) Tax Evasion Scheme Started as a Whistleblower Leak ---
https://moneymorning.com/2017/03/03/caterpillars-4-2-billion-tax-evasion-scheme-started-as-a-whistleblower-leak/

Jensen Comment
Now that whistleblower may get the largest whistleblower reward in history ($600 million give or take)


Journal of Accountancy Quiz:  Managing Fraud Risks ---
http://www.journalofaccountancy.com/issues/2017/jun/effective-fraud-risk-management-programs.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=05Jun2017


FASB performs maintenance on Accounting Standards Codification ---
https://www.journalofaccountancy.com/news/2017/may/fasb-maintenance-on-accounting-standards-codification-201716781.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31May2017


Non-Statistical Sampling for Efficient Audits ---
https://ecampus.smartpros.com/modules/Catalog/CourseDetails.aspx?CourseGroupID=2445&productgroupid=19770&utm_source=MKT-004560&utm_medium=email&utm_campaign=SMP2017_ANI&utm_term=course&utm_content=June6


CPA Auditors Will Being Doing More Than Certifying GAAP Compliance
Auditors focusing more on fraud detection --
-
https://www.accountingtoday.com/news/auditors-focusing-more-on-fraud-detection

Auditors are increasingly taking responsibility for fraud detection and cybersecurity at companies, whether they like it or not.

“The bottom line is that if there’s fraud and the auditor did not discover the fraud, there’s a 99 percent chance that the auditor will be sued,” said Ralph Summerford, president of Forensic Strategic Solutions, a financial investigation firm that specializes in fraud examination. “It’s not just the large firms, but also the small firms.”

Summerford will be speaking this week at the Association of Certified Fraud Examiners’ annual fraud conference in Nashville. His topic this year is the auditor’s responsibility to detect fraud. “I’m not just talking about CPAs,” he said. “I’m talking about internal auditors, governmental auditors, any auditor that does auditing work, and people like Certified Fraud Examiners who do investigations. It will be all of those people whose responsibility is to detect fraud.”

He believes auditors need to be especially aware of the differences between the legal standards and the professional standards. “The standard of care in the legal world is my responsibility to you and to everybody to do what a reasonable person would do under the circumstances,” said Summerford. “What is a reasonable person? That is a slippery slope.” Auditors, accountants and CPA consultants need to look at both the legal standards and the professional standards, as set by the Public Company Accounting Oversight Board, or else they could face lawsuits, he noted.

“When anybody loses any money, they want to get their money back,” said Summerford. “They will sue anybody and everybody.”

Auditors also need to be aware of potential cybersecurity issues. Summerford said he recently attended a conference in Atlanta hosted by the law firm Carlock Copeland where that was a topic of discussion. “The AICPA has come out with some proposed standards,” he noted. “It’s really scary because of all the hacks.” One of the speakers said there had been 26 hacks of accounting firms up through 2016, potentially exposing the personal and professional information of clients to cybercriminals.

One of the major areas of fraud detection is risk management, which ties in with cybersecurity and the need to have the proper controls in place over financial reporting. “Internal and external auditors should be looking to make sure those controls are in place,” said Summerford.

Keeping employees happy with their company and workplace can also help deter fraud. “Any time you encounter an operation that has a low morale factor, you’ve got a high fraud environment,” said ACFE president Jim Ratley at a recent conference at Pace University in New York. “In order to keep that fraud environment low, you’ve got to have people who can see a future.”

Continued in article

Jensen Comment
Historically, external auditors resisted fraud detection in their audit scopes except for frauds that  materially affected GAAP compliance. One reason is that many frauds do not significantly impact financial statements because of the relative size of the fraud. Secondly, serious fraud detection greatly increases the costs of the audit. Thirdly, external auditors really aren't very good at detecting frauds. More often than not external auditors are the victims of frauds along with their clients. The claim is repeatedly made that corporate executives deceived the auditors as well as shareholders. Exhibit A is Enron and Worldcom concerning high-level executive deceptions of auditors. But the counterclaim is that external auditors let themselves be easily deceived due to defective audits low on detail testing. In addition to often skimping on detail testing, external auditors do not have procedures that are most effective in fraud detection, particular programs to pay whistleblowers.

One case concerning failure to detect fraud is the successful lawsuit against Grant Thornton in the Koss Case where shareholders successfully sued the external auditor for failure to detect fraud ---
http://faculty.trinity.edu/rjensen/fraud001.htm#GrantThornton
Scroll down to the Koss case modules.

Sarbox increased the external auditor responsibility to evaluate accounting internal controls that, among other things, guard against frauds.


SARBOX (SOX) --- https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act

PCAOB Auditor Pressure Spurs Sarbox Controls Tightening ---
http://ww2.cfo.com/auditing/2017/06/pcaob-auditor-pressure-spurs-sarbox-controls-tightening/


How the CPA Exam is scored ---
http://www.journalofaccountancy.com/news/2017/jun/how-cpa-exam-is-scored-201716840.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=20Jun2017
Thank you Elliot Kamlet for the heads up


As More States Kill Their Estate Taxes, Will The Push To Repeal The Federal Estate Tax Become Irresistible?
http://taxprof.typepad.com/taxprof_blog/2017/06/as-more-states-kill-their-estate-taxes-will-the-push-to-repeal-the-federal-estate-tax-become-irresis.html


Hedging may get easier under new FASB accounting standard ---
http://www.journalofaccountancy.com/news/2017/jun/hedging-may-get-easier-under-new-fasb-standard-201716825.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=08Jun2017#sthash.9VI1KKRy.dpuf

Jensen Comment
As with most any proposed accounting standard revision the Devil is in the details. This article does not tell us much about the Devil. My hope is that the FASB will still require serious tests of hedge effectiveness in order to qualify for hedge accounting. The IASB in IFRS 9 did away with most required testing of hedge effectiveness leaving hedge effectiveness elusive elusive non-specific "principles-based judgments" that are likely to be less consistently applied among clients.

An example of where hedges are partly ineffective (at least in part) is where an Iowa farmer hedges corn prices in Ringsted Iowa with options contracts purchased on the options markets in Chicago. Things that make these options partly ineffective are delivery costs (between Ringsted and Chicago) and the highly likely that the quality of the farmer's corn differs from the quality standards of the corn assumed in the Chicago options trading market.

Another example is the hedge ineffectiveness of a mortgage loan on a skyscraper in Chicago using a Libor-based interest-rate swap based upon Libor rate movements in Chicago.

Hedge effectiveness is important because it determines what part of the price change of a hedging derivative is reported in earnings versus OCI. Most hedgers want to avoid having hedging derivative price movements affect earnings.

Read more about hedge ineffectiveness at
http://faculty.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#I-Terms
Scroll down to "Ineffectiveness"


PCAOB expands auditors’ reporting duties ---
http://www.journalofaccountancy.com/news/2017/jun/pcaob-expands-auditor-reporting-duties-201716790.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=02Jun2017

June 2, 2017 Reply from Tom Selling

 I recommend reading PCAOB member Steve Harris’s recent speech in support of the new rules, but also providing an informative critique:  
https://pcaobus.org/News/Speech/Pages/Harris-statement-auditing-accounting-estimates-specialists-6-1-17.aspx   


EY:  Snapshot of the major accounting and regulatory developments during the second quarter of 2017 ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingBriefs_03880-171US_22June2017/$FILE/FinancialReportingBriefs_03880-171US_22June2017.pdf


EY Comment Letter:  Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (File Reference No. 2017-220) ---
http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_03542-171US_NonemployeeShare-BasedPayment_1June2017/$FILE/CommentLetter_03542-171US_NonemployeeShare-BasedPayment_1June2017.pdf


EY:  FASB TRG for credit losses discusses implementation issues ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_03877-171US_ImpairmentTRGMeeting_16June2017/$FILE/TothePoint_03877-171US_ImpairmentTRGMeeting_16June2017.pdf

What you need to know

Members of the FASB TRG for credit losses reached general agreement on three implementation issues and may revisit two others.

They generally agreed that entities can elect to use a discount rate adjusted for expected prepayments to determine the allowance for credit losses and can elect to maintain existing pools of purchased credit impaired assets at adoption or on an ongoing basis.

They also generally agreed that entities should consider the cash flows of the assets underlying a beneficial interest, including expected prepayments, to determine whether the guidance on purchased financial assets with credit deterioration applies.

The TRG may revisit questions about how to determine the life of a credit card receivable and how to forecast troubled debt restructurings.


EY:  How New Revenue Standard Affects Health Care Entities ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_03540-171US_RevRec_Health_1June2017/$FILE/TechnicalLine_03540-171US_RevRec_Health_1June2017.pdf

What you need to know

Health care entities need to make significant judgments to assess collectibility and estimate variable consideration. 

Health care entities also have to change aspects of their financial statement presentation and expand their disclosures.

  We don’t anticipate further significant changes to the revenue standard, so health care entities should focus on implementation. Many entities are finding that implementation requires significantly more effort than they expected

Microsoft Excel: How to evaluate complex formulas:  Learn how to use Excel's Evaluate tool, which can help you dissect and understand complicated formulas.---
http://www.journalofaccountancy.com/issues/2017/jun/how-to-evaluate-complex-excel-formulas.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=06Jun2017


Nobel Laureate William F. Sharpe --- https://en.wikipedia.org/wiki/William_F._Sharpe

Tackling the ‘Nastiest, Hardest Problem in Finance’ William Sharpe, creator of a model that measures risk and reward, turns to retirement planning--
http://ritholtz.com/2017/06/thorniest-problem-finance/

. . .

Many financial planners use a simple rule of thumb: withdraw 4 percent a year from your savings until you either die or run out of money. This one-size-fits-all solution is suboptimal for a reality where the potential outcomes are almost infinite, or as Sharpe describes it, a “multiperiod problem with actuarial issues, in a multidimensional scenario matrix.”

Jensen Sidebar

Note how much the Capital Asset Pricing Model (the CAPM for which Bill shared his Nobel Prize) has fallen from grace in finance and economic research.---
https://en.wikipedia.org/wiki/Capital_asset_pricing_model

Bill Sharpe, however, is still highly respected in finance, especially in the analysis of investment risk ---
https://en.wikipedia.org/wiki/Sharpe_ratio


Americans are suddenly defaulting on their credit cards (as unemployment declines) ---
http://www.businessinsider.com/credit-card-defaults-have-spiked-as-lending-standards-fall-2017-6


IBM landed a big win in the race to sell blockchain to Wall Street ---
http://www.businessinsider.com/blockchain-digital-trade-chain-ibm-hyperledger-deutsche-bank-hsbc-soc-gen-2017-6

Block Chain --- https://en.wikipedia.org/wiki/Blockchain

Virtual Currency (Bitcoin) --- https://en.wikipedia.org/wiki/Virtual_currency

SEC Petition Calls for Blockchain Token Rules --- 
http://www.coindesk.com/sec-petition-calls-for-blockchain-token-rules/

THE BLOCKCHAIN IN BANKING REPORT: The future of blockchain solutions and technologies --- 
http://www.businessinsider.com/blockchain-in-banking-2017-3

Wharton:  How Delaware's Block Chain Trial Could Change Wall Street --- 
http://knowledge.wharton.upenn.edu/article/delawares-blockchain-trial-change-wall-street/

Blockchain - a Database with a Twist
SSRN. April 30, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2958565

Author

Boon Seng Tan --- Institute of Singapore Chartered Accountants

Abstract

This paper reviews the concept that a blockchain is simply a database without a central authority. This concept means that a blockchain-based application is inherently a database application that leverages on the strength blockchain has over a traditional database with central authority. Two major areas of applications are: (a) shared database containing records of interdependent transactions, (b) asset registries where the chain of historical ownership (i.e. provenance) is valuable. The absence of a central authority means that traditional security via login linked to permission to read and write the database is no longer the primary strategy. Instead, immutability of the blockchain, together with identification and allocation of the validator, becomes the primary security strategy. These conceptual differences are the driving force behind the unusual data and database structure of the blockchain. This paper presents these concepts to a non-technical audience at two levels: (a) an easy to read-no complexity level without explanation of mechanics, and (b) building on the previous level, explain the key mechanics for a non-technical audience.

Someone bought 2 pizzas with 10,000 bitcoins in 2010 — today they're (the bitcoins) worth $20 million --- 
http://www.businessinsider.com/bitcoin-pizza-day-passes-2000-20-million-2017-5

May 24, 2017 reply from Jim McKinney

The Blockchain Will Do to the Financial System What the Internet Did to Media 
Harvard Business Review
 https://hbr.org/2017/03/the-blockchain-will-do-to-banks-and-law-firms-what-the-internet-did-to-media   

Report on Distributed Ledger Technology: Implications of Blockchain for the Securities Industry 
FINRA 
http://www.finra.org/industry/blockchain-report


Cash may be on the endangered list ---
http://www.businessinsider.com/cash-declining-future-ebt-transactions-2017-6

Jensen Comment
This probably will never happen in the USA, at least not until over 160 nations set the precedent. The reason is simply that in the USA it will take an act of Congress to do away with cash --- which is extremely popular with criminals. And, as Mark Twain once said:
Congress is our only native criminal class.
Mark Twain --- http://en.wikipedia.org/wiki/Mark_Twain


GASB establishes new approach for reporting leases ---
http://www.journalofaccountancy.com/news/2017/jun/gasb-lease-accounting-rules-201716968.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=29Jun2017




From the CFO Journal's Morning Ledger on June 29, 2017

SEC charges Obsidian Energy with accounting fraud
The Securities and Exchange Commission filed charges against Obsidian Energy Ltd., the company’s former chief financial officer, and its former vice president with accounting fraud. The executives allegedly reclassified operating expenses as capital expenditures in order to make costs appear lower and boost net income.

Five KPMG LLP partners, including the head of its audit practice, were fired after the Big ... Obsidian Energy, former execs charged with fraud ---
http://www.marketwatch.com/story/kpmg-partners-fired-over-ethics-breach-2017-04-11

Jensen Comment
Sounds a little like the infamous WorldCom fraud that helped bring the Andersen auditing firm down ---
http://faculty.trinity.edu/rjensen/FraudEnron.htm
That fraud also entailed capitalizing costs that should have been expensed. WarldCom executives were sent to prison.


From the CFO Journal's Morning Ledger on June 29, 2017

MetLife closer to spinning off U.S. life insurance business
Delaware state insurance regulators approved MetLife Inc.’s planned divestiture, which will create a new company called Brighthouse Financial. The spinoff will diminish MetLife’s position as the nation’s biggest life insurer by assets

Jensen Comment
All of our students should be made aware of the different types of life insurance ---
https://www.brighthousefinancial.com/products/life-insurance/?cid=paidsearch_google_newday_intersect_701j0000001nsMJ
Tax advantages to both insurers and their insured might be changed by tax reform


From the CFO Journal's Morning Ledger on June 29, 2017

SEC tells American Airlines to rein in praise of its non-GAAP metrics
The Securities and Exchange Commission directed American Airlines Group Inc. to stop telling investors that its non-GAAP numbers were “more indicative” of the company’s performance and “more comparable” to metrics reported by competitors, Tatyana Shumsky reports.


From the CFO Journal's Morning Ledger on June 27, 2017

U.S. top court: CalPERS waited too long to sue banks
The U.S. Supreme Court ruled that the California Public Employees’ Retirement System took a bit too long to sue the banks involved in the Lehman Brothers collapse, Reuters reports.


From the CFO Journal's Morning Ledger on June 27, 2017

Supreme Court to ponder over whistleblower provision
The Supreme Court will consider whether employees who report misconduct at their companies are entitled to protections as “whistleblowers” if they only report the alleged wrongdoing  internally, not to the Securities and Exchange Commission.

Jensen Comment
Middle ground here would be where whistleblowers are protected when they report to audit firms and/or audit committees.


From the CFO Journal's Morning Ledger on June 27, 2017

Anthem: Senate health bill will bolster individual insurance market
Anthem Inc.
said the Senate Republicans’ health bill will boost the individual insurance market. Its support comes as several other insurers have said that it could undermine marketplaces created by the Affordable Care Act.


From the CFO Journal's Morning Ledger on June 27, 2017

Google slapped with Record EU fine
The European Union’s antitrust regulator fined Alphabet Inc.’s Google a record €2.42 billion ($2.7 billion) fine for favoring its own comparison-shopping service in search results. The fine could force Google to make broader changes to the way it designs its search results in Europe. It has 90 days to end the conduct or face penalty payments of up to 5% of its average daily global revenue.


Tax Reform:  The elimination of the deduction companies get for the interest they pay on debt,

From the CFO Journal's Morning Ledger on June 23, 2017

A House Republican proposal to overhaul the U.S. tax code takes a swipe one of the "foundations of modern finance" -- the elimination of the deduction companies get for the interest they pay on debt, Richard Rubin writes.

Companies of all sizes have feasted on debt because it's cheaper than equity financing and widely available. In 2015, U.S. businesses paid in all $1.3 trillion in gross interest, according to Commerce Department data, which is equal in magnitude to the total economic output of Australia.

The plan would raise money to help offset Republicans’ corporate tax cuts and reduce a “huge bias” toward debt financing, said Robert Pozen, a senior lecturer at MIT’s Sloan School of Management. That bias usually hurts companies built around innovation that may not have the physical assets that banks usually require as collateral.

And in a world with no interest deduction, debt-fueled leveraged buyouts by private-equity titans could become more expensive to finance and junk bonds less appealing. “That’s not necessarily bad for society,” said David Beim, a retired Columbia University finance professor. “We have too much systemic financial risk in our economy.”

From the CFO Journal's Morning Ledger on June 23, 2017

The race to bring solar power to Africa
American startups are competing to deliver solar powers to underserved communities, Bill McKibben writes for The New Yorker. These entrepreneurs look at solar power in Africa as a way to tap a large market and even make a hefty profit.


Variable Interest Entity --- https://en.wikipedia.org/wiki/Variable_interest_entity

From the CFO Journal's Morning Ledger on June 23, 2017

FASB proposes standard update
The Financial Accounting Standards Board has proposed an accounting standards update to reduce the cost and complexity of financial reporting related to the consolidation of variable interest entities, Accounting Today reports

Also see
http://www.journalofaccountancy.com/news/2017/jun/private-company-accounting-alternative-for-vie-consolidation-201716931.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=23Jun2017

Bob Jensen's threads
What's Right and What's Wrong With (SPEs), SPVs, and VIEs ---
http://faculty.trinity.edu/rjensen//theory/00overview/speOverview.htm


From the CFO Journal's Morning Ledger on June 23, 2017

The Senate’s health-care bill repeals hundreds of billions of dollars in taxes on businesses and high-income households and includes a retroactive cut in capital-gains taxes, Richard Rubin writes.

The tax portions of the proposal, a draft of which was released on Thursday in advance of a possible vote next week, are very similar to the elements in the version the House passed last month. The plan operates like the 2010 Affordable Care Act, but in reverse. Instead of raising taxes to pay for expanded insurance coverage, it reduces coverage and cuts taxes.

Also on Thursday, the largest U.S. banks survived a hypothetical “stress test” and could continue lending even during a deep recession, the Federal Reserve said, a strong report card that could bolster the industry’s case for cutting back regulation, Ryan Tracey and Telis Demos write.

In the first part of its annual tests, the Fed said 34 of the largest U.S. banks have significantly improved their defenses since the 2008 financial crisis. The results signal that many banks could win the Fed’s approval to increase dividend payouts to investors next week, in the second round of the tests.


From the CFO Journal's Morning Ledger on June 13, 2017

Booz Allen probed over accounting, billing practices
The Justice Department is investigating Booz Allen Hamilton Holding Corp.’s cost accounting and indirect cost charging practices with the U.S. government.

Jensen Comment
This might make a good instructional case for indirect costing and billing.


From the CFO Journal's Morning Ledger on June 13, 2017

The Federal Reserve said it would raise short-term interest rates and spelled out in greater detail its plans to start slowly shrinking its $4.5 trillion portfolio of bonds and other assets this year, Nick Timiaros writes.

Wednesday's moves mark the latest test of the economy’s ability to stand on its own as the central bank dials back the extraordinary stimulus measures unleashed through successive bursts of bond purchases to boost household and business spending after the 2008 financial crisis.

Fed officials said they would increase their benchmark federal-funds rate on Thursday by a quarter percentage point to a range between 1% and 1.25% and penciled in one more increase later this year if the economy performs in line with forecasts.

Officials also detailed plans for winding down their holdings of Treasury and mortgage securities. Fed Chairwoman Janet Yellen said if the economy performed in line with the central bank’s forecasts, it could set those plans into motion “relatively soon.

Monday evening signaled a more conciliatory approach to the U.S.'s relationships with major trading partners including China, Canada and Mexico

From the CFO Journal's Morning Ledger on June 13, 2017

Following months of antagonistic comments by the Trump administration, Commerce Secretary Wilbur Ross Monday evening signaled a more conciliatory approach to the U.S.'s relationships with major trading partners including China, Canada and Mexico.

A recent trade deal that opens the way for U.S. beef and credit card companies into China was a "breakthrough," Mr. Ross said during the WSJ's CFO Network Annual Meeting in Washington, D.C. Similar deals could be achieved without turning to drastic measures that could result in retaliation or other negative consequences. Relations with China, dubbed a "currency manipulator" during the campaign for the White House, have improved, the Commerce Secretary said, stating that the U.S. government speaks to its Chinese counterpart twice a day, several days a week.

Mr. Ross referred to his familiarity with the world's second largest economy during the interview. "I did not need a map [when taking up his current role], I had 18 factories in China,” he said, hinting to his previous business dealings in China. "It's not like I have never been outside Palm Beach.”

The U.S. could ask China to be more accommodating, Mr. Ross said, without making reference to a tax on Chinese imports of around 35% that President Donald Trump advocated during the campaign. Mr. Ross plans to play a key role in the upcoming negotiations around the North American Free-Trade Agreement with Canada and Mexico. Earlier this month, he announced a preliminary deal with Mexico on sugar imports.

"We solved the sugar issue without pissing everyone off," he said. Disputes like these were resolvable, assuming that the actors involved are "willing to make reasonable compromises."

Mr. Ross told the audience -- comprised of around 100 finance chiefs at large U.S. and multinational companies -- to prepare for a corporate tax overhaul.

"I think we will get it this year," Mr. Ross said. "It could very well be retroactive." He made no mention of the so-called border-adjusted tax, an idea that would have led to imports to the U.S. being taxed while imports would have gone tax-free.

He also did not provide specifics around other elements of a corporate tax overhaul, for example interest deductibility.

The Commerce Secretary suggested structural reforms to international trade agreements and bodies like the World Trade Organization. Exiting the WTO would be a very radical step, indicating a departure as suggested by then-Presidential candidate Donald Trump was unlikely, at least at this stage. Mr. Ross instead advocated for reform from within.


From the CFO Journal's Morning Ledger on June 7, 2017

Financial restatements hit six-year low
The share of U.S. companies restating their results hit a six-year low in 2016, Tatyana Shumsky reports. This is an indication that finance chiefs have strengthened their oversight of financial reporting.


Obama Care Health-Insurers are Hemorrhaging
From the CFO Journal's Morning Ledger on June 7, 2017

Anthem to pull out of Ohio exchange.
Anthem Inc.
will pull out of the Affordable Care Act health-insurance exchange in Ohio next year. Its decision could leave at least 18 counties in the state with no available ACA marketplace plans.


From the CFO Journal's Morning Ledger on May 11, 2017

Aetna to pull out of Affordable Care Act exchanges
Aetna Inc.
said it would pull out of the Affordable Care Act exchanges in Delaware and Nebraska next year, confirming that the insurer will exit all of the marketplaces where it currently sells plans.

The Atlantic:  Why So Many Insurers Are Leaving Obamacare ---
https://www.theatlantic.com/health/archive/2017/05/why-so-many-insurers-are-leaving-obamacare/526137/
This article really does not get at the reasons why.

 




Stock Split --- https://en.wikipedia.org/wiki/Stock_split

Teaching Case from The Wall Street Journal Accounting Weekly Review on June 2, 2017

Companies Quit Splits, Letting Share Prices Soar
by: Erik Holm and Ben Eisen
May 27, 2017
Click here to view the full article on WSJ.com

TOPICS: Stock Split

SUMMARY: Stock splits are now rare. Consequently, the average price of a share traded on U.S. exchanges has nearly doubled from its longstanding rate of $30 to $50 through 2010. Contrasting viewpoints about the cons of splits are given from Berkshire Hathaway and Amazon, whose shares trade at nearly $250,000 and nearly $1,000 each, respectively, versus pros from Ball Corp., one of the two S&P 500 companies that spit its stock in 2017.

CLASSROOM APPLICATION: The article may be used to discuss stock splits in a financial reporting course covering stockholders' equity.

QUESTIONS: 
1. (Advanced) What is a stock split? Why does the author write that "nothing changes fundamentally about the company with a stock split"?

2. (Advanced) What is the accounting impact of a stock split? How does that reflect the statement of nothing changing fundamentally from this transaction?

3. (Introductory) Refer to the related graphic entitled "Out of fashion." What are the two lowest points of stock split frequencies? Why do you think the lowest point occurs-what was going on in the stock market at that time?

4. (Advanced) Refer to the related article. What are the reasons in favor of stock splits?

5. (Introductory) How does the Amazon shareholder request at Amazon's annual meeting reflect the desire for one of these benefits?

6. (Advanced) Again refer to the related article. What are the arguments against stock splits?

7. (Introductory) What types of investors prefer not to see stock splits? How does that preference reflect a changing stock marketplace today versus years ago?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Split Decision: The Pros and Cons of Splitting Shares
by Erik Holm and Ben Eisen
May 26, 2017
Online Exclusive

 

"Companies Quit Splits, Letting Share Prices Soar," by Erik Holm and Ben Eisen, The Wall Street Journal, May 27, 2017 ---
https://www.wsj.com/articles/amazons-brush-with-1-000-signals-the-death-of-the-stock-split-1495791009?mod=djem_jiewr_AC_domainid

Stock splits, once considered a way to keep shares affordable for mom-and-pop investors, are rare today as companies aspire to new heights

Big companies are giving up on the stock split.

On Thursday, shares of Amazon.com Inc. AMZN -0.82% almost brushed $1,000 before closing at $993.38.

The price increase, up from around $68 a decade ago, reflects the company’s growth and dominance. But it also marks the latest example of a company letting its stock price rise without engaging in a “split” that boosts the number of shares in order to lower the per-share price. Google parent Alphabet Inc.’s GOOGL -0.72% Class A shares also are now close to $1,000.

Other companies are aspiring to such heights. So far this year, only two S&P 500 companies have split their stock. In all of last year, six companies in the large-company index did. That’s down sharply from 20 years ago, when 93 S&P 500 firms split their shares, a rate of close to two per week, according to Birinyi Associates.

After decades of mostly remaining in a range between $25 and $50, the average stock in the S&P 500 is now trading above $98, the highest ever, according to Birinyi Associates.

A big stock price is “a new way of calling attention to yourself,” said William C. Weld, a finance professor at the University of North Carolina’s Kenan-Flagler Business School who has studied stock splits. It used to be that splitting shares signaled reliability and stability, he said. “Companies now are saying ‘look at us, we’re tough and strong.’ ”

In the 1990s, when stock picking for one’s own account was in vogue, companies also considered splits a way to keep shares affordable for mom-and-pop investors. Even though nothing changes fundamentally about the company with a stock split—it’s like trading a dime for two nickels—splits used to generate excitement and, often, a short-term pop for the shares.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 2, 2017

NYSE Pins Hopes on 'Spotify Rule'
by: Alexander Osipovich and Maureen Farrell
May 27, 2017
Click here to view the full article on WSJ.com

TOPICS: Securities and Exchange Commission

SUMMARY: The article describes a New York Stock Exchange (NYSE) proposal to ease its listing requirements in order to better compete for trading of shares of high value start up firms. Known as the "Spotify Rule," it allowed shares of the non-public Swedish firm Spotify to be traded on the NASDAQ because it has over a $100 million valuation. The current NYSE rule relies on the lesser result from two methods of valuation of such a company: third party valuation and valuation from the last price of shares traded in a private market. The NYSE's definition of a private market doesn't include the types of transactions now common in today's electronic markets, though the article doesn't exactly specify this problematic definition.

CLASSROOM APPLICATION: The article may be used when covering corporate forms of organization and issuance of common stock to help students understand the concept of publicly traded versus private firms and the regulation of stock trading on exchanges.

QUESTIONS: 
1. (Advanced) What are listing requirements? How do they influence whether companies undertake an initial public offering of stock, or IPO?

2. (Introductory) What is a "direct listing"? According to the article, what is the minimum valuation of its "public float' that a company must have in order to have its shares of stock trade under a direct listing? How is this valuation tested?

3. (Introductory) Why does the New York Stock Exchange (NYSE) want to change the rule for testing whether companies meet this minimum valuation?

4. (Advanced) How does the Securities and Exchange Commission (SEC) regulate this rule that the NYSE wants to change? Hint: visit the SEC website, sec.gov, and click on About, then "What We Do." Scroll down to read the sections entitled "How the SEC Rulemaking Process Works and then "Division of Trading and Markets."

Reviewed By: Judy Beckman, University of Rhode Island

"NYSE Pins Hopes on 'Spotify Rule'," by Alexander Osipovich and Maureen Farrell, The Wall Street Journal, May 27, 2017 ---
https://blogs.wsj.com/cfo/2017/05/30/the-morning-ledger-spotify-rule-would-help-nyse-to-woo-unicorns/?mod=djem_jiewr_AC_domainid

The New York Stock Exchange is seeking to change its listing standards as it vies for Spotify AB and other hot startups that are considering an unusual tactic called a direct listing, Alexander Osipovich and Maureen Farrell write.

Direct listings allow companies to have their shares trade publicly, without raising money as in a traditional initial public offering, and there aren’t restrictions on when insiders can sell shares. The NYSE in March filed with the U.S. Securities and Exchange Commission to tweak its rule book on the process, a move the agency will rule on in coming weeks.

Approval by the SEC would remove an obstacle that prevents companies such as Spotify from using direct listings to list on the Big Board, lawyers say. Making it easier for closely held firms to use this approach could help the NYSE attract “unicorns,” or startups valued at $1 billion or more.

The NYSE, a unit of Intercontinental Exchange Inc., competes fiercely with Nasdaq Inc. for listings. So far, Nasdaq has completed about a half-dozen direct listings of private companies since 2006, while the NYSE has had none, according to representatives for the two exchange groups.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 2, 2017

Lunch Business Serves Up Less for Restaurants
by: Julie Jargon
May 31, 2017
Click here to view the full article on WSJ.com

TOPICS: Cost Analysis

SUMMARY: The article focuses on loss of revenues to restaurants due to trends in staying in for lunch. Factors behind this trend include time pressures at work and cost: the gap between the cost of a home-prepared meal and one in a restaurant has widened significantly since the recession "as rising labor costs pushed owners to raise menu prices-even as the cost of raw ingredients has fallen."

CLASSROOM APPLICATION: The article may be used in a managerial accounting class to cover basic inventory costs of materials, labor and overhead, and gross profit margin. Questions also refer to the economic concept of elasticity of demand and its impact on revenues.

QUESTIONS: 
1. (Advanced) What is elasticity of demand for a product?

2. (Advanced) What factors affect elasticity of demand in general?

3. (Introductory) How is a substitute product influencing demand for restaurant lunch meals? What is that substitute product?

4. (Advanced) How is that elasticity affecting restaurant revenues from lunches?

5. (Introductory) Are the trends in demand for restaurant lunches entirely due to price elasticity of demand? Explain with examples from the article.

6. (Introductory) Refer to the related graphic entitled "Burrito v. Burrito." What are the materials cost estimates based on? Do you think these represent total materials costs for Chipotle's restaurant for a burrito? Explain.

7. (Advanced) What accounts for the difference between cost of preparing a burrito at home (materials costs only) of $3.82 and the price of $6.70 for a Chipotle burrito eaten in its restaurant? Give your answer in appropriate business terms (e.g., for inventory consider labor and overhead).

Reviewed By: Judy Beckman, University of Rhode Island

"Lunch Business Serves Up Less for Restaurants," by Julie Jargon, The Wall Street Journal, May 31, 2017 ---
https://www.wsj.com/articles/going-out-for-lunch-is-a-dying-tradition-1496155377?mod=djem10point?mod=djem_jiewr_AC_domainid

Restaurants suffer as people eat at their desks; no more three-martini sit-down meals

The U.S. restaurant industry is in a funk. Blame it on lunch. Americans made 433 million fewer trips to restaurants at lunchtime last year, resulting in roughly $3.2 billion in lost business, according to market-research firm NPD Group Inc. It was the lowest level of lunch traffic in at least four decades. While that loss in traffic is a 2% decline from 2015, it is a significant one-year drop for an industry that has traditionally relied on lunch and has had little or no growth for a decade.

“I put [restaurant] lunch right up there with fax machines and pay phones,” said Jim Parks, a 55-year-old sales director who used to dine out for lunch nearly every day but found in recent years that he no longer had room for it in his schedule.

Like Mr. Parks, many U.S. workers now see stealing away for an hour at the neighborhood diner in the middle of the day as a luxury. Even the classic “power lunch” is falling out of favor among power brokers.

When he isn’t on the road for a Detroit-based building products company, Mr. Parks works from his home in Carlisle, Ohio, and eats there. When he meets clients at their offices, they have food delivered and work during what they call a “lunch and learn.”

Even some restaurant-company executives don’t go out for lunch. Employees at Texas Roadhouse Inc.’s Louisville, Ky., headquarters order in so often that they know the delivery drivers by name. “A lot of our folks are trying to be more efficient,” company President Scott Colosi said.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 2, 2017

Best Buy Defies Slump in Retail
by: Khadeeja Safdar
May 26, 2017
Click here to view the full article on WSJ.com

TOPICS: Cost Analysis, Cost Management

SUMMARY: Five years ago, Best Buy faced declining profits as it incurred costs to maintain a showroom floor which shoppers used for "showrooming": shopping in stores to see, hear, and touch the products. then searching online for the lowest price for those products. The article describes the company's tactics to combat that issue and reduce warehousing and selling costs.

CLASSROOM APPLICATION: The article may be used to cover managerial accounting topics of sales trends and selling costs, inventory management and overhead costs, and logistics.

QUESTIONS: 
1. (Introductory) Why was Best buy "left for dead a few years ago"?

2. (Introductory) How did Best Buy stop the trend of "showrooming": shoppers browsing in its stores then shopping online for the cheapest price for their chosen products?

3. (Advanced) Define the terms "overhead" and "selling costs." How has Best Buy taken advantage of its store locations in relation to these costs of holding and selling its inventory?

4. (Advanced) How did Best Buy reduce costs associated with its warehousing and operating showroom floors? How did that strategy also help with solving "showrooming" issues?

Reviewed By: Judy Beckman, University of Rhode Island

"Best Buy Defies Slump in Retail," by Khadeeja Safdar, The Wall Street Journal, May 26, 2017 ---
http://www.wsjsmartkit.com/wsj_redirect.asp?key=AC20170601-03&mod=djem_jiewr_AC_domainid

Electronics giant turns its cavernous stores into a way to fend off Amazon

Best Buy Co. BBY -1.66% , the electronics giant left for dead a few years ago, is bucking America’s retail slump by turning its cavernous stores from a potential drag on its business into a way to fend off Amazon.com Inc.

The company Thursday reported a slight increase in quarterly revenue, surprising investors who were bracing for a decline. Online sales jumped 23% in the U.S. from a year ago, accounting for $1 billion of business in the quarter and offsetting in-store declines.

Best Buy shares surged 21% Thursday to $61.25, setting an all-time high and marking its largest percentage gain since January 2001.

It is a reversal for a company that five years ago was struggling with plunging sales and dwindling profit as consumers browsed at brick-and-mortar stores but made purchases on Amazon and other websites, a practice called “showrooming.” Some investors remain skeptical, with more than $2 billion in short interest, or bets that the share price will decline, according to research firm S3 Partners.

The company’s modest growth stands apart in an industry that has struggled with declining mall traffic and a glut of traditional stores. Retailers are on pace to close a record number of stores this year and several are being liquidated in bankruptcy court. Two of Best Buy’s competitors, RadioShack and hhgregg Inc., recently filed for bankruptcy protection with plans to close hundreds of stores.

While Best Buy has closed a dozen large stores and 40 smaller ones during the past year, it continues to operate 1,600 locations in North America and is increasingly able to use them to build up its e-commerce business. About half of its online orders are now either shipped or picked up from its stores.

“The stores continue to be a great asset for us,” Best Buy Chief Executive Hubert Joly said on Thursday. “They’re a great asset from the standpoint of the customer experience on the more complex categories or experiences, and they’re a great asset from a shipping and logistics standpoint.”

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 2, 2017

GOP Bid to Rewrite Tax Code Falters
by: Richard Rubin
May 30, 2017
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com WSJ Video

TOPICS: Tax Laws, Tax Policy

SUMMARY: The main proposals behind Republican efforts to change the tax system are summarized: reduce income tax rates broadly but hunt for ways to take complications out of the tax system and offset the revenue impact of the rate reduction. Republican proposals for corporate tax changes include a border adjustment tax and ending business interest deductions. Individual income tax change proposals include removing the tax benefits for health care costs and retirement plan savings and repealing the deduction for state and local taxes. All changes produce backlashes from politicians who don't agree on what they hate about the tax code and from voters wary of losing tax features that have been woven into the U.S. economy.

CLASSROOM APPLICATION: The related article addresses the issue of tax equity with a link to a fun video showing a graphic using gummy candies and M&Ms to visualize distribution of taxes. The video addresses income taxes first, then includes other taxes such as payroll taxes. It defines the impact of flat taxes and progressive taxes as well. The last two questions may be used when introducing tax equity factors, typically covered in the beginning of a text on taxation.

QUESTIONS: 
1. (Introductory) Why are Republicans who want to propose tax code simplification hunting for ideas to soften the effect of a reduction in tax rates? In doing so, are they looking at taxation of individuals or of corporations? Explain.

2. (Advanced) One corporate tax code change proposed includes the "border adjustment tax." What is this proposal? (Hint: you may refer to the second related article for this definition.)

3. (Introductory) How did retailers react to the border adjustment tax proposal?

4. (Introductory) Refer to the related graphic "Tough Breaks." What is the largest tax break? Is it a tax break for individuals or corporations? Is this item shown as an itemized deduction on a tax return? Explain your answers.

5. (Advanced) Again refer to the related graphic. Which of the remaining five items in the list are corporate income tax "breaks" and which are individual income tax "breaks"? Are any deductions for both types of taxpayers?

6. (Advanced) Refer to the related video. Define the concept of tax equity. Summarize how the video questions tax equity.

7. (Advanced) What economic factors may be used to try to answer the tax equity question posed in the related video?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Talking Taxes: What's Your Fair Share?
by Richard Rubin
Jun 01, 2017
Online Exclusive

Retailers Risk Multibillion-Dollar Earnings Hit Under GOP Tax Plan
by Susan Pulliam,Sarah Nassauer and Richard Rubin
Jan 06, 2017
Online Exclusive

"GOP Bid to Rewrite Tax Code Falters," by Richard Rubin, The Wall Street Journal, May 30, 2017 ---
https://www.wsj.com/articles/gops-proposed-tax-changes-are-no-match-for-status-quo-1496055605?mod=djem_jiewr_AC_domainid

Republican lawmakers’ boldest ideas for changes are on political life support as plans collide with the tax system’s reality

WASHINGTON—The boldest ideas for changing the nation’s tax code are either dead or on political life support, as the Republican effort in Congress to reshape the tax system moves much more slowly than lawmakers and their allies in business had hoped. The clear winner, so far, is the status quo. Republicans, who control both chambers, are scouring the tax code, searching for ways to offset the deep rate cuts they desire. But their proposals for border adjustment—which would tax imports—and for ending the business interest deduction and making major changes to individual tax breaks for health and retirement have all hit resistance within the party. The only big revenue-raising provision with anything close to Republican consensus is repealing the deduction for state and local taxes, and that idea faces objections from blue-state lawmakers in the party.

The GOP’s dreams have collided with interest-group lobbying and the tax system’s reality. Politicians all profess to hate the tax code, but they don’t agree on exactly what they hate. Voters gripe about complexity but are wary of losing cherished breaks that are woven into the economy.

“Eventually you run out of ways to pay for your promises,” said Alan Cole, an economist at the Tax Foundation, which favors a simpler code with lower rates. “There aren’t any free, obvious sources of money where you can just do the thing and nobody gets mad.”

Republicans are still hunting for ideas to soften the revenue loss from their proposed tax-rate cuts, and party leaders say they will finish a historic tax-code revision by year’s end. President Donald Trump said on Twitter late Sunday that the process was ahead of schedule and “moving along…very well.”

But a fruitless revenue quest may lead the GOP to second-tier options. And they won’t be able to rely on generating lots of revenue from economic growth, because congressional scorekeepers are likely to make conservative estimates.

One possibility is a temporary tax cut that would expire to comply with rules preventing long-run deficits.

“Permanent is better than temporary, and temporary is better than nothing,” Treasury Secretary Steven Mnuchin told the House Ways and Means Committee last week.

Another path is settling for a 25% corporate rate instead of the 20% backed by House Republicans or the 15% proposed by Mr. Trump.

“I hope we don’t have to,” said Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee.

Republicans started 2017 with high tax-policy ambitions, seeing an opportunity to use unified control of government to achieve a long-running party goal. They hoped for a quick repeal of the 2010 Affordable Care Act and a fast pivot to taxes.

Instead, the health bill moved slowly, and during that debate, Republicans talked briefly about limiting the favored status for employer-sponsored health insurance, the largest tax break for individuals. That idea collapsed. Now, the tax bill isn’t written and must wait for the health bill and budget.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 9, 2017

Exxon's Accounting Draws Fire
by: Bradley Olson
Jun 03, 2017
Click here to view the full article on WSJ.com

TOPICS: Estimate, Impairment

SUMMARY: New York's attorney general alleged in court papers Friday that Exxon Mobil may have misled investors about how it accounts for the impact of climate change on its operations by using internal estimates that differed from its public statements. This filing follows a shareholder vote in which 62% of votes cast backed a resolution demanding more information on the impact of climate policies on the company's operations. The SEC has as well questioned Exxon on these topics.

CLASSROOM APPLICATION: The article may be used to discuss sustainability and climate concerns generally or to discuss the inclusion of the effects of climate change on long-lived and intangible asset impairment testing.

QUESTIONS: 
1. (Introductory) Who is examining Exxon's accounting for the expected impact of climate change? List all entities/agencies that are named in the article and explain their interest in the company's accounting practices.

2. (Introductory) What resolution has Exxon's shareholders taken in relation to this matter? (You may refer to the related article to answer this question.)

3. (Advanced) Why must the impact of climate change on Exxon's operations be "accounted for"? Explain your understanding of the need for this information, specifically addressing the question of "viability of oil and gas projects" and the article statement that "certain projects could become unprofitable, potentially requiring an accounting write down."

4. (Advanced) What is a "carbon tax"?

5. (Advanced) How does using an estimate of a carbon tax help Exxon, or any company, to assess future projects' profitability and thus to monitor the "viability of oil and gas projects"?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Exxon Shareholders Pressure Company on Climate Risks
by Bradley Olson
May 31, 2017
Online Exclusive

"Exxon's Accounting Draws Fire," by Bradley Olson, The Wall Street Journal, June 3, 2017 ---
https://www.wsj.com/articles/new-york-ag-alleges-exxon-misled-investors-on-climate-1496405308?mod=djem_jiewr_AC_domainid

State prosecutor claims Exxon used internal climate risk figures that differed from public statements

New York’s attorney general alleged in court papers Friday that Exxon Mobil Corp. XOM 0.23% may have misled investors about how it accounts for the impact of climate change on its operations by using internal estimates that differed from its public statements.

Disclosing for the first time some of the specific evidence his office has collected in its long-running probe of the oil giant, New York Attorney General Eric Schneiderman claimed he found documents and other information showing that Exxon’s process for estimating the potential future costs of greenhouse gas regulations on its business “may be a sham.”

He made the claims in a filing in New York state court seeking to compel Exxon to release additional documents and produce witnesses for the probe, which began in 2015. The U.S. Securities and Exchange Commission is also examining Exxon’s accounting practices and climate change disclosures.

Legal wrangling in the case has also played out in federal court, where Exxon has alleged that the investigation by Mr. Schneiderman, a Democrat, is politically motivated and driven by company antagonists. Mr. Schneiderman has denied such accusations.

An Exxon spokesman called the allegations “inaccurate and irresponsible” and said the company would respond in future court filings.

Exxon’s “external statements have accurately described its use of a proxy cost of carbon, and the documents produced to the attorney general make this fact unmistakably clear,” spokesman Scott Silvestri said in a statement.

The company, which has submitted nearly 3 million pages of documents in the case, has strongly defended its disclosures and said its accounting practices are legal.

The airing of certain specific evidence in the probe comes a day after President Donald Trump said he plans to withdraw from the Paris climate accord, a 2015 agreement by more than 190 nations to reduce global carbon dioxide emissions.

In the past year, Exxon has repeatedly voiced its support for the climate agreement, advocated for a carbon tax, added an environmental expert to its board and begun testing technology to reduce emissions at power plants.

On Wednesday, the company suffered a public rebuke on climate when 62% of votes cast by its shareholders backed a resolution to pressure the company to share more information about how climate change and regulations could affect its business.

At the center of the claims the New York state prosecutor made Friday is one of Exxon’s central assurances to investors on climate change risk: that since 2007, the company has included a “proxy cost of carbon” in its assessment of the viability of its oil and gas projects.

That is an estimate of how much governments around the world may charge Exxon or other companies or consumers for the carbon dioxide they emit, through a carbon tax or other emissions fees.

Such assessments can have a material impact on how an energy company values its assets. With a higher estimated cost of carbon, certain projects could become unprofitable, potentially requiring an accounting write down or recognition of losses on a company’s books.

Mr. Schneiderman alleges that from 2010 to 2014, documents indicate the company used “secret, internal figures” that understated potential future costs from climate regulations, even while suggesting publicly that it used higher estimates.

The company said in a 2014 report that it applied a cost of $60 per ton of greenhouse gas emissions in 2030 to its projects in developed countries. The state prosecutor filed documents with the court Friday that appeared to show it actually used a price of $40 a ton internally.

In 2010, an Exxon employee identified as a corporate greenhouse gas manager said in an email that the $60 a ton figure used for Exxon’s annual Energy Outlook was “more realistic,” according to documents released with the filing.

Another email in 2011 suggests that former Chairman and Chief Executive Rex Tillerson, now the U.S. Secretary of State, was aware of the discrepancy between internal and external figures. In part, Exxon was seeking to be “conservative” in its internal estimates, according to the documents.

A State Department spokeswoman said questions about the probe should be directed to Exxon.

The company ended the practice of using different internal and external carbon cost estimates in 2014, the filing claims. Still, documents produced in the investigation don’t show that the company has a consistent process for coming up with such estimates, according to the filing.

“Exxon may still be in the midst of perpetrating an ongoing fraudulent scheme on investors and the public,” Mr. Schneiderman wrote. He has broad powers to investigate allegations of corporate fraud and alleged wrongdoing under New York law.

The state accuses Exxon of failing to provide documents associated with an alias email account previously used by Mr. Tillerson under the name “Wayne Tracker.” In addition, it adds a new allegation: that current Exxon Chief Executive Darren Woods also had such an account, under the name “J.E. Gray.”

Exxon has said in filings that it has complied with court orders and objects to overly broad requests for information

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 9, 2017

Justices Set Back SEC Over Clawback Powers
by: Dave Michaels and Brent Kendall
Jun 06, 2017
Click here to view the full article on WSJ.com

TOPICS: SEC, Securities and Exchange Commission

SUMMARY: "The Supreme Court dealt a defeat...in ruling that the Securities and Exchange Commission is subject to time limits when requiring companies or individuals to forfeit ill-gotten gains from fraud."

CLASSROOM APPLICATION: The article may be used in a general financial reporting class covering publicly-traded companies, fraudulent financial reporting, or ethics.

QUESTIONS: 
1. (Advanced) What is the purpose of the U.S. Securities and Exchange Commission (SEC)? (Hint: you may access the SEC web page at www.sec.gov)

2. (Advanced) What are the powers held by the SEC in enforcing its rules and regulations?

3. (Advanced) What are "clawbacks"?

4. (Introductory) What has the Supreme Court decided about the SEC's ability to use clawbacks in its enforcement actions?

Reviewed By: Judy Beckman, University of Rhode Island

"Justices Set Back SEC Over Clawback Powers," by Dave Michaels and Brent Kendall, The Wall Street Journal, June 9, 2017 ---
https://www.wsj.com/articles/high-court-rules-in-favor-of-time-limits-on-sec-enforcement-actions-1496674711?mod=djem_jiewr_AC_domainid

Unanimous decision gives regulator five years after a fraud in which to order forfeiture of ill-gotten gains

Wall Street’s top cop will have to make quicker work of finding fraud after the nation’s highest court ruled on Monday to limit its power to claw back ill-gotten gains.

The Supreme Court, in an unanimous opinion written by Justice Sonia Sotomayor, said the Securities and Exchange Commission has five years to sue suspected wrongdoers after the fraud occurs. The case, Kokesh v. SEC, centered on a 2009 SEC lawsuit against Charles Kokesh, an executive accused of stealing money from thousands of small investors who put cash into funds that he managed during the 1990s and early 2000s.

The decision marked a new defeat for the SEC, which aggressively flexed its enforcement muscle in recent years as public criticism of Wall Street misconduct reached a fever pitch. The opinion could deter the SEC from clawing back tens of millions from the heirs of deceased Texas entrepreneur Charles Wyly, who was the target of a decade-long probe and legal fight alleging that he and his brother concealed trading profits.

“There are a number of cases as well as negotiations in which the SEC’s efforts to seek long-ago disgorgements will be thwarted,” said Adam Unikowsky, a partner at Jenner & Block LLP who represented Mr. Kokesh before the Supreme Court. “That will have an effect, I think. A considerable one.”

An SEC spokeswoman declined to comment on the court’s opinion or its impact on other cases.

The decision expands on a setback the Supreme Court dealt the SEC in 2013. In a case involving Gabelli Funds LLC, the justices unanimously ruled the SEC’s ability to levy civil monetary penalties, the other key source of the agency’s punitive powers, was limited by the same five-year time limit.

The SEC had argued that profit forfeiture is different because the payments are regularly used to compensate fraud victims, and so shouldn’t be subject to the five-year statute of limitations. The Supreme Court rejected that argument.

Writing for the court, Justice Sotomayor said disgorgement was obviously a penalty because it sends a message meant to deter future wrongdoing. She also wrote that, since disgorged funds sometimes go to the government because regulators can’t identify harmed investors, the SEC could not legitimately argue that it was purely restitution.

“SEC disgorgement thus bears all the hallmarks of a penalty: It is imposed as a consequence of violating a public law and it is intended to deter, not to compensate,” she wrote.

The court’s decision could impinge on other cases alleging corporate misconduct, including those targeting violations of federal anticorruption laws. In those cases, pursued under the Foreign Corrupt Practices Act, companies generally pay much more in disgorgement than in monetary penalties, said Mark Mendelsohn, a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP.

While U.S.-based firms often agree with the SEC to extend the five-year time limit, in the hope of getting credit for cooperating, foreign companies that are less often under the SEC’s thumb could have less incentive to play ball knowing that disgorgement has been restricted, he said.

The biggest beneficiary in the near term could be Mr. Wyly’s heirs, who weighed in on the Kokesh case in a legal brief, hoping for a decision that would boost their appeal of a judgment against the deceased businessman. In that case, the SEC won disgorgement of income that stretched back over 20 years, into the early 1990s. Samuel E. Wyly agreed last year to settle the SEC’s claims by paying $198.1 million, but Charley Wyly’s estate has continued fighting.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 9, 2017

Cash Goes Missing at Giant Chinese Dairy
by: Wayne Ma
Jun 06, 2017
Click here to view the full article on WSJ.com

TOPICS: Fraud, Fraudulent Financial Reporting, Internal Controls

SUMMARY: China Huishan Dairy Holdings Co. says it operates the largest number of dairy farms in that country. Its shares are traded on the Hong Kong Stock Exchange. Ge Kun, an executive director, and Chairman Yang Kai "together own a private company that controls 70% of Huishan's shares. Ms. Ge has been missing since March 21. Following her disappearance the company has been unable to find the majority of its reported cash balances; mostly only restricted balances can be located. Also following her departure, the company reported that Ms. Ge was responsible for sales and branding, human resources and government affairs, and treasury operations and banking relationships. Initial reports (available here http://www.muddywatersresearch.com/research/huishan/mw-is-short-china-huishan-dairy/) of potential financial statement fraud arose last December 15 from Muddy Waters Research as it took a short sale position in the company.

CLASSROOM APPLICATION: The article may be used to discuss internal control, forensic accounting, and fraudulent financial reporting.

QUESTIONS: 
1. (Introductory) Who is Ms. Ge Kun? What areas of China Huishan Dairy did Ms. Ge oversee?

2. (Advanced) How does the combination of responsibilities entrusted to Ms. Ge Kun violate good internal control practices?

3. (Introductory) How did Muddy Waters Research find evidence of potential fraudulent financial reporting that it reported on December 15?

4. (Advanced) What is a forensic accountant? How can such an accountant help China Huishan Dairy at this point?

5. (Advanced) What is restricted cash? Why is that type of account balance the only cash that the company is able to locate?

Reviewed By: Judy Beckman, University of Rhode Island

"Cash Goes Missing at Giant Chinese Dairy by: Wayne Ma, The Wall Street Journal, June 6, 2017 ---
https://www.wsj.com/articles/china-huishan-dairys-latest-headache-missing-millions-1496659961?mod=djem_jiewr_AC_domainid

The embattled company says its debt load has risen

One of China’s largest dairies says it is missing most of its cash and has fallen more deeply in debt, further clouding its future following the disappearance of its treasurer and the departure of nine of its 10 board members.

China Huishan Dairy Holdings Co., which says it operates the largest number of dairy farms in China, said Monday in a regulatory filing to the Hong Kong stock exchange that it should have had about 2.9 billion yuan ($426 million) in cash and cash equivalents as of March 31.

Instead, the company said that as of May 31 it could locate only about 467 million yuan, most of which is tied up in restricted bank deposits.

“This significant discrepancy is subject to further clarification,” Huishan said, adding that it has “encountered tremendous difficulties” in preparing its financial statements due to the “resignations of key personnel in the group’s treasury department.”

Huishan said it would hire a forensic accountant to investigate the matter.

Huishan also said it was 26.73 billion yuan in debt at the end of March, up from about 16.04 billion yuan just six months prior. It added that, as of last week, there are 16 new legal proceedings against the company by creditors claiming a total of about 422 million yuan.

Efforts to contact Huishan’s investor-relations offices in Shenyang and Hong Kong on Monday were unsuccessful. The company said in Monday’s filing that it “would continue to work with its advisers, creditors and other stakeholders toward formulating and negotiating a possible debt-restructuring plan.”

Robin Yuen, a consumer analyst at RHB Securities, said the latest filing indicates the company’s financial problems are even more significant than previously understood.

The filing is the latest in a series of disclosures that followed a sharp drop in the company’s stock, leading to trading of its shares being halted on the Hong Kong stock exchange.

Ge Kun, an executive director and co-owner of the company, disappeared after sending a letter dated March 21 to Huishan Chairman Yang Kai, saying she was taking a leave of absence due to “recent work stress” and didn’t want to be contacted, previous filings show.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 9, 2017

GM Chief Wins Time to Bolster Shares
by: Mike Colias
Jun 07, 2017
Click here to view the full article on WSJ.com

TOPICS: Corporate Governance, Proxy Statement

SUMMARY: At the General Motors annual meeting on Tuesday, June 6, 2017, sharholders voted on the David Einhorn/Greenlight capital proposal to split the company's stock into two classes. That proposal was covered in this review and is discussed in more detail in the related article. The proposal also would replace three board members. "Shares of GM were little changed at $34.43 on Tuesday," June 6, 2017 after the company's shareholder vote at its annual meeting. The results are viewed as a victory for CEO Mary Barra. Though GM stock has declined more than 10% during her three year tenure, the company's financial results have been consisted and there have been share buybacks aimed at maintaining the share price.

CLASSROOM APPLICATION: The article may be used to cover the annual meeting, proxy process, and/or general corporate governance in a financial reporting class. It also may be used when covering stock splits, though the nature of the proposal by Einhorn/Greenlight Capital versus a traditional stock split must be emphasized.

QUESTIONS: 
1. (Advanced) Who is David Einhorn? What proposals did he and his firm put forth for a vote at General Motors Company's annual meeting on Tuesday, June 6, 2017? (Hint: referring to the related article will help with this answer.)

2. (Introductory) How did the GM sharholders vote on these proposals?

3. (Advanced) Was the Einhorn/Greenlight Capital proposal a traditional stock split? Explain your answer.

4. (Advanced) How could the Einhorn/Greenlight Capital proposal represent "financial engineering that would have hampered the company's ability to manage cyclical downturns and invest in future technologies"? Who argued this point of view to the GM Board of Directors?

5. (Advanced) How does the vote represent a "victory for [CEO Mary] Barra"?

6. (Introductory) What accounting results has Ms. Barra achieved in leading GM?

7. (Advanced) How have those accounting results related to GM's share price?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
GM Under Pressure to Divide Stock
by David Benoit and Mike Colias
Mar 29, 2017
Page: B1

 

"GM Chief Wins Time to Bolster Shares," by Mike Colias, The Wall Street Journal, June 7, 2017 ---
The article is no longer available

Stock Split --- https://en.wikipedia.org/wiki/Stock_split

Teaching Case from The Wall Street Journal Accounting Weekly Review on June 2, 2017

Companies Quit Splits, Letting Share Prices Soar
by: Erik Holm and Ben Eisen
May 27, 2017
Click here to view the full article on WSJ.com

TOPICS: Stock Split

SUMMARY: Stock splits are now rare. Consequently, the average price of a share traded on U.S. exchanges has nearly doubled from its longstanding rate of $30 to $50 through 2010. Contrasting viewpoints about the cons of splits are given from Berkshire Hathaway and Amazon, whose shares trade at nearly $250,000 and nearly $1,000 each, respectively, versus pros from Ball Corp., one of the two S&P 500 companies that spit its stock in 2017.

CLASSROOM APPLICATION: The article may be used to discuss stock splits in a financial reporting course covering stockholders' equity.

QUESTIONS: 
1. (Advanced) What is a stock split? Why does the author write that "nothing changes fundamentally about the company with a stock split"?

2. (Advanced) What is the accounting impact of a stock split? How does that reflect the statement of nothing changing fundamentally from this transaction?

3. (Introductory) Refer to the related graphic entitled "Out of fashion." What are the two lowest points of stock split frequencies? Why do you think the lowest point occurs-what was going on in the stock market at that time?

4. (Advanced) Refer to the related article. What are the reasons in favor of stock splits?

5. (Introductory) How does the Amazon shareholder request at Amazon's annual meeting reflect the desire for one of these benefits?

6. (Advanced) Again refer to the related article. What are the arguments against stock splits?

7. (Introductory) What types of investors prefer not to see stock splits? How does that preference reflect a changing stock marketplace today versus years ago?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Split Decision: The Pros and Cons of Splitting Shares
by Erik Holm and Ben Eisen
May 26, 2017
Online Exclusive

 

"Companies Quit Splits, Letting Share Prices Soar," by Erik Holm and Ben Eisen, The Wall Street Journal, May 27, 2017 ---
https://www.wsj.com/articles/amazons-brush-with-1-000-signals-the-death-of-the-stock-split-1495791009?mod=djem_jiewr_AC_domainid

Stock splits, once considered a way to keep shares affordable for mom-and-pop investors, are rare today as companies aspire to new heights

Big companies are giving up on the stock split.

On Thursday, shares of Amazon.com Inc. AMZN -0.82% almost brushed $1,000 before closing at $993.38.

The price increase, up from around $68 a decade ago, reflects the company’s growth and dominance. But it also marks the latest example of a company letting its stock price rise without engaging in a “split” that boosts the number of shares in order to lower the per-share price. Google parent Alphabet Inc.’s GOOGL -0.72% Class A shares also are now close to $1,000.

Other companies are aspiring to such heights. So far this year, only two S&P 500 companies have split their stock. In all of last year, six companies in the large-company index did. That’s down sharply from 20 years ago, when 93 S&P 500 firms split their shares, a rate of close to two per week, according to Birinyi Associates.

After decades of mostly remaining in a range between $25 and $50, the average stock in the S&P 500 is now trading above $98, the highest ever, according to Birinyi Associates.

A big stock price is “a new way of calling attention to yourself,” said William C. Weld, a finance professor at the University of North Carolina’s Kenan-Flagler Business School who has studied stock splits. It used to be that splitting shares signaled reliability and stability, he said. “Companies now are saying ‘look at us, we’re tough and strong.’ ”

In the 1990s, when stock picking for one’s own account was in vogue, companies also considered splits a way to keep shares affordable for mom-and-pop investors. Even though nothing changes fundamentally about the company with a stock split—it’s like trading a dime for two nickels—splits used to generate excitement and, often, a short-term pop for the shares.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 9, 2017

Exclusive Test Data: Many Colleges Fail to Improve Critical-Thinking Skills
by: Douglas Belkin
Jun 05, 2017
Click here to view the full article on WSJ.com

TOPICS: Accounting Careers, Accounting Education

SUMMARY: "Freshmen and seniors at about 200 colleges across the U.S. take a little-known test every year to measure how much better they get at learning to think." The results show little increase in critical thinking skills and many weaknesses in students' abilities. "At more than half of schools, at least a third of seniors were unable to make a cohesive argument, assess the quality of evidence in a document or interpret data in a table....At some of the most prestigious flagship universities, test results indicate the average graduate shows little or no improvement in critical thinking over four years."

CLASSROOM APPLICATION: The article may be used to discuss general education outcomes students should strive to achieve to satisfy employer demands for critical thinking skills.

QUESTIONS: 
1. (Advanced) What are critical thinking skills?

2. (Introductory) What types of classroom and assignment activities do you think develop critical thinking?

3. (Advanced) Do you seek out the classes at your school that offer these types of assignments? Explain your answer.

4. (Introductory) Refer to the full results from the 200 colleges at https://graphics.wsj.com/table/THINKTEST_0510 What factors are cited in the article as explaining these results?

5. (Advanced) Propose other factors that might explain these results. How would you test whether these factors predict the outcomes as you propose? How would you collect the data to conduct these tests?

Reviewed By: Judy Beckman, University of Rhode Island

"Exclusive Test Data: Many Colleges Fail to Improve Critical-Thinking Skills," by Douglas Belkin, The Wall Street Journal, June 5, 2017 ---
https://www.wsj.com/articles/exclusive-test-data-many-colleges-fail-to-improve-critical-thinking-skills-1496686662?mod=djem_jiewr_AC_domainid

Results of a standardized measure of reasoning ability show many students fail to improve over four years—even at some flagship schools, according to a Wall Street Journal analysis of nonpublic results

Freshmen and seniors at about 200 colleges across the U.S. take a little-known test every year to measure how much better they get at learning to think. The results are discouraging.

At more than half of schools, at least a third of seniors were unable to make a cohesive argument, assess the quality of evidence in a document or interpret data in a table, The Wall Street Journal found after reviewing the latest results from dozens of public colleges and universities that gave the exam between 2013 and 2016. (See full results.)

At some of the most prestigious flagship universities, test results indicate the average graduate shows little or no improvement in critical thinking over four years.

Some of the biggest gains occur at smaller colleges where students are less accomplished at arrival but soak up a rigorous, interdisciplinary curriculum.

For prospective students and their parents looking to pick a college, it is almost impossible to figure out which schools help students learn critical thinking, because full results of the standardized test, called the College Learning Assessment Plus, or CLA+, are seldom disclosed to the public. This is true, too, of similar tests.

Some academic experts, education researchers and employers say the Journal’s findings are a sign of the failure of America’s higher-education system to arm graduates with analytical reasoning and problem-solving skills needed to thrive in a fast-changing, increasingly global job market. In addition, rising tuition, student debt and loan defaults are putting colleges and universities under pressure to prove their value.

A survey by PayScale Inc., an online pay and benefits researcher, showed 50% of employers complain that college graduates they hire aren’t ready for the workplace. Their No. 1 complaint? Poor critical-reasoning skills.

“At most schools in this country, students basically spend four years in college, and they don’t necessarily become better thinkers and problem solvers,” said Josipa Roksa, a University of Virginia sociology professor who co-wrote a book in 2011 about the CLA+ test. “Employers are going to hire the best they can get, and if we don’t have that, then what is at stake in the long run is our ability to compete.”

International rankings show U.S. college graduates are in the middle of the pack when it comes to numeracy and literacy and near the bottom when it comes to problem solving.

The CLA+ test raises questions about the purpose of a college degree and taps into a longstanding debate about the role of colleges: Are they are designed to raise students’ intellectual abilities or to sort high-school graduates so they can find the niche for which they are best suited?

The role of a diploma as signal of ability has been in the ascendancy recently, given how having a degree is closely related to graduates’ lifetime earnings. The test data, by contrast, show that many students earn their degrees without improving their ability to think critically or solve problems.

Tests such as the CLA+ can be used to fulfill a mandate by accreditors for schools to show that they are trying to assess and improve the education they provide.

The CLA+ measures critical thinking, analytical reasoning, problem solving and writing because it demands students manipulate information and data in real-world circumstances that require different abilities. It has been lauded by a federal commission that studied higher education in the U.S.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 9, 2017

Audit Finds Errors in Medicare Payouts
by: Melanie Evans
Jun 12, 2017
Click here to view the full article on WSJ.com

TOPICS: Auditing

SUMMARY: The article reports on audit findings by the Office of Inspector General of the Department of Health & Human Services (HHSOIG). The findings indicate that Medicaid and Medicare program's overseer, the Centers for Medicare and Medicaid Services, paid out an estimated excess of $729 million to doctors and other health care providers. As written on their web site, this office's mission "... is to protect the integrity of Department of Health & Human Services (HHS) programs as well as the health and welfare of program beneficiaries.... HHS OIG is the largest inspector general's office in the Federal Government, with approximately 1,600 dedicated to combating fraud, waste and abuse and to improving the efficiency of HHS programs. A majority of OIG's resources goes toward the oversight of Medicare and Medicaid..." The web page of the Office of Inspector General of the Department of Health & Human Services can be found at https://oig.hhs.gov/oas/reports/region5/51400047.asp The report on which this article is based is located at https://oig.hhs.gov/oas/reports/region5/51400047.asp

CLASSROOM APPLICATION: The article may be used in an audit class to discuss operational auditing and audit sampling.

QUESTIONS: 
1. (Advanced) Who conducted the audit of the Centers for Medicare and Medicaid Services? Describe the nature and objective of this agency.

2. (Introductory) The audit discussed in this article found "an estimated $729 million [paid erroneously] to doctors and other health professionals." What were the errors and inaccuracies found? How did they form the basis for the erroneous payments?

3. (Advanced) Why is the amount estimated at $729 million? Why could the audit not produce an exact number of incorrect payments?

4. (Advanced) What is audit sampling?

5. (Introductory) On what sample were these audit findings based?

Reviewed By: Judy Beckman, University of Rhode Island

"Audit Finds Errors in Medicare Payouts by: Melanie Evans, The Wall Street Journal, June 16, 2017 ---
https://www.wsj.com/articles/medicare-erroneously-paid-millions-in-electronic-records-push-audit-finds-1497240060?mod=djem_jiewr_AC_domainid

Office of Inspector General review estimates $729 million improperly paid in incentives over three years

Medicare erroneously paid an estimated $729 million to doctors and other health professionals under a multibillion-dollar federal initiative designed to shift the health-care system from paper records to computer files, according to a new federal audit.

The U.S. Department of Health and Human Services Office of Inspector General, which conducted the audit, said Medicare, over a three-year period, improperly paid health professionals who vouched they earned bonus payments under the initiative, but who either lacked required proof or failed to meet bonus criteria.

The Centers for Medicare and Medicaid Services, the agency that oversees Medicare, should review its incentive payments and recoup any money erroneously paid and do more to scrutinize spending under the incentive program, OIG auditors said in a report of its audit. The program was created by 2009 legislation to accelerate use of electronic health records.

CMS “conducted minimal documentation reviews,” the report said, “leaving the EHR program vulnerable to abuse and misuse of federal funds.”

The audit estimated improper payments totaled 12% of the approximately $6.1 billion Medicare paid out as electronic health-record incentives to professionals during the three years reviewed by auditors.

Auditors based the estimate on a review of 100 health professionals who vouched they earned bonuses between May 2011 and June 2014. To do so, health professionals must meet several criteria, such as using computers to order prescriptions and transfer health data electronically. Rules also require professionals to monitor cybersecurity.

Auditors said they found, in that sample of 100, 14 health professionals who reported incorrect information or who couldn’t produce required documents or other proof they met bonus criteria, including six without evidence of cybersecurity efforts. The 14 professionals were paid $291,222 in that three-year period.

In a February letter responding to the OIG findings, then-acting CMS Administrator Patrick Conway touted the rapid use of electronic health records under the initiative and said Medicare would recoup improper payments to professionals included in the sample audited by the OIG.

Dr. Conway said CMS also launched targeted audits “to strengthen the program integrity,” which continue this year.

The OIG report, however, said it didn’t believe the targeted audits would be enough.

“This administration is committed to turning the page and ushering in a new era of accountability,” CMS officials said in a statement responding to the audit. “Providing high-quality care to Medicare beneficiaries while being responsible stewards of taxpayer dollars remains a top CMS priority, and we recognize the value data validation and auditing bring to our programs.”

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 9, 2017

Quandary on Debt-Ceiling Timing
by: Kate Davidson
Jun 12, 2017
Click here to view the full article on WSJ.com

TOPICS: Governmental Accounting, Treasury Department

SUMMARY: The Trump Administration has not provided details or a date for when the government may need to lift its legal debt limit in order to keep operating. Further, "the Treasury has been unable to raise additional cash from securities sales since the government hit the $20 trillion debt ceiling in mid-March." Treasury Secretary Steve Mnuchin will speak before Congress three times during the week ending Friday June 16, 2017; lawmakers are expected to push him for a date. The related article discusses reasons for an increase in the budget deficit for the fiscal year ending September 30, 2017 beyond amounts projected by the Congressional Budget Office.

CLASSROOM APPLICATION: The article may be used in a governmental accounting class to discuss budget deficits, deficit spending, cash budgeting and U.S. government debt.

QUESTIONS: 
1. (Advanced) Why is it certain that the U.S. government will run out of cash to operate before the end of the fiscal year on September 30, 2017? In your answer, define deficit spending and comment on how closely tied are a governmental unit's revenues and expenditures to their cash flows.

2. (Advanced) How can the U.S. Treasury determine when it will run out of cash? Be specific on what items must be estimated and what items are known with certainty or very little estimation.

3. (Introductory) Why is it so important that the U.S. Congress have a target date for when the government is expected to run out of funds? What is Congress's role versus the Treasury's role in managing that problem?

4. (Introductory) Refer to the related article. How large is the budget deficit to date for the current fiscal year?

5. (Introductory) Why is that budget deficit larger than anticipated by the Congressional Budget Office earlier this year? Specifically discuss the potential reasons why there are fewer federal receipts than expected.

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
U.S. Budget Deficit Widens
by Jeffrey Sparshott and Kate Davidson
Jun 12, 2017
Online Exclusive

"Quandary on Debt-Ceiling Timing," by Kate Davidson, The Wall Street Journal, June 12, 2017 ---
https://www.wsj.com/articles/capitol-hill-lacks-clarity-on-debt-ceiling-date-1497193228?mod=djem_jiewr_AC_domainid

Treasury secretary has urged lawmakers to address the debt ceiling, but hasn’t said publicly when the government will run out of cash

U.S. lawmakers face a big unknown six weeks before they leave Washington for summer recess: The government could run out of cash before they get back or soon after their return, but the Trump administration isn’t saying when.

Mixed messages and a dearth of details from the administration have led to confusion on Capitol Hill and in markets over when exactly Congress needs to lift the debt ceiling.

The Treasury has been unable to raise additional cash from securities sales since the government hit the $20 trillion debt ceiling in mid-March. Since then, Treasury has been using extraordinary measures, such as redeeming certain investments in federal pensions programs and suspending new investments in those programs, to raise cash. At some point in the coming months, the Treasury will exhaust those measures and run too low on cash to make all of its payments in full and on time unless the debt limit is raised and it can once again sell bonds.

Lack of clarity complicates the administration’s efforts to convince lawmakers to raise the debt limit sooner rather than later.

“Congress is going to need to know what the deadline is, because until they actually focus on a specific date, it’s going to be hard to come up with a strategy to get the increase done,” Goldman Sachs political economist Alec Phillips said.

Treasury Secretary Steven Mnuchin urged lawmakers last month to deal with the debt ceiling before they leave for the summer on July 28, but stopped short of saying when the government will run out of cash. On Friday he told reporters “we will be fine” if Congress doesn’t raise the ceiling before August.

“This is not an issue, but I don’t want to leave any doubt we have plans, and backup plans, for funding the government,” he said. Asked to elaborate, he said, “They are Treasury secretary super powers,” a phrase he has used in the past to refer to the extraordinary measures.

Mr. Mnuchin’s remarks Friday suggest Treasury doesn’t see those measures running out before lawmakers return from their recess on Sept. 5. A Treasury spokesman didn’t respond to a request seeking further clarification. The comments could be interpreted by Congress as a reason to delay action until then, despite Mr. Mnuchin’s earlier entreaties to act sooner.

Lawmakers will likely try to pin him down this week when he testifies on Capitol Hill three separate times, starting Monday afternoon, on the president’s budget.

Typically, the Treasury secretary provides details about timing in a letter to Congress several months in advance of a potential debt-ceiling breach. In 2011, for example, Treasury Secretary Tim Geithner notified Congress on April 4 that Treasury expected to run out of room to meet obligations around July 8. In 2015, Secretary Jacob Lew told Congress on July 29 that extraordinary measures would last until the end of October or shortly thereafter.

Mr. Mnuchin sent letters to lawmakers in March detailing the extraordinary measures Treasury had begun using, but didn’t say when he expected to run out of room to pay the government’s bills.

The Bipartisan Policy Center, a Washington think tank, is expected to release an updated analysis Monday showing Treasury will exhaust its extraordinary measures in October or November, unchanged from their earlier projections.

One uncertainty surrounding forecasts is that government revenues have been lower in recent months than previously expected, possibly due to individuals and businesses delaying tax payments in anticipation of GOP tax cuts. If the trend continues, it could cause Treasury to run out of room sooner, analysts have said.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 9, 2017

Roth vs. Traditional 401(k): Study Finds a Clear Winner
by: Demetria Gallegos
Jun 12, 2017
Click here to view the full article on WSJ.com

TOPICS: IRAs

SUMMARY: Roth IRA accounts do not provide a tax shelter against current income; contributions are made after taxing those earnings. A traditional IRA provides a tax deduction against current earnings but withdrawals from the account are subject to tax. Typically one would expect to pay a higher tax rate on current income than on retirement income, making the traditional IRA the appealing option when choosing a retirement savings vehicle. However, "when researchers at Harvard Business School looked at Roth 401(k) accounts across a range of industries at companies with 10,000 or more employees, they found that savers using Roths ended up ahead." Reasons had to do with behavioral factors, e.g. rules of thumb individuals will apply in deciding how to save. The article discusses the issues via an interview of one of the Harvard researchers, John Beshears. The research paper, also linked in the article is available here http://www.hbs.edu/faculty/Pages/item.aspx?num=49743

CLASSROOM APPLICATION: The article may be used in a tax class to discuss behavioral influences on tax strategies.

QUESTIONS: 
1. (Advanced) What are Roth IRA accounts? How do they compare to tradition IRA accounts?

2. (Introductory) What rules of thumb do individuals use to decide on amounts to save for retirement?

3. (Advanced) How did Harvard Business School researchers investigate whether investors holding traditional or Roth individual retirement accounts (IRAs) ended up with greater savings for retirement?

4. (Introductory) Summarize the authors' findings about savings available during retirement to those who used Roth IRAs versus those who used traditional IRAs.

5. (Introductory) Do the authors recommend investing in a Roth IRA or a traditional IRA? Explain your answer.

Reviewed By: Judy Beckman, University of Rhode Island

"Roth vs. Traditional 401(k): Study Finds a Clear Winner," by Demetria Gallegos, The Wall Street Journal, June 12, 2017 ---
https://www.wsj.com/articles/roth-vs-traditional-401-k-study-finds-a-clear-winner-1497233040?mod=djem_jiewr_AC_domainid

People end up saving at the same rate with both—giving the advantage to Roth

New research shows that employees who choose a Roth 401(k) from their company’s menu of retirement plans might end up with more purchasing power in retirement than if they pick a traditional 401(k).

The Roth 401(k) is a relatively new offering, available just since 2006. Deposits in the Roth account are after-tax, so the savings grow tax-free. With traditional 401(k)s, by contrast, account holders get to deduct their contributions from their income, but taxes are due when those funds are withdrawn, usually during retirement and at a lower tax rate because the saver is no longer working.

Both accounts have their advantages. But when researchers at Harvard Business School looked at Roth 401(k) accounts across a range of industries at companies with 10,000 or more employees, they found that savers using Roths ended up ahead. The reasons were surprising.

We asked the lead author of the forthcoming study, John Beshears, a behavioral economist and assistant professor of business administration at Harvard Business School, to explain. Edited excerpts of the interview follow.

WSJ: What did you find for people who used the Roth 401(k) option, compared with those who used the traditional 401(k)?

MR. BESHEARS: What we found is that people didn’t save any differently, in the sense that they still had the same total contribution rate. But with the Roth 401(k), that actually translates into more purchasing power in retirement.

WSJ: Why is that?

MR. BESHEARS: The American tax system is extremely complicated. People very reasonably use rules of thumb to guide their financial decisions, especially in the face of complexity. Some common rules of thumb for saving in a 401(k) are to contribute the amount necessary to earn the maximum employer matching contribution, or to contribute the maximum amount allowed in the plan. Another ubiquitous suggestion is to save 10% of pretax income. If they switch over into a Roth and do not adjust their rule of thumb, they’re in effect saving more.

WSJ: Walk us through that.

MR. BESHEARS: It feels like you’re following the same rule—I’m saving 10%. But it makes a big difference if you’re doing it in the traditional 401(k) or the Roth.

In the case of the traditional 401(k), taxes are still due when you withdraw money in retirement. In fact, you are probably in a lower tax bracket in retirement, so you pay taxes at a lower rate than when you were working. In a sense, you could have put more money in the account back when you were working to cover future taxes, but you didn’t because no one does that if they’re following a rule of thumb.

But in the case of the Roth 401(k), the whole amount is yours in retirement. You could have put in less money back then because you had to pay taxes due at that time, but you didn’t, again because of the rule of thumb. The Roth fund is worth more because every single dollar in the account can be withdrawn tax-free.

WSJ: So what kind of difference are we talking about, come retirement?

MR. BESHEARS: If a worker saves $5,000 a year in a 401(k) for 40 years and earns 5% return a year, the final balance will be more than $600,000. If the 401(k) is a Roth, the full balance is available for retirement spending. If the 401(k) is a traditional one, taxes are due on the balance. Let’s say the person’s tax rate is 20% in retirement. That makes for a difference of $120,000 in spending power, which a life annuity will translate into about $700 a month in extra spending.

WSJ: So investors are almost accidentally saving more on a Roth 401(k) by keeping round numbers to meet their rule-of-thumb goal.

MR. BESHEARS: Indeed, it’s just a difference of whether you’re paying your taxes now or later. With the Roth 401(k), you’re paying the taxes now. You’re sacrificing today for more spending power in retirement.

WSJ: Do you recommend the Roth 401(k) over the traditional pretax option?

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 9, 2017

Unit's Woes Stun Toshiba
by: https://www.wsj.com/articles/toshiba-didnt-know-its-nuclear-unit-was-preparing-for-bankruptcy-timeli
Jun 09, 2017
Click here to view the full article on WSJ.com

TOPICS: Internal Controls, Material Weakness

SUMMARY: The article follows on previous coverage of this topic in this weekly review. Several articles have been covered; one is referenced as a related article. Westinghouse Corp. has run nuclear projects in Georgia and South Carolina that have been delayed and hence generated cost overruns. The losses from the project have put Westinghouse's ability to remain a going concern in question. The losses are so great that its Japanese parent, Toshiba, has reported its own question about remaining a going concern and faces delisting of its stock. Its auditor has disclaimed an opinion on Toshiba's financial statements. This article focuses on when Toshiba's management knew of Westinghouse's steps towards a bankruptcy filing. Either Toshiba management should have disclosed the bankruptcy possibility or the lack of knowledge indicates a material weakness in internal control.

CLASSROOM APPLICATION: The article may be used in an auditing class to discuss management review level internal controls.

QUESTIONS: 
1. (Introductory) When was Toshiba management made aware that its U.S. subsidiary, Westinghouse, was taking steps towards U.S. bankruptcy proceedings?

2. (Advanced) Why is it important to determine when the parent company management learned of these steps towards bankruptcy filing?

3. (Advanced) What disclosure is required in financial statements if the company had initiated consideration of bankruptcy proceedings?

4. (Advanced) Toshiba's auditors have questioned the company's internal controls over its management of the subsidiary Westinghouse. What facts in the article indicate significant deficiencies or material weaknesses in internal controls? In your answer, define these two terms.

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Toshiba Warns It May Be Unable to Stay in Business
by Takashi Mochizuki
Apr 02, 2017
Page: B3

"Unit's Woes Stun Toshiba," The Wall Street Journal, June 9, 2017 ---
https://www.wsj.com/articles/toshiba-didnt-know-its-nuclear-unit-was-preparing-for-bankruptcy-timeline-shows-1496922977?mod=djem_jiewr_AC_domainid

Westinghouse Electric filed for bankruptcy protection in March

TOKYO— Toshiba Corp. TOSYY 3.85% didn’t know its U.S. nuclear subsidiary was preparing for a bankruptcy filing even after the unit had hired lawyers for the task, according to court records and Toshiba’s official timeline.

In a Nov. 30, 2016, letter, a lawyer at New York firm Weil, Gotshal & Manges LLP wrote that Toshiba unit Westinghouse Electric Co. had engaged the firm to work on “the potential filing and administration of a chapter 11 proceeding under the United States Bankruptcy Code.”

A Toshiba spokesman, reiterating earlier statements by company executives, said this week that no one at Tokyo headquarters was aware of the potential for major losses or bankruptcy at Westinghouse until early December 2016. Toshiba Chief Executive Satoshi Tsunakawa learned of the problem in mid-December, the spokesman said.

At a news conference on Dec. 27, Mr. Tsunakawa said Toshiba was facing a multibillion-dollar loss in connection with cost overruns at Westinghouse nuclear projects in the U.S. but didn’t discuss a possible bankruptcy

If Toshiba’s timeline is accurate, it suggests poor communication between parent and subsidiary contributed to letting the problems at Westinghouse get out of hand. Toshiba, one of Japan’s biggest and oldest conglomerates, has said it has doubts whether it is a going concern because of its unit’s bankruptcy.

Conversely, if Toshiba did know about the unit’s bankruptcy plans ahead of time but failed to disclose them promptly, it could worsen trust among investors at a time when stock-exchange officials in Tokyo are weighing whether to delist Toshiba shares.

Cost overruns and delays have long plagued nuclear-reactor projects undertaken by Westinghouse in Georgia and South Carolina. Some analysts had speculated for years that Toshiba might take a large hit on its Westinghouse holding. The Japanese company announced a write-down of some Westinghouse goodwill in April 2016 but maintained the nuclear unit had a bright future until revealing the larger losses at the Dec. 27 news conference.

The Toshiba spokesman said the company began to consider a bankruptcy filing by its U.S. subsidiary around the time of that news conference—about a month after the U.S. unit had already hired lawyers to prepare the filing.

Westinghouse filed for protection from creditors under chapter 11 on March 29. Toshiba, which owned 87% of Westinghouse at that point, has estimated that Westinghouse-related write-downs led to a loss of ¥950 billion ($8.65 billion) in the year ended March 31, 2017.

A Westinghouse spokeswoman declined to comment. Lawyers at Weil Gotshal didn’t respond to requests for comment.

The November letter was part of court records released in April, but it didn’t get wide notice at the time.

In 2016 and early 2017, a key executive on the nuclear issue was Shigenori Shiga, who was chairman of Toshiba and long responsible for the company’s energy business including Westinghouse, where he had earlier served as chairman of the board.

Toshiba’s account suggests either that Mr. Shiga didn’t know Westinghouse had hired lawyers for a possible bankruptcy filing or, if he did know, that he didn’t immediately convey news of the preparations to board colleagues in Tokyo including Toshiba’s CEO. Toshiba declined to make Mr. Shiga available for comment and he couldn’t be located.

Toshiba didn’t get its auditor’s approval for October-December 2016 quarterly results and has yet to release audited results for the full fiscal year ended March 2017, citing a dispute with its auditor over whether its internal controls were adequate in accounting for Westinghouse.

A self-regulatory body at Japan Exchange Group Inc., which operates the Tokyo Stock Exchange, is reviewing Toshiba’s status for possible delisting after a previous accounting scandal

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 9, 2017

Hidden in Plain Sight: A Powerful Way to Beat the Market
by: Justin Lahart
Jun 14, 2017
Click here to view the full article on WSJ.com

TOPICS: 10-K, Disclosure, Disclosure Requirements

SUMMARY: Annual reports and Form 10-K filings contain repeated and/or boilerplate disclosures often described as better at satisfying legal requirements than at informing investors. "When the language in filings does change, investors should sit up and notice." Apparently, they don't. This article reports on a research paper by Cohen, Malloy and Nguyen (2016). These authors use textual software to identify significant consistency or change in disclosure from one period to the next in reporting on forms 10-K and 10-Q. As they state in their abstract, "a portfolio that shorts "changers" and buys "non-changers" earns up to 188 basis points per month (over 22% per year) in abnormal returns in the future. These reporting changes are concentrated in the management discussion (MD&A) section. Changes in language referring to the executive (CEO and CFO) team, or regarding litigation, are especially informative for future returns." The paper is available on SSRN: Cohen, Lauren and Malloy, Christopher J. and Nguyen, Quoc H., Lazy Prices (February 10, 2016). Available at SSRN: https://ssrn.com/abstract=1658471 or http://dx.doi.org/10.2139/ssrn.1658471

CLASSROOM APPLICATION: The article may be used in any financial reporting class to discuss disclosure overload, concerns with boilerplate disclosure, or the use of academic research to analyze disclosures.

QUESTIONS: 
1. (Introductory) How many words does the average annual report filing on Form 10-K contain?

2. (Advanced) Is it more than just the sheer volume of words in an annual report that is problematic for investors seeking information about a publicly traded company? Explain your answer.

3. (Introductory) What changes in annual reports did researchers Cohen, Malloy and Nguyen investigate? How did they conduct their research?

4. (Advanced) What level of investor returns did the researchers estimate could be earned by exploiting knowledge of changes in annual reports? How did they calculate these returns?

Reviewed By: Judy Beckman, University of Rhode Island

"Hidden in Plain Sight: A Powerful Way to Beat the Market," by Justin Lahart, The Wall Street Journal, June 14, 2017 ---
https://www.wsj.com/articles/hidden-in-plain-sight-a-powerful-way-to-beat-the-market-1497367597?mod=djem_jiewr_AC_domainid

The strategy is to track whether companies’ regulatory filings change

Companies are a little lazy about what they put into regulatory filings. Investors are profoundly lazy about reading them.

Compare a company’s most recent annual report to its previous one, and you will quickly notice the language doesn’t change much. Hot-dog seller Nathan’s Famous has talked about the damage done to its flagship Coney Island location in 2012 in the exact same language three years in a row.

Do investors still care?

Nathan’s isn’t taking any chances, nor do other companies. There is, says Harvard Business School economist Lauren Cohen, an incredible amount of inertia in the language companies use in quarterly and annual regulatory filings, known as 10-Qs and 10-Ks respectively. That is partly because corporate lawyers push back against alterations, worried they might expose a company to legal risks.

When the language in filings does change, investors should sit up and notice. Not that they do.

Mr. Cohen and economists Christopher Malloy and Quoc Nguyen downloaded all the 10-K and 10-Q filings with the Securities and Exchange Commission from 1994 through 2014 and used textual-analysis software to create a similarity score showing how the language in corporate filings differed one period to the next.

They then looked at stock performance following filings. The finding: Shares of companies that had significant changes did much worse than those of companies that didn’t. This was particularly true when it came to changes in the risk factors section of 10-Ks.

Indeed, a strategy of buying shares of companies with no significant risk-factor changes and betting against companies with major changes would have returned more than 22 percentage points more than the overall market annually.

The similarity score for data-storage company NetApp, for example, fell sharply when it released its 10-K in June 2011. The company’s shares had more than quadrupled from their financial-crisis low, but that run ended. Over the next year, its stock fell 41% while the S&P 500 rose 4%.

Tracking risk-factor changes is something even investors without programming chops can do for themselves. Professionals can use services such as FactSet, which has a function called blackline to highlight differences in filings. Individual investors can accomplish as much by pasting text from two 10-Ks into separate Microsoft Word documents and using the compare function, or by using text comparison sites such as textdiff.com.

In the 10-K it released in March 2014, copper and fiber-optic wire maker General Cable added a paragraph to its risk factors stating it was reviewing commission payments to its subsidiary in Angola. That September, it announced it was investigating possible bribe payments in Angola, Thailand and India, and its stock fell sharply.

The stock underperformance of companies that make big changes to their risk factors suggest that, as a group, they aren’t merely updating their filings to reflect risks that investors have already learned about, but providing information about emerging ones.

What is really striking, however, is that the stock market reaction to these risk-factor changes occur gradually. Companies are providing investors with material information, and investors aren’t noticing it.

Some of that probably has to do with the form in which the information is getting provided. Annual reports are big, and getting bigger. University of Notre Dame economist Bill McDonald finds that the average 10-K filed last year weighed in at over 26,000 words, nearly three times as many as 20 year ago. That is the equivalent to the text on around 10 full pages in The Wall Street Journal, but about 100 times duller

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 23, 2017

Fed Raises Rates, Sets Out Plan to Shrink Asset Holdings Beginning this Year
by: Nick Timiraos
Jun 15, 2017
Click here to view the full article on WSJ.com

TOPICS: Banking

SUMMARY: "The Federal Reserve said it would raise short-term interest rates and spelled out in greater detail its plans to start slowly shrinking its $4.5 trillion portfolio of bonds and other assets this year." The article focuses on the economy and economic implications of this policy. For accounting focus, the related graphic lists the assets and liabilities on the Federal Reserve Bank's balance sheet.

CLASSROOM APPLICATION: The article may be used in any class covering banking and bank balance sheets.

QUESTIONS: 
1. (Introductory) What policy has the Federal Reserve Bank Chairwoman Janet Yellen announced?

2. (Introductory) Refer to the related graphic entitled "Building the Fed Balance Sheet." What assets are held by the U.S. Federal Reserve Bank (the Fed)?

3. (Advanced) Which of the assets held by the Fed support the goal of encouraging "businesses and consumers to borrow, spend and invest"?

4. (Introductory) What liabilities are held by the Fed?

5. (Advanced) Why is U.S. currency in circulation listed as a liability on this balance sheet? In your answer, also consider how any local bank presents its customers' demand deposits (e.g., checking accounts) on its balance sheet.

6. (Advanced) How do the planned changes to the Fed's balance sheet, "together with the decision to raise interest rates, ... show confidence in the economic expansion..."?

Reviewed By: Judy Beckman, University of Rhode Islan

"Fed Raises Rates, Sets Out Plan to Shrink Asset Holdings Beginning this Year," by Nick Timiraos, The Wall Street Journal, June 15, 2017 ---
https://www.wsj.com/articles/fed-raises-rates-sets-out-plan-to-shrink-asset-holdings-beginning-this-year-1497463322?mod=djem_jiewr_AC_domainid

Central bank pencils in one more rate increase later this year if the economy performs as expected

WASHINGTON—The Federal Reserve said it would raise short-term interest rates and spelled out in greater detail its plans to start slowly shrinking its $4.5 trillion portfolio of bonds and other assets this year.

The moves on Wednesday mark the latest test of the economy’s ability to grow on its own as the central bank dials back the unprecedented stimulus measures it unleashed through successive bursts of bond purchases after the 2008 financial crisis.

“The economy is doing very well, is showing resilience,” said Fed Chairwoman Janet Yellen at a news conference following the Fed’s two-day policy meeting.

The Fed said it would increase its benchmark federal-funds rate on Thursday by a quarter percentage point to a range between 1% and 1.25% and penciled in one more increase later this year if the economy performs in line with its forecast.

Together with the decision to raise interest rates, the balance-sheet plans show confidence in the economic expansion, which has been unspectacular but is also the third-longest on record.

“We should want the Fed to raise rates because it signals something good about the underlying economy,” said Tobias Levkovich, chief U.S. equity strategist at Citigroup . “When it gets overheated and the Fed has to cut if off, that’s when you get worried.”

Markets were little changed after the widely expected moves. The Dow Jones Industrial Average rose 46.09 points, or 0.2%, to a fresh high of 21374.56. The S&P 500 fell 2.43 points, or 0.1%, to 2437.92.

Wednesday’s decisions mark a new chapter for the Fed and Ms. Yellen, whose tenure has been defined by meticulous plans to slowly drain reservoirs of stimulus that she and other Fed leaders forcefully advocated in response to the financial crisis that deepened the 2007-09 recession.

Ms. Yellen’s tenure as Fed chairwoman began in early 2014, as the Fed began to slow its purchases of Treasury and mortgage securities, the conclusion of the latest—and broadest—effort to spur household and business investment by pushing down long-term interest rates.

The Fed stopped adding to its holdings, also known as its balance sheet, in October 2014, but it has continued to reinvest the proceeds of maturing assets to maintain the portfolio’s size. Since then, central bankers in Europe and Japan have ramped up similar bond-buying experiments.

“The Fed has done a tremendous job helping the economy grind its way out of an extremely deep and disruptive recession,” said Michael Gapen, chief U.S. economist at Barclays and a former Fed economist. “It generally operated alone and received a lot of criticism for doing what Congress asked it to do.”

Plans revealed by the Fed on Wednesday would start reducing the central bank’s holdings gradually by allowing a small amount of net maturities every month. It would start by allowing up to $6 billion in Treasury securities and $4 billion in mortgage bonds to roll off without reinvestment, and let those amounts rise each quarter, essentially setting a speed limit for the wind-down.

The limits would ultimately rise to a maximum of $30 billion a month for Treasurys and $20 billion a month for mortgage-backed securities.

Ms. Yellen said if the economy performed in line with the central bank’s forecasts, the Fed could set those plans into motion “relatively soon,” which market strategists believe could mean September or October.

Officials have taken pains to communicate their strategy in advance to avoid a rerun of the 2013 “taper tantrum,” when investor concerns over the Fed’s decision to slow down asset purchases triggered market turmoil, including a sharp increase in Treasury yields and capital outflows from emerging markets.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 23, 2017

For CFOs, Tax Overhaul Is a Leap Into the Unknown
by: Tatyana Shumsky and Vipal Monga
Jun 16, 2017
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 

TOPICS: CFO, Tax Policy, Tax Reform

SUMMARY: U.S. chief financial officers met this week at a networking meeting hosted by the Wall Street Journal. Qualcomm's CFO, George Davis, is quoted as saying during that meeting, "There's an expectation happening now that the U.S. will have a lower corporate tax rate...To the extent it doesn't, it would be a negative." Yet there are now several initiatives drawing Congressional attention and both members of Congress and CFOs attending this meeting express wide divergence of opinions on what deductions should be removed to offset a proposed tax rate cut. Qualcomm-like many multinationals-is particularly invested in efforts to change the code to allow companies to repatriate their foreign earnings without paying hefty U.S. taxes on them.

CLASSROOM APPLICATION: The article may be used in a corporate tax or international tax class.

QUESTIONS: 
1. (Introductory) List the items about which corporate CFOs expressed concern at the recent CFO Network meeting hosted by the Wall Street Journal. Explain your understanding of each of the issues listed.

2. (Advanced) How do each of those concerns relate to proposals to overhaul the U.S. tax code and to reduce overall U.S. tax rates?

3. (Introductory) Specifically consider the "border tax" proposal. How is Representative Kevin Brady reacting to corporate concerns about that proposal? How would this change help implement such a tax approach? The related video helps to answer this question.

4. (Advanced) What is the problem with Congress taking an approach of "temporariliy" changing tax code only to have the changes reverse in 10 years' time?

Reviewed By: Judy Beckman, University of Rhode Island

"For CFOs, Tax Overhaul Is a Leap Into the Unknown," by Tatyana Shumsky and Vipal Monga, The Wall Street Journal, June 16, 2017 ---
https://www.wsj.com/articles/for-cfos-tax-overhaul-is-a-leap-into-the-unknown-1497605408?mod=djem_jiewr_AC_domainid

Republican leaders in Congress are optimistic about tax overhaul, while finance execs sweat the specifics

Finance chiefs are still hoping for a U.S. tax overhaul within the next 12 months, but a fragmented attention span in Congress has many making mental adjustments to when a lower tax rate would actually materialize. Understanding the true potential for the most ambitious rewrite of the tax code since 1986 is a priority for the financial leaders. Any successful change will have implications for how CFOs allocate capital, select funding options and evaluate likely drivers of growth. “There’s an expectation happening now that the U.S. will have a lower corporate tax rate,” said George Davis, CFO of Qualcomm Inc., at The Wall Street Journal’s CFO Network Annual Meeting in Washington this week. “To the extent it doesn’t, it would be a negative.”

Policy makers speaking at the meeting put on an optimistic face for their audience of CFOs. “We’re going to get tax reform, and I think we’ll get it done this year,” said Commerce Secretary Wilbur Ross. He added that a tax bill would come after a second attempt to pass a new health-care law. Republican leaders in Congress are also optimistic, but there are still significant intraparty divides over the content of the bill.

In addition to a lower overall tax rate, CFOs said they want a path for bringing trapped foreign earnings home at tax rates lower than today’s. CFOs also want Congress to rethink proposals such as introducing a border-adjusted tax and denying tax deductions for interest expenses. Still, like much of Washington, they disagree widely on what deductions they’re willing to give up for the cuts.

“No one will get everything they want,” Mr. Davis said, adding that ultimately some elements of a bill “won’t be attractive” for all.

Qualcomm—like many multinationals—is particularly invested in efforts to change the code to allow companies to repatriate their foreign earnings without paying hefty U.S. taxes on them. While most countries tax only the money companies earn inside their borders, the U.S. taxes profits that American companies make world-wide at 35%, minus any foreign taxes paid.

The chip maker had $32.5 billion of earnings offshore at the end of last year. Under current law, Qualcomm can defer paying U.S. taxes on the earnings as long as it indefinitely reinvests the income overseas, leaving it trapped offshore.

Foreign cash isn’t the only point of concern. If today’s overall 35% corporate tax rate drops, car-audio maker Harman International Industries Inc. could boost investments in the U.S., said Sandy Rowland, its finance chief.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 23, 2017

Genius Behind Accounting Rule Wasn't Einstein
by: Jo Craven McGinty
Jun 17, 2017
Click here to view the full article on WSJ.com

TOPICS: Time Value of Money

SUMMARY: The article is focused on the phenomenon of attributing quotes and discoveries incorrectly. In this case, Einstein is credited with discovering the Rule of 72 when in fact it was published in Italian in the "Summa de arthmetica geometria, proporzioni, et proporzionalita." This text documented mathematical knowledge in accessible language, Italian, in 1494 and also included publication of the accounting, or balance sheet, equation of "assets = liabilities + owner's equity."

CLASSROOM APPLICATION: The article may be used as a fun way to discuss the mathematical nature of accounting conventions such as the accounting equation and the impact of compound interest.

QUESTIONS: 
1. (Introductory) What is the rule of 72?

2. (Advanced) Who is Luca Pacioli? In what book did he publish the rule of 72?

3. (Advanced) What other famous accounting equation did Luca Pacioli also publish in 1494?

4. (Introductory) Why did Luca Pacioli publish the text including these equations in Italian rather than in Latin?

Reviewed By: Judy Beckman, University of Rhode Island

"The Genius Behind Accounting Rule Wasn't Einstein," by Craven McGinty Wall Street Journal, June 17, 2017 ---
https://www.wsj.com/articles/hain-celestial-faces-deadline-report-earnings-or-be-delisted-1497524401?mod=djem_jiewr_AC_domainid

Problems mount for the organic food company, which hasn’t released results since May 2016

For more than a year, Hain Celestial Group Inc. HAIN -3.25% has failed to meet a basic requirement for publicly traded companies: regular earnings reports.

The organic-food company’s problems started last summer when it discovered revenue irregularities and said it couldn’t release financial results until it analyzed the mistakes.

Since it disclosed the issue in August, the onetime darling of Wall Street in the food sector has suffered a 34% drop in its share price as it missed four deadlines for reporting quarterly results.

Hain launched an internal evaluation and a separate review by its board of directors with the help of outside counsel. In November, the board review concluded no intentional wrongdoing, but the company said earlier this year that it was under investigation by the Securities and Exchange Commission.

On Thursday, Hain said an independent Nasdaq panel granted it another two-week extension to report its numbers from the past year. If the company doesn’t meet the June 30 deadline, the panel can drop the company from the exchange or grant another extension through August. Nasdaq confirmed this process.

“It’s hard to fathom why a seemingly simple revenue recognition issue takes one year to resolve,” said Jefferies analyst Akshay Jagdale.

Hain, which declined to comment, said in a previous statement that it “fully intends to continue to take all steps necessary to regain compliance.”

The Long Island-based company, whose brands include BluePrint juice and Terra vegetable chips, was off to a promising start when founder and Chief Executive Irwin Simon started building the conglomerate of natural and organic brands in 1993.

The company has since acquired some 55 brands that it sells in about 65 countries, generating $2.7 billion in annual sales, according to its fiscal 2015 earnings report. In the decade leading up to its disclosure of reporting problems last year, Hain’s share price more than tripled, while the S&P 500 index nearly doubled.

Pablo Zuanic, an analyst at Susquehanna Financial Group, says the revenue issue likely will have a minimal impact on Hain’s financial results, and that Hain has the potential for long-term sales growth since organic products are increasingly popular in the U.S.

Over the years, mainstream rivals such as General Mills Inc. and Kellogg Co. started acquiring natural and organic brands, taking those products to more stores and winning shelf space from Hain in the U.S. “This is an exciting category, absolutely attracting a lot of competition as they see conventional categories declines,” Mr. Simon said on Hain’s last earnings conference call, in May 2016.

Mr. Simon said at the time that Hain was evolving to keep up with the industry by selling underperforming brands and cutting costs, with the goal of reaching $5 billion in revenue by 2020. Hain said it expected its sales to rise by 9% to 10% for the fiscal year ending in June 30, 2016. But in August, when it delayed its earnings report, the company said it wouldn’t meet that target

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 23, 2017

Criticism of Madoff Payout Fund Mounts
by: Andrew Scurria
Jun 16, 2017
Click here to view the full article on WSJ.com

TOPICS: Madoff, Ponzi Schemes

SUMMARY: The Justice Department has agreed to look into why no distributions have yet been made by a compensation fund for Bernard Madoff victims. The fund holds $4 billion and is administered by former SEC Chairman Richard Breeden. The Justice Department has delayed payouts in order to prioritize recipients, first paying those who were direct customers of Madoff's investment firm. "Feeder funds" established to funnel cash to Madoff investments also are in liquidation as they benefitted from the Ponzi scheme also.

CLASSROOM APPLICATION: The article may be used to discuss a liquidation process such as in a bankruptcy.

QUESTIONS: 
1. (Introductory) Who is Bernard (Bernie) Madoff?

2. (Introductory) Why are there a compensation funds for Madoff's victims? Where do the funds come from?

3. (Advanced) How are assets distributed, such as in a bankruptcy or this Madoff- related liquidation, without knowing the exact amount of cash that will be received through the liquidation process?

4. (Advanced) According to the article, what priorities being implemented by the administrator, Richard Breeden, are slowing the process of payment?

5. (Advanced) What is a hedge fund? Why would an individual claimant against Bernard Madoff sell the right to his or her claim?

Reviewed By: Judy Beckman, University of Rhode Island

"Criticism of Madoff Payout Fund Mounts," by Andrew Scurria, The Wall Street Journal, June 16, 2017 ---
https://www.wsj.com/articles/criticism-mounts-on-madoff-compensation-fund-1497557329?mod=djem_jiewr_AC_domainid

Justice Department settlement fund has $4 billion earmarked for victims, but hasn’t paid anyone

The Justice Department is coming under criticism over a $4 billion compensation fund for Bernard Madoff’s victims that hasn’t handed out a cent four years after its creation.

In a Justice Department budget hearing this week, Deputy Attorney General Rod Rosenstein told a congressional panel he would “figure out why it’s taking so long” for money to flow from the agency’s Madoff Victim Fund to thousands of investors who took losses in Mr. Madoff’s Ponzi scheme.

A court-supervised liquidation overseen by trustee Irving Picard has generated $11.6 billion to make up for investors’ losses, $9.7 billion of which has been distributed. But the separate Justice fund, created in 2013, hasn’t paid out anything while its administrator, former Securities and Exchange Commission Chairman Richard Breeden, sorts through roughly 65,500 victim claims.

“I’m going to look into that,” Mr. Rosenstein said in response to a question from Republican Sen. Richard Shelby of Alabama about the delay in disbursements. “One of the most important things we can do is reimburse victims…and we should do it as quickly as possible.”

Republican Rep. Vern Buchanan of Florida also asked the agency in writing last month for an explanation, saying victims “were cheated out of their life savings, and now they’re being denied timely compensation.”

Victims are keenly interested in the $4 billion settlement pot, and so is Wall Street. Many Madoff investors sold their claims to hedge funds, some of which have been urging the Justice Department to release the money and change its approach to who should get paid, according to people familiar with the matter.

The Justice Department said Thursday that the victim fund was entering the “payment phase” after having taken formal action on close to 60,000 petitions. It said it remains “on track” to make initial payments this year, though another 5,800 applications totaling $9.8 billion are still under review.

A spokeswoman for Mr. Breeden’s firm didn’t respond to a request for comment. But the delay is in part by design since the forfeiture fund was designed to broaden the universe of eligible claimants beyond Mr. Picard’s liquidation.

While Mr. Picard has paid back account holders at Mr. Madoff’s phantom firm, tens of thousands of indirect investors who lost money through pooled investment vehicles haven’t received anything through the liquidation proceeding because they weren’t customers themselves.

Some indirect investors have collected payments from liquidators winding down the feeder funds or investment clubs that funneled their money to Madoff and later reached settlements with Mr. Picard. Others who lost money through middleman funds have received nothing because the intermediaries profited from the Ponzi scheme. Mr. Breeden’s plan would allow those victims to collect directly rather than being repaid through their feeder funds, many of which are also in liquidation.

“A victim may be eligible for remission no matter who handled or managed their money on its way to Madoff,” Mr. Breeden wrote in an update posted online Thursday. He said 35,500 victims, mostly indirect investors, would receive payments, 26,000 of whom would be getting a recovery for the first time.

But his eligibility standards would freeze out hedge funds that paid Madoff customers for their claims and aren’t considered victims under his framework, unlike Mr. Picard, who has honored payments to investors that acquired claims on the secondary market.

If Mr. Breeden distributes money to victims, “the assumption is you’ll see a lot of litigation” as hedge funds that bought claims try to chase down that money, said Jonathan Sablone, a lawyer specializing in private funds with Nixon Peabody LLP.

The Justice Department’s decision to exclude feeder funds from payouts from the victim fund came as a surprise when it was announced in 2013. It helped scuttle a provisional settlement between Mr. Picard and Kingate Management Ltd., a Bermuda-based operation that parked $1.7 billion with Mr. Madoff from 1994 to 2008.

Some claim buyers, represented by the Jones Day law firm, have argued in Washington that the Justice Department should release forfeiture money under a different framework more closely resembling what was used in federal bankruptcy court, according to people familiar with the matter.

Other skeptics say prioritizing indirect investors was ill-advised because of the difficulty of tracing stolen cash that moved in and out of the Ponzi scheme through opaque arrangements, often based offshore. Those criticisms haven’t convinced the agency to change its approach, people familiar with the matter said.

Mr. Breeden had hoped to hand out money last year but was unable “due to the volume and complexity of claims,” according to an update he posted in January.

“He’s trying to look through all the investor vehicles to the individuals who were actually harmed,” Mr. Sablone said. “While that’s a laudable goal to have, it’s virtually impossible in the global marketplace…and it explains why we’re so many years out and nothing’s been distributed.”

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on June 23, 2017

Missing From Hain: Quarterly Reports
by: Annie Gasparro
Jun 16, 2017
Click here to view the full article on WSJ.com

TOPICS: 10-K, Financial Statements

SUMMARY: The organic-food company Hain Celestial Group Inc. is the maker of BluePrint juice and Terra vegetable chips. The company announced in August 2016 that it had found revenue irregularities and would not release financial results until those irregularities are resolved.

CLASSROOM APPLICATION: The article may be used when introducing financial statements or the concept of periodicity.

QUESTIONS: 
1. (Advanced) Why must companies report regularly to their investors by filing periodic financial statements with the U.S. Securities and Exchange Commission?

2. (Advanced) How often must companies file financial statements?

3. (Introductory) What error led Hain Celestial Group to delay filing its financial statements?

4. (Introductory) What is the possible consequence to the company of not filing financial statements?

5. (Introductory) How have analysts reacted to Hain Celestial's long reporting delay?

Reviewed By: Judy Beckman, University of Rhode Island

 

"Missing From Hain: Quarterly Reports," by Annie Gasparro, The Wall Street Journal, June 16, 2017 ---
https://www.wsj.com/articles/hain-celestial-faces-deadline-report-earnings-or-be-delisted-1497524401?mod=djem_jiewr_AC_domainid

Problems mount for the organic food company, which hasn’t released results since May 2016

For more than a year, Hain Celestial Group Inc. HAIN -3.25% has failed to meet a basic requirement for publicly traded companies: regular earnings reports.

The organic-food company’s problems started last summer when it discovered revenue irregularities and said it couldn’t release financial results until it analyzed the mistakes.

Since it disclosed the issue in August, the onetime darling of Wall Street in the food sector has suffered a 34% drop in its share price as it missed four deadlines for reporting quarterly results.

Hain launched an internal evaluation and a separate review by its board of directors with the help of outside counsel. In November, the board review concluded no intentional wrongdoing, but the company said earlier this year that it was under investigation by the Securities and Exchange Commission.

On Thursday, Hain said an independent Nasdaq panel granted it another two-week extension to report its numbers from the past year. If the company doesn’t meet the June 30 deadline, the panel can drop the company from the exchange or grant another extension through August. Nasdaq confirmed this process.

“It’s hard to fathom why a seemingly simple revenue recognition issue takes one year to resolve,” said Jefferies analyst Akshay Jagdale.

Hain, which declined to comment, said in a previous statement that it “fully intends to continue to take all steps necessary to regain compliance.”

The Long Island-based company, whose brands include BluePrint juice and Terra vegetable chips, was off to a promising start when founder and Chief Executive Irwin Simon started building the conglomerate of natural and organic brands in 1993.

The company has since acquired some 55 brands that it sells in about 65 countries, generating $2.7 billion in annual sales, according to its fiscal 2015 earnings report. In the decade leading up to its disclosure of reporting problems last year, Hain’s share price more than tripled, while the S&P 500 index nearly doubled.

Pablo Zuanic, an analyst at Susquehanna Financial Group, says the revenue issue likely will have a minimal impact on Hain’s financial results, and that Hain has the potential for long-term sales growth since organic products are increasingly popular in the U.S.

Over the years, mainstream rivals such as General Mills Inc. and Kellogg Co. started acquiring natural and organic brands, taking those products to more stores and winning shelf space from Hain in the U.S. “This is an exciting category, absolutely attracting a lot of competition as they see conventional categories declines,” Mr. Simon said on Hain’s last earnings conference call, in May 2016.

Mr. Simon said at the time that Hain was evolving to keep up with the industry by selling underperforming brands and cutting costs, with the goal of reaching $5 billion in revenue by 2020. Hain said it expected its sales to rise by 9% to 10% for the fiscal year ending in June 30, 2016. But in August, when it delayed its earnings report, the company said it wouldn’t meet that target.

Hain said its financial issues were discovered during the quarter that ended June 30. That was shortly after it hired a new head of accounting from outside the company, and less than a year into its financial chief’s promotion to that role.

In its disclosure in August, Hain said it was evaluating whether revenue it associated with concessions granted to certain U.S. distributors should have been recorded in the quarter when the products were sold to retailers, rather than when they were shipped to the distributors.

Continued in article



Humor for June 2017

ABC News:  Psychic Hit by Car Inside Restaurant Says He Didn't See it Coming ---
http://abc7.com/news/psychic-hit-by-car-inside-restaurant-says-he-didnt-see-it-coming/2100438/


The Onion:  Top Benefits of Going Paperless ---
http://www.theonion.com/infographic/top-benefits-going-paperless-56298?utm_medium=RSS&utm_campaign=feeds

Far fewer moments where you must say the word “ream”

Can use money allocated for printing expenses to purchase more brisket

No longer haunted by the angry ghosts of all the trees you’ve slaughtered

Paper correspondence will start to be associated with special occasions, such as wedding invitations or subpoenas

  Rifling through trash can now be enjoyed as a purely recreational activity

Tech Support Humor ---
http://nicerdays.org/wife-write-to-tech-support/

Dear Tech Support,

’Last year I upgraded from Boyfriend 5.0 to Husband 1.0 and noticed a distinct slowdown in overall system performance, particularly in the flower and jewelry applications, which operated flawlessly under Boyfriend 5.0.

In addition, Husband 1.0 uninstalled many other valuable programs, such as: Romance 9.5 and Personal Attention 6.5, and then installed undesirable programs such as: NBA 5.0, NFL 3.0 and Golf Clubs 4.1.

Conversation 8.0 no longer runs, and House cleaning 2.6 simply crashes the system. Please note that I have tried running Nagging 5.3 to fix these problems, but to no avail.
What can I do?

Signed,
Desperate


The response:

Dear Desperate,

“First keep in mind, Boyfriend 5.0 is an Entertainment Package, while Husband 1.0 is an operating system. Please enter command: I thought you loved me.html and try to download Tears 6.2 and do not forget to install the Guilt 3.0 update. If that application works as designed, Husband 1.0 should then automatically run the applications Jewelry 2.0 and Flowers 3.5.

However, remember, overuse of the above application can cause Husband 1.0 to default to Grumpy Silence 2.5, Happy Hour 7.0 or Beer 6.1. Please note that Beer 6.1 is a very bad program that will download the Farting and Snoring Loudly Beta.

Whatever you do, DO NOT, under any circumstances, install Mother-In-Law 1.0 (it runs a virus in the background that will eventually seize control of all your system resources.)
In addition, please, do not attempt to re-install the Boyfriend 5.0 program. These are unsupported applications and will crash Husband 1.0.

In summary, Husband 1.0 is a great program, but it does have limited memory and cannot learn new applications quickly. You might consider buying additional software to improve memory and performance. We recommend: Cooking 3.0.Good Luck!’

Good Luck!

 


What's the most misspelled word in your state?
https://twitter.com/GoogleTrends/status/869585144977342464
Or
https://twitter.com/hashtag/dataviz?src=hash
Scroll down to May 31, 2017

Jensen Comment
Up here in New Hampshire the word is diaria (or whatever)?

In Nevada there's no tomorrow (I suspect we know the reason).

Massachusetts has a license for everything except spelling.

Why do folks in Mississippi and South Carolina even want to spell the breed of little dog that's more popular in Mexico?

I'm suspicious of spellers in Wisconsin.

I'm also suspicious of the word that folks in Pennsylvania can't spell. Aren't many of them descended from German immigrants?

I think this study needs to be replicated. Then let's "exacerbate" the outcome in social media. See if Georgians can really do better spelling "exacerbate."


Forwarded by Paula

To my friends who enjoy a glass of wine and those who don't and are always seen with a bottle of water in their hand,

 

 Ben Franklin said:

 

"In wine there is wisdom,

 

 In beer there is freedom,

 

 In water there is bacteria."

 

In a number of carefully controlled trials, scientists have demonstrated that if we drink 1 litre of water each day, at the end of the year we would have absorbed more than 1 kilo of Escherichia coli, (E.. Coli) bacteria found in feces.

 

In other words, we are consuming 1 kilo of poop annually.  However, We do NOT run that risk when drinking wine and beer (or rum, whiskey or other liquor) because alcohol has to go through a purification process of boiling, filtering and fermenting.                   

 

 So Remember:

 

 Water = Poop,

 

Wine = Health

 

Therefore, it's better to drink wine and talk stupid, than to drink water and be full of shit.                  

 

VERIFICATION:

 

BOTH THE HOUSE AND SENATE DRINK A LOT OF WATER WHILE IN SESSION.

 

THIS EXPLAINS THE RESULTS THEREIN  . . . .

 

There is no need to thank me for this valuable information.

I'm doing it as a public service


Forwarded by Paula

Housework was a woman's job, but one evening, Wilma arrived home from work
to find the children bathed, one load of laundry in the washer and another in the
dryer. Dinner was on the stove, and the table set. She was astonished!

It turns out that Ralph had read an article that said, "Wives who work full-time and
had to do their own housework were too tired to have sex."

The night went very well. The next day, she told her office friends all about it.
"We had a great dinner. Ralph even cleaned up the kitchen. He helped the
kids do their homework, folded all the laundry and put it away. I really enjoyed
the evening.

"But what about afterward?" asked her friends.

"Oh, that........ Ralph was too tired."

 




Humor June 2017 --- http://faculty.trinity.edu/rjensen/book17q2.htm#Humor0617.htm 

Humor May 2017 --- http://faculty.trinity.edu/rjensen/book17q2.htm#Humor0517.htm 

Humor April 2017 --- http://faculty.trinity.edu/rjensen/book17q2.htm#Humor0417.htm 

Humor March 2017 --- http://faculty.trinity.edu/rjensen/book17q1.htm#Humor0317.htm

Humor February 2017 --- http://faculty.trinity.edu/rjensen/book17q1.htm#Humor0217.htm

Humor January 2017 --- http://faculty.trinity.edu/rjensen/book17q1.htm#Humor0117.htm

Humor December 2016 --- http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1216.htm 

Humor November 2016 --- http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1116.htm 

Humor October 2016 --- http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1016.htm

Humor September 2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0916.htm

Humor August  2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor083116.htm

Humor July  2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0716.htm  

Humor June  2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor063016.htm

Humor May  2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor053116.htm

Humor April  2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor043016.htm

Humor March  2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor033116.htm

Humor February  2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor022916.htm

Humor January  2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor013116.htm

Tidbits Archives --- http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm




And that's the way it was on June 30, 2017 with a little help from my friends.

 

Bob Jensen's gateway to millions of other blogs and social/professional networks ---
http://faculty.trinity.edu/rjensen/ListservRoles.htm

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

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

Free Online Textbooks, Videos, and Tutorials --- http://faculty.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines --- http://faculty.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games --- http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses --- http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI

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

Bob Jensen's Homepage --- http://faculty.trinity.edu/rjensen/

Accounting Historians Journal --- http://www.libraries.olemiss.edu/uml/aicpa-library  and http://clio.lib.olemiss.edu/cdm/landingpage/collection/aah
Accounting Historians Journal
Archives--- http://www.olemiss.edu/depts/general_library/dac/files/ahj.html
Accounting History Photographs --- http://www.olemiss.edu/depts/general_library/dac/files/photos.html

 

 

 

 

 

 

 

 

May 2017

Bob Jensen's New Additions to Bookmarks

May 2017

Bob Jensen at Trinity University 


USA Debt Clock --- http://www.usdebtclock.org/ ubl

How Your Federal Tax Dollars are Spent ---
http://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b7c8ee6392970b-popup

To Whom Does the USA Federal Government Owe Money (the booked obligation of $20+ trillion) ---
http://finance.townhall.com/columnists/politicalcalculations/2016/05/25/spring-2016-to-whom-does-the-us-government-owe-money-n2168161?utm_source=thdaily&utm_medium=email&utm_campaign=nl
The US Debt Clock in Real Time --- http://www.usdebtclock.org/ 
Remember the Jane Fonda Movie called "Rollover" --- https://en.wikipedia.org/wiki/Rollover_(film)
One worry is that nations holding trillions of dollars invested in USA debt are dependent upon sales of oil and gas to sustain those investments.

To Whom Does the USA Federal Government Owe Money (the unbooked obligation of $100 trillion and unknown more in contracted entitlements) ---
http://money.cnn.com/2013/01/15/news/economy/entitlement-benefits/
The biggest worry of the entitlements obligations is enormous obligation for the future under the Medicare and Medicaid programs that are now deemed totally unsustainable ---
http://faculty.trinity.edu/rjensen/Entitlements.htm

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

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

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

 

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

 

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

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

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

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

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

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

Possibly the Number 1 Resource for CPA Exam Candidates
AICPA:  Uniform CPA Exam Blueprints ---
http://www.aicpa.org/BecomeACPA/CPAExam/ExaminationContent/DownloadableDocuments/cpa-exam-blueprints-effective-20170401.pdf?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Apr2017

CPA exam will increase focus on higher-order skills
"What Higher Order Skills Will be Tested on the Next CPA Examination," by Ken Tysiac, Journal of Accountancy, April 4, 2016 ---

http://www.journalofaccountancy.com/news/2016/apr/new-cpa-exam-201614166.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Apr2016

Bob Jensen's CPA Exam Helpers ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#010303CPAExam




Harvard:  Why You Really Need to Stop Using Public Wi-Fi (like in hotels) ---
https://hbr.org/2017/05/why-you-really-need-to-stop-using-public-wi-fi?referral=00202&cm_mmc=email-_-newsletter-_-weekly_hotlist-_-hotlist_date&utm_source=newsletter_weekly_hotlist&utm_medium=email&utm_campaign=hotlist_date&spMailingID=17182418&spUserID=MTkyODM0MDg0MAS2&spJobID=1020647051&spReportId=MTAyMDY0NzA1MQS2
Jensen Comment
Years ago I stopped using hotel WiFi for my own computers, and I stopped using my email system on public hotel computers.


The 50 Best Computer Science Schools in the World ---
http://www.businessinsider.com/best-computer-science-schools-in-the-world-2017-2017-5/#48-lomonosov-moscow-state-university-based-in-the-russian-capital-the-lomonosov-moscow-state-university-achieved-a-qs-score-of-747-3


The History of Best Paper Awards Published in the Accounting Historians Journal ---
http://aaahq.org/AAH/Awards/Best-Paper-Award


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

Gareth Dale on the Past and Future of Capitalism ---
https://daily.jstor.org/ask-a-professor-gareth-dale-on-the-past-and-future-of-capitalism/

Harvard Business School --- https://en.wikipedia.org/wiki/Harvard_Business_School

History of the Harvard Business School ---
https://daily.jstor.org/when-harvard-business-school-tried-to-fix-capitalism/


If the American Statistical Association Warns About p-Values, and Nobody Hears It, Does It Make a Sound? ---
https://replicationnetwork.com/category/news-events/

Jensen Comment
What will it take to get accountics scientists to stop using them in every empirical study?
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong


To Criticize? Or Not to Criticize? That is Not the Question (especially in the social mediia) ---
https://replicationnetwork.com/2017/05/06/to-criticize-or-not-to-criticize-that-is-not-the-question/


Bragging About a Trinity University Accounting Graduate ---
The Financial Accounting Standards Board (FASB) has chosen Gabrielle Roe ’16 ’17 as a postgraduate technical assistant (PTA) for the 2018 calendar year. Roe, a graduate student in Trinity’s master’s program in accounting, is one of seven students nationwide to be selected for the appointment. She will begin her year-long term this winter in Norwalk, Conn ---
https://new.trinity.edu/news/accounting-excellence?utm_source=Our+Mailing+List&utm_campaign=7f2cd39cdf-Tower_News_May_2017&utm_medium=email&utm_term=0_00cfaca66d-7f2cd39cdf-160446777


Profit opportunities exist until (academic) researchers publish findings on market inefficiencies. Then they disappear ---
https://www.bloomberg.com/view/articles/2017-05-11/ivory-tower-wonks-help-traders-make-a-quick-buck


Life Changing Books (not all are free online)---
http://www.collaborativefund.com/blog/23-books-that-changed-my-life/


Here's where Amazon’s profits are coming from (Hint: it's not from online shopping) ---
http://www.businessinsider.com/amazon-web-services-cloud-online-shopping-profits-chart-2017-5

Jensen Comment
Every managerial accounting professor teaches that the most important products and services may sometimes be "losing items" in the product mix. Those so-called losing items may be the most important products contributing to the recovery of fixed costs. The test of importance is what happens when those so-called losing products are dropped from the product mix and other products have to pick up larger shares of fixed costs. In cost accounting courses these are called "sales mix" or "product mix" modules. The classic example is the product mix of blade razors and razor blades. Companies usually sell blade razors at losing prices, because without lots and lots of blade razor sales the razor blade sales would be less profitable.

Another example, is the pricing of economy class tickets on an airplane such as economy-priced round trip tickets that require Saturday night stayovers. The gravy (profit) to an airline is usually in its higher priced business-traveler fares on one-way tickets and round trip tickets that do not require Saturday night stayovers. Business travelers tend to want to return home for weekends and will pay higher ticket prices to avoid having to stay over on Saturday nights. Those Saturday night low-priced round trip tickets may not be profitable to airlines but they contribute heavily, due to demand, toward recovery of the fixed costs of the airline. Without them business traveler tickets would have to cover more of the cost of flying empty seats.

In terms of online shopping Amazon is still recovering billions spent of comprehensive software, customer relations, and infrastructure for online sales. For most of its life Amazon had negative profits in anticipation of profits arising after recover of its heavy investments in the online shopping industry. Investors in Amazon common stock kept pouring money into Amazon in anticipation of future returns not current returns.


Walmart's online sales are exploding ---
http://www.businessinsider.com/walmarts-online-sales-are-exploding-2017-5

Jensen Comment
Nothing beats low, low prices and free two-day shipping. Amazon might take notice after Walmart has half as many products online coupled with a used-product service.
Competition is a good thing usually and especially in this case --- except that Walmart and Amazon are driving out online smaller competitors. Keep and eye on LL Bean and other online vendors that still don't collect sales taxes in most states. They still have that advantage, at least for a while.

he company that Walmart bought for $3 billion just opened the 'grocery shop concept of the future' in NYC — here's what it's like ---
http://www.businessinsider.com/jet-nyc-boutique-photos


Jagdish Gangolly put down economics majors (and presumably business majors) with the following message:

. . .

So, now economics is very popular. But economics produces nothing, it only juggles what you have. Hard sciences, medicine, humanities, architecture, music, all contribute far more to civilization, and the mind.

Jensen Comment
Juggling resources in the economy is vital to survival. It leads to funding of innovation like all the funding IPOs give to new and innovative ventures. It can also lead to saving old and under-funded industries such as the boost Warran Buffett gave to railroads that were dying due to declining infrastructure like road bed and bridge repairs.

A millennial asked Warren Buffett what value his firm adds — here's what he said ---
http://www.businessinsider.com/millennial-asked-warren-buffett-what-berkshire-hathaway-adds-2017-5

When retired journalist Carol Loomis stepped to the microphone at Berkshire Hathaway's annual shareholder meeting, she posed a question sent in from the younger generation.

The apparent "millennial" (Loomis' word) wanted to know what value Berkshire offers the companies in which it invests, and by extension the firm's own shareholders. Apple gives the world iPhones, while 3G Capital improves operations, he argued, but what does Berkshire do?

The investment conglomerate adds value through relief, responded Buffett, who noted that Berkshire does a lot of the dirty work for its portfolio companies. What it doesn't do is meddle, he said.

"We certainly don’t add to value by calling them up and saying we developed a better system," said Buffett. "We might very well free up about 20% of the time of a CEO just in terms of meeting with analysts, the calls and meeting with banks. Essentially, we relieve them so they can spend their time figuring out how to run their business."

Buffett defended Berkshire's relatively hands-off approach, while noting that the firm often serves as a protective shield from the public market while offering ample capital to the companies under its umbrella

Continued in article

Jensen Comment

In an indirect way the question by Carol Loomis gets at the heart of the distinction between capitalism versus socialism. Under pure socialism the government owns the major industries and allocates economic resources (like labor and capital) to industries based on government decisions of a Central Planning Board. In pure capitalism resources are allocated by investor markets. Of course there's never been a "pure" socialist or a "pure" capitalist market in history. The heavily socialist economies of the Soviet Union, India, and China died in favor of more but not all market allocations of resources. The economy of the USA relies heavily on capital (stock and bond) markets to allocate economic resources and the government is a big player when externalities are involved such with the trillion or near-trillion dollar budget items for Medicaid, Medicare, and Defense.

In terms of theory a Polish economist-mathematician named Oscar Lange envisioned how a better mathematics models could generate prices more efficiently than the hopelessly-ineffective Central Planning Boards of Socialism that typically create too many items (think large nails) and too few items (think brads and small nails and toilet paper and food) items ---
https://en.wikipedia.org/wiki/Oskar_R._Lange

The store shelves are mostly bare of essential items like flour and rice when socialist economies collapse. The poor and disabled people are starving when capitalist economies collapse. Investors like Warren Buffett often support higher taxation to preserve safety nets for the poor under capitalism. Socialists are still looking for a role model nation of success. The Nordic nations are still more capitalist than socialist in that markets rather than Central Planning Boards allocate economic resources.


It's tough to make predictions, especially about the future.
Yogi Berra

Dynamic Scoring --- https://en.wikipedia.org/wiki/Dynamic_scoring

This congressional accounting trick is part of the reason Washington is so divided ---
http://www.businessinsider.com/what-is-dynamic-scoring-2017-5

Jensen Comment
This or something very similar is common in other types of forecasting, such as in ensemble weather forecasting. This is one of the reasons long-range forecasts are less predictive than short-range forecasts where some of the dynamic elements are more in place. This is one of the reasons hurricane tracking forecasters give multiple possible tracks ---  when predicting the most likely track is very tenuous. This is why pre-season rankings of sports teams are often way off the mark as dynamic factors (especially unpredictable  injuries) come come into play.

In mathematics, statistics, and business the common term for something like dynamic scoring is "sensitivity analysis." ---
https://en.wikipedia.org/wiki/Sensitivity_analysis
One of the most popular sensitivity analysis tools is Monte Carlo Simulation in Finance ---
https://en.wikipedia.org/wiki/Monte_Carlo_methods_in_finance

An emerging tools is the Dynamic Baysian Network ---
https://en.wikipedia.org/wiki/Dynamic_Bayesian_network

There is no Swiss Army knife when making predictions about complicated systems. The problem is that government and business firms must at some point reduce dynamic forecasts into a single operating budge that entails resource allocations. That's when politics takes control away from the technical forecasters --- when conflicting forecasts must be reduced to a consensus forecast.


San Francisco is considering a once unthinkable measure to offset the threat of job-killing robots ---
http://www.businessinsider.com/san-francisco-considers-robot-tax-jane-kim-2017-4

Jensen Comment
This is not an original idea. A French economist  named Frédéric Bastiat proposed something similar in the 1800s.
https://en.wikipedia.org/wiki/Fr%C3%A9d%C3%A9ric_Bastiat

Bastiat's famous Candlestick makers' Petition ---
http://bastiat.org/en/petition.html

If the world did not have more economic sense we would still be subsidizing "Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting."

Latte makers of San Francisco --- Stand up and unite for centuries more of job subsidies and other economic protections


Six Ways to Fraud-Protect Savings of the Elderly (note the "springing" power of attorney)---
http://www.cbsnews.com/news/6-ways-to-fraud-proof-your-retirement-savings/

Jensen Comment
Some of these tips should be modified in light of protections such as the degree of protection provided by a trustworthy ID theft insurance protection company.
Definitely consider the deep pockets of your account provider. Many thefts are less protected if you use a local money manager (like a solo attorney or CPA) rather than a reputable money management company.
If you have a broker make sure that broker is not churning the accounts for increased transactions commissions.
Older folks may not really need to pay money managers if they park their savings in safe places like TIAA, Vanguard, or Fidelity offering free high-quality advice to older folks. Before retirement many employers provide some good free advice for money management.

Some things vital to younger people are not as relevant to older folks. For example, when investing pension savings a younger worker should definitely consider inflation risks. Inflation risk of of less concern to most older folks when it comes to weighing investment risk against inflation risk. For example, investing savings in a tax-exempt bond mutual fund is not a good alternative for long-term inflation protection, but may be a good place to park money for older folks like me less concerned with inflation risk. A high-priced house on an acreage may be good inflation protection for a young couple but retirees might consider selling it off after retirement so they can appreciate the liquidity without having to incur the financing cost of a reverse mortgage. In my opinion, reverse mortgages are over-hyped in the media. For sme older folks they are not the best alternative for liquidity.

Everybody should keep an eye on tax reform.
I doubt that Trump will be able to eliminate all the itemized deductions he recently proposed eliminating, but some older folks should reconsider both investing and spending practices if he has some success. Personally, I don't think Congress will greatly modify tax law for individuals, although there may be some major revisions for business firms. Older folks affected by the more complicated aspects of tax regulations, such as those having Subchapter S investments, definitely should seek out expert advice unless they are experts themselves. Don't be blind sided by serious tax reform!

Bob Jensen's personal finance helpers are at
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers


Blue Ocean Marketing Strategy --- https://en.wikipedia.org/wiki/Blue_Ocean_Strategy
https://en.wikipedia.org/wiki/Blue_Ocean_Strategy

MAAW Blog:  Some earlier articles that lead to the concept of Blue Ocean Strategy ---
http://maaw.blogspot.com/2017/05/some-earlier-articles-that-lead-to.html


Fair Value Accounting and Debt Contracting: Evidence from Adoption of SFAS 159
SSRN, April 27, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2959521
Journal of Accounting Research, Vol. 54, No. 4, 2016

Authors

Peter R. Demerjian --- University of Washington - Michael G. Foster School of Business

John Donovan --- University of Notre Dame - Department of Accountancy

Chad R. Larson --- University of Houston - Department of Accountancy & Taxation

Abstract

We examine how fair value accounting affects debt contract design, specifically the use and definition of financial covenants in private loan contracts. Using SFAS 159 adoption as our setting, we find that a small but significant proportion of loans (14.5%) modify covenant definitions to exclude the effects of SFAS 159 fair values. Only a limited number of these modifications exclude assets elected at fair value (less than 7%), while all exclude liabilities elected at fair value. Notably, we document that covenant definition modification is unassociated with ex-ante fair value elections. We find that covenant definition modification positively varies with common incentive problems attributed to fair value accounting and negatively varies with benefits attributed to fair value accounting. Contrary to prior evidence, our results suggest that fair value accounting is not uniformly detrimental for debt contracting and that fair value adjustments are included when they are most likely to improve performance measurement.


Cluster Analysis --- https://en.wikipedia.org/wiki/Cluster_analysis

The Classification of Stocks with Basic Financial Indicators: An Application of Cluster Analysis on the BIST 100 Index
SSRN, April 27, 2017

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2958748

Authors

Bilgehan Tekin --- Çankırı Karatekin University

Fatih Burak Gümüş --- Sakarya University

Abstract

In the literature, it is seen that has been used the data mining methods frequently for the analysis of the stock market and stocks. The aim in here is to provide making the most rational choice and increasing return by reducing human intervention to a minimum level with the creating the algorithmic process structure. In this study, stocks are classified basis of financial indicators derived from the financial statements of the companies. For this purpose, cluster analysis which is one of the data mining and multivariate statistical methods is used. In this method the aim is to collect most similar the stocks in the same cluster in terms of related variables. The variables used in the study; Price/earnings ratio, market value/book value ratio, dividend yield, return on assets, return on equity, change in sales and equity, return on average, return and risk. As the result of the analysis, 88 stocks in Borsa Istanbul 100 Index are divided into 12 clusters. Among these stocks, the ones that are most suitable to form a portfolio have been tried to be determined based on financial indicators and last one and three years’ stock performances


Biases in Accounting and Non-Accounting Information: Substitutes or Complements?
SSRN, April 28, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2960232
Journal of Accounting Research, Vol. 54, No. 5, 2016

Author

Xu Jiang --- Duke University

Abstract

This paper studies how bias in nonaccounting and in accounting information should be related. Bias in accounting information is modeled, as in some recent literature, as an alteration in the relative information content of accounting numbers. The optimal bias in one type of information is shown to be a complement of the bias in the other type. This result can be applied in various settings to explain a number of phenomena.


Can a Hybrid Method Improve Equity Valuation? Empirical Applications of Ohlson and Johannesson
SSRN, April 28, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2959986

Authors

Zhan Gao --- Lancaster University

James N. Myers --- University of Tennessee, Knoxville - Haslam College of Business

Linda A. Myers --- University of Tennessee, Haslam College of Business

Wan-Ting Wu --- University of Massachusetts Boston

Abstract

We investigate whether combining the two principal valuation techniques – a price multiple model and a discounted model – can improve the quality of equity valuation. Specifically, we empirically implement the theoretical valuation model in Ohlson and Johannesson (2016), which we refer to as the OHJO model (or OHJO), as a hybrid of a price multiple model and a discounted model, and develop a novel way to estimate the model’s unique parameter — the normal forward P/E ratio. We find that our implementation produces intrinsic values that are more accurate and generally less biased, and that are better at explaining stock prices, than popular discounted models such as the Residual Income Valuation Model (RIV) and the Ohlson-Juettner Model (OJ), as well as price multiple models. OHJO’s superior valuation performance is robust in subsamples, and is more pronounced for slow growing, less risky, and larger firms. In addition, the implied cost of equity estimated from OHJO captures systematic risk and information asymmetry better than that from RIV and OJ. These results demonstrate the usefulness of a hybrid method for equity valuation and support the empirical validity of OHJO.


Hybrid Financial Instrument --- https://en.wikipedia.org/wiki/Hybrid_security

How Do Experienced Users Evaluate Hybrid Financial Instruments?
SSRN, April 29, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2960153
Journal of Accounting Reserach, Vol. 54, No. 5, 2016

Authors

Shana Clor-Proell --- Texas Christian University - Department of Accounting

Lisa Koonce --- University of Texas at Austin - Department of Accounting

Brian J. White --- University of Texas at Austin - Department of Accounting

Abstract

Hybrid financial instruments contain features of both liabilities and equity. Standard setters continue to struggle with “getting the classification right” for these complex instruments. In this paper, we experimentally test whether the features of hybrid instruments affect the credit-related judgments of experienced finance professionals, even when the hybrid instruments are already classified as liabilities or equity. Our results suggest that getting the classification right is not of primary importance for these experienced users, as they largely rely on the underlying features of the instrument to make their judgments. A second experiment shows that experienced users’ reliance on features generalizes to several features that often characterize hybrid instruments. However, we also find that experienced users vary in their beliefs about which individual features are most important in distinguishing between liabilities and equity. Together, our results highlight the importance of effective disclosure of hybrid instruments’ features.


Block Chain --- https://en.wikipedia.org/wiki/Blockchain

Virtual Currency (Bitcoin) --- https://en.wikipedia.org/wiki/Virtual_currency

SEC Petition Calls for Blockchain Token Rules ---
http://www.coindesk.com/sec-petition-calls-for-blockchain-token-rules/

THE BLOCKCHAIN IN BANKING REPORT: The future of blockchain solutions and technologies ---
http://www.businessinsider.com/blockchain-in-banking-2017-3

Wharton:  How Delaware's Block Chain Trial Could Change Wall Street ---
http://knowledge.wharton.upenn.edu/article/delawares-blockchain-trial-change-wall-street/

Blockchain - a Database with a Twist
SSRN. April 30, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2958565

Author

Boon Seng Tan --- Institute of Singapore Chartered Accountants

Abstract

This paper reviews the concept that a blockchain is simply a database without a central authority. This concept means that a blockchain-based application is inherently a database application that leverages on the strength blockchain has over a traditional database with central authority. Two major areas of applications are: (a) shared database containing records of interdependent transactions, (b) asset registries where the chain of historical ownership (i.e. provenance) is valuable. The absence of a central authority means that traditional security via login linked to permission to read and write the database is no longer the primary strategy. Instead, immutability of the blockchain, together with identification and allocation of the validator, becomes the primary security strategy. These conceptual differences are the driving force behind the unusual data and database structure of the blockchain. This paper presents these concepts to a non-technical audience at two levels: (a) an easy to read-no complexity level without explanation of mechanics, and (b) building on the previous level, explain the key mechanics for a non-technical audience.

Someone bought 2 pizzas with 10,000 bitcoins in 2010 — today they're (the bitcoins) worth $20 million ---
http://www.businessinsider.com/bitcoin-pizza-day-passes-2000-20-million-2017-5

May 24, 2017 reply from Jim McKinney

The Blockchain Will Do to the Financial System What the Internet Did to Media
Harvard Business Review
 https://hbr.org/2017/03/the-blockchain-will-do-to-banks-and-law-firms-what-the-internet-did-to-media   

Report on Distributed Ledger Technology: Implications of Blockchain for the Securities Industry
FINRA
http://www.finra.org/industry/blockchain-report


Textual Analysis in Accounting and Finance: A Survey
SSRN, April 27, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2959518
Journal of Accounting Research, Vol. 54, No. 4, 2016

Authors

Tim Loughran --- University of Notre Dame

Bill McDonald --- University of Notre Dame - Mendoza College of Business - Department of Finance

Abstract

Relative to quantitative methods traditionally used in accounting and finance, textual analysis is substantially less precise. Thus, understanding the art is of equal importance to understanding the science. In this survey we describe the nuances of the method and, as users of textual analysis, some of the tripwires in implementation. We also review the contemporary textual analysis literature and highlight areas of future research.


Talk about high achievers. Of the more than 100,000 individuals who sat for the CPA Exam in 2016, a total of 58 have met the criteria to receive the Elijah Watt Sells Award. Talk about high achievers. Of the more than 100,000 individuals who sat for the CPA Exam in 2016, a total of 58 have met the criteria to receive the Elijah Watt Sells Award ---
http://www.aicpa.org/Press/PressReleases/2017/Pages/AICPA-Honors-2016-Top-CPA-Exam-Performers-with-Elijah-Watt-Sells-Award.aspx?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03May2017


Stanford:  Can the GOP Fix the Corporate Income Tax?
https://www.gsb.stanford.edu/insights/can-gop-fix-corporate-income-tax?utm_source=Stanford+Business&utm_campaign=79e2a76402-Stanford-Business-Issue-112-5-14-2017&utm_medium=email&utm_term=0_0b5214e34b-79e2a76402-70265733&ct=t(Stanford-Business-Issue-112-5-14-2017)

. . .

Will Trump address the root of the problem?
I think he really wants to end the lock-out of foreign profits once and for all, but it’s hard to tell if he’s settled on an approach. During the campaign Trump seemed to favor an end to deferral on foreign earnings. In other words, going forward, corporations would have to pay tax immediately on all their income worldwide, so there’d be no reason to hold cash overseas. And then you make that palatable by lowering the tax rate.

By the way, that’s what Obama tried to do, and it’s still the approach favored by Democrats. But Obama would only have lowered the rate to 28%. Trump wants to cut the tax rate to 15%, which is pretty low by world standards.

In his latest proposal — which is still just a page of bullet points — the president seems to have adopted an idea from Paul Ryan’s House plan: He now says he wants to move away from our system of global taxation to what’s called territorial taxation, where firms are taxed only on U.S. income. So instead of taxing offshore profits at once, he’d stop taxing them altogether.

Which is how most countries do it.
Right. And of course U.S. multinationals have been clamoring for this for years. They talk about “abolishing the repatriation tax,” which makes it sound like there’s a separate, unfair tax on foreign income. It’s just the ordinary income tax that companies have deferred for so long that they sort of stop thinking of it as a liability they already owe.

Why hasn’t the U.S. adopted a territorial tax system?
There are real risks. If you say foreign earnings aren’t taxable, you’re incentivizing companies to shift more of their operations offshore. And if you try to counteract that with a low tax rate like 15% — and at the same time, you’re shrinking the tax base by excluding foreign profits — you could be looking at significant revenue losses. It might really increase the federal deficit.

Continued in articlel


Mark Zuckerberg's plan to create non-voting Facebook shares is going to trial in September ---
http://www.businessinsider.com/trial-challenge-facebook-non-voting-shares-set-september-2017-2017-5

From the CFO Journal's Morning Ledger on April 10, 2017

Companies issuing nonvoting shares in the wake of the Snap Inc. IPO may be left out of major indexes. FTSE Russell is considering whether to add such stocks and what to do about such companies – like Alphabet Inc. – it already includes, writes CFO Journal’s Richard Teitelbaum. The issue of voting rights is raising the ire of some shareholders’ rights advocates because founders and executives often end up with far more votes than shares.

There will be a consultation period over the next few months, FTSE said. Still, more nonvoting share issues are in the pipeline. IAC/InterActiveCorp. shareholders approved a nonvoting share class last year, but is facing a lawsuit to block the move. Facebook Inc. last year proposed the issuance of a nonvoting class of stock and is also the subject of a lawsuit

"Non-Voting Shares are in Vogue: Do (Lousy) Accounting Rules Play a Part?," by Tom Selling, The Accounting Onion, April 13, 2013 ---
http://accountingonion.com/2017/04/non-voting-shares-are-in-vogue-do-lousy-accounting-rules-play-a-part.html

Jensen Comment
Since Tom tends not to cite academic research in his posts, I thought I might cite samples of  the many academic studies on this issue.
Note that this type of equity division of voting power is much more common in Europe and South America.

"The value of the corporate voting right: Evidence from Switzerland," by Melchior R. Horner, Journal of Banking & Finance, Volume 12, Issue 1, March 1988, Pages 69-83 ---
http://www.sciencedirect.com/science/article/pii/0378426688900519

This paper analyzes the value of voting power of Swiss firms which usually issue high-voting- rights stock, low-voting-rights stock, and non-voting stock. Two variables measuring voting- power-inequality are constructed. They are both useful in explaining the voting-rights-premia. Also, the allocation of the voting rights is analyzed. It is shown that majority shareholders hold the high-voting-rights stock


"Fractional cointegration of voting and non-voting shares," by  Ingolf Dittmann, Applied Financial Economics, Volume 11, 2001 - Issue 3 ---
http://www.tandfonline.com/doi/abs/10.1080/096031001300138726

Voting and non-voting shares of ten German companies are analysed for fractional cointegration. It turns out that seven pairs of price series are fractionally cointegrated. The estimated long-memory parameter of the equilibrium errors lies between 0.5 and 0.8. If two stocks are fractionally cointegrated, future returns of at least one of the stocks can be predicted by past prices. This contradicts the weak form of the efficient market hypothesis. A simple trading strategy is proposed and analysed; it leads to considerable excess returns in two out-of-sample evaluations.


The Value of Control: Implications for Control Premia, Minority Discounts and Voting Share Differentials
SSRN, November 14, 2005
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=837405

Author

Aswath Damodaran

Abstract

It is not uncommon in private company and acquisition valuations to see large premiums attached to estimated value to reflect the 'value of control'. But what, if any, is the value of control in a firm, and if it exists, how do we go about estimating it? In this paper, we examine the ingredients of the control premium. In particular, we argue that the value of controlling a firm has to lie in being able to run it differently (and better). Consequently, the value of control will be greater for poorly managed firms than well run ones. The value of control has wide ranging implications beyond acquisitions. We show that the expected likelihood of control changing is built into the price of every publicly traded company and that this provides a way of measuring the payoff to strong corporate governance. We also argue that getting a better handle on the value of control can allow us to better explain the differences between voting and non-voting share prices and the minority discount in private company valuations.


A Theory of Pyramidal Ownership and Family Business Groups
SSRN, May 2005"

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=721801

Authors

Heitor Almeida --- University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Daniel Wolfenzon --- Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Abstract

We provide a rationale for pyramidal ownership (the control of a firm through a chain of ownership relations) that departs from the traditional argument that pyramids arise to separate cash flow from voting rights. With a pyramidal structure, a family uses a firm it already controls to set up a new firm. This structure allows the family to 1) access the entire stock of retained earnings of the original firm, and 2) to share the new firm's non-diverted payoff with minority shareholders of the original firm. Thus, pyramids are attractive if external funds are costlier than internal funds, and if the family is expected to divert a large fraction of the new firm's payoff; conditions that hold in an environment with poor investor protection. The model can differentiate between pyramids and dual-class shares even in situations in which the same deviation from one share - one vote can be achieved with either method. Unlike the traditional argument, our model is consistent with recent empirical evidence that some pyramidal firms are associated with small deviations between ownership and control. We also analyze the creation of business groups (a collection of multiple firms under the control of a single family) and find that, when they arise, they are likely to adopt a pyramidal ownership structure. Other predictions of the model are consistent with systematic and anecdotal evidence on pyramidal business groups.


How do you account for superpower voting stock?
Is our old classification of Debt, Mezannine, and Equity out of date?

From the CFO Journal's Morning Ledger on April 4, 2017

Technology companies are seeking windfalls from their IPOs, minus the shareholders. Snap Inc. was the first major company since at least 2000 to do an initial public offering in the U.S. that gave new shareholders no voting rights, Maureen Farrell reports. The company’s earlier investors got one vote for every 10 held by the two co-founders.

This is part of a growing trend which sees tech companies grabbing power when they go public. These companies are structuring their IPOs so that founders and executives have far more votes than actual shares. The voting power gives those few shareholders dominance over all corporate decisions, ranging from the election of directors to whether to sell the company someday.

More tech companies—among them Facebook Inc., Fitbit Inc. and Twilio Inc.—are going public with at least two classes of stock. The structure makes it possible for companies to assign different voting rights to different groups of shareholders. The tech industry’s use of so-called supervoting shares has climbed so much in the past five years that it is roughly in line with IPOs as a whole.

The shift troubles some investors, corporate-governance advocates and even Silicon Valley executives. They say watered-down voting power hurts shareholder democracy and leaves those investors vulnerable.

San Francisco is so expensive, the city is spending $44 million so its teachers won't be homeless ---
http://www.businessinsider.com/san-francisco-teacher-housing-affordability-2017-5

Jensen Comment
This is probably a drop in the bucket compared to the need for cheaper housing for all of San Francisco's teachers, firefighters, police officers, hotel workers, janitors, taxi drivers, etc.
The biggest boon to low cost housing is probably the BART train system leading to Oakland. But Oakland has its own troubles dealing with a culture of crime and racial strife and rising prices.
The problem of not having low cost housing in Silicon Valley becomes more severe in cities like Palo Alto that are further from BART terminals. Palo Alto was one of the first Silicon Valley cities to offer low cost housing to public service workers.

Jensen Question
My question is what this will do for taxation of relatively low-paid public servants who earn almost twice or more above the USA poverty line in the Silicon Valley.
College presidents, for example, pay income taxes on the estimated value of their subsidized housing?
A College president can easily afford the added income tax on free rental of a campus house valued at $1+ million anywhere in the USA.
Can a K-12 teacher earning $85,000 per year afford the added income tax on a free rental of tiny cottage in valued at $1 million Palo Alto (that would be valued at less than $20,000 in rural Swea City, Iowa).
 


Active Learning, Cooperative Active Learning, and Passive Learning Methods in an Accounting Information Systems Course
Issues in Accounting Education, Article Volume 32, Issue 2 (May 2017)
http://aaajournals.org/doi/abs/10.2308/iace-51366

Authors

Jennifer Riley, University of Nebraska at Omaha 

Kerry Ward, University of Nebraska at Omaha 

Abstract

We report the results of a study to examine the effectiveness of active versus passive learning methods in the accounting information systems area. Two groups of students completed an assignment under two active learning conditions (individual and cooperative), while a third group covered the same topic in a passive lecture. Our findings indicate support for active learning, measured through student performance on exam questions and student feedback on a questionnaire. However, compared to passive learners, we find significantly improved exam performance only for students who work individually in an active environment. Students in the cooperative active environment posted exam scores that were not statistically different from passive participants' scores. Students in both individual and cooperative active environments reported positive feedback on satisfaction, perceived learning, and effectiveness of the method. We conclude that active learning enhances student outcomes, particularly for those who work individually.

Bob Jensen:  Metacognitive Concerns in Designs and Evaluations of Computer Aided Education and Training: Are We Misleading Ourselves About Measures of Success?
http://faculty.trinity.edu/rjensen/265wp.htm


Growing Up: How Audit Internships Affect Students' Commitment and Long-Term Intentions to Work in Public Accounting
Issues in Accounting Education, Article Volume 32, Issue 2 (May 2017)
http://aaajournals.org/doi/abs/10.2308/iace-51431 Texas Tech University

Authors

Matthew Hart, Texas Tech University

Joleen Kremin, Portland State University

William R. Pasewark, Texas Tech University

Abstract

This study investigates factors that influence audit interns' commitment and long-term intentions to work in public accounting. We measure the organizational and professional commitment of 127 audit interns prior to the start of busy-season internships with public accounting firms and then again at the conclusion of the internship. We find that both organizational and professional commitment decline significantly as a result of the internship experience. We note that heavy workloads during the internship decreased the degree of commitment to a particular firm. On the other hand, offering challenging work assignments and surrounding the intern with desirable coworkers significantly increased commitment to both the firm and the profession. We also find that changes in organizational commitment are related to changes in interns' long-term intentions to work in public accounting, and that by the end of the internship, nearly 60 percent of the interns changed their views with regard to how long they planned to work in public accounting, with a majority of respondents anticipating a shorter career in the profession.

Jensen Comment
It would be interesting to compare these results with a similar study of tax interns.


Pathways Commission of Higher Education in Accounting --- http://commons.aaahq.org/groups/2d690969a3/summary

How to Effectively Integrate Professionally Oriented Faculty to Achieve the Department's Mission
ssues in Accounting Education, Article Volume 32, Issue 2 (May 2017)

Authors

 D. Scott Showalter, North Carolina State University

James Bodtke, University of Illinois at Urbana–Champaign

Abstract

The purpose of this commentary is to describe the successful assimilation of Professionally Oriented Faculty into the department of accounting through the use of the Pathways Commission Professionally Oriented Faculty Integration Principles. Further, building upon the Integration Principles, we provide recommendations for attracting and retaining Professionally Oriented Faculty. We accomplish this by describing the varied journeys of six different Professionally Oriented Faculty as compared with the POF Integration Principles. We also summarize the Professionally Oriented Faculty Integration Principles and encourage adoption by member institutions of these principles with an affirmative statement.

Clinical Professor --- https://en.wikipedia.org/wiki/Clinical_professor

Jensen Comment

I'm in favor of having tenure tracks for clinical accounting faculty. This need not eliminate publish or perish criteria, only the focus of the publishing would be on scholarly articles aimed at the profession's practitioners. An indirect benefit might be to restore relevancy of academic publication among practitioners who lost interest in TAR, JAR, JAE, and most other academic research journals years ago. Exhibit A is the decline in practitioner subscriptions to AAA journals and submissions of practitioner manuscripts to those journals.

 

May 15, 2017 reply from Jagdish Gangolly

Bob,

I agree with your sentiments in spirit. However,....

1. You said: "I'm in favor of having tenure tracks for clinical accounting faculty. This need not eliminate publish or perish criteria, only the focus of the publishing would be on scholarly articles aimed at the profession's practitioners."

Question: How can you publish scholarly articles aimed at the profession's practitioners when you have never indulged in scholarly activities?

 

 

Jensen Reply
I don't have a supercilious view that clinical professors (including those without doctoral degrees) are not scholarly Most that are interested in teaching in higher education have been scholarly. Research extends knowledge.
Scholarship is includes both the understanding of knowledge and its application.
Being a scholarly expert of something like FAS 133 is possibly more of a challenge than being a scholarly expert on the writings of Joan Robinson.

 

I often cite the scholarship in practitioner journals. I admire all of the scholarly articles Ira Kawaller has written in practitioner rather than academic journals ---
http://www.kawaller.com/

 

Much of our academic literature arises from scholarly professors and others who do not publish any or much research. Exhibit A are the many teaching cases and commentaries published in Issues in Accounting Education, Accounting Horizons, etc. I highly recommend the managerial accounting cases published by the IMA
https://www.imanet.org/educators/ima-educational-case-journal/iecj-index?ssopc=1

 

Prestigious universities like Harvard and Stanford publish scholarly cases that are often written by professional case writers rather than researchers. Clinical faculty often write similar scholarly cases ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Cases

 

You yourself, Jagdish, publish very scholarly modules in multiple areas where you've never published research papers.
What is to prevent you and others from writing scholarly articles and commentaries that are scholarly but not research extending the knowledge boundary of a discipline?

 

 

2. You said: " An indirect benefit might be to restore relevancy of academic publication among practitioners who lost interest in TAR, JAR, JAE, and most other academic research journals years ago."

Question: How does regurgitating generally irrelevant academic research gain the interest of practitioners whose feet are always on fire?

 

 

Jensen Reply
Who said anything about regurgitation of TAR, JAR< and JAE?

 

You must have never appreciated the main purpose that the Issues in Accounting Education and Accounting Horizons were created in the first place?
Those journals were never intended to be primarily leading edge academic research journals. They were intended to be scholarly journals intended to attract teachers and practitioners with value-added contributions to their professions.
Dyclman and Zeff sent me new working paper in which they assert that Accounting Horizons failed to attract practitioners because if offered little or no scholarship of interest to practitioners

.

In fairness to Accounting Horizons editors they were not getting submissions from academic accountants that added value to practitioners.

 

3. You said: "Exhibit A is the decline in practitioner subscriptions to AAA journals and submissions of practitioner manuscripts to those journals."

Question: Why should practitioners read AAA and other academic journals when they have little to do with practice? If you were a practicing accountant, would you read TAR, JAR, JAE,...?

 

Jensen Comment
Read my reply in green above.

 

Now some more questions.

1. Instead of forcing practitioners with teaching interests pretend to be scholarly, or force them to pretend that current academic research is relevant, isn't it more honest to force academic faculty to pay heed to what is happening in practice and require them to tackle problems the practitioners face?

 

 

Jensen Questions
Are practitioner experts in technical details of practice not scholars?

 

Are experts on FAS 133 and other very technical accounting standards inferior scholars relative to Jagdish Gangolly because he chooses to study the history of statistics rather than esoteric hedging contracts in financial markets?

 

It takes scholarship to comprehend complicated derivatives and other financial contracts in practice.

 

2. Doesn't it make sense to require that any one who teaches accounting must have accounting experience? Most of the faculty I had for colleagues, and most I had to hire as chairman, were fake accountants who took a smattering of accounting courses, had no background in industry or practice, and insisted on teaching financial accounting courses that could be taught mechanically (intro, intermediate, advanced). When I was the department chairman I used to tell my faculty that the way those courses are generally taught usually by the prima donnas in the department, I could train a monkey to do equally well. I did not mean to imply that all such courses are taught that way, just that most (not all) so-called research oriented faculty teach them that way.

 

 

Jensen Comment
Did you ever teach professional accounting courses after getting an accounting PhD?

 

Were you ever in an accounting department at a university or were you always employed in a more comprehensive department such as an MIS or computer science department?

 

I tend to agree with you that accounting PhD programs are now graduating mathematics and mathematics and statistics experts who have little or no background in accounting.

 

I cannot find the exact quotation in my archives, but some years ago Linda Kidwell complained that her university had recently hired a newly-minted graduate from an accounting doctoral program who did not know any accounting. When assigned to teach accounting courses, this new "accounting" professor was a disaster since she knew nothing about the subjects she was assigned to teach.

 

3. Doesn't it make sense to recruit fresh PhDs in accounting with no practice/industry experience as lecturers until they meet the practice requirement? Just as we recruit practitioners with no PhDs as lecturers unless they get a PhD? Isn't the so called pathways condescending to all those who got hard-earned PhDs and patronizing to those exalted souls who got the so called PhDs in "accounting"?

 

 

Jensen Comment
On this one I tend to agree, but the type of graduate mentioned above by Linda Kidwell may in recent years be more of an exception than the rule. I would just refuse to hire accountign PhDs even as lecturers if they cannot teach professional accounting courses. My reading is that PhD programs have returned to requiring more accountancy backgrounds, in addition to quantitative skills backgrounds, when admitting new students to the programs. I hope this is the case!

 

4. Isn't the PhD requirement in accounting a conspiracy in connivance with AACSB to create artificial teacher shortage to perpetuate our own perceived superiority?

 

 

Jensen Comment
The AACSB is well aware of the problem and seems to have softened some by declaring that clinical accounting (PQ) faculty with no PhD degrees are now acceptable scholars for accreditation purposes in accounting programs.

 

I was opposed to the AACSB's  two Bridge Programs that seemed to open the door to business school faculty jobs to PhDs in other disciplines (think history or mathematics) with zero background in business ----
http://www.aacsb.edu/events/bridgeprograms
However, my contracts in universities that offer accountancy bridge programs to non-accounting PhDs assure me that they will not accept applicants who have no academic or professional background in accountancy even though they earned a PhD degree in another discipline.

 

I might add that I'm still opposed to Bridging Programs. I would rather open the doors to more clinical faculty who do not have PhD degrees.

 

My point here is that an accounting department is no longer required by the AACSB to hire tenure track applicants who have know background for teaching professional accountancy courses. If they do so they do so at their own peril such as having to figure out, like Linda Kidwell had to figure out, what to do with a tenure track accounting professor who cannot teach any professional accounting courses. It would seem that these days an accounting department would be better off using the resources to instead hire a professionally qualified (PQ) clinical faculty member.

 

I think that some of your complaints about the AACSB applied in the 20th Century but do not apply to the new AACSB in the 21st Century

.

The enemy in this case is not the AACSB.
The "enemy is us" as Pogo says.
Accounting departments and business schools are still not admitting PQ clinical faculty into tenure tracks with separate scholarship publishing requirements for PQ faculty. The AACSB is not denying tenure tracks to clinical faculty.

Exhibit A is clinical faculty member Dennis Beresford on the non-tenure track faculty at the University of Georgia

Exhibit B of a clinical faculty member is Patricia Walters, Phd and CFA on the non-tenure track faculty at TCU.

Exhibit C of a clinical faculty member is James Furhrmeyer, CPA on the non-tenure track faculty at Notre Dame

Exhibit D of a clinical faculty member is Elliot Kamlet, MS on the non-tenure track faculty at SUNY Binghamton

Exhibit E is the University of Houston that in my Hasselback Directory lists 13 accountancy clinical faculty members and only 17 tenure track faculty
 

Why can't at least some of the PQ clinical accounting faculty be on tenure tracks at the University of Houston?


"A Day in the Life: Accounting Professor," by Adrienne Gonzalez, Going Concern, May 18, 2017 ---
http://goingconcern.com/day-life-accounting-professor/

Jensen Comment
The "Jr Deputy Accountant" seems to have re-emerged at Going Concern, although her own Jr Deputy Accountant Blog still appears to be dead.

Alan'Jagolinzer's  Rate RateMyProfessor page is at
http://www.ratemyprofessors.com/ShowRatings.jsp?tid=1510500
He appears to be a popular teacher. There is lament that he's leaving UC Boulder. I did not verify this.
He's an Associate Professor who joined UC Boulder in 2010. His Ph.D. is from Penn State (2004).


U.S. Audit Partner Rotations
The Accounting Review, Volume 92, Issue 3 (May 2017)
http://aaajournals.org/doi/abs/10.2308/accr-51552

Authors

Henry Laurion, University of California, Berkeley 

Alastair Lawrence, University of California, Berkeley

James P. Ryans, London Business School

Abstract

We investigate the effects of audit partner rotation among U.S. publicly listed firms, utilizing the fact that audit partners are periodically copied by name in public correspondence between issuers and the Securities and Exchange Commission. Relative to non-rotation firms, we find no evidence of a change in the frequency of misstatements following the partner rotation; however, there is an increase in the frequency of restatement discoveries and announcements. We also find an increase in deferred tax valuation allowances. Overall, the results provide some evidence suggesting that U.S. partner rotations support a fresh look at the audit engagement.


Early May 2017 Suggested Readings in Econometrics
by David Giles
http://davegiles.blogspot.com/2017/05/heres-what-ive-been-reading.html

Here are some of the papers that I've been reading recently. Some of them may appeal to you, too:

 


California plans to tax space travel by the mile ---
http://www.freerepublic.com/tag/*/index?more=3550663

Liberals are salivating at the idea of taxing cars by the distance they travel, to better rake in money for their nefarious purposes. In California, they are taking the idea one step farther, planning to tax space rockets by the mile as well. According to the proposal, California will collect tax from space transportation companies based on a formula factoring in how often a company launches spacecrafts out of the state, and, most importantly, how far a commercial spacecraft travels from California soil. Between May and mid-October, there were eight launches from Vandenberg Air Force Base, in Santa Barbara County..

 Jensen Comment
La La Land figured out a way to move all space business and jobs out of state.
California just added 12 cents pre gallon on state roads to help pay for unfunded state worker pensions. Someday Elon Musk will discover how much his companies and auto workers are getting screwed. High tech Silicon Valley workers are being paid so much they don't care about extra taxes they are being paid for the joys of working in the crowded valley. However, those that are living in their cars are concerned about the highest home prices in the USA.


Trump’s Tax Plan Could Turn ‘Everyone and Their Dog’ Into an LLC ---
https://www.bloomberg.com/politics/articles/2017-04-28/trump-plan-seen-turning-everyone-and-their-dog-into-an-llc?cmpid=BBD042817_BIZ&utm_medium=email&utm_source=newsletter&utm_term=170428&utm_campaign=bloombergdaily

Jensen Comment
I guess relating "Everyone" (singular) with "Their" (plural) is now correct grammar. Use of "His" or "Her" is not politically correct.


Accounting-Related Class-Action Lawsuits Up 33% in 2016 ---
http://www.accountingweb.com/aa/law-and-enforcement/accounting-related-class-action-lawsuits-up-33-in-2016?source=ei050317


Invisible Manipulators of Your Mind
The Undoing Project: A Friendship That Changed Our Minds

by Michael Lewis
http://www.nybooks.com/articles/2017/04/20/kahneman-tversky-invisible-mind-manipulators/

Thank you Jagdish Gangolly for the heads up


Public Sector Fraud Per Usual in Chicago
Barbara Byrd-Bennett, Former Chicago Schools CEO, Sentenced to Prison  ---
http://blogs.edweek.org/edweek/District_Dossier/2017/04/barbara_byrd-bennett_former_chicago_district_CEO_sentenced_to_prison.html?cmp=eml-enl-eu-news2

Former Chicago schools CEO Barbara Byrd-Bennett was sentenced Friday to more than four years in prison for her role in steering no-bid contracts to an education consulting company in exchange for kickbacks in a $20 million corruption scheme

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


The Kentucky Derby Is Getting Predictable ---
https://fivethirtyeight.com/features/the-kentucky-derby-is-getting-predictable/

Yeah Right
AI:  Artificial Intelligence Fails to Predict the 2017 Kentucky Derby Winner ---
http://fortune.com/2017/05/07/artificial-intelligence-kentucky-derby-predictions/?utm_source=MIT+Technology+Review&utm_campaign=58790d2eaf-The_Download&utm_medium=email&utm_term=0_997ed6f472-58790d2eaf-153727301
Jensen Comment
There's a huge difference between predicting chess outcomes versus poker winners versus stock prices versus sports outcomes (including the Kentucky Derby).
The biggest difference is the assumption of stationary systems.
https://en.wikipedia.org/wiki/Stationary_process


"Facebook admitted all the stock it gives employees is a real business cost, and it could make some other companies look bad," by Julie Bort, Business Insider, May 4, 2017 ---
http://www.businessinsider.com/facebook-embraces-the-gaap-2017-5

Following Google's lead, Facebook is making a significant change in how it talks about its financial health with investors.

Facebook will, for the most part, only report numbers that come from Generally Accepted Accounting Principles or GAAP. It will limit the numbers it reports that don't follow GAAP rules. 

Specifically, Facebook is no longer reporting non-GAAP expenses, income, tax rate, and earnings per share (EPS), it says. It will still use non-GAAP numbers in limited ways, such as to share with investors the impact of foreign exchange rates on its revenue, and to give insight into free cash flow.

But it is getting rid of non-GAAP numbers for the meat-and-potatoes portion of its results.

Non-GAAP numbers can be useful, because it helps investors understand how the managers see the business, some accountants say. What expenses or income streams do they think are reliable and which ones do they are unusual, extraordinary things, not to be counted on?

Then again, "non-GAAP" results can also mislead investorsMcKinsey suggests. By cherry picking numbers, a company can paint itself in a better light.

All about the stock

In Facebook's case, the issue appears to be mostly stock-based compensation for employees.

It's pretty common for tech companies to exclude the cost of stock-based compensation from non-GAAP numbers. But tech companies almost always pay their employees a significant chunk of their total pay in stock. By excluding that expense, a company can look like it's more profitable than it is, since paying employees is an inescapable expense not some kind of unusual event.

In fact, the accounting industry's regulating body, The Financial Accounting Standards Board, has changed the rules on how companies deal with stock compensation, particularly in how they deal with taxes (a provision known as ASU No. 2016-09). Public companies are supposed to be adopting those new rules starting in 2017.

Still, Facebook is using the rule change to follow Google CFO Ruth Porat's lead and saying to investors, "Judge us only on our final GAAP numbers, not the cherry picked ones."

Facebook, like Google, has the luxury of a healthy bottom line, which makes it easier to enact the change. For tech companies with less reliable profits, or worse, companies that are losing money, including stock compensation expenses would make financial results look pretty ugly in the eyes of investors.

Continued in article

A Road Map for Share-Based Compensation (April 1, 2007) ---
http://www.journalofaccountancy.com/issues/2007/apr/aroadmapforsharebasedcompensation.html

. . .

CURRENT TRENDS Based strictly on the amount of work required to implement fair value accounting, it is clear equity instruments are a more attractive alternative than liability instruments for companies today because the latter require remeasurement at each reporting date. Within the equity instrument category, shares or stock units are more attractive than stock options or option-like instruments, as options require companies to apply onerous pricing models for grant-date fair value measurement.

Deloitte’s 2005 Stock Compensation Survey said 75% of the public and private companies surveyed planned to cut back the number of stock options granted to minimize the expense they would have to recognize. The reduction would mostly target lower-level employees. Some 89% of public and 55% of private companies were considering alternative forms of equity-based compensation. Given all forms of equity-based compensation, the most popular choices mentioned by public companies were restricted stock or stock units with either a time-vested (52%) or performance-vested (40%) condition. At private companies, stock options continued to be the most popular choice, with either a time-vested (39%) or performance-vested (33%) condition.

It’s difficult for private companies to use stock or stock units as award instruments since they impose a financial burden on employees, who must pay taxes when the shares vest. Employees may have difficulty raising cash for taxes on the vesting date with shares that are not publicly traded. On the other hand, employee stock options are attractive as they normally are taxed on the exercise or sale date, and the option holder controls the timing of these dates. Private company employees typically exercise options when the company undergoes an IPO, merger or buyout, at which time the shares have a ready market value. - See more at: http://www.journalofaccountancy.com/issues/2007/apr/aroadmapforsharebasedcompensation.html#sthash.W4R6FoOF.dpuf

 

FASB:  ASU 2016-09 ---
http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168028584&acceptedDisclaimer=true  

What Are the Main Provisions and How Do They Differ from Current Generally Accepted Accounting Principles (GAAP)?

The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities

 

Current GAAP
Summary ofAccounting for Income Taxes: An entity must determine for each award whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes results in either an excess tax benefit or a tax deficiency. Excess tax benefits are recognized in additional paid-in capital;
Simplifications
Entity must determine for each award whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes results in either an excess tax benefit or a tax deficiency. Excess tax benefits are recognized in additional paid-in capital; All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated
Current GAAP
tax deficiencies are recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement. Excess tax benefits are not recognized until the deduction reduces taxes payable. as
Simplifications
as discrete items in the reporting period in which they occur.

An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period
Current GAAP
Classification of Excess Tax Benefits on the Statement of Cash Flows:
Excess tax benefits must be separated from other income tax cash flows and classified as a financing activity.
Simplifications
Excess tax benefits should be classified along with other income tax cash flows as an operating activity.
Current GAAP
Forfeitures:
Accruals of compensation cost are based on the number of awards that are expected to vest
Simplifications
An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur.
Current GAAP
Minimum Statutory Tax Withholding Requirements:
One of the requirements for an award to qualify for equity classification is that an entity cannot partially settle the award in cash in excess of the employer’s minimum statutory withholding requirements.
Simplifications
The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions.
Current GAAP
Classification of Employee Taxes Paid on the Statement of Cash Flows
When an Employer Withholds Shares for Tax-Withholding Purposes: There is no guidance on classification of cash paid by an employer to the taxing authorities when directly withholding shares for taxwithholding purposes. Cash
Simplifications
A nonpublic entity can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions.
Current GAAP
Practical Expedient—Expected Term:
Entities are required to estimate the period of time that an option will be outstanding.
Simplifications
A nonpublic entity can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions.

Continued at
http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168028584&acceptedDisclaimer=true

 


Efficient Market Hypothesis --- https://en.wikipedia.org/wiki/Efficient-market_hypothesis

Efficient Markets Debates That Never End

Profit opportunities exist until (academic) researchers publish findings on market inefficiencies. Then they disappear ---
https://www.bloomberg.com/view/articles/2017-05-11/ivory-tower-wonks-help-traders-make-a-quick-buck

Profit opportunities do not exist in many instances (e.g., those attributed to p-hacking mistakes)
An Algorithm, an ETF and an Academic Study Walk Into a Bar ---
https://www.wsj.com/articles/an-algorithm-an-etf-and-an-academic-study-walk-into-a-bar-1494528113

Most of the supposed market anomalies academics have identified don’t exist, or are too small to matter

Tie together an algorithm, an exchange-traded fund and an academic study finding an anomaly in the markets, and voilà! You have a formula for making money. Trouble is, it turns out that most of the supposed anomalies academics have identified don’t exist, or are too small to matter.

A new study making waves in quantitative finance tested 447 anomalies identified by academics and found more than eight out of 10 vanish when rigorous tests are applied. Among those failing to reach statistical significance: one anomaly recently set out by the godfathers of quantitative finance, Nobel-winning economist Eugene Fama and his colleague Kenneth French.

The study, “Replicating Anomalies,” published this week by Kewei Hou and Lu Zhang at Ohio State University and Chen Xue at the University of Cincinnati, is the biggest test of examples of inefficient markets carried out so far. The trio applied consistent analysis to the supposed anomalies, used the same database of stocks and set higher standards for statistical significance. Simply reducing the influence of the plethora of rarely traded penny stocks—which make up just 3% of market value but 60% of all listings—by using market capitalization weightings made more than half of past findings no longer significant.

Messrs. Hou, Xue and Zhang warn that academics have been fiddling the statistics to come up with interesting findings, known to statisticians as data mining or p-hacking. “The anomalies literature is infested with widespread p-hacking,” they write.

It isn’t all bad news for investors and those trying to make a living flogging what have become known as “factors.” The research confirmed that the most popular factors have indeed outperformed the market over long periods even when faced with rigorous tests, but found much smaller returns than previous studies estimated.

Market anomalies that passed the new study’s tests included several of the biggest. Cheap stocks indeed beat expensive ones; share prices have momentum; companies that invest a lot underperform, and quality of earnings matters. Known as value, momentum, investment and quality, these have become the biggest of the so-called “smart beta” ETFs sucking in tens of billions of dollars.

A lot depends on exactly how the factors are implemented, though, and the researchers dismissed one of the industry-standard Fama-French factors as statistically insignificant: Companies with high operating return on equity don’t outperform meaningfully on their tests. Other measures of return on equity did outperform sufficiently, however, underlining the sensitivity of some factors to exactly how they are defined.

One lesson for investors is to be careful about trying to make money by repeating what seems to have worked in the past. If it was so easy, everyone would do it and it would stop working.

A former student of Mr. Fama, Cliff Asness, founder of quantitative hedge-fund manager AQR Capital Management, said he tries to avoid being caught out by false findings by trading on anomalies he can explain, economically or through investor behavior. To assess whether the market anomalies will continue, he looks for ones which carried on after being identified, can be seen in other markets or asset classes, and where minor changes to how they are defined don’t much affect the result. These include most famously value, momentum and corporate quality, among others.

Still, he worries that the “awesome effort” in the new paper might lead some to overreact and reject all factors, even those which Messrs. Hou, Xue and Zhang found evidence for.

“Many factors are demonstrably silly, or are highly correlated versions of the same idea,” he said. “Where I get worried is about overreaction [to the paper] and the cynicism it breeds.”

Investors are still likely to be confused. There are well over 100 value and high-dividend ETFs in the U.S. alone, tracking large, small or midsize stocks, based on different definitions and often combined with other factors such as momentum, quality or low volatility. Intelligently choosing between them would mean examining how indexes are constructed and comparing to the long-term academic studies to see which methodology was best; in practice for most investors there is little more to go on than a few years of performance data and fees.

Worse still, the markets are reasonably efficient. If it turns out that shares usually rise just after Christmas or fall on Mondays when it rains in New York, traders will quickly find a way to profit from the anomaly, and it will disappear.

The danger for investors who have piled into “smart beta” ETFs betting on value or quality is that exactly this happens. Small-capitalization companies stopped outperforming after the landmark study identifying the so-called small-cap effect in 1981, for example, and haven’t looked good since (see chart).

Continued in article

Is The House GOP's Border Adjustment Tax Unconstitutional? ---
http://taxprof.typepad.com/taxprof_blog/2017/05/is-the-house-gops-border-adjustment-tax-unconstitutional.html


ASU 2016-01 kicks in at the end of 2017

NYT:  A Little-Known Accounting Change Could Have a Big Impact ---
https://www.nytimes.com/2017/05/12/business/dealbook/a-little-known-accounting-change-could-have-a-big-impact.html?_r=0

. . .

But Update 2016-01 could significantly affect — and distort — the way companies like Alphabet, Intel, IBM and Salesforce.com, which make a lot of small investments in other companies, report their earnings. It could also curtail such investments from being made in the first place, because some businesses say the costs of complying with the rule are too high.

Here’s how things would change with the new rule: Now, when a company buys a stake of less than 20 percent in another company, it usually accounts for the investment on its balance sheet at cost — the price it paid for it. Over time, under the old rules, if the value of the investment goes down, the rules required a corresponding write-down of the value, both through the company’s income statement and on its balance sheet. But if the value increases over time, the investment can still be kept at cost.

While investors were fully informed when an investment lost value, there was less transparency for them when an investment increased in value. What investors lost in transparency on the upside, it has been argued, was gained in not requiring corporate executives to place a number on these often difficult-to-value investments every quarter.

That’s what is going to change after Dec. 15. From then on, each minority investment a public company makes will have to be valued quarterly, whether that value has increased or decreased. That potential volatility will soon be required to flow through a company’s income statement, with the possibility of causing fluctuations to earnings per share from something that is not even a core business.

Corporate executives will have two choices on how to go about valuing these investments.

They can either spend the time valuing these investments themselves (or hire an accounting firm or a valuation firm like Duff & Phelps), or they can choose to wait until there is a market-driven valuation event and then mark up the value of the investment accordingly. How a company chooses to value these investments — whether every quarter or when there is a market event — has to be selected soon, and then cannot be changed. This, too, has added to the corporate executives’ concerns.

Take, for example, investments that have been made over the years in Uber, which now has a valuation of around $70 billion. In 2013, Google Ventures, now part of Alphabet Inc., Google’s parent company, invested $258 million in Uber at a post-money valuation of $3.76 billion. Four years later, that investment is now worth around $4.8 billion.

 Continued in article

What Are the Main Provisions? ---
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175832457331&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=1070379&blobheadervalue1=filename%3DASU_2016-01.pdf&blobcol=urldata&blobtable=MungoBlobs

The amendments in this Update make targeted improvements to generally accepted accounting principles (GAAP) as follows:

1. Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

2. Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.

3. Eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities.

4. Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

5. Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

6. Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

Jensen Insert
Banks’ Discretion Over the Debt Valuation Adjustment for Own Credit Risk ---
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2920617

Banks that recognize financial liabilities at fair value currently must record unrealized gains (losses) on these liabilities attributable to increases (decreases) in the banks’ own credit risk, referred to as the debt (or debit) valuation adjustment (DVA), in earnings each period. For a sample of publicly traded European banks during 2008-2013, we investigate the economic and discretionary determinants of DVA. We find that DVA exhibits the expected associations with economic factors, being positively associated with the change in banks’ bond yield spread and negatively associated with the changes in banks’ unsecured debt and average remaining bond maturity. We also provide evidence that banks exercised discretion over DVA to smooth earnings during the recent financial crisis and its immediate aftermath. To remove non-discretionary smoothing of earnings, we decompose DVA into nondiscretionary (normal) and discretionary (abnormal) components and find that abnormal DVA is negatively associated with pre-managed earnings, controlling for banks’ abnormal loan loss provisions (LLP) and realized securities gains and losses (RGL), consistent with banks exercising discretion over DVA to smooth earnings. We further find that banks that record larger LLP and that have histories of using LLP to smooth earnings use DVA less to smooth earnings, consistent with LLP and DVA being substitutable ways to smooth earnings. These findings have implications for how bank regulators and investors should interpret banks’ reported DVA. They may support the FASB’s recent decision in ASU 2016-1 to require firms to record DVA in other comprehensive income.

7. Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

8. Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

 

Note how ASU 2016-01 relates to IFRS 9 ---
http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175832457331&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=1070379&blobheadervalue1=filename%3DASU_2016-01.pdf&blobcol=urldata&blobtable=MungoBlobs

"The Effect of Fair Value versus Historical Cost Reporting Model on Analyst Forecast Accuracy," by Lihong Liang and Edward J. Riedl,  The Accounting Review,: May 2014, Vol. 89, No. 3, pp. 1151-1177 ---
http://aaajournals.org/doi/full/10.2308/accr-50687  (Not Free)

ABSTRACT:

This paper examines how the reporting model for a firm's operating assets affects analyst forecast accuracy. We contrast U.K. and U.S. investment property firms having real estate as their primary operating asset, exploiting that U.K. (U.S.) firms report these assets at fair value (historical cost). We assess the accuracy of a balance-sheet-based forecast (net asset value, or NAV) and an income-statement-based forecast (earnings per share, or EPS). We predict and find higher NAV forecast accuracy for U.K. relative to U.S. firms, consistent with the fair value reporting model revealing private information that is incorporated into analysts' balance sheet forecasts. We find this difference is attenuated when the fair value and historical cost models are more likely to converge: during recessionary periods.

Finally, we predict and find lower EPS forecast accuracy for U.K. firms when reporting under the full fair value model of IFRS, in which unrealized fair value gains and losses are included in net income. This is consistent with the full fair value model increasing the difficulty of forecasting net income through the inclusion of non-serially correlated elements such as these gains/losses. Information content analyses provide further support for these inferences. Overall, the results indicate that the fair value reporting model enhances analysts' ability to forecast the balance sheet, but the full fair value model reduces their ability to forecast net income.

Keywords:  fair value, historical cost, analyst forecast accuracy, net asset value, real estate

Received: September 2011; Accepted: December 2013 ;Published Online: December 2013

 

I. INTRODUCTION

This paper examines the effect of the reporting model on the accuracy of analyst outputs. Specifically, we investigate whether the model—fair value or historical cost—used to report firms' primary operating assets of real estate differentially affects the accuracy of two analyst forecasts: a balance-sheet-based forecast (net asset value, or “NAV”), and an income-statement-based forecast (earnings-per-share, or “EPS”).1 Accordingly, this paper combines the literatures on fair value reporting for nonfinancial assets (e.g., Easton, Eddey, and Harris 1993) and analyst forecast accuracy (e.g., Lang and Lundholm 1996) to examine how the reporting model affects the precision of different types of analyst outputs.

We choose as our setting publicly traded investment property firms domiciled either in the U.K. or U.S. during the period 2002–2010. Investment property firms invest in real estate assets for rental income and/or capital appreciation. The choice of this setting is advantageous for several reasons. First, this industry is among the few in which fair value reporting can be observed for the firm's primary operating assets. Although other industries, such as banking and insurance, have significant exposure to fair value reporting, these settings are more complex as the within-firm accounting treatment across their operating assets varies significantly, and they are subject to substantial regulation.2 Second, our focus on the U.K. and U.S. exploits the primary reporting difference for this industry across these two countries. Specifically, U.K. investment property firms recognize property assets at fair value on the balance sheet under both U.K. domestic accounting standards as well as more recently adopted International Financial Reporting Standards (IFRS). Unrealized fair value changes are reported in a revaluation reserve under U.K. standards, but reported in net income under IFRS. In contrast, U.S. investment property firms report property assets at historical cost as mandated under U.S. standards; further, industry practice is that these firms rarely voluntarily disclose property fair values. Third, despite the latter reporting difference, the real estate industry in both countries is highly developed, with both having a substantial number of publicly traded real estate firms, relatively liquid property markets, and a large number of analysts following these firms.

To assess analyst forecast accuracy, we choose two forecast types, a balance-sheet-based forecast (NAV) and an income-statement-based forecast (EPS). NAV forecasts are commonly applied in the investment property industry, and are primary inputs into analyst's target price estimates. They are calculated by taking the estimated fair value of the firm's assets, which are primarily the real estate properties, and subtracting the estimated fair value of the firm's liabilities, primarily debt. As such, NAV provides an estimate of the value of the firm's net assets in place. Second, we examine the accuracy of EPS forecasts, which represent analysts' estimates of the firm's ability to generate income. We note that this industry is among the few for which both balance sheet and income statement forecasts are commonly observable.

We hypothesize three primary effects. First, we predict higher accuracy of NAV forecasts for firms providing investment property fair values. That is, we expect that the reporting of these fair values, as done by U.K. firms, reveals private information regarding the underlying asset values. Analysts incorporate this information into their forecasts, leading to greater forecast accuracy. Second, we predict that this relatively greater NAV accuracy for firms providing fair values will be attenuated during circumstances in which the fair value and historical cost reporting models are likely to converge. To proxy for such a setting, we use the financial crisis, during which real estate assets in both the U.K. and U.S. declined substantially. Third, we predict that full fair value reporting required under IFRS will reduce the accuracy of analysts' EPS forecasts, owing to increased difficulty of forecasting net income when it includes non-serially correlated items such as unrealized fair value gains and losses.

Empirical results confirm all three predictions. We find that NAV forecasts for U.K. firms are more accurate relative to those for U.S. firms. Further, we find that this greater accuracy is attenuated during the financial crisis of 2007–2008, consistent with convergence of the fair value and historical cost reporting models during this period. Finally, we document greater EPS forecast accuracy for U.S. firms relative to U.K. firms when the latter report under IFRS. To mitigate concerns that our analyses may reflect differences across the U.K. and U.S. settings that are unrelated to our predicted financial reporting effects, our primary analyses use a difference-in-differences design. Our findings also are robust to estimating a fully interacted model to control for different effects across the U.K. and U.S. samples; using alternative measures of the dependent variables to assess the use of market value to benchmark NAV forecast accuracy due to the latter's lack of reported actual amounts; and conducting subsample analysis. Finally, corroborating evidence reveals greater information content for U.K. relative to U.S. NAV forecasts, with this difference reduced during the financial crisis. Despite the higher EPS forecast error, however, U.K. EPS forecasts have greater information content under IFRS.

These findings make three contributions. First, we link the fair value literature, which provides evidence of the decision relevance of reported fair values (e.g., Barth 1994), to that on analyst forecast accuracy (e.g., Clement 1999) by documenting that fair values of key operating assets can enhance the accuracy of analysts' balance-sheet-based forecasts. However, our evidence further suggests that the benefits to fair value reporting may primarily occur during expansionary economic periods, where the fair value and historical cost reporting models are most likely to diverge. In addition, our evidence suggests that full fair value reporting in which unrealized gains and losses are incorporated into income can impede income statement forecast accuracy. Second, our analyses of NAV forecasts are new because analysts' balance sheet forecasting activities are rarely studied in the prior literature. Finally, our evidence is likely of interest to U.S. and international standard-setters in their ongoing deliberations regarding the extent in which to incorporate fair value into reporting standards.

Section II provides the background, prior literature, and hypothesis development. Section III presents the research design. Section IV reviews the sample and primary empirical results. Section V presents sensitivity analyses, and Section VI concludes.

II. BACKGROUND, PRIOR LITERATURE, AND HYPOTHESIS DEVELOPMENT

Background \
This paper analyzes U.K. and U.S. publicly traded investment property firms over 2002–2010, which have as their primary operating structure tangible assets consisting of real estate investments. These firms invest in real estate to obtain rental income and/or for capital appreciation. We exploit a key difference across the two groups of firms: U.K. firms report these real estate assets at fair value, while U.S. firms report them at historical cost.

The reporting of investment properties for U.K.-domiciled firms within our sample period falls under two regimes: U.K. domestic standards from 2002–2004; and International Financial Reporting Standards (IFRS) from 2005–2010. Both require that U.K. firms report investment properties on the balance sheet at fair value. The relevant U.K. domestic standard, Accounting for Investment Properties, Statement of Standard Accounting Practice No. 19 (SSAP 19; Accounting Standards Committee [ASC] 1994), requires investment property to be reported on the balance sheet at “open market value” at fiscal year-end. This is very similar to “fair value” as defined by the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB).3 Unrealized fair value gains/losses are reported in a revaluation reserve, and thus do not pass through net income.

Continued in article


The Corrupt FIFA --- https://en.wikipedia.org/wiki/FIFA

Not long after KPMG resigned as auditor and PwC took on the risky task of auditing this fraud ridden professional soccer enterprise we get more scandal.
FIFA’s clean up turns dirty. Samoura pays for home cleaning from FIFA’s funds ---
http://www.insideworldfootball.com/2017/05/13/fifas-clean-turns-dirty-samoura-pays-home-cleaning-fifas-funds/
Thank you Francine McKenna for the heads up.


FASB issues accounting standards update on service concession arrangements ---
http://www.journalofaccountancy.com/news/2017/may/fasb-guidance-service-concession-arrangements-201716661.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=17May2017#sthash.IHSqof6T.dpuf

In a new accounting standard issued Tuesday, FASB hopes to provide clarity on how an operating entity determines the customer of the operation services for transactions.

Accounting Standards Update No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (a consensus of the FASB Emerging Issues Task Force), addresses what stakeholders observed as diversity in practice regarding FASB Accounting Standards Codification (ASC) Topic 853.

The issue stems from service concession arrangements between a grantor and an operating entity. The operating entity will operate the grantor’s infrastructure—such as airports, roads, bridges, tunnels, prisons, and hospitals—during a specified time frame, according to the standard. The infrastructure may be preexisting or constructed by the operating entity during this time.

As part of the arrangement, the operating entity may maintain the infrastructure, and periodic major maintenance may be required to enhance or extend the life of the infrastructure.

Topic 853 applies to operating entities when they enter into a service concession arrangement with a public-sector grantor who both:

Controls or has the ability to modify or approve the services that the operating entity must provide with the infrastructure, to whom it must provide them, and at what price.

Controls, through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement. In a service concession arrangement within the scope of

Topic 853, the operating entity should not account for the infrastructure as a lease or as property, plant, and equipment. Instead, the operating entity should refer to other ASC topics to account for various aspects of a service concession arrangement.

For example, an operating entity should account for revenue relating to construction, upgrade, or operation services in accordance with Topic 605, Revenue Recognition, or Topic 606, Revenue From Contracts With Customers.

The provisions in the update are illustrated by an example in which a public-sector entity grantor (such as a government) enters into an arrangement with an operating entity that is to provide general maintenance of a toll road that is used by a third party (drivers).

The update clarifies that the grantor (the government)—not the drivers—is the customer of the operation services in all cases for service concession arrangements within the scope of Topic 853. This update is needed because GAAP did not address how an operating entity should determine the customer of the operation services for transactions, which led to diversity in practice, according to the standard.

For entities that have not adopted Topic 606 before this update was issued, the effective date for the new amendments is the same as the date for Topic 606, whether that is early adoption or the required adoption date.

Continued in article

 


EY:  A closer look at the guidance on derecognition of nonfinancial assets and in substance nonfinancial assets ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_02006-171US_NonfinancialAssets_1May2017/$FILE/TechnicalLine_02006-171US_NonfinancialAssets_1May2017.pdf

What you need to know

The FASB issued final guidance that clarifies the scope and application of ASC 610-20 on the sale, transfer and derecognition of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales.

The ASU applies to the derecognition of nonfinancial assets, including real estate (e.g., buildings, land, windmills, solar farms), and intellectual property. It clarifies that the derecognition of businesses is in the scope of ASC 810 and defines an in substance nonfinancial asset.

These amendments will likely result in larger gains for entities that sell real estate and today apply ASC 360-20.

The amendments are effective at the same time as the new revenue standard. For public entities, that means annual periods beginning after 15 December 2017 and interim periods therein. Early adoption is permitted but only as of fiscal years beginning after 15 December 2016, including interim periods therein.

Overview
The Financial Accounting Standards Board (FASB or Board) amended the guidance in Accounting Standards Codification (ASC) 610-201 regarding the derecognition of a nonfinancial asset or an in substance nonfinancial asset if the transaction is not with a customer.

Continued in article


EY:  A closer look at the guidance on derecognition of nonfinancial assets and in substance nonfinancial assets ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_02006-171US_NonfinancialAssets_1May2017/$FILE/TechnicalLine_02006-171US_NonfinancialAssets_1May2017.pdf

What you need to know

The FASB issued final guidance that clarifies the scope and application of ASC 610-20 on the sale, transfer and derecognition of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales.

The ASU applies to the derecognition of nonfinancial assets, including real estate (e.g., buildings, land, windmills, solar farms), and intellectual property. It clarifies that the derecognition of businesses is in the scope of ASC 810 and defines an in substance nonfinancial asset.

These amendments will likely result in larger gains for entities that sell real estate and today apply ASC 360-20.

The amendments are effective at the same time as the new revenue standard. For public entities, that means annual periods beginning after 15 December 2017 and interim periods therein. Early adoption is permitted but only as of fiscal years beginning after 15 December 2016, including interim periods therein

Message from Glen Gray on May 19, 2017

Interesting story.
MACPA was the first (only?) state CPA society to develop a significant XBRL application for internal use. Now, they are working with IBM regarding AI/Data Science training for accountants.  
https://www.accountingtoday.com/news/macpa-partners-with-ibm-to-train-accountants-in-ai-and-data-science   


New Guidance on Accounting for Leases—Difference Between ASC 842 and 840 ---
https://www.bna.com/new-guidance-accounting-n73014450871/


Auto Loan Fraud Soars in a Parallel to the Housing Bubble ---
https://www.bloomberg.com/news/articles/2017-05-10/auto-loan-fraud-is-soaring-in-a-parallel-to-the-housing-bubble

Borrower fraud in U.S. auto loans is surging, and may approach levels seen in mortgages during last decade’s housing bubble, according to a startup firm that helps lenders sniff out bogus borrowers.

As many as 1 percent of U.S. car loan applications include some type of material misrepresentation, executives at data analytics firm Point Predictive estimated based on reports from banks, finance companies and others. Lenders’ losses from deception may double this year to $6 billion from 2015, the firm forecast.

Those fraud rates are coming closer to the over-1-percent level for mortgages in 2009, when the financial crisis was boiling and more lenders started reporting incidents to one another, Frank McKenna, chief fraud strategist at the firm, said in an interview. While those losses will sting lenders, the impact on the overall economy will likely be much more muted than with the housing crisis, just because there’s less car debt outstanding.

Even so, “We see an extraordinary amount of parallels between the auto and mortgage industries, in terms of the rising levels of hidden fraud,” McKenna said. For home loans, it’s hard to know how widespread the deception was before 2009, because lenders often didn’t report information to one another and may not have even investigated incidents of probable lying much on their own, McKenna said.

Dealer Fraud

Point Predictive has put together a consortium of lenders to share data about dealers and loans. The group, now 13 strong, met at the headquarters of Santander Consumer USA in Dallas last month. Common types of fraud include borrowers lying about their income and their jobs, including falsifying paystubs. Loan applications can also include bogus information about the type of car being financed, or its value. The deception can be perpetrated by consumers, or car dealers, or both.

Continued in article

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


A 43-year-old LaPlace woman (Angie Cambre) faces a federal wire-fraud charge after investigators say she embezzled about $940,336 from her then-employer, a New Orleans-based commercial printing company, ---
.http://www.nola.com/crime/index.ssf/2017/05/laplace_accountant_accused_of.html

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


From the Global CPA Report on May 3, 2017

UK tax authorities play hardball with soccer industry  
Recent raids and arrests following tax fraud investigations in the UK and France are the latest of a long line of problems soccer clubs and players have had with UK tax authorities.
BBC | Irish Examiner


IMF gives thumbs up to Middle East value-added tax (VAT) roll-out ---
http://gulfnews.com/business/economy/imf-gives-thumbs-up-to-gcc-s-value-added-tax-roll-out-1.2020873


Why Don't White Supremacists Pay Taxes? ---
http://taxprof.typepad.com/taxprof_blog/2017/05/why-dont-white-supremacists-pay-taxes.html


Great Video:  Hedge Funds Are Facing a U.S. Criminal Probe Over Bond Valuations ---
https://www.bloomberg.com/news/articles/2017-05-11/hedge-funds-facing-u-s-criminal-probe-over-bond-valuations?cmpid=BBD051117_BIZ&utm_medium=email&utm_source=newsletter&utm_term=170511&utm_campaign=bloombergdaily

Jensen Comment
It would seem that the easiest markets to illegally manipulate are extremely thin markets with infrequently traded securities.
This is one of the Achilles heel of fair value accounting.


2017 is shaping up to be the most profitable year ever for drug cartels peddling heroin ---
https://www.bloomberg.com/news/features/2017-05-11/the-heroin-business-is-booming-in-america?cmpid=BBD051117_BIZ&utm_medium=email&utm_source=newsletter&utm_term=170511&utm_campaign=bloombergdaily


How to Predict If a Borrower Will Pay You Back
http://nymag.com/scienceofus/2017/05/what-the-words-you-use-in-a-loan-application-reveal.html

From the book
EVERYBODY LIES: Big Data, New Data, and What the Internet Can Tell Us About Who We Really Are
by Seth Stephens-Davidowitz.
Copyright © 2017 by Seth Stevens-Davidowitz.
Reprinted With Permission by Dey Street Books, an imprint of HarperCollins Publishers


The crop that ate America. Corn has always been a mainstay of U.S. agriculture, but its increasing profitability has driven up corn’s share of total production, while grains such as wheat and oats have steadily fallen. This has locked farmers to the rises and falls of one crop, as both domestic and export markets grow more and more tied to the dominant U.S. grain ---
https://www.bloomberg.com/graphics/2017-crop-that-ate-america/?cmpid=BBD051117_BIZ&utm_medium=email&utm_source=newsletter&utm_term=170511&utm_campaign=bloombergdaily


California plans to tax space travel by the mile ---
http://www.freerepublic.com/tag/*/index?more=3550663

Liberals are salivating at the idea of taxing cars by the distance they travel, to better rake in money for their nefarious purposes. In California, they are taking the idea one step farther, planning to tax space rockets by the mile as well. According to the proposal, California will collect tax from space transportation companies based on a formula factoring in how often a company launches spacecrafts out of the state, and, most importantly, how far a commercial spacecraft travels from California soil. Between May and mid-October, there were eight launches from Vandenberg Air Force Base, in Santa Barbara County..

California seeks to tax rocket launches, which are already taxed ---
https://arstechnica.com/science/2017/05/california-may-have-found-a-creative-new-revenue-stream-taxing-rocket-launches/

.. . .

Phil Larson, a former Obama White House official who now is assistant dean of the University of Colorado's College of Engineering and Applied Science, told Ars that California is discriminating against rocket companies by doubly taxing them. He also noted that such a tax would impede California's ability to launch climate satellites, which Governor Jerry Brown has said he would do if President Trump cuts the ability of federal scientists to study Earth's climate.

Instead of such a tax, Larson said, California should work with industry to develop a system of taxation that encourages investment in the state. "The state could advance a proactive effort in the legislature to make sure that California doesn’t end up at the back of the bus in the new space race by supporting a national framework for space innovation," Larson said.

Jensen Comment
Think of the zillions in tax sending space ships to Pluto and beyond.

Phil Larson, a former Obama White House official who now is assistant dean of the University of Colorado's College of Engineering and Applied Science, told Ars that California is discriminating against rocket companies by doubly taxing them. He also noted that such a tax would impede California's ability to launch climate satellites, which Governor Jerry Brown has said he would do if President Trump cuts the ability of federal scientists to study Earth's climate.
 

Jensen Comment
La La Land figured out a way to move all space business and jobs out of state.
California just added 12 cents pre gallon on state roads to help pay for unfunded state worker pensions. Someday Elon Musk will discover how much his companies and auto workers are getting screwed. High tech Silicon Valley workers are being paid so much they don't care about extra taxes they are being paid for the joys of working in the crowded valley. However, those that are living in their cars are concerned about the highest home prices in the USA.

 

California State Government Hides Billions of Its Debt With Accounting Deceptions

Hi Zafar,

The liberal versus conservative spending controversy has nothing to do with deceptive accounting and underfunded pensions. The liberal Nordic nations, for example, are known for high taxes and healthcare, education, and pension spending --- but they also have more open accounting and funding for their entitlements.

Liberalism should not justify deceptive accounting, and California has traditionally had the most deceptive accounting practices of all 50 states (along with Illinois).

California has been hiding massive debt from its books for years until new 2015 accounting rules at last disclose the extent of past accounting practices ---
http://www.truthinaccounting.org/library/doclib/CA-2015-2pager.pdf

Reported debt went from $11 billion in 2014 to $74.5 billion in 2015, Despite the new accounting rules California still manages to hide most of its unfunded obligations for state pensions.

California has the largest unfunded state worker pensions in the USA. It has funded only $96.1 billion to pay the estimated present value of $335.4 billion in bills. Gas tax originally intended for roads and bridges is not being used to pay pensions.

Liberalism should not justify deceptive accounting and spending mismanagement. Probably the worst mismanagement came when poor internal controls allowed for massive fraud in the setting of union pensions.  Exhibit A spending fraud is San Diego ---
https://en.wikipedia.org/wiki/Add to dictionary
There are many other California cities where similar frauds transpired

Bob Jensen


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

SLM Corporation (commonly known as Sallie Mae; originally the Student Loan Marketing Association) is a publicly traded U.S.[2] corporation that provides consumer banking ---
https://en.wikipedia.org/wiki/Sallie_Mae

Sallie Mae to Offer Online Up to Two Hours of Financial Literacy Tutoring With Clegg ---
https://www.insidehighered.com/quicktakes/2017/05/10/sallie-mae-offer-online-tutoring-chegg?utm_source=Inside+Higher+Ed&utm_campaign=0a6e0af061-DNU20170510&utm_medium=email&utm_term=0_1fcbc04421-0a6e0af061-197565045&mc_cid=0a6e0af061&mc_eid=1e78f7c952

Sallie Mae, the student loan company, will offer free online tutoring to borrowers through a partnership with Chegg, an online textbook publisher that recently has moved into student support services, including test preparation and tutoring.

Borrowers will get 120 minutes of free access to tutors, Sallie Mae said. They can work with vetted university tutors in 175 subject areas via chat room or Skype, with a goal of helping students improve their grades and chances of graduating. Alternatively, Sallie Mae customers can get four months of free access to Chegg's online study guide service. Or they can do a combination of the two, meaning 60 minutes with tutors and two months with the study guide.

Jensen Comment
Two hours does not go far enough starting from scratch. Students are advised to first study the excellent free financial literacy video modules available from the Kahn Academy (and praised by CBS News) ---
https://www.financialworkshopkits.org/Other-Resources/Khan-Academy-Tutorials

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


Patent Troll --- https://en.wikipedia.org/wiki/Patent_troll

From the CPA Newsletter on May 23, 2017

Patent trolls suffer setback in Supreme Court decision
A unanimous decision by the Supreme Court on Monday created limits on where plaintiffs may file patent lawsuits. The ruling is expected to create challenges for companies known as "patent trolls," which purchase patents solely for the purpose of demanding royalties and threatening to sue for damages.


From the CFO Journal's Morning Ledger on May 23, 2017

Citigroup settles with Justice Department over money laundering
Citigroup Inc.
has agreed to pay $97.44 million to settle a longstanding money laundering investigation into the activities of its Banamex USA unit. The bank admitted the unit violated the Bank Secrecy Act for a few years.

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


From the CFO Journal's Morning Ledger on May 23, 2017

Companies are proving to the U.S. Securities and Exchange Commission that they aren’t misleading investors with their use of unofficial accounting figures, Tatyana Shumsky writes.

Companies such as Coca-Cola Co. and Medtronic PLC are among the 35 out of 51 companies that have successfully proved this to the regulator. The record emphasizes how complexities and nuances in corporate accounting make it trickier for the SEC to police earnings.

Large companies have the resources to provide a defense of accounting practices the SEC may find contentious. Chief financial officers can draw help from their finance teams, consultants, legal counsel and even the board’s audit committee to respond to the regulator’s concerns.

Jensen Comment
Why is it so tricky for the SEC to "police earnings?"
Both the SEC and the FASB operationally defene earnings as the plug that make a balance sheet balance.
Any middle school kid can use a calculator or spreadsheet to find the plug that makes a balance sheet balance
.
The sad part is that there are so many variations among what companies put in their balance sheets the plug figures (so-called earnings or profits) are seldom if ever comparable between companies. Exhibit A is the inconsistency in times and amounts by which companies write down assets (think oil wells) or reclassify contingent liabilities.

The greater the dependence upon principles-based standards the greater the likelihood for inconsistencies (think IFRS guidance or lack thereof on hedge effectiveness criteria)  --- in my opinion.


From the CFO Journal's Morning Ledger on May 22, 2017

Auditor rotation rules make ABB switch. ABB Ltd., the Swiss automation and robotics company, said on Monday its board plans to appoint KPMG as its external auditor, effective 2018. The move comes after the implementation of the European Union’s Audit Directive and Regulation in June 2016 which stipulate auditor rotation with mandatory retendering after 10 years and a maximum tenure of 20 years, Nina Trentmann writes.

“This decision was taken following a yearlong comprehensive external-auditor tender process initiated in 2016 in line with international good governance practices,” a statement by ABB read. The KPMG-appointment is subject to shareholder approval at the firm’s 2018 annual general meeting. ABB has been audited by Ernst & Young since 2001.

Jensen Comment
When you get older you can't believe the span of a decade seems more like the span of a year.
Is that all there is?
https://www.youtube.com/results?search_query=peggy+lee+is+that+all+there+is


From the CFO Journal's Morning Ledger on May 22, 2017

Dodd-Frank rollback could affect funding for accounting-standards board
The anticipated rollback of the 2010 Dodd-Frank Act could affect funding the Government Accounting Standards Board receives, Rheaa Rao writes. The board, known as the GASB, sets financial accounting and reporting standards for state and local governments in the U.S.


From the CFO Journal's Morning Ledger on May 18, 2017

Mr. Trump’s tax plans could weigh on municipal-bond market
Slashing person and corporate income-tax rates, as the President proposes, could make the tax protections municipal bonds offer less valuable compared with fixed-income investments that are taxable. This is likely to hurt the $3.8 trillion municipal-bond market.

Jensen Comment
This is offset somewhat by expected increases in borrowing rates that provide school districts, states, counties, and towns to borrow in the enormous municipal-bond market.

Many tax reformers would love to eliminate tax-free bonds. However, doing so would greatly increase the cost of capital to school districts, states, counties, and towns to borrow in the enormous municipal-bond market that are now dependent upon municipal-bond markets.


From the CFO Journal's Morning Ledger on May 18, 2017

GM withdraws from India
General Motors Co.
said it will stop selling vehicles in India, the latest retrenching by the U.S. auto maker as it redirects investment in future technology and bolsters its presence in more-lucrative markets where it has a leadership position.


Video:  IASB Introduces IFRS 17 ---
http://www.ifrs.org/Features/Pages/IFRS-17-insurance-contracts.aspx

From the CFO Journal's Morning Ledger on May 18, 2017

Insurers to assess impact of new accounting standard
Insurers using International Financial Reporting Standards (IFRS) are starting to assess the impact of a new accounting standard for their industry, Ms. Trentmann writes. The International Accounting Standards Board on Thursday issued a new piece of regulation called IFRS 17, to be applied by insurance firms by Jan. 1, 2021.


Finance leaders wondering how to use technical solutions around centralized currency hedging, automation of risk management, bitcoin and distributed ledgers

Distributed Ledger --- https://en.wikipedia.org/wiki/Distributed_ledger

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

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

From the CFO Journal's Morning Ledger on May 18, 2017

It is not Brexit. It is not Trump. It is also not – though much talked about – global uncertainty that keeps European corporate treasurers occupied. Many of them seem to be grappling with another, much more profound issue: Technology.

Treasurers who attended this week’s annual corporate treasurer conference in Manchester, U.K., said they are wondering how to use technical solutions around centralized currency hedging, automation of risk management, bitcoin and distributed ledgers, Nina Trentmann writes. “Banks present us with a wide range of solutions,” said Richard Abigail, group treasurer at Arup Group Ltd., a U.K. planning and engineering firm. “I as the treasurer however have to make a decision how to integrate these into my existing systems and also how much I want to spend on them,” Mr. Abigail said.

Treasurers at both small as well as large firms are faced with similar challenges. “The treasury community is moving towards automation of existing systems,” said Bruce Meuli, a director at Bank of America Corp.’s global transaction services business in London. This applies not only to currencies, risk and transactions, but also to other areas such as payables. To reap the benefits of a more automated treasury function, firms have to move away from separate systems and spreadsheets – apparently still widely used – towards a single data format, Mr. Meuli said.

“What corporate treasurers care about is to get under the skin of this,” said Paul Thwaite, head of transaction services at Royal Bank of Scotland Group PLC. “We can now show the practical uses of technology, “ Mr. Thwaite said. Among other things, the bank has introduced an app that allows treasurers to see – in real time – how much has been spent on commercial cards, independent of how many of these cards are in use. However, not all treasurers will find those solutions equally convincing.

 


From the CFO Journal's Morning Ledger on May 15, 2017

Amazon’s IPO at 20
A $10,000 investment in Amazon.com Inc. 20 years ago would be worth $4.9 million today. Good luck finding an Amazon investor who can brag about a return like that. Today is the 20th anniversary of Amazon’s initial public offering. Its vertiginous stock chart is a reflection of the internet giant’s dominance.

Jensen Comment
That's a pretty good return for a company that almost never made a profit for most of its life as measured under USA accounting standards. This is why high risk IPOs offered by technology companies are so popular. However, before catching the IPO brass ring study more about the IPO failures as well.

May 18, 2017 reply from Tom Amlie

Tangentially, AMZN does provide an excellent classroom example for illustrating and discussing valuation allowances for NOL carryforwards.

Net Operating Loss --- https://en.wikipedia.org/wiki/Net_operating_loss


From the CFO Journal's Morning Ledger on May 11, 2017

Aetna to pull out of Affordable Care Act exchanges
Aetna Inc.
said it would pull out of the Affordable Care Act exchanges in Delaware and Nebraska next year, confirming that the insurer will exit all of the marketplaces where it currently sells plans.


From the CFO Journal's Morning Ledger on May 11, 2017

PwC fined over U.K. audit
The Financial Reporting Council, the U.K.’s watchdog for accounting and audit, has fined PricewaterhouseCoopers LLP and a former partner of the firm for its 2009 audit of Connaught PLC, a FTSE 250 company that went into administration in 2010. During its investigation, the FRC found misconducted in three audit areas—mobilization costs, long-term contracts and intangible assets, Nina Trentmann writes.

PwC will have to shell out £5 million ($6.4 million), whereas former partner Stephen Harrison was fined to pay £150,000. The accounting firm was also asked to cover the FRC’s legal costs and to make an interim payment of £1.5 million. “We are sorry that our work fell short of professional standards,” a statement released by PwC read. The FRC declined to comment further.

The fine comes days after the Association of Chartered Certified Accountants released a report calling for more professional skepticism on the part of auditors, as reported by Accounting Today.


Lesson in Hedging With Derivatives:  What is a "collar" hedge?

From the CFO Journal's Morning Ledger on May 11, 2017

Deutsche Bank AG’s new biggest shareholder, Chinese conglomerate HNA Group Co., used billions in financing—not just its own money—to help buy its nearly 10% stake in the German lender and protect itself against potential losses on the position, Jenny Strasburg writes.

Bankers and analysts said the disclosures suggest a heavier reliance on financing than they would consider typical for most large investors building a similar holding. A filing made with the U.S. Securities and Exchange Commission shows HNA didn’t just shell out cash to buy the new shares: It tapped more than €2.6 billion ($2.8 billion) in financing, mostly from UBS Group AG.

With that money, it bought shares and established derivatives positions that would compensate it if Deutsche Bank’s share price fell while sacrificing some gains if the stock rose. The derivatives structure, known as a collar, limits HNA’s risk—and its potential reward.

Collars involve offsetting cash flows—HNA pays UBS for protection in case of low prices, and UBS pays HNA for the right to profit on high prices—and thus aren’t comparatively expensive. That suggests the bulk of the €2.1 billion UBS loan likely went to actually purchasing shares, say people familiar with such transactions.

Jensen Comment
Another thing to stress with students is the difference between hedging revenues and expenses versus hedging profits? Deutsche Bank  is hedging HNA share price of rather than HNA profits.

Hedge accounting is not available for "profit" that is a combination of many risks such as price movements of all revenue components and price movements of all expense components. FAS 133 considers profit hedging to be a situation where more than one risk is being hedged and does not offer hedge accounting relief to such multiple risks. Hedge accounting is available only to individual risk profit components separately except in the special case of cross-currency hedging.

Bob Jensen's free tutorials and glossary on hedge accounting rules ---
http://faculty.trinity.edu/rjensen/caseans/000index.htm


From the CFO Journal's Morning Ledger on May 10, 2017

U.S. asks Wal-Mart to pay $300 million
Wal-Mart Stores Inc.
has been asked to shell out $300 million to settle a five-year investigation into foreign bribery.


From the CFO Journal's Morning Ledger on May 10, 2017

Former SEC accountant settles claims
David Humphrey, a former staff accountant at the SEC agreed to pay $108,600 to settle claims that he made over 100 illicit options trades while he worked for the SEC and then lied to investigators about it.


From the CFO Journal's Morning Ledger on May 8, 2017

The largest U.S. companies are booking their strongest quarterly profits in five years, as firms reap the benefits of years of belt tightening and finally see a pickup in demand. But part of the improvement has come from keeping a lid on spending, and many CEOs remain reluctant to change and open their wallets for new projects, plants and people, Thomas Gryta and Theo Francis write.

Profits at S&P 500 companies jumped an estimated 13.9% in the first quarter, growing nearly twice as fast as revenue. The gains stretched across industries, from Wall Street’s banks to Silicon Valley’s web giants, and were helped by a rebound in the battered energy sector. The picture was a marked improvement from a year ago, when profits fell 5%, and was the best performance since the third quarter of 2011.

ensen Comment
Accounting standard setters cannot even operationally define the calculation of earnings other than to make it a plug that makes the balance sheet balance. And yet this plug remains as an exceedingly important driver of share prices in the stock markets.


Tom Selling:  Double-Entry Accounting in Modern Times (May 17, 2017) ---
http://accountingonion.com/2017/05/double-entry-accounting-in-modern-times.html

Truth in labeling —Starting with a clean sheet should also mean jettisoning such time-worn terminology as “earnings” and “financial position” that have come to promise more than they can deliver.  There might have been a time long ago when accounting came reasonably close to measuring economic earnings and financial position, but not anymore, and likely never again.

Jensen Comment
What Tom needs to avoid is what I call the Baruch Lev mistake of promising more than can be delivered realities of "truth" and measurement of "economic earnings." Truth to me entails facts that are so obvious they cannot be disputed by rational beings. Economists have never found truth except in artificial worlds built on hypothetical assumptions detached from the real world. This is probably why the SEC approached the accounting profession rather than the economics profession when it passed the baton on standard setting for financial reporting in capital markets.

Economic earnings cannot be measured in the real world because there are so many intangibles that cannot be reliably measured.  Baruch Lev preaches these intangibles can be measured, but he's not convinced business decision makers that he has reliable measurement systems.

Tom wants to "jettisoning such time-worn terminology as 'earnings' and 'financial position' that have come to promise more than they can deliver. Note how Tom fails to mention the vast body of literature demonstrating (by empirical studies and by interviews and by case studies) where "earnings" and "financial position" have considerable impact on financial and business operating decisions. Tom avoids this literature by sticking his head in the sand. Starting with a blank sheet is doomed to failure if it ignores the scholarly literature of the past and present. For example, has he looked at the vast amount of evidence that suggests "earnings" however badly designed as a plug figure that makes the balance sheet balance is predictive of future earnings.

I keep looking for citations and references in Tom's posts. His "blank sheet" will never impress academics or practitioners until he cites prior research and builds upon such research.

He will one day have to demonstrate to decision makers that his own definitions are more predictive and reliable. I doubt that he will succeed here, but I greatly look forward to when he has a measurable "earnings" and "financial position" surrogates that are more predictive and reliable.  

Indeed I fear that his concepts will depend upon value appraisals in thin and unstable markets that are far less reliable than present measures assets and liabilities.

 

Reconcile, reconcile —  The property of double-entry accounting that comprehensively links stocks to flows (i.e., “articulation”) will be exploited to the maximum extent practicable through detailed quantitative disclosures that are linked directly and explicitly to the financial statements, and among themselves.

My mentor, Yuji Ijiri, modeled the perfect accounting system for reconciliation. But it was totally impractical for the real world. As you build soft numbers into the system it becomes even less and less reliable.

 

Corresponding recognition criteria — Although I can’t say this for sure, I wouldn’t be surprised if Pacioli had realized that a claims on one entity must also be an asset of some other entity (more on that in a follow-up post).  Therefore, a non-corresponding definition for liabilities, and other non-residual claims, is not necessary.  All that is needed is a definition of “asset” for accounting purposes.

 

I always remember a statement made by a University of Chicago professor years ago. He said Boeing wants to book a sale of an airplane purchased by Eastern Airlines. Eastern Airlines denies it purchased an airplane (back in the days when even capital leases were not booked by lessees).

Do current accounting standards require correspondence in initial booking by independent buyers and sellers? They do when payment is made in cash. But in barter transactions (say real estate exchanges) between X and W does the booked value of the property received by X have to equal the booked value of the property received in exchange by Y?

 

Claims presentation — Instead of liabilities versus owners’ equity, S-OFA will refer to ‘non-residual interests’ versus ‘the residual interest’ (the latter being measured as the difference between total assets and total non-residual interests).  Thus, the question that has bedeviled the FASB of what is a liability, or what is not, will come down to a question of presentation.  For example, pure liabilities may be presented as a group, apart from the hybrid claims I mentioned earlier

The huge complicating factor here will be "residual interests" that involve contingency claims based upon outcomes of the unknown future.

Presumably Tom intends to define a bright line for the real world that partitions residual and non-residual claims. We don't do that now very well at the moment, and it's not at all clear that Tom can pull this bright line out of the hat for the millions of kinds of variations in contingency claims in the real world.

 

Closing Comment
Financial accounting academic research in my opinion is pretty much a big yawn these days. Both Tom Selling and Baruch Lev add some excitement to the accountics studies that for four decades have dominated the field. Some of those studies are useful and interesting, but there's little excitement and commentary about the findings. Tom and Baruch add some excitement, But I'm not optimistic about their pending contributions to the real world.

In any case I'm watching and will keep the AECM posted when I find something that I think is worth noting. Hopefully others will also watch and point out things that I miss.

I might make the following proposition:
I think Tom Selling needs to retain double entry to avoid having to define earnings as something other than a plug to make balance sheets balance.

May 24, 2017 reply from Tom Selling

Bob,

Thanks for posting a link to my blog and for taking the time to respond in a systematic fashion.  But I need to point out some fundamental misunderstandings on your part:

 

I have tried to make it crystal clear that I do not intend to claim that S-OFA will be capable of reporting economic earnings.    I didn’t mention this in my post, but the term I am thinking about using to replace “net income” is “recognized earnings.”  It implies that S-OFA will estimate a subset of economic earnings.  It is similar in concept to Tobin’s Q where economic value is seen as the replacement cost of recognized net assets plus the value of unrecognized intangibles.

 None of the empirical literature I am aware of that documents the relevance of reported earnings to investors deals with the question of whether we could do better.  I intend to show that U.S. GAAP lacks face validity – ie, it clearly does not reflect the concept it purports to measure.  S-OFA will have higher face validity by, among other things, not using misleading terminology, not committing numerous egregious violations of mathematical principles, and enhancing representational faithfulness.

 Yuji Ijiri was a great theoretician. I will be proposing implementable improvements to actual deficiencies in U.S. GAAP.  I believe that my proposals will be compelling because they will result in better information, be more understandable, less costly to implement, and reduce opportunities to manipulate the financial statements.

The FASB already solved the claims presentation problem in a proposal with a bright line.  It was called basic ownership interests.   It was shot down by the EU and the IASB, so the FASB backed away from implementation.  I’m going to implement it. 

 

As to your proposition, the point of my post is that double-entry accounting is still useful, even if no longer for the reasons contemplated in the 15th century.

 

As to applicability to the “real world,” I admit that you could well be correct.  S-OFA will be apolitical, which is not the way the real world works.  My clean sheet of paper metaphor is an allusion to Rawls theory of social justice.  Very loosely speaking, if the writers of accounting rules could not know how it would affect them, what would the rules provide for?

 

Best,
Tom

May 14, 2017 reply from Bob Jensen

Hi Tom,

One thing you will have to address is the economics studies pointing to failures of Tobin's Q. The number one problem is that Tobin's Q was found to not predict as well as traditional fundamentals --- check out the literature, including the findings of Larry Summers and Wesley Mitchell.

Similar findings were found with the FASB's FAS 33 effort to provide replacement cost numbers:

Watts, R. L. and J. L. Zimmerman. 1980. On the irrelevance of replacement cost disclosures for security prices. Journal of Accounting and Economics (August): 95-106.

Beaver, W. H., P. A. Griffin and W. R. Landsman. 1982.The incremental information content of replacement cost earnings. Journal of Accounting and Economics (July): 15-39.

Schaefer, T. F. 1984. The information content of current cost income relative to dividends and historical cost income. Journal of Accounting Research (Autumn): 647-656

Sutton, T. G. 1988. The proposed introduction of current cost accounting in the U.K.: Determinants of corporate preference. Journal of Accounting and Economics (April): 127-149.

Swanson, E. P. 1990. Relative measurement errors in valuing plant and equipment under current cost and replacement cost. The Accounting Review (October): 911-924.

 

The real problem with exit value or entry value (replacement cost) appraisals of disaggregated assets is that the market (e.g., yard sale transactions prices or current construction costs) ignore the synergies of "value in use" --- that illusive measurement that economists and accountants have never been able to measure reliably because it varies so much between "uses" of an asset among the other assets for which that asset is only a small part. For example, does the replacement cost estimate of a giant warehouse really mean much apart from the how the owner uses it such as when the owner of Amazon versus Sears.

The best estimate of value in use is share prices, but share prices have too much noise in that that they reflect things other than value in use such as daily political happenings, terror incidents somewhere in the world, and fake news in the media. Quant models that trade on current events affecting transitory share prices may capture gains and losses totally apart from the fundamental value in use of aggregated net assets of a business firm.

 

It's easy to criticize enduring historical cost accounting in terms of neither measuring either disaggregated or aggregated value of an asset. However, as AC Littleton and Yuji Ijiri point out the purpose of historical cost accounting is not to measure economic value. Investors don't divide the reported retained earnings by the number of outstanding shares to look for pricing opportunities on the stock market when historical cost accounting is the main basis for measuring retained earnings. Nor could they do so if all assets and liabilities were measured reliably at entry values (replacement costs) or exit values. It's that aggregative value in use thing that none of the bases of accounting (entry value, exit value, historical cost, PLA historical cost) provide.

Bob Jensen


From the CFO Journal's Morning Ledger on May 5, 2017

Avon under pressure
Avon Products Inc.
Chief Executive Sheri McCoy faces new pressure following a surprise loss that sent the cosmetics seller’s stock tumbling Thursday.

Jensen Comment
Accounting standard setters cannot even operationally define the calculation of earnings other than to make it a plug that makes the balance sheet balance. And yet this plug remains as an exceedingly important driver of share prices in the stock markets.

May 9, 2017 Question from Tom Selling

I’d like to brush up on the shortcomings of Hicksian “income” for measuring the earnings of a business entity.  Do you (or anyone else on AECM, of course) have a reference (e.g., an article or book chapter) to help me out?

May 9, 2017 Reply from Bob Jensen

John Hicks --- https://en.wikipedia.org/wiki/John_Hicks#Contributions_to_interpretation_of_income_for_accounting_purposes

There are numerous references given at
https://en.wikipedia.org/wiki/John_Hicks#Contributions_to_interpretation_of_income_for_accounting_purposes

Here is one of references that I recommend that are in the accounting literature. The main take away here is that fair value accounting takes us closer to the Hicksian concept of income at the expense of reliability. I might note that Professor Schipper over the years is a proponent of falr value accounting. This is not a defense of historical cost accounting as might have been written by AC Littleton or Yuji Ijiri.

"Earnings Quality," by Katherine Schipper and Linda Vincent, ACCOUNTING HORIZONS Supplement 2003 pp. 97-110 ---
http://s3.amazonaws.com/academia.edu.documents/35504067/Schipper_image.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&Expires=1494285864&Signature=BaLCa00HRPvplwgY2ee8Dmr7gzU%3D&response-content-disposition=inline%3B%20filename%3DEarnings_Quality.pdf

Especially note the references at the end of the commentary.

The main problem is that Hicksian Income in theory assumes all changes is "wealth" or "well offness" where wealth includes much more than accountants put on balance sheets. Examples include the many intangibles and contingent liabilities that are left off balance sheets due to inability to measure reliably such as the value of human resources and changes thereof. Also accountants have never figured out how to measure the requisite "value in use: as opposed to disposal value in a yard sale.

Bob  Jensen

Jensen Comment
It would seem that, if the constraint of double-entry bookkeeping is removed as a basis of financial reporting, the operational definitions of the major performance indicator of "profit" for for-profit businesses will have to become much more precise than simply being a plug that makes the balance sheet balance under double-entry bookkeeping..

I think that the Hicksian concept of income and the Hicksian demand functions, like Pareto optimality in general, are weak concepts defined mostly for mathematical convenience that are not really very good guidelines for real-world standard setters ---
https://en.wikipedia.org/wiki/John_Hicks#Contributions_to_interpretation_of_income_for_accounting_purposes

Some alternative approaches to income suggested by Hicks and by other writers and their relevance to conceptual frameworks for accounting
"Hicksian Income in the Conceptual Framework" --- http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1576611
Michael Bromwich London School of Economics
Richard H. Macve London School of Economics & Political Science (LSE) - Department of Accounting and Finance
Shyam Sunder Yale School of Management
March 22, 2010

Abstract:
In seeking to replace accounting ‘conventions’ by ‘concepts’ in the pursuit of principles-based standards, the FASB/IASB joint project on the conceptual framework has grounded its approach on a well-known definition of ‘income’ by Hicks. We welcome the use of theories by accounting standard setters and practitioners, if theories are considered in their entirety. ‘Cherry-picking’ parts of a theory to serve the immediate aims of standard setters risks distortion. Misunderstanding and misinterpretation of the selected elements of a theory increase the distortion even more. We argue that the Boards have selectively picked from, misquoted, misunderstood, and misapplied Hicksian concepts of income. We explore some alternative approaches to income suggested by Hicks and by other writers, and their relevance to current debates over the Boards’ conceptual framework and standards. Our conclusions about how accounting concepts and conventions should be related differ from those of the Boards. Executive stock options (ESOs) provide an illustrative case study.

IASB Plans Overhaul of Financial Definitions
http://blogs.wsj.com/cfo/2016/11/02/iasb-plans-overhaul-of-financial-definitions/?mod=djemCFO_h 

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.

The Double-Entry Bookkeeping Model is Crucial for Being Able to Calculate Some Items That Can Only Be Defined as Plug Amounts That Make Balance Sheets Balance

1.
Net income is defined by both the FASB and IASB as a plug figure that makes balance sheets balance under double-entry bookkeeping. In some ways computing the net income plug amount is like the Hicksian economic concept of income, although it really is not Hicksian income due to the many ways of measuring various balance-sheet components of assets and liabilities in modern-day mixed-model measuring systems. Also there are "assets" and "liabilities" in the Hicksian model that accountants cannot measure for balance sheet accounts such as some intangibles (think the value of human resources and business reputations), contingent liabilities, etc.


2.
Purchasing power gains or losses on monetary items are computed as a double-entry-based plug amounts.
https://en.wikipedia.org/wiki/Constant_purchasing_power_accounting
Suppose all balance sheet items are partitioned into monetary versus non-monetary items. Non-monetary items are those items having value changes that move with general price levels (think inflation). Examples include real estate, equipment, variable rate investments, and variable rate debt.

Monetary items include cash on hand, fixed rate receivables/investments, and fixed rate debt. Some derivative financial items on the balance sheet are monetary items and some are non-monetary. Interest rate swaps are commonly used to hedge monetary gains and losses. Monetary items are subject to purchasing power gains and losses. Firms minimize holdings of monetary assets in highly inflationary economies like Venezuela where monetary holdings are a disaster. Firms often experience some monetary asset losses in mildly inflationary economies. They also experience purchasing power gains on monetary liabilities such as long-term fixed-rate mortgages.

In my theory courses I used a tabbed Excel workbook to illustrate the calculation of monetary-item gains and losses as plug figures ---
www.cs.trinity.edu/~rjensen/Excel/wtdcase2a.xls
Especially note the Answers tab.

3.

Exit value accounting replaces accrual accounting GAAP when accounting for personal estates and non-going concerns. ---
Scroll Down to Exit Value at
http://faculty.trinity.edu/rjensen/theory02.htm#BasesAccounting

 In some ways computing exit value net income plug amount is like the Hicksian economic concept of income (a plug calculation), although it really is not Hicksian income due to the many ways of measuring various balance-sheet components of assets and liabilities in modern-day mixed-model measuring systems. Also there are "assets" and "liabilities" in the Hicksian model that accountants cannot measure for balance sheet accounts such as some intangibles (think the value of human resources and business reputations), contingent liabilities, etc.

In my theory courses I used a tabbed Excel workbook to illustrate the calculation of exit value net earnings as a plug vfubure. ---
www.cs.trinity.edu/~rjensen/Excel/wtdcase2a.xls
Especially note the Answers tab.

4.
Entry value (replacement cost) accounting replaces accrual accounting GAAP when accounting for personal estates and non-going concerns. ---
Scroll Down to Entry Value at
http://faculty.trinity.edu/rjensen/theory02.htm#BasesAccounting

 In some ways computing exit value net income plug amount is like the Hicksian economic concept of income (a plug calculation) , although it really is not Hicksian income due to the many ways of measuring various balance-sheet components of assets and liabilities in modern-day mixed-model measuring systems. Also there are "assets" and "liabilities" in the Hicksian model that accountants cannot measure for balance sheet accounts such as some intangibles (think the value of human resources and business reputations), contingent liabilities, etc.

Unlike exit values, entry (replacement costs) are not really "values" since entry value accounting is subject to arbitrary accrual adjustments (think depreciation) just like historical costs.

In my theory courses I used a tabbed Excel workbook to illustrate the calculation of exit value net earnings as a plug vfubure. ---
www.cs.trinity.edu/~rjensen/Excel/wtdcase2a.xls
Especially note the Answers tab.

"The Genesis of Double Entry Bookkeeping," by Alan Sangster, The Accounting Review, Volume 91, Issue 1 (January 2016) ---
http://aaajournals.org/doi/full/10.2308/accr-51115
This is a very rare TAR paper in the sense that it has no equations. When was the last time that happened?

The emergence of double entry bookkeeping marked the shift in bookkeeping from a mechanical task to a skilled craft, and represented the beginnings of the accounting profession. This study seeks to identify what caused this significant change in bookkeeping practice. I do so by adopting a new accounting history perspective to investigate the circumstances surrounding the emergence of double entry in early 13th century Italy. Contrary to previous findings, this paper concludes that the most likely form of enterprise where bookkeeping of this form emerged is a bank, most likely in Florence. Accountability of the local bankers in Florence to the Bankers Guild provided a unique external impetus to generate a new form of bookkeeping. This new bookkeeping format provided a clear and unambiguous picture of the accounts of all debtors and creditors, along with the means to check that the entries between them were complete and accurate.

I. INTRODUCTION

Historians generally accept that the “Italian method” of double entry bookkeeping, based upon making entries of equal amounts to the debit and credit of two different accounts, was the foundation for modern accounting. Although all modern accounting systems rely upon the principle of duality enshrined in that technique, we do not understand how this system emerged. This unanswered question is the focus of this paper: What led to the emergence of double entry bookkeeping?

The importance of this question to accountants is that the emergence of double entry marked the point at which accounting evolved from a mechanical task that virtually anyone could perform to become a skilled craft. It signaled the beginnings of the accounting profession. By identifying what led to this development, we learn about our roots and improve our understanding of the importance of our discipline and of its place in the economic history of the past millennium.

I adopt a “new accounting history” perspective that reflects the historical context, the local conditions, and the language and vocabulary in which this particular practice was articulated (Miller and Napier 1993, 631). I incorporate these factors and surviving records of the period to understand the reasons behind the change in bookkeeping practice that gave rise to the emergence of double entry bookkeeping.

The motivation for this study was the recent publication of a best-selling book that has popularized the history of double entry bookkeeping. Its title—Double Entry: How the Merchants of Venice Shaped the Modern World and How their Invention Could Make or Break the Planet (Gleeson-White 2011)—tells us that Venetian merchants invented double entry bookkeeping, but did they?

Various scholars have speculated upon the origin of double entry bookkeeping, including Rossi (1896), Besta (1909), Littleton (1927, 1931, 1933), Peragallo (1938), Melis (1950), Zerbi (1952), de Roover (1971), Lee (1972, 1973a, 1973b, 1977), and Martinelli (1974). However, with the exception of Rossi and Littleton and, to a lesser extent, Martinelli, they focus on the presence of an enterprise-wide accounting system based upon double entry, something that tells us little of the origins of double entry many years earlier. To identify how, where, why, and by whom double entry was first developed, the conditions that gave rise to it are likely to be more fundamental than the circumstances of its first identifiable enterprise-wide application. Consequently, in looking for the genesis of double entry bookkeeping, I focus on how and where the concept of double entry originated, the circumstances that led to its development, and, particularly, which professional group first developed it.

I follow the approach adopted by Rossi and Littleton. Littleton also considered what the terminology of double entry tells us of its origins. However, neither of them specifically sought to identify the group that developed the method, nor where it first emerged. This study builds upon and extends their work. We know with certainty that the technique of double entry emerged in the 13th century in Italy. Unfortunately, no complete set of documentation from that period has survived. The earliest confirmed instance of its enterprise-wide application is from the final year of the 13th century (Lee 1977), while the evidence indicates that this was many decades after the technique first appeared.1

Previous studies document that double entry bookkeeping emerged in different places at different times, and that the form it took varied from place to place. However, these various forms all share the fundamental characteristic of “dual entries” that serve as the starting point in the shift to double entry bookkeeping. Dual entries require that when accounts were being maintained for the parties to and/or items involved in a transaction, for each entry made in one account, an equal and opposite “contra entry” must be made in another account. To that end, I begin this study by seeking instances of items being recorded in a consistent dual form that could then have developed into a recognizable form of double entry bookkeeping.

The difference between dual entry and double entry lies in how the contra entry is recorded. In double entry, each entry in an account must include the location of the account in which the contra entry has been made. No such information is provided in dual entry. Therefore, I include this essential requirement in the definition of double entry in this study. That is, my approach requires that this additional step be included in order for bookkeeping entries to qualify as double entry bookkeeping.

This is an appropriate definition for double entry for two further reasons. The account books of this period were solely for debtors and creditors (Goldthwaite 2009) and entries were sometimes made transferring amounts between two of these accounts, such as between the accounts of a debtor and a creditor. In such cases, dual entry occurs by chance because an equal amount is entered on the opposite sides of two accounts. In contrast, as defined here, the emergence of double entry stemmed from the belief that each entry should include the location of the contra entry. This conscious step marked the genesis of double entry bookkeeping. At this point, bookkeeping moved from being a device used to maintain a historical record of a transaction to a method that enabled rapid confirmation that the transaction had been entered accurately in both accounts. It had become important to ensure that entries were made correctly. This also marked the point at which bookkeeping shifted from being a mechanical task to a skilled craft, requiring far more care and attention, and signaling the beginnings of the accounting profession.

This step was the common starting point for double entry, the link among all the Italian variants of double entry bookkeeping that were in use during the 13th to 17th centuries. These variants included “mingled accounts” (Martinelli 1974) with credits immediately below the debits, and vice versa; account books with debtor accounts at the front and creditor accounts at the back; bilateral account books with the debit and credit entries in each account on opposite-facing pages; and bilateral account books with the debit and credit entries of each account in two columns of the same page. All of these formats had their own variants in word sequence and in the manner in which dates, cross-references, and amounts were entered. The commonality in the basic underlying rationale of double entry bookkeeping enabled all these variants to merge into one unified method many centuries later. Beyond the scope of this study, the emergence of double entry bookkeeping eventually led to another phase in the evolution of accounting, which ended with firms combining the details in their accounts to calculate profits and losses. This subsequent double entry-based accounting system (Gurskaya, Kuter, Deliboltoayn, and Zinchenko 2012) combined all accounts, represented initially in lists of balances and then in income statements and balance sheets.

Contribution This study contributes to the debate concerning the conditions that gave rise to modern bookkeeping and accounting by amending and extending previous theories. I introduce a context focused in the city of Florence, as opposed to the entire country of Italy. My approach embraces explanatory conditions that are unique to Florence and would explain the emergence of double entry there before other locations. The continuous threat of external scrutiny and penalties for failure to meet standards present only in Florence were conditions that demanded an effective response by bankers. Adopting double entry was the ideal response.

Continued in article

Bob Jensen's threads on conceptual framework controversies ---
http://faculty.trinity.edu/rjensen/Theory01.htm#ConceptualFrameworks


GASB issues rules for accounting for certain debt extinguishment ---
http://www.journalofaccountancy.com/news/2017/may/gasb-rules-accounting-for-debt-extinguishment-201716653.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=16May2017#sthash.mhm3pWKi.dpuf


Revenue Accounting Fraud Per Usual in the Private Sector
From the CFO Journal's Morning Ledger on May 16, 2017

Study finds evidence for accounting manipulation
Many companies may be engaging in revenue management, along with earnings management, to meet or beat analyst expectations, particularly in the technology and health care industries, according to a new study reported by Accounting Today.


XBRL GAAP Taxonomy
From the CFO Journal's Morning Ledger on May 16, 2017

FASB seeks feedback on GAAP taxonomy
The Financial Accounting Standards Board is asking for comments on how effective its U.S. GAAP Financial Reporting Taxonomy really is, Accounting Today reports.

US GAAP Financial Reporting Taxonomy ---
http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176169022043&acceptedDisclaimer=true

The purpose of this Invitation to Comment (ITC) is to aid the Financial Accounting Standards Board (FASB) in its assessment of the efficiency and effectiveness of the GAAP Financial Reporting Taxonomy (GAAP Taxonomy). By providing elements to be tagged in a standard, structured, and interactive format, the GAAP Taxonomy provides a means for public companies to report financial information in a digital format that is accessible to all market participants and meets the regulatory requirements of the U.S. Securities and Exchange Commission (SEC). The continual improvements to the development and maintenance of the GAAP Taxonomy are intended to increase the accuracy and usability of the financial information and reduce the time and costs of processing that information.


From the CFO Journal's Morning Ledger on May 12, 2017

Supreme Court sides with collectors over expired debts 
The Supreme Court authorized debt collectors to demand repayment of expired debts from consumers in bankruptcy proceedings. Expired debts makeup approximately 30% of more than $100 billion in debt purchased by collection agencies.


Explaining Why It Takes a Smaller Plug Figure to Balance Ford's Balance Sheets

From the CFO Journal's Morning Ledger on May 12, 2017

Ford shareholders question executives on share-price fall
Ford Motor Co.
shareholders put heat on Chief Executive Mark Fields and Chairman Bill Ford during the company’s annual shareholders meeting Thursday morning, pressing the executives to explain why the stock price has lost more than one-third of its value during Mr. Fields’ tenure.


From the CFO Journal's Morning Ledger on May 5, 2017

Sold for Parts
U.S.-based Case Farms, a company that produces chicken and poultry for clients such as Popeyes Louisiana Kitchen Inc. and Kentucky Fried Chicken, recruits immigrants who withstand unbearable conditions for the sake of a job, Michael Grabell writes for ProPublica. Once these workers push for better pay and conditions, the company uses their immigration status to keep them subdued.

Jensen Question
How does Case Farms get away from hiring undocumented workers in the first place and use this as a leverage against improved working conditions?


From the CFO Journal's Morning Ledger on May 5, 2017

Where did America’s productivity go? Some of it may be hiding in Bermuda, Justin Lahart writes for Heard on the Street. First-quarter productivity figures came out Thursday, and they weren’t good. With the economy faltering even as employers expanded payrolls, the Labor Department’s measure of how much a typical worker produced in a typical hour fell an annualized 0.6% from the fourth quarter.

Productivity is a key driver of economic growth, and economists have struggled to explain the slowdown. Some argue that it is a result of weak capital spending, some say innovations aren’t coming as fast as they used to. Still others say there is no slowdown and government data don’t capture the gains from new technologies and from the harder-to-measure service sector.

But provocative new research argues that some of America’s productivity gains are effectively being hidden offshore. American companies have expanded their overseas operations in recent years. The outsize asset-to-employment ratios of some countries are an indication that a lot of economic activity is being assigned there, argues University of Minnesota economist Fatih Guvenen.

Because the activity isn’t being assigned to U.S. workers, they appear less productive. That wouldn’t matter if that economic activity is coming from workers doing their jobs. But Bermuda, where it looks as if assets such as intellectual property have been stashed, appears to be getting credit for productivity that really occurred in the U.S.


From the CFO Journal's Morning Ledger on May 3, 2017

Aetna to pull back further from health exchanges
Health insurer Aetna Inc. plans to scale back its presence in the Affordable Care Act exchanges from 2018 onward. It also said it expects losses on the business this year, even though enrollment on individual plans fell.

Jensen Comment

Nearly all of Obama's startup insurance companies for the health exchanges have dropped out of the market. This left only the large established companies in the exchange markets. The one to watch is Blue Cross Anthem that is now the only insurer left in many of the exchange markets. Anthem is also threatening to pull out if Obamacare rates are not increased to cover losses. The media tends to play down this enormous problem that plagued Obamacare from get go. Low insurance rates in turn led to low reimbursement rates for providers --- which is why so many doctors and hospitals (think nearly all of Chicago) will not serve patients insured by Obamacare.


From the CFO Journal's Morning Ledger on May 3, 2017

SEC probes solar companies.
Federal regulators are investigating whether solar-energy companies are masking how many customers they are losing, according to a person familiar with the matter.

Some customers say they canceled contracts after being strong-armed into solar-energy deals; hundreds of complaints to state attorneys general ---
https://www.wsj.com/articles/sec-probes-solar-companies-over-disclosure-of-customer-cancellations-1493803801

. . .

Hundreds of complaints have been filed against solar companies to attorneys general in Texas, Oregon, California and Florida, with customers saying they are paying more on their utility bills, not less as they were promised, and have been sold expensive systems they can’t afford, according to Freedom of Information Act requests filed by the Campaign for Accountability, a consumer-watchdog group, and according to lawsuits filed by customers.

Some customers say they were strong-armed into buying solar-energy systems by sales representatives who threatened to sue them if they didn’t proceed with a project or to place a so-called mechanic’s lien on their homes—a measure used to force a homeowner to pay for a home-improvement project. Others say they didn’t realize they had actually signed contracts. Many said they believed they were just giving permission for a consultation.

“In the residential solar industry, integrity and word of mouth recommendations are paramount,” the Solar Energy Industries Association, a trade group, said in a statement in response to questions. “Our investigation of state public records suggests that the number of complaints represents a very small fraction of the number of successful solar installations nationwide.”

Continued in article


From the CFO Journal's Morning Ledger on May 3, 2017

Toshiba search for a new auditor proves challenging
Toshiba Corp.
is still searching for a new auditor. The Financial Times explains why it could be difficult to find one.


From the CFO Journal's Morning Ledger on May 3, 2017

Exam for valuation certification launched
Professionals who appraise intangible assets, such as a company’s trademarks, patents and customer relationships, can receive a special certification by taking an exam starting Tuesday, Rheaa Rao writes.


From the CFO Journal's Morning Ledger on May 2, 2017

SEC charges former L3 executives over accounting fraud
The U.S. Securities and Exchange Commission has charged two former executives at the government contractor L3 Technologies Inc. with accounting-related violations, Accounting Today reports.

SEC charges former L3 executives with accounting missteps ---
https://www.accountingtoday.com/news/sec-charges-former-l3-executives-for-accounting-missteps

The Securities and Exchange Commission has charged two former executives at the government contractor L3 Technologies with accounting-related violations.

The SEC’s Enforcement Division alleged that David Pruitt, a former vice president of finance at L3’s Army Sustainment Division, bypassed the company’s internal accounting controls, causing L3 to improperly recognize $17.9 million in revenue from a contract it had with the army by creating invoices that weren’t actually delivered at the time the revenue was recorded. The additional revenue allegedly allowed employees in the division to just barely satisfy an internal target at the company for management incentive bonus payments.

The SEC also alleged that Pruitt, who is a CPA, took steps on a number of occasions to hide the fact that the invoices hadn’t been delivered from L3’s corporate office and outside auditor.

A business manager at L3 emailed concerns about the procedure to a contract manager in December 2013, according to the administrative order issued Friday by the SEC. “It appears as thought [sic] the Revenue Recovery items are being handled outside of the L3 corporate policy,” he wrote. “I cannot quote the policy, however, I know that a revenue accrual the size of the one that it would take to account for the Revenue Recovery would require Corporate approval. To avoid that Corporate approval, we have been directed to cut invoices through the billing system, but not send the invoices to the government. I believe that is being done to avoid Corporate policy and try to ‘hide’ this from the auditors. I could be mistaken, but this doesn’t pass the smell test.”

Continued in article


High-quality instruction didn’t necessarily predict positive feedback on student evaluations, the researchers found:   Instead, high marks on evaluations were most positively correlated with students’ grades in a course ---
http://www.chronicle.com/blogs/ticker/students-dont-always-recognize-good-teaching-study-finds/118274?elqTrackId=110456401b944af981ca0a8e92e2c09d&elq=4c0221ec123d4a1f857645dc2af4e581&elqaid=13839&elqat=1&elqCampaignId=5765

Jensen Comment
The study is consistent with the millions of evaluations of their professors on RateMyProfessors.com where top-rated professors are virtually all rated as easy graders ---
http://www.chronicle.com/blogs/ticker/students-dont-always-recognize-good-teaching-study-finds/118274?elqTrackId=110456401b944af981ca0a8e92e2c09d&elq=4c0221ec123d4a1f857645dc2af4e581&elqaid=13839&elqat=1&elqCampaignId=5765

If a teacher wants to be a tough grader the necessary criterion for better evaluations is to be deemed fair in grading. One way to remove the grading from teacher evaluations is to assign grades on the basis of competency =-based grading where teachers do not assign the grades to their students. This is controversial, however, since students demand teaching toward the tests or other criteria they are graded on at the end of a course.

Some accounting recruiters (for internships and jobs) reported to me  privately that they keep grade-inflation files helping them to adjust their gpa thresholds for internships and hiring based up past impressions of their colleagues regarding grade inflation in schools. An obvious example would be a college where the median gpa of accounting graduates is 3.6 on a 4-point scale.

Bob Jensen's threads on grade inflation ---
http://faculty.trinity.edu/rjensen/assess.htm#RateMyProfessor


A Philosopher Gets Pilloried:  The academic left accuses her of ‘epistemic violence’ for asking scholarly questions about identity. ---
https://www.wsj.com/articles/a-philosopher-gets-pilloried-1494283355?mod=djemMER
 


Massachusetts gave GE a “mega-deal” to move, but did it matter?
http://www.taxpolicycenter.org/taxvox/massachusetts-gave-ge-mega-deal-move-did-it-matter

. . .

As Norton Francis and I outline in our new report, states use three strategies to attract firms and encourage economic development, each of which came into play in the GE deal:

  1. Investments in business. Boston gave GE $25 million in property tax incentives, but the investment didn’t stop there. The city and state also provided “concierge” services to assist GE in moving its headquarters and people. This included promises of attention from key staff in the governor’s and mayor’s office, identification of temporary office space, and establishment of a mobile office for GE employees relocating to Massachusetts. General Electric also received access to the airport and parking for aircraft, preferences few other businesses in the state enjoy.
  2. Investments in the workforce. Massachusetts offers workforce programs that any firm can use, but the state agreed to provide GE $1 million in customized employee training and, as part of the concierge services, to help identify other appropriate state programs. For example, GE has already begun posting jobs on Massachusetts JobQuest, an online job board hosted by the Executive Office of Labor and Workforce Development.
  3. Investments in community. Infrastructure investments were the bulk of the incentive package, accounting for $250 million. These included targeted improvement projects at the selected site location ($120 million) and a bridge renovation and transit upgrades that will benefit the entire Boston community ($125 million).

So what part of this mega-deal convinced GE to move?

Tax incentives are alluring to policymakers because they usually have a higher short-term political return than long-term policies like investments in education or infrastructure. These latter investments and the Boston labor force, however, are likely part of what made Boston an attractive option for GE.

Research suggests that real economic activity is fairly unresponsive to changes in taxes and that firms care more about workforce development and infrastructure. In 2016, firms ranked highway access, availability of skilled labor, and cost of labor as the most important business location factors, with tax incentives and rates ranking fifth or lower.

Continued in article

Jensen Comment
The high tech labor market seems to be a necessary condition for companies like GE --- which in turn means being near great research universities. In California, Silicon Valley evolved from such universities as Stanford, UC Berkeley, and other nearby universities of note. In Texas Austin became a hub for high tech industry largely due to the University of Texas plus surrounding greats like Texas A&M that serves both Austin and Houston. It's no secret that Boston became a high tech hub due to MIT, Harvard, and the many other great universities in the Boston metroplex. Also very important is being in a city with that's an international airport.

Tax incentives probably play a major role only after the necessary conditions are first satisfied. The article suggests that perhaps cities become overly generous with tax and other financial incentive honey pots for companies wanting to move.

Boston did not have to offer tax and financial deals nearly as great as some other cities probably did or would have offered GE.

The point here is that a state may attract tech companies more by investing tens of millions in research universities and airports than in wasting tens of millions on tax incentives and professional sports stadiums. I doubt that GE would've even considered moving to Las Vegas even if Las Vegas offered twice the tax and other financial incentives as Boston.


Division 1 teams don't make NCAA grade, banned from postseason ---
https://www.usatoday.com/story/sports/college/2017/05/10/17-d-i-teams-banned-from-postseason-apr-scores/101506286/?elqTrackId=0138884c9e094850a90281189c799379&elq=145edea7ffbf4a2ea13eff6f4c35873d&elqaid=13876&elqat=1&elqCampaignId=5789

Jensen Question
Why aren't the sanctions more serious?





Teaching Cases from Issues in Accounting Education, Volume 32, Issue 2 (May 2017)

Taxes and Organizational Form: An Activity in Partnership and Corporate Entities

Dawn Drnevich and Thomas J. Sternburg
Abstract | Full Text | PDF (88 KB) 

No Access

 

Rebecca's Coffee and Tea House: A Strategic Mapping and Balanced Scorecard Case Study

James M. Kohlmeyer III and Janet A. Samuels
Abstract | Full Text | PDF (107 KB) 

No Access

 

Acquisition of Hutchison Essar (India) by Vodafone (U.K.): A Case in International Taxation of Indirect Transfer of Shares

Mahendra R. Gujarathi and David R. Comerford
Abstract | Full Text | PDF (268 KB) | Supplemental Material 

 


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 28, 2017

For U.K. Multinationals, Brexit Bounce May Be Over
by: Saabira Chaudhuri
Apr 19, 2017
Click here to view the full article on WSJ.com

TOPICS: Foreign Currency Exchange Rates, Foreign Currency Translation

SUMMARY: The article describes the impact on a variety of UK businesses of the sharp fall in the value of the British pound following the Brexit vote in June of 2016. Retailer Burberry, oil company BP, metals and other commodity producer Glencore PLC, and others are discussed in the article. Some have sales in foreign currency relative to their domestic currency of the British pound; others have expenses in foreign currencies but sales in the domestic British pound.

CLASSROOM APPLICATION: The article may be used in an advanced accounting class to discuss foreign currency transactions.

QUESTIONS: 
1. (Advanced) What was the "Brexit vote"? What impact has Brexit had on the value of the British pound?

2. (Introductory) How has the value of the British pound behaved more recently, say, in the months of March and April 2017?

3. (Advanced) How does a change in any domestic currency impact companies making sales in a foreign currency? Discuss a change of both an increase in a currency value and a decrease.

4. (Introductory) How did Burberry customers change their buying behavior to take advantage of currency swings over the last year? Specifically relate the buying behavior described in the article to your answer to question 3.

5. (Introductory) Refer to the graphic entitled "Beginning of the End?" Which companies listed there have seen their shares of stock soar? Why?

6. (Introductory) In what currency do BP and Shell sell oil and gas? In what currency do these companies pay most of their expenses?

7. (Introductory) In what currency does EasyJet make its sales? In what currency does EasyJet purchase its fuel and operating equipment (planes)?

Reviewed By: Judy Beckman, University of Rhode Island

"For U.K. Multinationals, Brexit Bounce May Be Over," by Saabira Chaudhuri, The Wall Street Journal, April 19, 2017 ---
https://www.wsj.com/articles/pounds-election-rally-augurs-end-to-currency-boost-for-u-k-multinationals-1492606695?mod=djem10point?mod=djem_jiewr_AC_domainid

LONDON—For nine months, some of the biggest U.K. multinationals have enjoyed a big Brexit bump, benefiting from a sharply lower pound that made their exports more competitive and their overseas sales more valuable once converted back into sterling.

That has sent shares soaring. The FTSE 100 blue-chip index, heavily weighted toward exporters, is up more than 12% since the June 23 British referendum vote to leave the European Union.

But that tailwind is reaching its limits, as shown by Tuesday’s sharp sterling rally after Prime Minister Theresa May’s surprise call for a snap election. Discounting Tuesday’s surge of more than 2%, the pound has largely stabilized after its sharp drop since June—trading roughly 15% lower against the dollar.

If that holds, some of the currency benefit many companies have enjoyed, compared with their year-earlier performance, goes away later this year. For some companies, the extraordinary share-price boost provided by the currency move has also helped to obscure deeper problems. Take Burberry Group BURBY -1.42% PLC.

The British luxury house’s shares fell 7.9% Wednesday in London amid disappointing fourth-quarter results and fears that the currency-induced rally could be coming to an end. The shares had been up 53% from the Brexit vote through Tuesday.

Burberry’s 2% rise in fourth-quarter same-store sales came in below the 5% expected by analysts. The company also warned that it expects currency headwinds in its fiscal 2018, which ends in March, as it loses foreign-exchange hedges locked in last year when the pound was weaker.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 28, 2017

Trump Calls for Deep Cuts in Business Taxes, Changes for Individuals
by: Richard Rubin
Apr 27, 2017
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com WSJ Video

TOPICS: Tax Policy

SUMMARY: The Trump Administration has announced a broad-based description of its proposed tax overhaul. The article describes the plan as "an outline that is heavy on ambition, light on technical detail and likely to drive up budget deficits." The plan largely includes the Trump proposals made during the campaign except that the top proposed rate for individual taxation is 35%, down from the current 39.6% but above the 33% proposed during Trump's campaign.

CLASSROOM APPLICATION: The article may be used in either an individual or corporate income tax class to discuss tax policy and the process for enacting tax law change.

QUESTIONS: 
1. (Introductory) What are the major tax changes impacting individual taxpayers from the tax plan proposed by President Trump? Who released the plan on Wednesday April 26? You may refer to the related article.

2. (Advanced) Has this tax plan been put into effect for next tax year? Explain your answer.

3. (Introductory) Refer to the related graphic entitled "Big Break for Business." What has happened to corporate income tax rates since 2000 in all advanced economies depicted?

4. (Advanced) How does the Trump proposal help to alleviate the pressures that have been driving business to leave cash in foreign subsidiaries? In your answer, include a definition of the term "unrepatriated earnings."

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Highlights from the New Trump Tax Plan :Rates, Deductions, More
by WSJ Staff
Apr 26, 2017
Online Exclusive

"Trump Calls for Deep Cuts in Business Taxes, Changes for Individuals," by Richard Rubin, The Wall Street Journal, April 27, 2017 ---
https://www.wsj.com/articles/mnuchin-says-trump-will-offer-biggest-tax-cut-in-u-s-history-1493213275?mod=djem_jiewr_AC_domainid

Broad package seeks to spark sustained 3% economic growth; Democrats hint at objections

President Donald Trump called for deep reductions in business tax rates and major changes to the individual tax system in a bid to invigorate his agenda as he nears the 100-day mark.

With Wednesday’s proposals—which include a 15% tax rate for all businesses, lower individual rates, a bigger standard deduction to benefit middle-income households and the repeal of the estate and alternative minimum taxes—Mr. Trump hopes to speed up economic growth and make his mark as a historic tax cutter.

Still, the sweeping tax plan departed in important ways from congressional Republican proposals and alienated Democrats, giving the president a narrow path to victory through Congress.

“Clearly, we have a unique opportunity to do something major here,” said Gary Cohn, the director of Mr. Trump’s National Economic Council at the White House on Wednesday. “It’s our intention to create a huge tax cut, and equally as important, a huge simplification of the tax system in America.”

The new president appears determined to take a more proactive role in shaping the structure of the planned tax overhaul than he did to repeal major parts of the Affordable Care Act, which has struggled to get through the Republican-controlled House.

A week ago, with the 100-day mark looming and no legislative victories, Mr. Trump ordered advisers to have a tax plan ready soon. The result was an outline that is heavy on ambition, light on technical detail and likely to drive up budget deficits.

What the administration delivered Wednesday largely hews to tax-cut proposals Mr. Trump made during his campaign last year, but includes some crucial changes. Most notably, he is proposing to repeal a provision of the tax code that allows individuals to deduct the state and local taxes they pay from their reportable income. That will hurt residents of high-tax states such as Mr. Trump’s home state of New York, New Jersey and California, and is already spurring objections from Republican lawmakers in those largely Democratic states.

Such a repeal has the potential to raise more than $1 trillion over a decade, which would help fund the reduction in rates and get the tax plan through Congress, which is focused on deficits in part because of budget rules.

Business groups and Republicans cheered the proposals as a confidence booster for the economy and a helpful guidepost for what will be months of negotiations over hundreds of details.

Democrats and budget hawks panned it as an unaffordable giveaway to the richest Americans that could add trillions of dollars in debt.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 28, 2017

For Banks, Tax Cut Has Minuses, Pluses
by: Michael Rapoport and Telis Demos
Apr 27, 2017
Click here to view the full article on WSJ.com

TOPICS: Deferred Taxes, Tax Reform

SUMMARY: Banks recorded significant deferred tax assets during the financial crisis. Citigroup has $46.7 billion of net deferred tax assets as of the end of 2016 and Bank of America has $19.2 billion. The article describes the accounting impact of changes in income tax rates on deferred tax assets in "layman's" terms. Analysts estimate potential write offs of $6 to $12 billion by Citigroup and $4 billion by Bank of America from the proposed tax overhaul announced this week by the Trump Administration.

CLASSROOM APPLICATION: The article may be used when teaching accounting for income taxes.

QUESTIONS: 
1. (Advanced) What are deferred tax assets?

2. (Introductory) Why do banks hold significant amounts of deferred tax assets on their balance sheets?

3. (Advanced) How do corporate income tax rates affect the calculation of deferred tax assets?

4. (Advanced) How do changes in tax rates affect this calculation? When do tax rate changes have their impact on this accounting?

5. (Advanced) How do changes in corporate income tax rates lead a to significant impact on earnings through a "one-time event"? Specifically relate your answer to your answer to question 4 above.

6. (Introductory) How are analysts who follow banks considering the implications of these accounting requirements in their work?

Reviewed By: Judy Beckman, University of Rhode Island

"For Banks, Tax Cut Has Minuses, Pluses," by Michael Rapoport and Telis Demos, The Wall Street Journal, April , 2017 ---
https://www.wsj.com/articles/tax-cut-will-cost-bofa-citi-billions-heres-why-they-still-win-1493221515?mod=djem_jiewr_AC_domainid

Gain to banks’ bottom lines from lower taxes means they could potentially recoup value of deferred tax asset write-downs in a year or two

A cut in the corporate tax rate would involve immediate pain for some big banks, namely Citigroup Inc. and Bank of America Corp. but an eventual earnings boost should more than make up for that.

A corporate tax cut from the current 35% to 15%, which the White House proposed Wednesday, would lower companies’ tax bills and fatten their bottom lines. Banks like Citigroup and Bank of America would have to take some sour with the sweet: A lower tax rate would mean they will have to take billions of dollars in charges against earnings to write down the value of their giant piles of “deferred tax assets.”

These assets consist of tax credits or deductions that typically spawned from big losses, like those the banks experienced during the financial crisis. They are essentially IOUs the banks can use to defray future tax bills.

If those tax bills are reduced in the future by a rate cut, the deferred tax assets would be worth less. That could lead Citigroup to write down their value by anywhere from $6 billion to $12 billion, based on some figures the bank has provided and analysts’ calculations and depending on the ultimate contours of a tax-rate overhaul. Bank of America’s hit could be around $4 billion.

Citigroup had $46.7 billion of net deferred tax assets as of the end of 2016, while Bank of America had $19.2 billion.

The hit to earnings would be a one-time event, though. The offset is that the banks “are going to make more money for life,” said John McDonald, a bank analyst at Sanford C. Bernstein. “What the market does care about is earnings and their earnings would be permanently improved.”

In fact, the gain to the banks’ bottom lines from lower tax rates means they could potentially recoup the value of the write-downs in a year or two.

The banks “should be willing to make the trade off,” said Michelle Hanlon, an accounting professor at the Massachusetts Institute of Technology’s Sloan School of Management.

What’s more, deferred tax assets are complex and it will take time to gauge just how much of a write-down banks will have to take.

Much of Citigroup’s net deferred tax assets, for example, consist of state or foreign deductions and credits or other assets that wouldn’t be affected by a cut in the U.S. federal tax rate. John Gerspach, the bank’s chief financial officer, told analysts last November that a drop to a 25% corporate tax rate could translate into a charge of roughly $6 billion.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 28, 2017

Graduates Ill-Prepared in Job Hunt
by: Kelsey Gee
Apr 26, 2017
Click here to view the full article on WSJ.com

TOPICS: Accounting Careers

SUMMARY: A survey of about 400 employers conducted by iCIMS, Inc., shows findings that students should better prepare for interviews and should follow up with steps such as thank you notes more diligently. In contrast, a separate survey of 400 college students finds they are confident about their interviewing skills. Further, college students feel good about their prospects, but they expect to earn more in their first job on average than the average salary recruiters expect to pay for entry level positions.

CLASSROOM APPLICATION: The article is timely for students graduating and searching for employment. It may be use in any class.

QUESTIONS: 
1. (Introductory) What is the overall trend in on-campus recruiting for entry-level positions?

2. (Introductory) What are the majors most in demand through on-campus recruiting?

3. (Advanced) Does it seem that students choose major areas of study based on the on-campus demand for hiring? Explain your reasoning.

4. (Advanced) Are you prepared for your job search following college graduation? Will you pay heed to the findings discussed in this article? Explain. If you already have a position, explain whether you faced the issues discussed in this article during your search process.

Reviewed By: Judy Beckman, University of Rhode Island

"Graduates Ill-Prepared in Job Hunt," by Kelsey Gee, The Wall Street Journal, April 26, 2017 ---
https://www.wsj.com/articles/where-college-seniors-are-falling-short-1493118000?mod=djem_jiewr_AC_domainid

Expected graduates are ill-prepared for the job hunt and many coveted positions, a survey finds

Parents rejoice: 2017 is shaping up to be another healthy year for college hiring.

The latest forecast from the National Association of Colleges and Employers finds that employers expect to hire 5% more graduates than they brought on last year, the eighth year in a row that companies say they are increasing their college hires.

Yet a separate survey of employers and college seniors suggests that, when it comes to courting recruiters, the Class of 2017 has some homework to do.

This year’s job-seeking seniors are ill-prepared for the job hunt and many coveted positions, concludes a survey of roughly 400 employers and 400 college students conducted by iCIMS Inc., a recruiting-software company. Among other things, employers reported that one-third of all applications for entry-level roles come from unqualified candidates.

More than 60% of employers in the survey said applicants ought to be more familiar with the company and industry, and must ask better questions in interviews. Plus, those employers say, three out of four applicants fail to send thank-you notes after interviews.

The mismatch extends to hard skills, too. Engineering, business and computer science majors are in highest demand, with at least two-thirds of employers seeking graduates in those fields, according to NACE. But fewer than half of the students surveyed by iCIMS majored in those subjects.

College seniors feel good about their prospects: more than 90% of the students surveyed by iCIMS reported feeling confident about their interview skills. They also expect to earn over $53,000 in their first job, compared with average salary of $45,000 that recruiters expect to pay for those positions.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 28, 2017

Startups Rob 401(k)s
by: Robert Powell
Apr 24, 2017
Click here to view the full article on WSJ.com

TOPICS: Entrepreneurship, Individual Income Taxation

SUMMARY: "A little-known and controversial financing strategy for entrepreneurs allows use of IRA money to purchase shares in their own C corporation." The "rollover as business startup plan" or ROBS, is "a way for retirement-account owners to 'access accumulated tax-deferred retirement funds without paying applicable distribution taxes,' as the IRS wrote in 2008. The system starts with an entrepreneur forming a C corporation and adopting a 401(k) plan. The entrpreneur rolls IRA or other retirement savings into the new 401(k) plans and the plan purchases the stock in the new corporation. The article quotes two investment advisers with sharply opposed views on ROBS. One advised a Colorado couple who started a bed-and-breakfast; he sees the system as a low cost way to access capital. Another advisor in Marion, Iowa "says he would never allow a client to use a ROBS. 'Retirement accounts should be for retirement,' he says."

CLASSROOM APPLICATION: The article may be used in an individual income tax or any class covering business startups.

QUESTIONS: 
1. (Introductory) In general, what is the benefit of establishing a new business as a corporation?

2. (Introductory) How does an entrepreneur fund a new business?

3. (Advanced) What is a 401(k) plan? What is an individual retirement account (IRA)?

4. (Advanced) What is the controversy with using 401(K) or IRA funds to finance a business start-up? List both the risks and potential rewards of this strategy.

5. (Advanced) What is the concern with the fact that ROBS plans are "heavily scrutinized by the IRS." If the ROBS is administered by a professional with appropriate expertise, should this be a concern? Explain.

Reviewed By: Judy Beckman, University of Rhode Island

 

"Startups Rob 401(k)s," by Robert Powell, The Wall Street Journal, April 24, 2017 ---
https://www.wsj.com/articles/how-entrepreneurs-can-use-iras-to-finance-startups-1492999382?mod=djem_jiewr_AC_domainid

While lots of advisers don’t recommend it, ROBS rules allow retirement withdrawals to fund a business

Tom and Stacy Lee wanted to start a small health-care franchise in Vermont. But much of their money was tied up in retirement accounts—some $300,000 in funds they couldn’t withdraw without owing taxes on the withdrawals and a 10% penalty on early withdrawals.

The same was true for Lisa Bresko-Cordova and her husband, who dreamed of starting a bed-and-breakfast in Colorado.

Enter the “rollover as business startup plan,” or ROBS, a little-known and somewhat controversial way to cover business startup costs. In essence, a ROBS is a way for retirement-account owners to “access accumulated tax-deferred retirement funds without paying applicable distribution taxes,” as the IRS wrote in 2008. With a ROBS, would-be entrepreneurs fund their respective businesses by forming C corporations and adopting simple 401(k) plans typically set up by a third-party administrator that specializes in ROBS. The aspiring entrepreneurs then roll the money in their retirement accounts into a new 401(k) plan, and that 401(k) plan then purchases stock in the new corporation.

Lynn Dunston, a registered investment adviser in Denver, and the financial adviser for Ms. Bresko-Cordova and her husband, says he sees much to like about using a ROBS. It provides immediate and low-cost access to capital, which “can be a challenge,” he says. In addition, a ROBS isn’t a loan that has to be paid back to the 401(k) with interest.

As the business grows, Mr. Dunston says, the C corporation shares held in the 401(k) appreciate in a tax-deferred manner. Plus, once the ROBS user becomes an employee of the business, he or she can receive a salary and contribute to the 401(k) as a plan participant.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on May 12, 2017

Looming Tax Changes Push DuPont to Boost Pension Payments
by: Vipal Monga
May 10, 2017
Click here to view the full article on WSJ.com

TOPICS: Pension Accounting, Tax Reform

SUMMARY: "DuPont is among the first to use the prospect of tax cuts as a spur to rush pension contributions. More companies are expected to take similar steps in coming months as the tax debate in Washington heats up...." DuPont had expected to contribute only $230 million this year, but management decided to access the bond markets because of low rates in order to boost that contribution amount. The related article explains that DuPont has held a position of funding the minimum amount required by law, expecting that a future rise in interest rates will address the funding shortfall. This additional funding to take advantage of higher value tax deductions now thus represents a significant policy change.

CLASSROOM APPLICATION: The article is useful to discuss 3 specific aspects of pension accounting and operations: ERISA funding requirements, tax deductibility of pension contributions, and, through the related article, the impact of interest rates on the funded status of a plan.

QUESTIONS: 
1. (Advanced) What are the components of pension expense?

2. (Advanced) Does the amount of a company's yearly contribution to a pension plan impact its expense amount? Explain.

3. (Introductory) Who sets the minimum required pension contribution?

4. (Advanced) How does deductibility of a company's pension contribution for tax purposes compare to the expense reported on a company's income statement?

5. (Advanced) Explain the reasoning behind DuPont contributing more into its pension plan now before tax changes occur under the Trump administration proposal.

6. (Introductory) Refer to the related article and consider DuPont's policy of funding the minimum required amounts which leaves an unfunded liability. Define the term unfunded liability. How might this unfunded liability be reduced or eliminated if interest rates rise in the future?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
DuPont Wary of Overfunding Pension: CFO
by Vipal Monga
May 06, 2013
Online Exclusive

"Looming Tax Changes Push DuPont to Boost Pension Payments," by Vipal Monga, The Wall Street Journal, May 10, 2017 ---
https://www.wsj.com/articles/looming-tax-changes-push-dupont-to-boost-pension-payments-1494366083?mod=djem_jiewr_AC_domainid

Company aims to maximize tax deductions before potential rules overhaul

DuPont Co. DD -0.13% will make larger payments into its pension than it had planned this year as part of a push to maximize tax deductions before a potential overhaul of U.S. corporate tax rules.

Pension contributions are tax deductible, therefore it is cost-effective to take a 35% deduction at today’s rate instead doing it later, if rates fall. DuPont decided to pump extra money into its pension fund to deduct as much from its taxes as it could, according to a person familiar with the plan.

On May 2, Delaware-based DuPont said it would put $2.7 billion more than required to its defined benefit plans this year. Its plans had a $6.7 billion deficit at the end of 2016, meaning the value of assets didn’t equal the value of the company’s obligations.

DuPont is among the first to use the prospect of tax cuts as a spur to rush pension contributions. More companies are expected to take similar steps in coming months as the tax debate in Washington heats up, according to Alan Glickstein, a retirement consultant at Willis Towers Watson.

The debate could go in unexpected directions, and companies may need to move soon to protect their current deductions. “There’s no guarantee that pension contributions would be even fully tax deductible under tax reform,” he said.

The White House and Congress want to revamp the U.S. tax code by cutting rates and reducing its complexity. The initiative is in early stages, however, and there is already disagreement between various factions of the Republican Party, which controls Congress and the White House, about how to pay for tax cuts.

DuPont had expected to contribute only $230 million this year, but management decided to capitalize on low interest rates and borrow cheaply in the bond markets to boost that amount.

“We are partially using debt as a funding source given the favorable economic conditions to doing so, including the low interest environment,” said a DuPont spokesman.

The move also reverses DuPont’s long-held policy of contributing the minimum required to its pensions.

By law, companies must fully fund their plans over time. The formula used is set by Congress, and allows them several years to make up the gap.

Companies such as Verizon Communications Inc., General Motors Co. , and International Paper Co. have also contributed more than required in recent months, but they did so to avoid paying higher insurance premiums to the Pension Benefit Guaranty Corp., the nation’s pension insurer. Companies must pay a fee to the PBGC for every dollar their plans are underfunded. The average fee almost quadrupled between 2009 and 2016, according to a study by October Three Consulting LLC.

DuPont’s case is also unique, because the company is merging with Dow Chemical Co. The deal is expected to close later this year, followed by a split into three units focused on agriculture, industrial materials and specialty products within three years.

Management will also have to split the pension obligation between the units, although they haven’t determined the exact amounts. A smaller deficit would make the task easier, said the person with knowledge of the plan.

Pension obligations continue to be a burden to corporate balance sheets.

Although rising stock markets have helped boost pension asset values this year, falling interest rates have pushed up the value of plan obligations, offsetting asset gains

 

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on May 12, 2017

Business Schools Take a Stand Against Academic Rankings
by: Kelsey Gee
May 09, 2017
Click here to view the full article on WSJ.com

TOPICS: Accounting

SUMMARY: A research paper to be published in the May 2017 edition of the Decision Sciences Journal has sparked a renewed effort on the part of business schools to thwart the annual ranking process conducted by Bloomberg Businessweek, the Financial Times, the Economist and others. The article currently is available for early view and download on the Decision Sciences web page at http://onlinelibrary.wiley.com/doi/10.1111/deci.12274/full The paper's 21 authors "weigh in on the issues," by discussing costs imposed on schools by the ranking procedure, shifts evident in institutional data used for rankings, and arguments for re-consideration of the entire process. Shortcomings in the ranking process, they say, stem "...from the conceptualization and the architecture of comparisons, and are evident in survey designs, data collection methods, and data aggregation procedures...." The authors propose minimum requirements for "...a socially responsible, transparent, flexible, and highly representative rating (vs. ranking) approach...." (Bachrach et al. 2017) Citation Bachrach, D. G., Bendoly, E., Beu Ammeter, D., Blackburn, R., Brown, K. G., Burke, G., Callahan, T., Chen, K. Y., Day, V. H., Ellstrand, A. E., Erekson, O. H., Gomez, J. A., Greenlee, T., Handfield, R., Loudder, M. L., Malhotra, M., Petroni, K. R., Sevilla, A., Shafer, S., Shih, M. and Voss, D. (2017), On Academic Rankings, Unacceptable Methods, and the Social Obligations of Business Schools. Decision Sciences, forthcoming. doi:10.1111/deci.12274

CLASSROOM APPLICATION: The article may be used in any class to discuss graduate school options.

QUESTIONS: 
1. (Introductory) What entities rank business schools?

2. (Advanced) What factors are considered in ranking business schools? Cite your source for this information.

3. (Introductory) What are the arguments in favor of ranking business schools, effectively distilling a lot information in to one number (the school's rank)?

4. (Introductory) What are the arguments against the ranking procedure?

5. (Advanced) Are you considering a graduate program? Would rankings influence the schools that you consider applying to?

Reviewed By: Judy Beckman, University of Rhode Island

 

"Business Schools Take a Stand Against Academic Rankings," by Kelsey Gee, The Wall Street Journal, May 9, 2017 ---
https://www.wsj.com/articles/business-school-rankings-stir-new-rancor-1494331202?mod=djem_jiewr_AC_domainid

Deans and faculty at more than 20 universities urge others not to participate in the process

Business-school deans and research faculty at more than 20 universities are taking a stand against the academic rankings published by media outlets such as Bloomberg Businessweek, Nikkei Inc.’s Financial Times and the Economist Group.

Rather than “acquiesce to methods of comparison we know to be fundamentally misleading,” the administrators are urging their peers at other schools to stop participating in a process they say rates programs on an overly narrow set of criteria.

The plea, issued by deans and faculty from institutions including University of Southern California’s Marshall School of Business, University of Iowa’s Tippie College of Business and the University of North Carolina’s Kenan-Flagler Business School, comes in the form of a research paper to be published in the May edition of the Decision Sciences Journal.

The researchers examine the approaches used by media outlets to aggregate different factors like admitted students’ test scores and tenured faculty on a school’s payroll into a single number, arguing that the process oversimplifies the array of reasons students pursue business degrees.

The debate over rankings is hardly new, but the recent rancor comes as schools battle declining enrollment in two-year M.B.A. programs, compounding pressure on the institutions to tout the benefits of one of America’s priciest degrees.

Business-school deans and research faculty at more than 20 universities are taking a stand against the academic rankings published by media outlets such as Bloomberg Businessweek, Nikkei Inc.’s Financial Times and the Economist Group.

Rather than “acquiesce to methods of comparison we know to be fundamentally misleading,” the administrators are urging their peers at other schools to stop participating in a process they say rates programs on an overly narrow set of criteria.

The plea, issued by deans and faculty from institutions including University of Southern California’s Marshall School of Business, University of Iowa’s Tippie College of Business and the University of North Carolina’s Kenan-Flagler Business School, comes in the form of a research paper to be published in the May edition of the Decision Sciences Journal.

The researchers examine the approaches used by media outlets to aggregate different factors like admitted students’ test scores and tenured faculty on a school’s payroll into a single number, arguing that the process oversimplifies the array of reasons students pursue business degrees.

The debate over rankings is hardly new, but the recent rancor comes as schools battle declining enrollment in two-year M.B.A. programs, compounding pressure on the institutions to tout the benefits of one of America’s priciest degrees.

With sticker prices as high as $200,000 in tuition, an M.B.A. is “likely among the most expensive purchases these students will make in their lives,” says Francesca Levy, an editor at Bloomberg who oversees business-school coverage. “There’s big value in holding schools to the same standard and measuring them against the same, transparent criteria so students can make a better informed decision.”

Co-author of the research paper Elliot Bendoly, an associate dean at Ohio State University’s Fisher College of Business, disagrees. “If the goal is to help inform [students] about how to make the best decision about business schools, let’s give them the raw information, and not take numbers—which may or may not be relevant to the student—and bungle them together into a ranked list,” Mr. Bendoly says.

Continued in article

Challenge to B-School Rankings:  21 scholars publish call to reject popular measures and ordinal rankings -- and to replace them with more meaningful tools for comparisons ---
https://www.insidehighered.com/news/2017/05/12/business-scholars-and-adminsitrators-pubilsh-call-move-away-current-rankings-systems?utm_source=Inside+Higher+Ed&utm_campaign=7c7662c4c7-DNU20170512&utm_medium=email&utm_term=0_1fcbc04421-7c7662c4c7-197565045&mc_cid=7c7662c4c7&mc_eid=1e78f7c952

Abstract of the Study ---
http://onlinelibrary.wiley.com/doi/10.1111/deci.12274/full
I've not read the full article.

Jensen Comment
One possible erroneous conclusion is that the proposed alternate set of rankings will make the rankings less subjective. Since others' opinions (such as opinions of B-School deans, alumni, recruiters, etc.) nearly always play a major role in popular B-School rankings (such as US News, the WSJ, and Bloomberg rankings) the traditional rankings are aggregations of highly subjective opinions.

It appears that the proposed alternative rankings will focus on a larger number of specific criteria than the popular traditional rankings that tend to be heavily influenced by broad criteria such as "research reputation" and "admission standards."

The biggest problem when it comes to subjective rankings is that the rater (say a business school dean at a state university) may be very familiar with a peer set of 20 state universities but have very little knowledge of other sets of B-school programs like those of MIT, Harvard, Stanford, Dartmouth, Oxford, Cambridge, Dartmouth, Wharton, Rice, etc. that are assumed to be near the top of the rankings because of the halo-effects of the prestige reputations of the entire university where each assumed prestigious B-School resides. Dean X at California State University may know almost nothing about business studies at Oxford University, but since it's at Oxford the Oxford business program has to be great.

I'm dubious about having raters (like business school deans) ranking over 200+ B-School programs on 20 or more criteria about which they know almost nothing for most of the schools they are ranking. For example, it's one thing to rate the the a Dean at California State rank Harvard Business School higher than the Tuck Business School on the broad criterion of "research" but it's quite another matter to compare Harvard with Tuck in more detailed dimensions if the rater knows very little about relative performance of those programs on those criteria.

Reducing rankings to numerical scores on criteria can be even more nonsensical. For example, comparing the rejection rate as a percentage of total number applications to a program is complete nonsense. Most potential applicants to a highly prestigious MBA program don't take the time and trouble to even bother to apply to such a program feeling that there is almost zero chance of being accepted.  If the University of Texas MBA Program has a higher rejection rate than the Tuck Business School rejection rate it would not surprise me because hundreds of applicants to UT's MBA program did not even apply to the Tuck Business School.

Bob Jensen's threads on ranking controversies ---
http://faculty.trinity.edu/rjensen/HigherEdControversies2.htm#BusinessSchoolRankings

Bob Jensen's threads on ranking controversies ---
http://faculty.trinity.edu/rjensen/HigherEdControversies2.htm#BusinessSchoolRankings


Teaching Case from The Wall Street Journal Accounting Weekly Review on May 12, 2017

Snapchat's Debut Quarter Turns Ugly
by: Georgia Wells
May 11, 2017
Click here to view the full article on WSJ.com

TOPICS: Cash Flow, Compensation, Stock Options

SUMMARY: "In its first quarterly report as a public company, [Snap, Inc.] showed it struggled to maintain strong user growth at its Snapchat vanishing-messaging app, sending shares tumbling and sparking worries about its ability to challenge social-media titan Facebook Inc. Snap, whose core business relies on selling advertising on the Snapchat messaging platform, reported 166 million daily users in the past quarter, up 8 million from the previous period and up 44 million from a year earlier-its slowest year-over-year growth rate in at least two years. Meanwhile, Facebook's Instagram, a key competitor for Snap, last month said it has 200 million daily users of Instagram Stories...." The related article emphasizes that IPO-related stock-based compensation expense accounted for $2 billion of the reported loss.

CLASSROOM APPLICATION: The article may be used in covering general financial reporting related to start up companies or to stock-based compensation expense in particular. In addition, understanding disclosures in the operating section of the statement of cash flows is covered.

QUESTIONS: 
1. (Introductory) Explain what the research analyst means when he's quoted as saying "you can't miss out of the gate." How did Snap, Inc. miss?

2. (Advanced) Refer to the related article. How much of the loss reported by Snap, Inc. was related to the compensation expense for its initial public offering?

3. (Advanced) Access the filing on form 10-Q for the quarter ended March 31, 2017 on the Securities and Exchange Commission web site. https://www.sec.gov/Archives/edgar/data/1564408/000156459017010357/0001564590-17-010357-index.htm Click on link to the consolidated balance sheet from the financial statements index, on p. 5 of the filing. What is the company's total stockholders' equity? How much of that equity has been consumed by the company's reported loss?

4. (Advanced) Refer to the statement of cash flows. How much of the operating loss was actually incurred as a cash flow? Explain your source for this answer.

5. (Advanced) What is the nature of the compensation expense driving the first quarter loss? Is it a cash-based expenditure or noncash? Explain your answer.

6. (Advanced) Does the question of whether compensation expense is cash based or not affect your evaluation of this company's first quarter of operations as publicly traded? Explain.

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Snap Fails First Test as Public Firm
by Miriam Gottfried
May 11, 2017
Page: B12

"Snapchat's Debut Quarter Turns Ugly," by Georgia Wells, The Wall Street Journal, May 11, 2017 ---
https://www.wsj.com/articles/snapchat-posts-2-2-billion-loss-in-first-quarterly-report-stock-plunges-1494446940?mod=djem_jiewr_AC_domainid

Rival Facebook has been nibbling away at features that made Snapchat stand apart

Snap Inc. in its first quarterly report as a public company, showed it struggled to maintain strong user growth at its Snapchat vanishing-messaging app, sending shares tumbling and sparking worries about its ability to challenge social-media titan Facebook Inc. FB +0.09% Snap, whose core business relies on selling advertising on the Snapchat messaging platform, reported 166 million daily users in the past quarter, up 8 million from the previous period and up 44 million from a year earlier—its slowest year-over-year growth rate in at least two years. Meanwhile, Facebook’s Instagram, a key competitor for Snap, last month said it has 200 million daily users of Instagram Stories, a feature of the photo-sharing app that mimics Snapchat’s popular function.

“Everything for Snap starts with daily active users, because the more users Snap has, the more engagement Snap can have,” said Ronald Josey, senior internet analyst with JMP Securities, who expected Snap to have faster user growth.

The Venice, Calif.-based company’s shares plunged 23% in after-hours trading, hovering just above the $17 threshold at which it went public in March.

“You can’t miss out of the gate,” said Michael Nathanson, senior research analyst at MoffettNathanson.

Investors have clamored for Snap since its initial public offering, the highest-profile tech listing in years. But the comparisons with Facebook and Twitter Inc. —its two biggest rivals—raise questions about whether Snap can elbow its way into a crowded social media market.

Snap’s traditional core of users are teens and young adults, a valuable demographic that marketers are eager to reach. Snap has pitched itself as an alternative to traditional forms of media, such as television, rather than a competitor to the bigger social-media networks.

But Facebook has been nibbling away at the features that made Snapchat stand apart. Snap’s “Stories” function—collections of Snaps that play in chronological order, and a critical place for Snap to display ads—has been imitated by Facebook and its other platforms.

In a survey last month of 3,000 Americans conducted by Goodwater Capital, 25% of respondents said they prefer Stories on one of Facebook’s platforms, compared with the 12% of users who said they prefer Snapchat’s Stories.

Chief Executive Evan Spiegel defended Snap’s position. “I think the bottom line is if you want to be a creative company, you need to be comfortable with people copying your products,” he said. “Just because Yahoo has a search box, it doesn’t mean they’re Google.”

Snap on Wednesday posted a net loss of $2.2 billion, compared with $104.6 million a year ago, due to a $2 billion one-time hit from stock-compensation expenses related to its March IPO.

Snap’s costly efforts to ramp up advertising deepened its operating loss, which more than doubled to $188 million and surpassed its revenue of $149.6 million. While revenue in the quarter nearly quadrupled from a year earlier, it failed to exceed Snap’s fourth quarter revenue of $165.7 million.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on May 12, 2017

Disney Moves to Bolster ESPN
by: Ben Fritz
May 10, 2017
Click here to view the full article on WSJ.com

TOPICS: Segment Reporting

SUMMARY: Disney's quarterly results for the three months ended April 1, 2017, showed revenue growth of 3% to $13.34 billion and net income increasing 11% to $2.39 billion compared with the same period in 2016. The article focuses on Disney's four main segments' reporting operating income, trends in subscriber base, and the relationship of those amounts to the company's overall results.

CLASSROOM APPLICATION: The article is useful to cover segment reporting with a familiar company in an intermediate or advanced financial reporting class.

QUESTIONS: 
1. (Introductory) Overall, how did Disney perform in the quarter ended April 1, 2017?

2. (Advanced) What is the objective of reporting results by segment of a company? Specifically answer how this analysis links to return on an investment for shareholders who own shares in the entire company, not just individual segments.

3. (Introductory) Refer to the related graphic entitled "Core Focus." What are Disney's operating segments? State the names and define each segment according to the description in the article. You may refer to the company's reporting on these segments to answer this question. If so, cite your source.

4. (Advanced) ESPN "accounts for the majority of profits in the company's cable business...." So why is Disney laying off about 100 of its 8,000 employees, "including some high profile on-air talent"?

Reviewed By: Judy Beckman, University of Rhode Island

 

"Disney Moves to Bolster ESPN," by Ben Fritz, The Wall Street Journal, May 10, 2017 ---
https://www.wsj.com/articles/disney-profit-rises-despite-espn-woes-1494362684?mod=djem_jiewr_AC_domainid

Plans to launch digital subscription services focused on particular sports, teams and regions

Faced with subscriber and viewership losses, Walt Disney Co.’s DIS -0.15% ESPN is planning to launch digital subscription services focused on particular sports, teams and regions.

Disney Chief Executive Robert Iger on Tuesday once again spent much of a conference call with Wall Street analysts following the release of financial results discussing the fate of ESPN. The sports channel accounts for the majority of profits in the company’s cable business, which has lost momentum in the past few years while other divisions are booming.

Overall, Disney reported revenue growth of 3% for the three months ended April 1, to $13.34 billion, and an 11% increase in net income to $2.39 billion compared with the same period a year earlier.

Disney had announced plans to launch this year its first ESPN “over the top” service, similar to Netflix , that will include sports not on the linear network like baseball. Mr. Iger’s comments on services tuned to the narrow interests of particular sports fans indicate many more are in development.

The CEO said there are no current plans to offer a replica of the ESPN cable channel online to those who don’t subscribe to cable, akin to Time Warner Inc.’s HBO Now, but conceded “there is an inevitability to that.”

ESPN recently laid off about 100 of its 8,000 employees, including some high-profile on-air talent, and is taking steps to shake up its programming as viewership for non-live sports, such as its signature SportsCenter program, are down.

Over the past five years, ESPN has gone from 99 million subscribers to 87.44 million, according to Nielsen. Disney Chief Financial Officer Christine McCarthy said the rate of cable-subscriber losses in the recent quarter increased by “less than half a point” from the prior quarter,” though she didn’t offer specifics. Subscriber losses generated a three-percentage-point decline in revenue from pay-TV subscriptions, she noted, offset by a seven-point increase from contractual rate increases.

Mr. Iger touted the presence of ESPN and other Disney networks on new less-expensive “skinny” TV packages from companies like Hulu and Alphabet Inc.’s YouTube that are aimed at young, price-sensitive consumers. But he conceded they aren’t making up for losses from traditional cable and satellite packages.

Disney’s cable revenue grew 3% to $4.06 billion in its fiscal second quarter, while operating income fell 3% from a year earlier to $1.79 billion. Decreases at ESPN, caused in part by higher costs for the NBA and college football playoffs, were offset by increases at the Disney Channels and Freeform.

The company’s theme-parks unit saw the biggest revenue increase, up 9% to $4.3 billion, and a healthy 20% increase in operating income to $750 million. Attendance at domestic parks was up 4%, and Shanghai Disney Resort, which opened last June, was profitable for the first time last quarter and will break even in the fiscal year ending September, said Ms. McCarthy. The company’s first theme park in mainland China will reach an internal goal of 10 million visitors in the next few days, Mr. Iger said.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on May 12, 2017

U.S. Asks Wal-Mart to Pay Settlement of $300 Million
by: Aruna Viswanatha and Sarah Nassauer
May 10, 2017
Click here to view the full article on WSJ.com

TOPICS: Foreign Corrupt Practices Act, Securities and Exchange Commission

SUMMARY: This article follows the related one previously covered in this review. The Justice Department and the Securities and Exchange Commission have been investigating for over 5 years allegations that Wal-Mart violated the Foreign Corrupt Practices Act (FCPA). The investigation into the company's operations in Mexico, Brazil, India, and China began after a New York Times article described details of possible misconduct in Mexico. Wal-Mart has not yet settled with the federal government over the investigation but the article is based on reports that the end may be soon. Financial statement disclosures in the 10-K for the year ended January 31, 2017 related to this contingent loss are linked in the questions.

CLASSROOM APPLICATION: The article may be used when covering accounting for contingencies in a financial reporting class or the FCPA in an ethics, or any, class.

QUESTIONS: 
1. (Advanced) What is the Foreign Corrupt Practices Act (FCPA)?

2. (Introductory) Why are the Justice Department and U.S. Securities and Exchange Commission (SEC) investigating Wal-Mart?

3. (Advanced) The article states that Wal-Mart has not yet settled with the federal government over investigation by the Justice Department and the Securities and Exchange Commission. Why is it of interest for the WSJ to report on this status?

4. (Advanced) Access the Wal-Mart financial statement filing on Form 10-K for the 12 months ended January 31, 2017 available on the SEC web site at https://www.sec.gov/cgi-bin/viewer?action=view&cik=104169&accession_number=0000104169-17-000021&xbrl_type=v Click on Notes Tables then "Contingencies Schedule of FCPA Expenses. How is this information used in the article? What two types of expenses is the company incurring in relation to this investigation?

5. (Advanced) Refer again to the tabular disclosure. What is the meaning of the term Contingencies? Cite your source for this definition.

6. (Advanced) Refer back to the company's Consolidated Balance Sheet and click on the caption Commitments and Contingencies. Why do you think this item is included on the face of the balance sheet with no associated amount?

7. (Introductory) What are the accounting requirements for contingent losses?

8. (Advanced) Click on the link to Contingencies under Notes to Financial Statements. How do you think Wal-mart is complying with these requirements based on your review of the information for the questions in this review? In particular, does it appear that company has been able to determine an estimate or a reasonable range of estimates for the expected losses associated with this contingency?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Wal-Mart Stuck in Probe Limbo
by Joann S. Lublin, Aruna Viswanatha and Sarah Nassauer
Jan 28, 2017
Page: B1

"U.S. Asks Wal-Mart to Pay Settlement of $300 Million," by Aruna Viswanatha and Sarah Nassauer, The Wall Street Journal, May 10, 2017 ---
https://www.wsj.com/articles/u-s-asks-wal-mart-to-pay-300-million-to-settle-bribery-probe-1494366397?mod=djem_jiewr_AC_domainid

Penalty in foreign bribery case is far less than what the Obama administration had sought

U.S. authorities have asked Wal-Mart Stores Inc. WMT -0.30% to pay $300 million to settle a five-year investigation into foreign bribery, according to a person familiar with the talks, a penalty far less than what the Obama administration had sought.

The settlement offer comes after Wal-Mart spent nearly $840 million on its internal investigation of the bribery allegations and upgraded compliance operations, according to financial filings.

Wal-Mart hasn’t yet agreed to the offer, this person said, but negotiations are in the final stages. Spokesmen for Wal-Mart and the Justice Department declined to comment. Bloomberg News earlier reported Wal-Mart was close to resolving the probe for $300 million.

As the Obama administration prepared to leave office late last year, the Justice Department and the Securities and Exchange Commission attempted to reach a settlement with the world’s largest retailer of as much as $1 billion.

Those talks stalled over several issues beyond the amount Wal-Mart would pay, including the retailer’s ability to accept food stamps in its 5,300 U.S. Wal-Mart and Sam’s Club stores. A company can lose its right to government contracts after pleading guilty to a federal crime.

Wal-Mart is one of the country’s largest recipients of food-stamp spending, taking in about 18% of the money disbursed through the Supplemental Nutrition Assistance Program. It is unclear how the government’s current offer would resolve this issue.

The Justice Department launched its investigation as a series of New York Times articles described alleged bribes Wal-Mart paid in Mexico to obtain permits to build stores there, potential violations of the Foreign Corrupt Practices Act. That spurred a wide-reaching investigation of Wal-Mart employee behavior across the globe, including in Brazil, China and India.

Wal-Mart now employs about 2,300 workers in ethics and compliance operations, according to a company report.

At $300 million, the proposed settlement wouldn’t be among the largest such penalties. The top 10 largest FCPA settlements are $365 million or larger, according to cases compiled the FCPA Blog, a trade publication.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on May 26, 2017

Why It's Mainly Big Companies Buying Green Power
by: Brian Baskin
May 22, 2017
Click here to view the full article on WSJ.com

TOPICS: Accounting Careers, Managerial Accounting

SUMMARY: The article discusses the complexities of contracts to build green power projects such as solar panels and wind farms. Complexities include the long-term nature of power industry contracts, the myriad regulations that vary by state including whether individuals can sell back to the electricity grid (known as "net metering"), and the need for sufficient scale to attract negotiations at favorable rates. Accountants are repeatedly referred to in the article among the experts who must understand these complexities; the sustainability services practice at Pricewaterhouse Coopers also is referenced.

CLASSROOM APPLICATION: The article may be used in a managerial accounting class to emphasize the business expertise accountants must develop to serve their employers or clients.

QUESTIONS: 
1. (Introductory) What types of green energy initiatives are large corporations undertaking?

2. (Introductory) What is happening to the cost of building green energy production such as solar or wind power?

3. (Advanced) Why does the change in the cost of green energy projects reduce the length of contracts negotiated in this industry?

4. (Introductory) How is the potential sale of solar power panels impacted by whether a potential buyer leases or owns the building in which it operates?

5. (Introductory) What is net metering?

6. (Advanced) How are accountants referred to in this article? Specifically name the ways in which experienced accountants are expected to offer expertise to clients in relation to green power projects.

Reviewed By: Judy Beckman, University of Rhode Island

"Why It's Mainly Big Companies Buying Green Power," by Brian Baskin, The Wall Street Journal, May 22, 2017 ---
https://www.wsj.com/articles/why-its-mainly-giant-companies-that-buy-green-power-1495418881?mod=djem_jiewr_AC_domainid

Blame it on economies of scale and complex regulation. But barriers to smaller businesses are starting to come down.

Call it the green-energy gap: While giant corporations like IKEA and General Motors Co. GM 1.44% are installing thousands of rooftop solar panels and investing millions of dollars in wind energy, outside the Fortune 100, renewables have a spottier record.

Mostly, it’s a matter of scale and heft. Huge, long-term projects geared toward the biggest energy users tend to secure the cheapest renewable power. Anheuser-Busch InBev SA agreed in March to buy enough wind energy to power all of its breweries in Mexico. Wal-Mart Stores Inc. and Target Corp. have topped hundreds of stores and warehouses with solar panels. Apple Inc., meanwhile, generates so much solar power that it created a subsidiary to sell its excess electricity.

But smaller companies—not just mom-and-pop operations, but multibillion-dollar brands as well—are finding it isn’t so easy to tap into solar or wind power. It can require armies of lawyers, accountants and clean-energy experts to hammer out contracts with power producers and navigate a thicket of regulations that vary widely from state to state.

Industry experts say these hurdles are one reason why growth in renewables for businesses is leveling off. Publicly announced agreements to develop solar and wind power fell sharply last year after a record 2015, according to the Rocky Mountain Institute, a clean-energy think tank. Small businesses’ use of rooftop solar panels is stagnating “primarily due to the difficulty in obtaining financing,” even though installation costs are down 62% since 2012, the Solar Energy Industries Association said in a report.

But some organizations are taking steps to lower the barriers for smaller companies.

Last year, environmental nonprofits launched the Renewable Energy Buyers Alliance, an organization in which Wal-Mart, Facebook Inc., GM and dozens of other big green-power buyers share expertise with companies new to the process. The Rocky Mountain Institute, for its part, has released a guide to standard language used in renewable deals, part of a wider effort to make Byzantine-sounding power-contract language less intimidating.

Smaller power buyers can also team up to gain more clout in the market. The Massachusetts Institute of Technology joined a nearby hospital and a real-estate firm in October to buy power from a new 650-acre solar farm in North Carolina. Their combined power needs—60 megawatts—were enough to attract 41 proposals from developers. That helped the university negotiate a price about 20% lower than it could have on its own, says Joe Higgins, MIT’s director of infrastructure business operations.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on May 26, 2017

Seoul Names Chaebol Critic to Watchdog Role
by: Eun-Young Jeong
May 18, 2017
Click here to view the full article on WSJ.com

TOPICS: Corporate Governance, Equity, Investments

SUMMARY: The article reports on the appointment of Kim Sang-jo, a long-time advocate of corporate reform, to head the Korea Fair Trade Commission. This Commission is South Korea's agency equivalent to the U.S. Justice Department's oversight responsibility for antitrust issues. Concerns about South Korean family-controlled business arrangements, known as chaebols, are described in the article. Proposed reforms by the think thank formerly led by Mr. Kim were part of the platform of the new president, Moon Jae-in, in his campaign for the presidency. NOTES TO PROFESSORS: REMOVE BEFORE DISTRIBUTING TO STUDENTS. The article does not define the term "chaebol," the South Korean corporate arrangements involving cross-holding of shares amongst firms to create large, inter-related conglomerates. Students must search for the definition. A good reference easily available on the web comes from Merriam-Webster. The article also uses the term minority interest rather than noncontrolling interest to refer to this class of shareholders. Questions also ask students to identify the reasoning for the equity method of accounting for intercompany investments because holdings at the level typically maintained by chaebol-affiliated firms are presumed to provide a basis for significant influence over an affiliate's operations. The related article gives additional specifics about one South Korean chaebol, that of Samsung Electronics.

CLASSROOM APPLICATION: The article may be used in an international accounting class or in classes covering stockholders' equity and corporate governance issues, ethics, or corporate investments.

QUESTIONS: 
1. (Advanced) Define the term "chaebol." What term is used for similar corporate arrangements in Japan?

2. (Advanced) What is corporate governance?

3. (Introductory) What practices identified in the article pose concerns for proper corporate governance?

4. (Introductory) Why is this governmental position appointment important for proposals to reform corporate governance practices in South Korea? Include in your answer the importance and definition of the term "antitrust."

5. (Advanced) South Korean chaebols typically hold inter-company investments of 10% to 30% to manage their web of relationships. Why do you think this practice helps support chaebols? What is the accounting for such an intercompany arrangement under IFRS? How does this required accounting reflect your reasoning in answering this question?

6. (Advanced) Define the term "minority interest" and compare it to the current term in IFRS, "noncontrolling interest." Why are these shareholders vulnerable in any corporation, including chaebols?

7. (Advanced) One economic benefit of corporate chaebol arrangements is that they allow for a longer term perspective on profitability and results from corporate investments. Why might this be the case?

8. (Advanced) Refer to the related article. What are treasury shares? Why does Samsung retiring treasury stock lead to its shareholders having "more voting clout and a greater share of the earnings"?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Samsung, Facing Calls for a Shake-UP, Offers 'Plan B'
by Timothy W. Martin and Eun-Young Jeong
Apr 28, 2017
Online Exclusive

"Seoul Names Chaebol Critic to Watchdog Role," vy Eun-Young Jeong, The Wall Street Journal, May 18, 2017 ---
https://www.wsj.com/articles/south-korea-names-chaebol-sniper-to-watchdog-role-1495020959?mod=djem_jiewr_AC_domainid

Reform advocate Kim Sang-jo tapped to head Korea Fair Trade Commission

SEOUL—South Korea’s new president named an outspoken critic of the country’s family-controlled business empires to a key government post, a move that signals a tougher regulatory approach to conglomerates such as Samsung , Hyundai Motor and LG.

A spokesman for President Moon Jae-in said Wednesday that he had appointed Kim Sang-jo, a longtime advocate of corporate reform who is known as the “chaebol sniper,” to head the Korea Fair Trade Commission, the country’s antitrust watchdog.

Mr. Moon, the first left-leaning president in nine years, has pledged to curb the dominance of the large business groups known as chaebols, through clearer holding-company structures and by introducing measures that strengthen minority shareholders.

Some South Korean lawmakers, foreign investors and corporate-governance advocates argue that shaking up the chaebols would allow for more innovation and give opportunities to smaller businesses.

Samsung, Hyundai Motor and LG—among the country’s largest conglomerates—declined to comment on Mr. Kim’s appointment.

Under Mr. Kim, the regulator is expected to aggressively curb common chaebol practices such as internal deals within conglomerates and the use of cross-shareholdings by family owners to expand their hold over companies. In the campaign for this month’s presidential election, Mr. Moon pledged to establish an investigative body within the commission to monitor chaebol activities.

For decades, Mr. Kim, a 54-year-old economics professor at Seoul’s Hansung University, has been at the forefront of calls for change at the business empires that dominate Asia’s fourth-largest economy.

Mr. Kim was a critic of a contentious merger between two Samsung affiliates in 2015 that he argued benefited the conglomerate’s controlling Lee family at the expense of small shareholders. Lee Jae-yong, the de facto head of Samsung, is facing trial on corruption charges linked to the merger. He has denied all charges.

Before joining Mr. Moon’s campaign, Mr. Kim headed the Solidarity for Economic Reform, a Seoul-based think tank that advocates for better protection of minority shareholders and greater monitoring of chaebols to adhere to government policies. Mr. Kim helped shape many of the economic policies Mr. Moon took to the presidential election.

Mr. Kim will begin his three-year term following a legislative hearing, but his appointment doesn’t require lawmakers’ approval.

The KFTC is a quasi-judicial, independent body that monitors and regulates antitrust issues. It can fine companies that break antitrust laws, although decisions can be appealed to an intermediate court. The commission’s recent rulings include a roughly $853 million fine against Qualcomm Inc., which the U.S. chip maker said it would contest, for alleged antitrust violations.

While Mr. Kim won’t be the first government outsider to head the antitrust body, his three predecessors were career civil servants before heading the commission.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on May 26, 2017

Chevron Tax Strategy Faces Test
by: Bradley Olson and Robb M. Stewart
May 24, 2017
Click here to view the full article on WSJ.com

TOPICS: Interest Rates, International Taxation, Transfer Pricing

SUMMARY: Chevron is involved in a dispute with Australian tax office over its reported profits in that location based on intercompany financing at high interest rates relative to market benchmarks. Chevron has reported losing two appeals in the Australian court system which mean the "company owes a tax bill of about $240 million, including penalties, for the tax years from 2004 to 2008." The company's greater concern is that if the ruling is applied to the company's natural gas export projects, which total $80 billion in investment between Chevron and its partners, then "Chevron's tax bill could jump by about $150 million to $300 million a year." According to Chevron's Chief Financial Officer Pat Yarrington, "if the ruling stands, it's certainly going to affect any future investment in Australia."

CLASSROOM APPLICATION: The article may be used in a corporate or international tax class or in managerial accounting class covering transfer pricing issues.

QUESTIONS: 
1. (Introductory) According to the article, what has been Chevron's practice in charging interest to its Australian subsidiary?

2. (Introductory) Why does the Australian taxing authority dispute Chevron's interest practices?

3. (Introductory) What is the tax liability Chevron will owe if this dispute is finalized in favor of the Australian taxing authority?

4. (Advanced) Why does Chevron's CFO claim that this resolution will impact investment in Australia and have implications more broadly around the globe?

5. (Advanced) How has WSJ analysis estimated the potential impact of this dispute on Chevron's operations in more recent years after 2008?

Reviewed By: Judy Beckman, University of Rhode Island

 

"Chevron Tax Strategy Faces Test," by Bradley Olson and Robb M. Stewart, The Wall Street Journal, May 24, 2017 ---
https://www.wsj.com/articles/chevron-tax-strategy-faces-crackdown-in-australia-1495531801?mod=djem_jiewr_AC_domainid

Interest charged on loans to subsidiaries draws fire from investigators, as regulators world-wide look to curb transfer pricing

A contentious tax dispute between Australia and  Chevron Corp. CVX -0.34% could cost the company billions of dollars and open a new front in global efforts to crack down on the aggressive tax strategies used by many multinational corporations.

The case deals with Chevron’s practice of financing its Australian operations by providing loans to its in-country subsidiary at interest rates much higher than market benchmarks, even though the company pays less to raise capital. The arrangement boosts the Australian unit’s costs, in turn reducing taxable profit. In some cases, the difference in rates was almost 7 percentage points, according to reports released as part of a court case in Australia.

Chevron, which says its tax strategies are legal, last month lost an appeal of a 2015 ruling in favor of the Australian Taxation office and said Friday that it is planning an appeal to the country’s highest court.

The case is limited to Chevon’s business dealings in Australia, and means the company owes a tax bill of about $250 million, including penalties, for the tax years from 2004 to 2008. But the ruling could cost Chevron far more if the same principles are applied to the company’s massive natural-gas export projects in the country, which it and several partners have spent more than $80 billion since 2009 to build. Australia’s tax office is auditing Chevron over similar issues during that later period.

Should the same principles apply in more recent years, Chevron’s tax bill could jump by about $150 million to $300 million a year, according to a Wall Street Journal analysis of company interest rates in both jurisdictions. Over a decade, that would amount to as much as $3 billion, although the exact figure would depend on a number of factors, including oil and natural-gas prices and how long Chevron takes to repay the loans.

“There’s an awful lot at stake with this ruling, not just for Chevron but for any intercompany lending in Australia and, more broadly, around the globe,” Pat Yarrington, Chevron’s chief financial officer, told investors in a conference call last month. “If the ruling stands, it’s certainly going to affect any future investment in Australia.”

The stakes go beyond Chevron. Regulators in the U.S., European Union and elsewhere have cracked down on what tax professionals call an aggressive use of transfer pricing—setting payments to subsidiaries for services in order to shift profits to low-tax jurisdictions and expenses to high-tax areas. Such practices can save billions of dollars across industries, tax experts say.

But several experts said this was the first tax ruling on this scale that they could recall involving the interest rates an international company charged to a subsidiary.

Previous cases, which have involved corporations such as Coca-Cola Co. , Facebook Inc. and Starbucks Corp. , centered on how companies sell assets to subsidiaries or charge them for licensing fees, royalties or other goods. Those disputes have often hinged on the value of whatever is being sold to a subsidiary, which can be hard to determine in the case of unique items such as the formula for a beverage or another proprietary business matter.

Examining loans and interest charges to subsidiaries could prove simpler for investigators because of the relative transparency associated with interest-rate benchmarks, tax professionals said.

“Interest rates on loans are a prime candidate for transfer-pricing scrutiny,” said Robert Willens, an independent tax adviser.

Australia’s tax office has been aggressive in its scrutiny of global corporations and is auditing Apple Inc., Google parent Alphabet Inc. and Microsoft Corp. Those audits have been linked to where the companies book revenue. Company representatives have said their tax practices are legal in Australia.

With Chevron, the Australia tax office has zeroed in on the use of what it believes are higher-than-market interest rates to reduce in-country profits, as well as the costs of shipping goods, both items of particular import to Australia’s newfound status as a natural-gas exporting superpower. The U.S. is also weighing limits to tax benefits from interest payments, according to one of the tax overhaul packages being considered by Congress.

Australia’s tax office is pursuing a number of other cases that involve how much companies charge their subsidiaries in interest, often called related-party loans. In the 2014-2015 tax year, related-party loans in Australia exceeded $300 billion, about half of which involved resource companies.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on May 26, 2017

Why Earnings Have Investors Feeling So Happy
by: Akane Otani
May 25, 2017
Click here to view the full article on WSJ.com

TOPICS: Earnings Quality, Financial Statement Analysis, Interim Financial Statements

SUMMARY: Nearly all companies now have reported first quarter 2017 financial results. Earnings show the highest growth since third quarter 2011 at 13.6% and the good news is spread broadly across the spectrum of industries in the economy. Further, the results are high quality: they are based on strong growth in revenues rather than cost cutting or share buybacks boosting earnings on a per share basis.

CLASSROOM APPLICATION: The article may be used in any level of general financial reporting class.

QUESTIONS: 
1. (Introductory) What is the S&P 500?

2. (Advanced) Why is it important to note that the results discussed in this article are based on reporting of first quarter 2017 with nearly all of the S&P 500 having reported?

3. (Introductory) What factors indicate that the quality of earnings growth reported in this quarter is high quality?

4. (Advanced) How do stock repurchases, or buybacks, "push up per-share earnings"? How may they help share values currently but do so "at the expense of...longer-term growth"?

5. (Advanced) Define the calculation of "12-month trailing P/E ratio."

6. (Advanced) How has the 12-month trailing P/E ratio performed over the last 3 years? Does this trend imply a low or a high stock market valuation relative to historical standards in comparison to the previous 10 years?

Reviewed By: Judy Beckman, University of Rhode Island

"Why Earnings Have Investors Feeling So Happy," by Akane Otani, The Wall Street Journal, May 25, 2017 ---
https://www.wsj.com/articles/why-earnings-have-investors-feeling-so-happy-1495632690?mod=djem_jiewr_AC_domainid

First-quarter profits are set to rise 13.6% from a year ago, the highest quarterly rate since 2011

Earnings at U.S. companies grew at the fastest pace in nearly six years in the first quarter, the latest boon to a bull market that has stretched into its ninth year.

With nearly all companies in the S&P 500 having reported results, aggregate earnings for the first quarter are on track to grow 13.6% from the year-earlier period, according to FactSet, the highest growth since the third quarter of 2011. The gains were broad, ranging from heavy-equipment maker Caterpillar Inc. CAT -0.04% to social network Facebook Inc. FB +0.10% to regional bank U.S. Bancorp . USB -0.62%

Beyond the jump in growth, many investors have been encouraged by signs that the quality of the results is improving. That contrasts with recent years, when investors worried that corporate share buybacks and ultralow interest rates were juicing stock gains in the absence of business improvement.

Fresh signs of corporate strength, alongside solid U.S. economic data and relative calm in financial markets this year, have helped send the S&P 500 up 7.4% through Wednesday.

“We should have continued growth in the markets, a lot of it driven because we have a stable economy and solid corporate earnings,” said Omar Aguilar, chief investment officer at Charles Schwab Investment Management. “That gives me reason to be more optimistic.”

Sales are picking up after many companies had turned to reducing costs and delaying investments in infrastructure to boost profits through the recovery from the financial crisis. Revenues are expected to grow by 7.7% from the year-earlier period, according to FactSet, the highest rate since the fourth quarter of 2011. Sixty-four percent of companies beat analysts’ expectations for revenue for the latest quarter, according to analysis from FactSet, above the five-year average of 53%.

Companies also are spending less to repurchase their own shares this year, easing some investors’ concerns that buybacks have been pumping up earnings growth. Share repurchases among firms are tracking 18% lower than a year ago and 1.4% lower than the fourth quarter of 2016, according to S&P Dow Jones Indices data as of Wednesday.

Buybacks push up per-share earnings, which can make the shares that remain on the market more valuable. But they also have been criticized by investors who see them as a way for companies to prop up share prices in the short term at the expense of focusing on investments that drive longer-term growth.

Ten of the 11 sectors in the S&P 500 are on track to post quarterly earnings growth in the first quarter, with financial and technology companies reporting among the biggest improvements, according to FactSet.

Bank of America Corp.’s BAC -0.95% first-quarter profit jumped 40% from a year earlier, surpassing analysts’ expectations, as trading revenue jumped and rising interest rates boosted its net-interest income—a key measure of lending profitability. Shares of the bank are up 5.7% in 2017.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on May 26, 2017

White House Budget Face Swift Pushback
by: Kate Davidson, Kristina Peterson and Natalie Andrews
May 24, 2017
Click here to view the full article on WSJ.com

TOPICS: Budgeting, Governmental Accounting

SUMMARY: The White House released a proposed budget for the fiscal year beginning October 1, 2017 that would cut federal spending by $4.5 trillion over 10 years. The proposal is a recommendation to Congress that is likely to be changed substantially there. The plan, however, is important in relation to proposed tax reform. The plan significantly cuts foreign aid, farm subsidies, Medicaid and other programs for low-income families.

CLASSROOM APPLICATION: The article may be used in a governmental accounting class or in any class discussing budgeting.

QUESTIONS: 
1. (Introductory) According to the article, why does the president and his administration propose a federal budget?

2. (Advanced) Who has authority to generate revenues for the federal government? To spend the government's funds?

3. (Advanced) What are the major sources of revenue to the federal government? What are the major expenditures?

4. (Advanced) Why is important to estimate the level of overall economic growth in order to budget for the future of the country? Do these economic gains get collected as revenue by the federal government? Explain.

5. (Advanced) Refer to the related article. How does the assumption about overall economic growth in Trump's budget compare to history? To forecast by other experts?

6. (Advanced) Why is it a problem for this budget proposal that the Trump administration has not yet issued details of its tax proposal?

7. (Advanced) According to the related article, what is the "double counting" or "basic accounting error" inherent in the Trump administration budget proposal?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Trump is More Optimistic than Reagan, and That's Not Good
by Jason Furman
May 24, 2017
Page: A19

"White House Budget Face Swift Pushback," by Kate Davidson, Kristina Peterson and Natalie Andrews, The Wall Street Journal, May 24, 2017 ---
https://www.wsj.com/articles/trump-budget-would-cut-medicaid-rely-on-rosy-growth-projection-1495553691?mod=djem_jiewr_AC_domainid

White House’s $4.1 trillion spending blueprint relies on economic growth of 3% by 2021

President Donald Trump faced swift resistance from Democrats and a range of Republicans on Capitol Hill on Tuesday after offering a 10-year plan to balance the federal budget that depends heavily on cuts to government safety-net programs and expectations of a big gain in economic growth.

The White House budget proposal for the 2018 fiscal year that begins Oct. 1 would cut federal spending by $4.5 trillion over 10 years. But it leaves mostly untouched the big entitlement programs—Social Security and Medicare for retirees—and proposes increases to infrastructure spending, a new parental leave program and a short-term boost to military spending.

With those priorities set—in addition to the shared Republican goal of cutting taxes—the White House offered up significant reductions in other spending programs to further the aim of reducing budget deficits. But the call for rolling back programs that touched their constituents made lawmakers bristle.

The proposal, which serves as a recommendation to Congress, is likely to be largely rewritten when lawmakers craft their own budget resolutions in the coming months.

“I hate to say it, but I would say the budget was dead before the ink was dry,” Rep. Don Young (R., Alaska), who opposes the budget’s elimination of two programs in his state.

Payments to Medicaid, the federal-state health program for the poor, would be cut by more than $600 billion over a decade from levels projected under current law in addition to proposed Medicaid cuts under the House bill repealing and replacing much of the Affordable Care Act.

The food-stamp program would be cut over 10 years by $193 billion, the student-loan program by $143 billion, disability payments by $72 billion and farm subsidies by $38 billion.

“The proposed cuts to some federal programs are not mere shavings; they are rather deep and harmful to my district spanning Kentucky’s Appalachian region and other rural, impoverished parts of the country,” Rep. Hal Rogers (R., Ky.), a former chairman of the House Appropriations Committee, said of the proposal.

Democrats blasted the overall budget proposal.

“This is the budget you write if you think working families have it too easy,” Sen. Ron Wyden (D., Ore.) said.

Mr. Trump’s budget risks alienating at least some of his core voters who rely on programs that he is proposing to cut. Rural white voters are among his staunchest supporters, the latest Wall Street Journal/NBC News poll shows. While the president’s overall approval rating was 39%, 52% of rural voters said they approved of his performance.

The budget blueprint calls for scrapping two commissions important to Alaska, a state that Mr. Trump won by 15 points in the November election. The budget would eliminate the Denali Commission, which provides economic development services in Alaska, and an Essential Air Service program, which works to ensure that small communities offer some level of air service.

In all, nondefense spending as a share of the economy would fall to just 1.5% by the end of the next decade, well below the lowest level in records going back to 1962.

Besides wide-ranging spending reductions, the proposal depends on a projection that economic growth will reach 3% by 2021 and stay there through 2027, bolstering government revenue and holding down the need for support programs like unemployment insurance.

Continued in article

Related News

Trump’s Budget: Live Updates and Analysis

Overview of Trump’s Plan And Impact on Key Departments

Trump Administration Proposes 32% Cut to State Department Budget

Trump’s Military Budget is Seen as a Modest Step Beyond Obama’s

Budget Embraces Medicaid Changes Proposed by House GOP Leaders

Trump Proposal Cuts Work Study, Bolsters School Choice

Analysis: How Will Trump Get to the 3% Target?

Budget Goal Rests on Questionable Math

Graphics: Impact of the Trump Budget

Programs in Trump Country Stand to Lose Much


 

 

Teaching Case from The Wall Street Journal Accounting Weekly Review on May 19, 2017

 

", The Wall Street Journal, May , 2017 ---
 

 

Continued in article




Humor for May 2017

Forwarded by Paula
The world is full of flat squirrels that could not make a decision.

Forwarded by Paula
I just realized people are prisoners to their remote phones.
That's why they're called cell phones.

Dry Cleaning Video (takes me back to the days of Alan Funt's "Candid Camera") ---
https://mail.google.com/mail/u/0/#inbox/15bf918e3e98c25b?projector=1

The Onion:  Notable Commencement Speeches for the Class of 2017 ---
http://www.theonion.com/infographic/notable-commencement-speakers-class-2017-55876?utm_medium=RSS&utm_campaign=feeds

How to Remove Grumpiness ---
https://groups.google.com/forum/#!topic/9th-intake-hmas-leeuwin/iw3MjOk4mNU

Humor in the Workplace (the good and the Ugly) ---
http://blog.aicpa.org/2017/05/just-kidding-humor-at-work.html#sthash.JJ2c9OIw.dpbs

Every day, your mom wasted 90 minutes of her life on you, so today get her a present.
Nate Silver's 5:38 Blog Tweet on Mothers Day
https://townhall.com/tipsheet/jennifervanlaar/2017/05/14/five-thirty-eights-mothers-day-graphic-isnt-polling-well-n2326679?utm_source=thdaily&utm_medium=email&utm_campaign=nl&newsletterad=
The above tweet did not go over well.


Forwarded by Paula

An amazing 2 letter English word.

 


 A reminder that one word in the English language that can be a noun, verb, adjective, adverb and preposition.  
 
 
UP  

  
  Read until the end ....  you'll laugh.  
  
  This two-letter word  in English has more meanings than any other  two-letter word, and that word is 'UP.'  It is listed in  the dictionary as an [adv], [prep], [adj], [n]  or [v].  
 
It's easy to  understand UP, meaning toward the sky  or at the top of the list, but when we awaken in  the morning, why do we wake UP? 
 
At a meeting, why  does a topic come UP?  Why do we speak UP, and why are the  officers UP for election and why is  it UP to  the secretary to write UP a  report?  We call UP our friends, brighten  UPa room, polish UP  the silver, warm UP the leftovers and clean  UP the kitchen.  We  lock UP the house and fix  UP the old  car.   
  
At other times, this  little word has really special meaning.   People stir UP trouble, line  UP for tickets, work  UP an appetite, and think UP excuses.   
  
To be dressed is one  thing but to be dressed UP  is special.   
  
And this  UP is confusing:  A  drain must be opened UP because it is stopped  UP.

 

 We open  UP a store in the morning  but we close it UP at night.  We seem  to be pretty mixedUP aboutUP!  
 
To be knowledgeable  about the proper uses of  UP, look UP the word UP in the dictionary.   In a desk-sized dictionary, it takes  UP almost  1/4 of the page and can add UP to about thirty  definitions.   
  
If you are UP to it,  you might try building UP a list of the many ways  UP is  used.  It will takeUP a lot of your time, but  if you don't giveUP, you may wind  UP with a hundred or  more.   
  
When it threatens to  rain, we say it is clouding UP.  When the sun  comes out, we say it is clearing UP.  When it rains,  the earth soaks it UP.  When it  does not rain for awhile, things dry UP.  One could go on  and on, but I'll wrap it UP, for now . . . my time  is UP!   
  
Oh . . one more  thing:  What is the first thing you do in  the morning and the last thing you do at  night?  
 
U 
  
  P !  
 
Did that one crack  you UP? 
 
Don't screw UP.  Send this on to  everyone you look UP in your address book   . . or not . . it's UP to you. 
 
OK..OK...Now I'll shut UP!


Forwarded by Glen Gray

There has been a lot of talk about Trump’s 100 days—What did he accomplish?

 

Well, under the Obama administration California had 5 years of record breaking drought—one of the 7 signs of the apocalypse.

 

However, since Trump’s election in November we have record snow and rain fall in California. Governor Brown (a Democrat) has recognized this accomplishment and has declared an end to the 5-year (Obama?) drought. Californian are downright giddy. The Governor has turned the water back on to showers at the beaches. The homeless who live there look and smell so much better now! Fountains have been filled with water again and turned on. The spectacular fountain across the street from USC in the Rose Garden is fully operational again. Weddings and quinceanera celebrations (Goggle it) will surely return to the Gardens.

 

So: IF Obama THEN drought and IF Trump THEN no drought. Looks like a 100% correlation to me.


 

Vintage advertisements that are no longer politically correct ---
http://curioushistorian.com/vintage-ads-that-would-never-be-allowed-today


 




Humor May 2017 --- http://faculty.trinity.edu/rjensen/book17q2.htm#Humor05717.htm 

Humor April 2017 --- http://faculty.trinity.edu/rjensen/book17q2.htm#Humor0417.htm 

Humor March 2017 --- http://faculty.trinity.edu/rjensen/book17q1.htm#Humor0317.htm

Humor February 2017 --- http://faculty.trinity.edu/rjensen/book17q1.htm#Humor0217.htm

Humor January 2017 --- http://faculty.trinity.edu/rjensen/book17q1.htm#Humor0117.htm

Humor December 2016 --- http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1216.htm 

Humor November 2016 --- http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1116.htm 

Humor October 2016 --- http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1016.htm

Humor September 2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0916.htm

Humor August  2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor083116.htm

Humor July  2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0716.htm  

Humor June  2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor063016.htm

Humor May  2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor053116.htm

Humor April  2016 --- http://faculty.trinity.edu/rjensen/book16q2.htm#Humor043016.htm

Humor March  2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor033116.htm

Humor February  2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor022916.htm

Humor January  2016 --- http://faculty.trinity.edu/rjensen/book16q1.htm#Humor013116.htm

Tidbits Archives --- http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm




And that's the way it was on May 31, 2017 with a little help from my friends.

 

Bob Jensen's gateway to millions of other blogs and social/professional networks ---
http://faculty.trinity.edu/rjensen/ListservRoles.htm

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

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

Free Online Textbooks, Videos, and Tutorials --- http://faculty.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines --- http://faculty.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games --- http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses --- http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI

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

Bob Jensen's Homepage --- http://faculty.trinity.edu/rjensen/

Accounting Historians Journal --- http://www.libraries.olemiss.edu/uml/aicpa-library  and http://clio.lib.olemiss.edu/cdm/landingpage/collection/aah
Accounting Historians Journal
Archives--- http://www.olemiss.edu/depts/general_library/dac/files/ahj.html
Accounting History Photographs --- http://www.olemiss.edu/depts/general_library/dac/files/photos.html

 

 

 

April 2017

Bob Jensen's New Additions to Bookmarks

April 2017

Bob Jensen at Trinity University 


USA Debt Clock --- http://www.usdebtclock.org/ ubl

How Your Federal Tax Dollars are Spent ---
http://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b7c8ee6392970b-popup

To Whom Does the USA Federal Government Owe Money (the booked obligation of $19+ trillion) ---
http://finance.townhall.com/columnists/politicalcalculations/2016/05/25/spring-2016-to-whom-does-the-us-government-owe-money-n2168161?utm_source=thdaily&utm_medium=email&utm_campaign=nl
The US Debt Clock in Real Time --- http://www.usdebtclock.org/ 
Remember the Jane Fonda Movie called "Rollover" --- https://en.wikipedia.org/wiki/Rollover_(film)
One worry is that nations holding trillions of dollars invested in USA debt are dependent upon sales of oil and gas to sustain those investments.

To Whom Does the USA Federal Government Owe Money (the unbooked obligation of $100 trillion and unknown more in contracted entitlements) ---
http://money.cnn.com/2013/01/15/news/economy/entitlement-benefits/
The biggest worry of the entitlements obligations is enormous obligation for the future under the Medicare and Medicaid programs that are now deemed totally unsustainable ---
http://faculty.trinity.edu/rjensen/Entitlements.htm

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

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

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

 

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

 

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

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

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

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

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

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

Possibly the Number 1 Resource for CPA Exam Candidates
AICPA:  Uniform CPA Exam Blueprints ---
http://www.aicpa.org/BecomeACPA/CPAExam/ExaminationContent/DownloadableDocuments/cpa-exam-blueprints-effective-20170401.pdf?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Apr2017

CPA exam will increase focus on higher-order skills
"What Higher Order Skills Will be Tested on the Next CPA Examination," by Ken Tysiac, Journal of Accountancy, April 4, 2016 ---

http://www.journalofaccountancy.com/news/2016/apr/new-cpa-exam-201614166.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Apr2016

Bob Jensen's CPA Exam Helpers ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#010303CPAExam




Via the AAA:  COSO Academic Access Enrollment ($250 Special Offer) ---
https://aaahq.org/COSO/COSO-Enrollment
 

American Accounting Association 2016 Centennial Video (Short and Sweet) ---
http://commons.aaahq.org/pages/home
This video may only be available to AAA Commons subscribers (free I think)

Bob Jensen's threads on accounting history (in a nutshell) ---
http://faculty.trinity.edu/rjensen/theory01.htm#AccountingHistory

History of The Accounting Review published by the AAA ---
http://faculty.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm


Goodwill Impairment Testing Just Got Easier ---
http://www.accountingweb.com/aa/standards/goodwill-impairment-testing-just-got-easier?source=ei040517

Accounting Standards Update (ASU) No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, eliminates Step 2 from the quantitative goodwill impairment test. Before adopting this ASU, there are a few things that an entity should consider.

Continued in article

Bob Jensen's threads on impairment ---
http://faculty.trinity.edu/rjensen/theory02.htm#Impairment


Is the SEC Captured? Evidence from Comment-Letter Reviews
SSRN, April 8, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2947752

Authors

Jonas Heese --- Harvard Business School

Mozaffar Khan --- University of Minnesota - Twin Cities - Carlson School of Management

Karthik Ramanna --- Harvard University - Harvard Business School; University of Oxford - Blavatnik School of Government

Abstract

SEC oversight of publicly listed firms ranges from comment letter (CL) reviews of firms’ reporting compliance to pursuing enforcement actions against violators. Prior literature finds that firm political connections (PC) negatively predict enforcement actions, inferring SEC capture. We present new evidence that firm PC positively predict CL reviews and substantive characteristics of such reviews, including the number of issues evaluated and the seniority of SEC staff involved. These results, robust to identification concerns, are inconsistent with SEC capture and indicate a more nuanced relation between firm PC and SEC oversight than previously suggested.


The SEC's Enforcement Record against Auditors ---
SSRN, February 16, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2947469

Authors

Simi Kedia --- Rutgers Business School

Urooj Khan --- Columbia Business School, Accounting, Business Law & Taxation

Shivaram Rajgopal --- Columbia Business School

Abstract

We investigate the effectiveness of regulatory oversight exercised by the SEC against auditors over the years 1996-2009. The evidence suggests that the SEC is significantly less likely to name a Big N auditor as a defendant, after controlling for both the severity of the violation and for the characteristics of companies more likely to be audited by Big N auditors. Further, when the SEC does charge Big N auditors, the SEC (i) is less likely to impose harsher penalties on the Big N; and (ii) is less likely to name a Big N audit firm relative to individual Big N partners. Moreover, the SEC relies overwhelmingly on administrative proceedings, instead of the tougher civil proceedings, against auditors. One interpretation of these patterns is that the SEC’s enforcement against auditors is relatively mild. Other interpretations of these results are also discussed. Though private litigation against auditors is associated with a loss of market share for the auditor, there is no evidence of such product market penalty subsequent to SEC action

Bob Jensen's threads on large auditing firm fraud and negligence ---
http://faculty.trinity.edu/rjensen/fraud001.htm


Material Weakness in Internal Controls and Stock Price Crash Risk
SSRN, April 7, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2948698

Authors

Gerald J. Lobo --- University of Houston - C.T. Bauer College of Business

Chong Wang --- University of Kentucky

Xiaoou (Sean) Yu --- California State University, Long Beach

Yuping Zhao --- University of Houston

Abstract

We investigate the association between material weakness in internal controls (MW) disclosed under Section 302 of SOX and future stock price crash risk. We argue that relative to firms with effective internal controls, firms with MW have lower financial reporting precision. The lower reporting precision (1) increases divergence of investor opinion with regard to firm valuation, and (2) facilitates managers’ withholding of negative information, which increases the information asymmetry between managers and outside investors. We hypothesize that both these effects increase the probability of a future stock price crash. We find empirical evidence consistent with our prediction. In additional analyses, we document that the positive association between MW and crash risk is primarily driven by company-level rather than by account-specific weaknesses, increases in the number of material weaknesses, and intensifies during the financial crisis. Additionally, we find that both the existence and the disclosure of MW incrementally affect crash risk and that MW facilitates managers’ withholding of bad news. Finally, we fail to find consistent evidence of a significant relation between MW disclosed under Section 404 of SOX and crash risk.


Do Clients Get What They Pay For? Evidence from Auditor and Engagement Fee Premiums
SSRN. April 6, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2945730

Authors

James R. Moon Jr. --- Georgia State University - School of Accountancy

Jonathan E. Shipman --- University of Arkansas

Quinn Thomas Swanquist --- Georgia State University

Robert Lowell Whited University of Massachusetts - Amherst

Abstract

Basic economic theory suggests that the demand for a good or service, and consequently price, should increase with quality. Despite this intuitively appealing expectation, prior research finds mixed evidence on the relation between audit fees and audit quality. Under the assumption that product differentiation between auditors is based, in large part, on audit quality, we propose more refined measures of excess audit fees that distinguish auditor- and engagement-level fee premiums. Our findings indicate the existence of significant between firm variation in audit pricing (i.e., auditor premiums) that is negatively related to client restatements, indicating that high-priced auditors perform higher quality audits. We find no evidence that within audit firm variation in audit pricing (i.e., engagement premiums) is related to audit quality. In fact, some of our evidence suggests engagement premiums relate negatively to reporting quality, possibly explaining the conflicting findings in prior literature. Together, these findings suggest that expensive auditors provide superior audit quality but paying the same auditor more (less) is not associated with improved (diminished) quality. We also find evidence that clients generally avoid audit fee premiums during our sample period, particularly engagement premiums. In additional analyses, we show that variation in audit quality between auditors has diminished over time, though the variation in auditor premiums has not. Consistent with this, the relation between auditor premiums and quality has diminished in recent years and clients have become less willing to accept auditor premiums. Our findings are robust to alternative measures of audit quality and a variety of specifications for estimating fee premiums.

Jensen Comment

Limitations of this and related earlier studies include the dubious definition of "audit quality" in terms of financial report restatements. Most importantly, the absence of restatements does not necessarily imply audit quality. Audit firms doing sloppy auditing get lucky a lot. Secondly, financial report restatements can arise when there were high quality audits. What I'm saying is that restatements are a dubious surrogate for audit quality.

Thirdy, "what clients pay for" is not entirely audit quality. What they pay for in most instances is the deep pockets of the auditing firm. PwC, for example, just settled on some audits that court records suggest entailed poor auditing and consultations. But shareholders are more than happy that clients picked an auditor like PwC with very deep pockets. In the case of auditing, "what you pay for" is often what you get after a bad audit or consulting engagement.


The Influence of (PCAOB) Inspection Focus on Auditor Judgments in Audits of Complex Estimates
SSRN, March 24, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2941662

Author

Amy C Tegeler --- University of Wisconsin - Madison, Students

Abstract

The Public Company Accounting Oversight Board (PCAOB) seeks to influence auditor behavior and judgments through its inspections. I conduct an experiment that studies how an inspection’s focus on procedural implementation versus judgment quality influences an auditor’s mindset, which in turn affects auditor judgments. Drawing on mindset theory, I predict and find a procedural inspection focus leads to an implemental mindset, while a judgment quality focus leads to a deliberative mindset. An implemental mindset is characterized by a narrow focus and selective information processing, while a deliberative mindset is characterized by open-mindedness, objective information processing, and cautious decision-making. I predict a deliberative mindset improves an auditor’s ability to identify relevant information and objectively incorporate it into their judgments. However, I also predict a deliberative mindset undermines auditor confidence reaching a conclusion, potentially undermining audit quality. I study the effects of mindset on an auditor’s evaluation of a complex estimate when the estimate is aggressively biased versus unbiased to interpret whether the effects of mindset on auditor judgments differ by context. I find a conditional indirect effect of inspection focus on auditor judgment through mindset, such that judgment-focused deficiencies activate a deliberative mindset, which in turn leads auditors to assess a biased estimate as less reasonable than implemental auditors. I do not find evidence of deliberative auditors being overly cautious in their judgments of an unbiased estimate or in their decision-making. This study contributes to literature examining how regulators can influence auditor judgments through the inspection process and the effects of mindsets on auditor judgments and decisions.


Navigating through the Crowd: How Do Features of Social Media Platforms Influence Investor Judgments?
SSRN, April 3, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2945657

Authors

W. Brooke Elliott --- University of Illinois at Urbana-Champaign

Brian T. Gale --- University of Illinois at Urbana-Champaign

Stephanie M. Grant --- University of Washington

Abstract

Technological innovations have created a significant shift in how investment information is created, disseminated, and reviewed. Social media platforms are now an important source of fundamental investment analysis for investors. These platforms rely critically on their networks of users, both for the production and potential oversight of published analysis. We use an experiment to examine how two features of social media platforms, the extent of potential network oversight and information about contributor publication experience, interact to influence investors’ perceptions of contributor credibility and their resulting investment judgments. We find that when the contributor is inexperienced, more extensive network oversight increases investors’ perceptions of the contributor’s credibility, leading investors to be more willing to invest in the analyzed firm. In contrast, when the contributor is experienced, more extensive network oversight does not affect perceptions of the contributor’s credibility or investors’ willingness to invest. Our findings have important implications for investors, social media platforms, and regulators, providing evidence on how investors assess credibility for an important new source of investment analysis and when investors’ judgments are likely to be influenced.


Five Upcoming GAAP Changes Not-for-Profits Should Know ---
 http://blog.aicpa.org/2017/04/5-upcoming-gaap-changes-not-for-profits-should-know.html#sthash.1XsvAo45.dpuf


Interesting Tax Facts and Tips ---
http://reason.com/reasontv/2017/04/17/23-tip-and-facts-about-taxes


Five Emerging Services Set to Transform the Accounting Profession ---
http://blog.aicpa.org/2017/04/5-service-opportunities-set-to-transform-the-accounting-profession.html#sthash.5KLAi3Gs.dpuf


Revenue recognition working drafts issued for 4 industries ----
http://www.journalofaccountancy.com/news/2017/apr/revenue-recognition-drafts-for-4-industries-201716376.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Apr2017#sthash.CUvX4QMI.dpuf

The airlines, gaming, hospitality, and time-share industries are represented in the latest group of revenue recognition working drafts exposed by the AICPA Financial Reporting Executive Committee (FinREC). FinREC is seeking comment on issues that will be included in its industry-specific guide to implementing FASB’s new revenue recognition standard. The guide, which has been published online, will be updated as industry working groups complete their work on issues.

New Byzantine Airline Accountancy:  Extremely technical rules require voo doo and crystal ball estimation under the new revenue recognition standard

Airlines Make More Money Selling Miles Than Seats:  The golden goose isn’t your ticket or bag fee—it’s the credit card you use to collect frequent flier miles ---
https://www.bloomberg.com/news/articles/2017-03-31/airlines-make-more-money-selling-miles-than-seats?cmpid=BBD033117_BIZ&utm_medium=email&utm_source=newsletter&utm_term=170331&utm_campaign=bloombergdaily

 . . .

Investors have failed to appreciate how crucial these programs are to airline profitability amid the stability consolidation brought, said Joseph DeNardi, a senior airline analyst with Stifel Financial Corp. in Baltimore. Since August, he’s issued a steady stream of client notes arguing that the market has undervalued the five largest airlines.

DeNardi has repeatedly explained that investors have little insight into the billions of dollars large banks pay for these affiliations. At each airline investor call or conference, DeNardi has steadfastly prodded executives for greater reporting detail.

In many ways, the Big Three U.S. airlines have organized themselves into two distinct businesses. There’s the traditional activity—the one with jets—which involves pricing seats for as much as possible, collecting a bag fee, and selling some food and drinks while keeping a close eye on costs. The other business is the sale of miles—mostly to the big banks, but also to companies that range from car rental firms to hotels to magazine peddlers.

The latter has expanded so much that it accounts for more than half of all profits for some airlines, including American Airlines Group Inc., the world’s largest.

 Jensen Comment
Accounting for frequent flier awards and  "sales of miles" has always been problematic due to time differences between award dates and when customers book flights and uncertainties whether the awards will expire without being used by customers.
This entails something akin to technical voo doo and crystal ball estimation.

From The Wall Street Journal Accounting Educators' Reviews on June 20, 2002

TITLE: Frequent-Flier Programs Get an Overhaul
REPORTER:  Ron Lieber 
DATE: Jun 18, 2002 
PAGE: D1 LINK: http://online.wsj.com/article/0,,SB1024344325710894400.djm,00.html  
TOPICS: Frequent-flier programs, Accounting

SUMMARY: Many frequent-flier programs are offering alternative rewards in exchange for frequent-flier miles. Questions focus on accounting for frequent-flier programs and redemption of miles.

QUESTIONS: 
1.) What is a frequent-flier program? List three possible ways to account for frequent-flier miles awarded to customers in exchange for purchases. Discuss the advantages and disadvantages of each accounting method.

2.) Why are companies offering alternative rewards in exchange for frequent-flier miles? How is the redemption of miles reported in the financial statements? Discuss accounting issues that arise if the miles are redeemed for awards that are less costly than originally anticipated.

3.) The article states that the 'surge in unredeemed points is causing bookkeeping headaches.' Why would unredeemed points cause bookkeeping headaches? Would companies be better off if the points were never redeemed? If a company created a liability for awarded points, in what circumstances could the liability be removed from the balance sheet?

4.) Refer to the related article. Describe Jet Blue's frequent-flier program. How does stipulating a one-year expiration on frequent-flier points change accounting for a frequent-flier program?

Reviewed By: Judy Beckman, University of Rhode Island 
Reviewed By: Benson Wier, Virginia Commonwealth University 
Reviewed By: Kimberly Dunn, Florida Atlantic University

--- RELATED ARTICLES --- 
TITLE: JetBlue Joins the Fray But With Big Caveat: Miles Expire in a Year 
REPORTER: Ron Lieber 
PAGE: D1 
ISSUE: Jun 18, 2002 
LINK: http://online.wsj.com/article/0,,SB102434443936545600.djm,00.html

 

New Byzantine Airline Accountancy:  Extremely technical rules require voo doo and crystal ball estimation under the new revenue recognition standard
Book:  Foundations of Airline Finance

by Bijan Vasigh et al.
Routledge, Second Edition, 2015
Beginning on Page 154:  Note the illustrations
https://books.google.com/books?id=FVRWBQAAQBAJ&pg=PA167&lpg=PA167&dq=GAAP+%22Frequent+Flier+Miles%22&source=bl&ots=EzGeMCTu9n&sig=u90HFsYsQ0mLbmF_k0Xm4bVWlKs&hl=en&sa=X&ved=0ahUKEwil-M7f2IHTAhWW3oMKHeJGASc4ChDoAQgqMAM#v=onepage&q=GAAP%20%22Frequent%20Flier%20Miles%22&f=false

This is an excellent illustration how accounting is more than counting beans and how specialized airline accountants and auditors must become in extremely technical issues.


Use of driver’s license numbers (for electronic tax return filings) raises security concerns ---
http://www.journalofaccountancy.com/news/2017/mar/irs-use-of-drivers-license-numbers-201716290.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31Mar2017#sthash.8kIaJtbo.dpuf

The IRS is now recommending that taxpayers use their driver’s license number to provide another layer of security when electronically filing a federal tax return. A few states, notably New York, Ohio, and Alabama, are requiring a driver’s license number, or an equivalent, for state returns. This sounds promising at first—another layer of verification to help prevent tax identity theft seems prudent. However, as with many other “good ideas,” the unintended consequences can cause problems. -

See more at:
http://www.journalofaccountancy.com/news/2017/mar/irs-use-of-drivers-license-numbers-201716290.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31Mar2017#sthash.8kIaJtbo.dpuf


How to Avoid Making Inheritance Mistakes ---
http://www.journalofaccountancy.com/newsletters/2017/apr/avoid-inheritance-mistakes.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=06Apr2017


The Average Property Taxes in All 50 States & DC ---
http://www.msn.com/en-us/money/taxes/the-average-property-taxes-in-all-50-states-and-dc/ss-BBzxPSe?ocid=spartandhp
This is a slide show with 53 slides.

Hawaii, Alabama, Colorado, Tennessee, and Delaware have the lowest average effective tax rates ranging from 0.32% to 0.56%

Connecticut, Vermont, New Hampshire, Texas, Illinois, and New Jersey found out the top with average effective tax rates of 2.00% to 2.31%

Jensen Comment
The results are misleading in various ways. The most obvious deception is that total taxes are not compared. New Hampshire, Delaware and three other states have no sales taxes. New Hampshire, Tennessee, Texas and six other states have no personal income tax or only tax a small part of income such as cash dividends and interest ---
https://en.wikipedia.org/wiki/State_income_tax#States_with_no_individual_income_tax

Some of the states with high average effective property taxes also tax everything else imaginable such as the states of California, New Jersey, Connecticut, Vermont, Hawaii, and Illinois.

States vary greatly as to value increases exempt from property taxes. California's Proposition 13 enormously reduces property taxes by not taxing increases in value to home owners. People having houses worth millions may not pay more property tax than people with houses worth a few hundred thousand dollars depending on how much was paid originally for the property. Texas and some other states do not tax property value increases for school taxes (for property owners over 65 years of age). Personal exemptions for property taxes vary among states which especially lends relief to lower valued properties.

States vary greatly as to when value increases in property are captured for taxation purposes. When I lived in Texas it seemed that value increases were captured in real time whenever properties were bought and sold in a neighborhood. Here in New Hampshire property value increases are captured very slowly (years later).

States vary regarding negotiability of property taxes. I found Texas property taxes to be relatively negotiable as long as you hired a business specializing in property tax negotiations for homeowners. In New Hampshire property taxes are set in stone and the courts rarely side with homeowners.

And there are various statistical analysis caveats when dealing with averages computed as means rather than medians. Means are greatly impacted by outliers relative to medians. Means are more sensitive to kurtosis ---
https://en.wikipedia.org/wiki/Kurtosis


Defense Contractors to Face New Cost Accounting Oversight with Creation of Defense Cost Accounting Standards Board ---
http://www.natlawreview.com/article/defense-contractors-to-face-new-cost-accounting-oversight-creation-defense-cost

Jensen Comment
Since fraud is also monumental in Medicaid and Medicare spending, I would also like to see the formation of a M&M Accounting Standards Board that investigates, among other things, both fraudulent billings by providers and fraudulent benefits by patients such as when half the people on Medicaid in Illinois were not even eligible for Medicaid. I also think there's way too much fraud in the pilfering of estates by heirs so that that grandma or grandpa can get free nursing home care paid for by Medicaid


Sorry California and Texas:  The 25 Most Popular Places to Retire in America ---
http://time.com/4734442/retirement-popular-place-map/?xid=newsletter-brief

Jensen Comment
The headline is misleading because it includes only people who move to other states in retirement. The most popular places to retire are probably the most populated states in the USA since most people do not leave their home state when they retire.

In any case Arizona and Florida pretty well absorb those who want to change states. The popularity of Arkansas may surprise some folks, but not me. When growing up in Iowa it was common for people who wanted to economize with lower-priced housing, scenic hill country, and warmer (hot?) weather chose Arkansas. However, even Arkansas gets overwhelmed by the statistics of Arizona and Florida.

Texas and California enter into the equation for folks who retire in their home states like Iowa but choose to spend a couple of winter months in a double wide among orange groves down south or out west near the ocean.. For decades Texas and California also attracted northerners who wanted to venture into Mexico for the sights and shopping. Now there's more fear of crossing the border.


Test your Social Security knowledge in this five-question quiz ---
http://www.journalofaccountancy.com/news/2017/mar/social-security-quiz.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=29Mar2017

Jensen Comment
Check your full retirement age as calculated by the government ---
https://www.ssa.gov/planners/retire/1960.html
Circumstances can vary with respect to various things like wealth, health, and job satisfaction, but my advice for most people is to not start your SS income until you reach the full retirement age or later. This does not mean that you cannot "retire" or shift to part-time work before full retirement age. You should, however, read abouit details in the law regarding full retirement age. For more details first go to
https://www.ssa.gov/planners/index.html
Then discuss all your retirements options with an expert that is often provided free by your employer or other retirement plan employee. Outfits like TIAA and Fidelity usually have campus visits by retirement planners that provide free services to college employees.

In some course on campus try to make financial literacy part of the curriculum, including retirement and tax alternatives.


How to Mislead With Statistics

OECD:  Taxing Wages in 2017 --- http://www.oecd.org/tax/taxing-wages-20725124.htm

Sorry America Your Taxes Aren't High ---
http://www.oecd.org/tax/taxing-wages-20725124.htm

Jensen Comment
Time and time again I've lamented that some things are generally misleading when they are compared between nations or even between the various 50 states of the USA.. For example, poverty is relative. A family below the poverty line in the USA is really not comparable to a family below the poverty line in many other countries of the world such as in India, China, and the poor nations of Africa. One problem in comparing poverty is that the safety nets vary so much for where in the USA there's Medicaid, food stamps, subsidized housing, homeless shelters, aid to dependent children, earned income tax credits, disability income, etc.

Tax rates are also not comparable unless you also compare what those taxes buy in the way of goods and services. For example, to the population of the USA not below the poverty line and not on Medicare there is no "free" national health care services and medications relative to nations having taxpayer-funded national health care for everybody.

In the USA Medicare does not pay for nursing homes for afflicted patients not in hospitals whereas many national health care plans pay for nursing home care.

Some nations like Germany have taxpayer-funded higher education, although the funding is not available for education and training for over half the high school graduates. In Europe less than half of the Tier 2 (high school) graduates are even allowed to go to college or free trade schools --- 
OECD Study Published in 2014:  List of countries by 25- to 34-year-olds having a tertiary education degree --- 
https://en.wikipedia.org/wiki/List_of_countries_by_25-_to_34-year-olds_having_a_tertiary_education_degre

But employer-funded apprentice programs are much better in Europe than the USA.

Also there are many types of taxes that are difficult to compare. Many nations supplement income taxes with highly variable sales taxes and VAT taxes that are collected ultimately in prices rather than tax assessments.

Nations also vary in terms of public services such as transportation. Cars are luxury goods in nations like Denmark (due largely to high taxes) where people move about cheaply on bicycles and low-cost public transportation. In most parts of the USA cars are essential because of bad weather and lousy public transportation outside the largest metropolitan areas.

I could carry on with my rant about misleading world statistics, but to do so might take the rest of my life.


"Autoregressive Distributed Lag (ARDL) Estimation. Part 1 - Theory".---
http://davegiles.blogspot.com/2017/04/ardl-models-from-team-at-eviews.html

April 2017 Econometrics Readings Suggested by David Giles ---
http://davegiles.blogspot.com/2017/04/read-some-econometrics-this-month.html


Preventing the Next Madoff Norm:  Champ stepped into his role at the SEC invigorated by the spirit of reform. What he found was passivity and petty dysfunction ---
https://www.wsj.com/articles/preventing-the-next-madoff-1492366357?mod=djemMER

Norm Champ stepped into his role at the SEC invigorated by the spirit of reform. What he found was passivity and petty dysfunction.

. . .

Yet “nothing was what I expected,” he writes in “Going Public,” his firsthand look into the SEC and the challenges of working for the federal government. “I soon learned that the SEC wasn’t a typically dysfunctional bureaucracy that needed to fix what had been broken. Rather, there were parts of it that had never been built.”

The agency’s failure to cultivate examiner expertise and encourage follow-through, for instance, was blamed for allowing Madoff and Stanford to continue their schemes. Walls dividing the examination and enforcement groups, and turf wars among work teams, meant that there was no system to share detailed tips about suspected frauds. Some SEC supervisors had been there for decades and recruited employees without private-sector backgrounds, meaning that the agency was out of touch with the more recent financial products and practices they were being asked to regulate.

Mr. Champ discovered that “the combination of civil service protection and public employee union contracts . . . had wired the wrong incentives” into the agency, which risked privileging employee perks—job security, work-life balance, protection from termination—over the good of the financial markets. This created a culture, according to Mr. Champ, that rewarded passivity and fostered petty dysfunction.

He learned his first day on the job, for example, that office supplies were hoarded because they might run out. Underperforming government employees could not easily be fired, including one who apparently did not show up to work for years. Mr. Champ seems especially astonished that the SEC asked an investment firm to extend its daily opening hours—so that an examiner could preserve his 10-hour Monday-Thursday work schedule and keep his Fridays off.

From his first days at the SEC, Mr. Champ sought to leave the agency better than he found it—to develop clear information-sharing procedures and performance standards and to recognize examiners for initiative and good work. What he ran into, however, was a bunker mentality among some of the permanent staff that thwarted real change. They waited out reform-minded managers with the refrain “this too shall pass.” When Mr. Champ became head of the important Division of Investment Management—the group tasked with overseeing investment companies, mutual funds, hedge-fund advisers and exchange-traded funds—he discovered that the division was referred to inside the SEC as the “Wax Museum” because of its resistance to reform.

Continued in article

Jensen Comment
The SEC's failure to greatly limit the massive Madoff Ponzi Fraud was at best severely negligent and in reality probably insider fraud ---
http://faculty.trinity.edu/rjensen/FraudRottenPart2.htm#Ponzi


Next Target for States Seeking to Collect Sales Taxes: Sellers on Amazon ---
https://www.wsj.com/articles/next-target-for-states-seeking-to-collect-sales-taxes-sellers-on-amazon-1490866207

Third-party sellers have so far eluded the crackdown

After spending years fighting Amazon.com Inc. AMZN +0.23% to force it to collect sales taxes, U.S. states are turning their attention to the individuals and small companies that account for a growing share of the online marketplace’s sales.

Starting April 1, the Seattle-based giant will expand its sales-tax collection to all 45 states that tax sales. But most third-party sellers remain elusive, giving them a pricing advantage—about 10% in some cases—over local brick-and-mortar retailers and products sold directly by Amazon.

States such as New York and Wyoming are cracking down on a practice that leads them to miss out on billions of dollars in revenues. At least six other states are considering new measures this year that aim to force marketplaces such as Amazon and eBay Inc. to collect sales taxes on behalf of those selling merchandise on their sites or to force sellers to report sales, according to the National Association of State Budget Officers.

Continued in article

Jensen Comment
As far as I can tell there are advantages and disadvantages from dealing with third parties linked through Amazon. It appears to me that Amazon has varying assurances for third party sellers. When you buy a used book you pay Amazon and get your refunds from Amazon. If you need to return the book you send it to Amazon. Amazon pays for return shipping.

But for some companies that were only linked through Amazon the conditions may vary. I just returned some shirts to a third party seller. I had to pay the shipping to return the merchandise to the third party seller unlike any purchase from Amazon itself.  I'm not certain, but I think Amazon assures you will get the purchase price back from the third party seller. I've never had to complain about getting the purchase price returned. Amazon did notify me that I got credit for the price of the returned merchandise.

I'm not certain how New York, Wyoming, and maybe some other states are dealing with mail order and online vendors that deal directly with customers without involving Amazon. For example, how will states deal with LL Bean that thus far has been the most resistant to collecting sales tax since it won the Supreme Court test case. Note that if you live in one of the 45 states that imposes sales taxes you owe the sales tax even if a vendor like LL Bean does not collect it at the time of the sale. However, states are losing tons of sales taxes when vendors do not collect the tax at the time of the sale and forward it to the state.

LL Bean is not violating the law when it does not collect and forward sales taxes (except in the state of Maine where LL Bean is headquartered).
LL Bean Sales Tax Information ---
https://www.llbean.com/customerService/FAQs/StateTaxRequirements.html


NYT:  How to Con Black Law Students ---
http://taxprof.typepad.com/taxprof_blog/2017/03/ny-times-op-edhow-to-con-black-law-students.html

Jensen Comment
A 25% pass rate on the CPA examination may sound pretty good to a graduate school of accountancy, but a 50% pass rate on the bar exam is a kiss of death for a law school where a 75% passage rate is considered marginal.

I don't know that there's good research on why accounting school expectations are so low relative to law schools in this regard. I can think of possible reasons off the top of my head.

  1. Law schools entail an equivalent of three years of post-graduate full time study preparing for the bar examination. Students sometimes earn masters of accounting degrees with only two or three semesters of graduate study.

     

  2. CPA exams have fewer prerequisites for sitting for the exam. Law students must take a law school curriculum at a law school to sit for the bar exam. Students that take the limited number of prerequisites to sit for the CPA examination don't even have to earn a masters of accounting degree. They can get an MBA or nursing degree. They only have to have 150 hours of college credit, some of which have to be prerequisites required by a State Board of Accountancy. CPA exam takes don't even have to earn a masters degree or even take an entrance examination for a masters program such as the GMAT or GRE examinations.

     

  3. I like to think the CPA examination is a tougher examination, but lawyers may beg to differ. I'm told that the CFA exam is tougher than the CPA examination or bar examination. But "toughness" is a lot like beauty --- it's in the eyes of the beholder.

The bottom line is that certification examination success depends upon a great deal on the years of preparation required. Perhaps a 98% passage rate to become board certified in brain surgery sounds impressive (easy?), but after all the years of medical school blood, sweat, and tears most candidates to become brain surgeons could write the certification examinations.

There also is a difference in learning aptitudes.
 In the tower student housing apartments at Stanford University years ago my good friend from France got a PhD in physics in record time. However, he had a learning block for Russian when we were taking the same course together as part of the language requirement (I'm not sure why he had to take a language beyond French and English). I tutored him and discovered that he really had a learning block for Russian. He had to take the course twice. I like to think I was brilliant, but in fact I had over two years of Russian before going to graduate school. This was because in my first two years of college I aspired to become an Admiral on a full Navy scholarship during the Cold War. I was a midshipman on a battleship during the summers when we played ocean hide and seek an tag with Russian submarines.


Tesla us now bigger than GM ---
https://www.wsj.com/articles/tesla-overtakes-gm-to-become-most-valuable-u-s-auto-maker-1491832043

Tesla is now bigger than Ford ---
http://markets.businessinsider.com/news/stocks/tesla-stock-price-ford-stock-price-april-3-2017-4-1001891214

Jensen Comment
Keep in mind that market cap is only one of various ways to measure the "size" of a company. Have your students think of other ways to compare the size of Ford versus GM versus Tesla.


The statute of limitation for net operating losses
The tension between the three-year statute of limitation and the 20-year net operating loss carryforward period can cause problems for unwary taxpayers who fail to preserve evidence proving the amount of the loss. Here's what practitioners need to know to keep their clients from having NOL deductions disallowed.
http://www.thetaxadviser.com/issues/2017/apr/statute-limitation-net-operating-losses.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=11Apr2017


Unlocking Excel's Hidden Powers ---
https://www.intheblack.com/articles/2017/02/27/influencing-with-excel


The Medicaid and Pension Monsters That Divert Funding by States for Education, Roads, and Bridges

"Health Care vs. Higher Ed," by Rick Seltzer, Inside Higher Ed, April 12, 2017 ---
https://www.insidehighered.com/news/2017/04/12/medicaid-funding-changes-pressure-state-higher-ed-funding?utm_source=Inside+Higher+Ed&utm_campaign=5bea54615f-DNU20170412&utm_medium=email&utm_term=0_1fcbc04421-5bea54615f-197565045&mc_cid=5bea54615f&mc_eid=1e78f7c952

. . .

When states adopted their budgets for the 2017 fiscal year, their share of Medicaid spending was expected to grow by 4.4 percent on average, according to an April report from the Kaiser Family Foundation. The increase was expected in large part because of the decrease in federal funding for Medicaid expansion.

While 4.4 percent might not sound like an overwhelming increase, Medicaid spending is a massive portion of states’ budgets. Medicaid spending across all states totaled $509 billion in the 2015 fiscal year, according to the Kaiser Family Foundation. States paid 38 percent of the costs, with the federal government picking up the rest.

That means states spent about $193.4 billion on Medicaid in 2015. That dwarfs state higher education appropriations, which totaled about $83.6 billion across the country in 2016-17.

State legislators are essentially locked into spending on Medicaid. So when costs in that program rise, lawmakers have to either raise revenue through taxes and fees or find money in their discretionary budgets to reallocate. Higher education represents one of the few big-ticket discretionary items from which they can draw.

“They’re going to get the money somewhere,” Pernsteiner said. “Where they make the cuts is higher ed.”

Within individual states that expanded Medicaid, projections show costs mounting in coming years. Kentucky’s expenditures for Medicaid expansion are projected at $77.2 million for the 2016-17 fiscal year -- a year in which the federal match rate only falls below 100 percent for six months. The expenditures under current law are expected to rise to $180.1 million in 2018, $224 million in 2019 and $306.3 million in 2020, according to state projections.

Kentucky is dealing with other budget pressures as well. By some estimates, the state has the worst-funded pension system of any state in the country -- even worse than Illinois and New Jersey. Many believe dealing with that issue will be a major drain on state coffers.

The state’s Republican governor, Matt Bevin, has already shown a willingness to take funding that would have gone to higher education and put it toward pensions, said Robert L. King, president of the Kentucky Council on Postsecondary Education. Budget pressures add up, including from Medicaid, King said.

“Because it’s a mandated expenditure, it gets paid,” King said. “So our universities have been taking cuts consistently for the last decade. I can’t tell you that they are directly caused by Medicaid, but it certainly is a contributing factor.”

King has been watching trends between Medicaid funding and higher education funding since he was chancellor of the State University of New York System in the early 2000s.

“I remember reading studies at the time that showed that there was a pretty straight-line correlation between the growth in Medicaid costs and the reduction in state support for higher education,” he said.

A 2003 Brookings report found every new dollar in state Medicaid spending was related to a decline in higher education appropriations of about 6 cents to 7 cents.

In West Virginia, which also expanded Medicaid eligibility under the Affordable Care Act, health-care costs were wrapped up in a long budget standoff that left leaders worried about higher education funding. State revenue has been declining with energy markets, causing stress on the budget and a possible pinch on higher education funding, according to a spokesman for West Virginia University.

Continued in article

Jensen Comment
Actually two non-discretionary spending burdens are overwhelming state budgets. The first is Medicaid whether or not a state expanded coverage under the ACA. The second is unfunded pensions for public employees, baby boomers that are now retiring in droves.

California Road-Tax Hike Is Really A Pension Tax ---
http://reason.com/archives/2017/04/07/california-road-tax-hike-is-really-a-pen

Gov. Jerry Brown and Democratic legislators have caused a stir with their plan, which passed the legislature on Thursday, to increase taxes to pay for the state's unquestionably decrepit infrastructure of roads and bridges. Instead of thinking of this as a new transportation tax, however, Californians should see it as a pension tax, given the extra money plugs a hole caused by growing retirement payments to public employees.

Consider this sobering news from the CalMatters' Judy Lin in January: "New projections show the state's annual bill for retirement obligations is expected to reach $11 billion by the time Brown leaves office in January 2019—nearly double what it was eight years earlier." That's the state's "annual bill," i.e., the direct costs taken from the general-fund budget. That number doesn't even include those "unfunded" pension liabilities that according to some estimates top $1 trillion.

 Continued in article

Jensen Comment
What's sad is that many of those pension timings (retire at age 50) and amounts (think over $500,000 per year) are fraudulent ---
http://cfif.org/v/index.php/commentary/61-state-issues/1415-report-multi-million-dollar-california-pension-fraud


A senator found Medicare blowing hundreds of millions on a loser drug — and no one even got a slap on the wrist ---
http://www.businessinsider.com/tim-scott-letter-on-acthar-and-medicare-waste-2017-4


San Antonio lawyer and “case runner” are sentenced in scam ---
http://www.mysanantonio.com/news/local/article/San-Antonio-lawyer-and-case-runner-are-11052850.php

A San Antonio law firm’s “case runner” has been sentenced to four years in prison for swindling personal-injury clients out of of settlement money, trying to evade $1.6 million in taxes and hiding $429,000 in assets in his bankruptcy.

A lawyer, meanwhile, got five years of probation for enabling the fraud by case runner Elpidio “Pete” Gongora by letting him use his law license. Gongora is not an attorney.

Prosecutors argued the lawyer, Ronald Higgins, 54, was less culpable in the fraud, which involved a series of thefts taken from proceeds collected as lawsuit settlements or from what should have gone to doctors and therapists who treated the plaintiffs involved.

Besides handing down the sentences Tuesday, U.S. District Judge Fred Biery ordered Gongora to pay $3.49 million in restitution, and Higgins to pay $1.49 million.

Gongora, 47, pleaded guilty last year to conspiracy to commit mail fraud, tax evasion and bankruptcy fraud.

He admitted conspiring with Higgins and two others, bookkeeper Rosa Ramirez, 48, and one of her relatives, Juan Rodriguez, 47. Gongora’s co-defendants pleaded guilty to conspiracy to commit mail fraud, and Ramirez and Rodriguez are to be sentenced in June.

According to court documents, from 2009 through early 2015, Gongora operated the law offices of Higgins, who “exercised a complete and total lack of oversight” and, after learning about the fraud in its waning periods, told Gongora to pay the clients but did not report it to the feds. Two other lawyers who were part of the office were kept in the dark about the fraud, the documents say.

Gongora’s lawyer, Scott McCrum, has said Gongora had agreements with the lawyers to find clients for them since about 2003. Business was brisk, McCrum said, but things went downhill in the wake of Texas tort reforms, changes to the law that let insurance companies deny more claims.

The FBI and IRS criminal investigators said Gongora lived large while the scheme was peaking, moving from a $550,000 house on the far West Side to an $850,000 home in the exclusive Dominion subdivision. He also bought a $600,000 house in Aransas Pass, on the Texas coast.

Gongora also acquired a $118,000 Ferrari, a $185,000 Lamborghini, a $28,000 Mercedes-Benz and an $85,000 boat and trailer.

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


How Your Federal Tax Dollars are Spent ---
http://taxprof.typepad.com/.a/6a00d8341c4eab53ef01b7c8ee6392970b-popup


How to Lessen the Risk of Financial Reporting Fraud
Center for Audit Quality, 2017
http://www.accountingweb.com/aa/law-and-enforcement/how-to-lessen-the-risk-of-financial-reporting-fraud?source=ei041217


Benford's Law --- https://en.wikipedia.org/wiki/Benford%27s_law

Using Excel and Benford’s Law to detect fraud ---
http://www.journalofaccountancy.com/issues/2017/apr/excel-and-benfords-law-to-detect-fraud.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Apr2017

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


AICPA:  PROPOSED DESCRIPTION CRITERIA FOR MANAGEMENT’S DESCRIPTION OF AN ENTITY’S CYBERSECURITY RISK MANAGEMENT PROGRAM  ---
http://www.aicpa.org/InterestAreas/FRC/AssuranceAdvisoryServices/DownloadableDocuments/ExposureDrafts/ASEC_ED_Criteria_Cyber_Engagement.pdf
Also see
http://www.aicpa.org/InterestAreas/FRC/AssuranceAdvisoryServices/DownloadableDocuments/ExposureDrafts/ASEC_ED_Rev_Trust_Services.pdf


How to Mislead With Statistics
Does it Pay to Get a Double Major in College?
https://theconversation.com/does-it-pay-to-get-a-double-major-in-college-74420

Jensen Comment
The article is misleading in that the most important variables leading to advantages of double majoring are so dependent upon circumstances. For example. top medical schools, law schools, graduate business schools, etc. lean toward accepting applicants who double majored such as a major in computer science and engineering or a major in mathematics and computer science. My point is that a double major can help get you into a prestigious graduate school that, in turn, opens doors to career opportunities that are difficult to get if you did not get a graduate degree (say a law degree) from a prestigious university.

Secondly, even if you did not get into a prestigious graduate school the knowledge you gained in selected double majors can become important factors to performance success and opportunities later in life. Some of my accounting graduates who also double majored in Spanish or Chinese found that they could get opportunities in Mexico and China not available to some of their peers who did not know Spanish or Chinese. Spanish was especially important to my students who worked for the Big Four CPA firms in Texas where there are usually a high concentration of clients doing business south of the Rio Grande.

Less than 25% of the hires of large CPA firms eventually become partners in those firms for various reasons. A double major, however, might increase the odds in particular circumstances. I had an accounting student who I thought had very little chance of making partner in the Houston office of a Big Four accounting program. However, since he'd double majored in accounting and Russian he was given an opportunity to transfer to the Moscow office of his firm. Working in Russia, in my opinion, is one of the main reason he became a partner. If he'd stayed in the Houston Office I doubt that he'd have become a partner in the firm.

My point is that double majoring may not pay off across many combinations of majors, but it often pays off in selected combinations in particular circumstances where the payoffs are averaged out in large studies of many combinations of double majors.


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

Bitcoin Spikes After Japan Declares it a Legal Payment Method ---
http://www.businessinsider.com/bitcoin-price-spikes-as-japan-recognizes-it-as-a-legal-payment-method-2017-4


NY Times:  Student Loan Forgiveness Program Approval Letters May Be Invalid ---
http://taxprof.typepad.com/taxprof_blog/2017/04/ny-timesstudent-loan-forgiveness-program-approval-letters-may-be-invalid.html


IFRS 9 --- https://en.wikipedia.org/wiki/IFRS_9

McKinsey & Company:  IFRS 9: A silent revolution in banks’ business models ---
http://www.mckinsey.com/business-functions/risk/our-insights/ifrs-9-a-silent-revolution-in-banks-business-models


Fair Value Margin of Error
REPORT: Saudi Aramco might be worth just half of the $2 trillion suggested by Saudi officials ---
http://www.businessinsider.com/ft-saudi-aramco-ipo-value-one-trillion-2017-4


How much do you know about state corporate income taxes? Take this quiz ---
http://ww2.cfo.com/tax/2017/04/great-divide-quiz/

Jensen Comment
Turns out that I didn't know much about this topic.


Tax on some Australian families second highest in developed world  ---
http://www.smh.com.au/federal-politics/political-news/tax-on-some-australian-families-second-highest-in-developed-world-report-finds-20170411-gvih8f.html

Australia’s tax burden for two-child families earning a single income of AUD 82,000 a year now trails only Denmark, according to Organisation for Economic Co-operation and Development research.


Regulatory Compliance:  CFOs turning to risk analytics software to spot financial, operational threats --- 
http://searchfinancialapplications.techtarget.com/feature/CFOs-turning-to-risk-analytics-software-to-spot-financial-operational-threats?utm_medium=EM&asrc=EM_NLN_75173110&utm_campaign=20170404_How CFOs are spotting business threats | PLUS: Employee benefits software expanding HR tech, SAP CEO touts the intelligent enterprise, and more&utm_source=NLN&track=NL-1815&ad=913672&src=913672

Regulatory compliance, loan covenants and currency risk are common targets, as organizations sift through ERP and other data looking for patterns that might give early warning.

Continued in article


Harvard:  The Cost of Drugs for Rare Diseases Is Threatening the U.S. Health Care System ---
https://hbr.org/2017/04/the-cost-of-drugs-for-rare-diseases-is-threatening-the-u-s-health-care-system?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&spMailingID=16971604&spUserID=MTkyODM0MDg0MAS2&spJobID=1000756883&spReportId=MTAwMDc1Njg4MwS2

. . .

In the United Kingdom, the National Institute for Health and Care Excellence (NICE) determines the cost effectiveness, or value, of newly approved drugs based on their impact on quality-adjusted life years. These determinations inform the National Health System’s (NHS) treatment-coverage decisions. In contrast, the FDA is prohibited from considering cost or value in its decision making, and there is no U.S. governmental equivalent of NICE.

The Institute for Clinical and Economic Review (ICER), a small Boston-based nonprofit, has taken a step towards value-based pricing by creating a NICE-like model. Development of a NICE or ICER-like post-approval value review, incorporating appropriate oversight and accountability, would help ensure coverage decisions remain fair and cost-effective, but it won’t be enough. The NHS is likely to impose care rationing because of escalating health and pharmaceutical costs. Any successful plan to manage rising drug costs must address multiple aspects of the problem, including value-based pricing, transparency, drug re-importation, and the reform of the Orphan Drug Act, to name a few.

The FDA and other federal payers, including Medicare, must be empowered to consider drug costs and outcomes, and this process should factor in federal investment in drug discovery. (Ionis and Cold Spring Harbor received federal grant funding to support the early development of nusinersen.)

Federal government payers should also be allowed to negotiate price discounts and re-import drugs (with provisions for adequate quality control). In a disappointing move, President Trump, who had promised to let Medicare negotiate bulk pricing discounts for prescription drugs, abandoned this pledge after meeting with pharmaceutical industry lobbyists and executives.

Pharmaceutical companies must be required to disclose and justify development costs, particularly those seeking the substantial benefits under the ODA. There are numerous examples of pharmaceutical companies taking advantage of ODA provisions to repurpose inexpensive medications for rare diseases, often at extraordinary, unjustified costs. Marathon proposed a price of $89,000 for deflazacort, which is already available in Europe and Canada for $1,000 to $2,000, a 6,000% price increase. (After several members of Congress complained, the launch of the drug was delayed.) Senator Chuck Grassley, chairman of the Senate Judiciary Committee, is rightly leading an inquiry into this practice and other ODA abuses.

A health care system’s goal should be to provide the best patient-centered care. Coverage decisions and resource allocations must prioritize value to patients — not insurers’ or pharma companies’ profits. If we are committed as a society to curing diseases such as SMA, dangling treatments like nusinersen just out of patients’ reach is cruel. Collectively, government, pharma, insurers, hospital systems and physicians all have a role to play in providing access to the right care at justifiable cost.

Jensen Question
Is there a study of where national health care plans like those in Canada and Finland are drawing the line on paying for very costly medications such as a cancer drug costing over $100,000 per year


April 5, 2016

U.S. House approves bill to ease employee stock rules
Startups and other privately held companies would have greater flexibility in awarding stock to employees without triggering what critics say are overly intrusive reporting requirements, under legislation passed by the U.S. House Tuesday.


Economics is Overwhelmingly the Most Popular Major in the Ivy League ---
http://www.businessinsider.com/most-popular-ivy-league-major-2017-4/#university-of-pennsylvania-6
Jensen Comment
In my opinion business would overtake economics if it were available as a major in more of the Ivy universities.

The most surprising thing to me is that pre-med or its equivalent (e.g., biological sciences) is not more popular. It also surprised me that computer science is not more popular.

My experience during my 24 years on the faculty at Trinity University is that pre-med is overwhelmingly the most popular major in the first year in many private universities. However, pre-med majors frequently change majors by the second year for a variety of reasons as business majors often take over in popularity across campus. Certainly some of the required courses such as chemistry take their toll on pre-med majors. But in my conversations with former pre-med majors I discovered that as students learned more about the careers of being physicians they became discouraged. Other than uncertainties about being admitted to medical school and mounting student debt commonly cited negatives are stress on the job and in family life, boring lifetime routines, long hours, hospital politics, price fixing by insurance companies (including Medicaid and Medicare), and costs of being a doctor (including malpractice insurance and meeting a payroll for office staff).

Economics is most likely the most popular undergraduate major in the Ivy League because economics majors have such an enormous variety of opportunities for varied graduate studies and careers (think graduate studies in law and business and higher education).

I think economics is more popular in the Ivy League than in less prestigious universities because of confidence of Ivy League graduates that they will be later admitted into the most prestigious graduate studies programs in law schools, MBA programs, and Ph.D. programs in a variety of academic disciplines. An Ivy League diploma (with an almost certain high gpa given the exceptional grade inflation in the Ivy League) is almost certainly a ticket to admission into a prestigious graduate school. That's the way the game is played in higher education aside from some other tickets to success such as graduate study affirmative action for promising African Americans and Native Americans.


Operating Leverage --- https://en.wikipedia.org/wiki/Operating_leverage

From the CFO Journal's Morning Ledger on April 28, 2017

MetLife to invest $1 billion to reduce costs
MetLife Inc.
intends to invest $1 billion in technology improvements that it hopes will help it slash operating costs, Reuters reports.

Jensen Comment
This is an effort to increase "operating leverage" (not the same as financial leverage)  that we teach in cost and managerial accounting courses. It might be a good project for students to report on how MetLife is trying to increase operating leverage with technology investments that entail a lot of fixed costs.


From the CFO Journal's Morning Ledger on April 26, 2017

SEC registrant number keeps falling
The number of public companies filing their financial statements with the SEC has shrunk dramatically in recent decades, Accounting Today reports.


From the CFO Journal's Morning Ledger on April 26, 2017

Toshiba considers replacing auditor (PwC) With a More Lenient CPA Firm
Toshiba Corp.
, the troubled Japanese conglomerate, wants to replace auditor PricewaterhouseCoopers Aarata LLC to resolve an impasse over full-year earnings and remain listed, two sources briefed on the matter said, as reported by Reuters.


From the CFO Journal's Morning Ledger on April 26, 2017

Perrigo reaches agreement over royalty accounting
Perrigo Co.
’s agreement with auditor Ernst & Young over an accounting issue, announced late Tuesday, paves the way for the drugmaker to file its delayed 10-K annual report and removes one problem from Chief Executive John Hendrickson’s overfull plate, Vipal Monga reports.


From the CFO Journal's Morning Ledger on April 26, 2017

President Donald Trump on Wednesday is planning to unveil a proposal to cut corporate taxes on U.S. companies’ foreign profits and to slash the top tax rate on so-called pass-through businesses, including many owner-operated companies, to 15% from 39.6%, Michael C. Bender and Richard Rubin write.

Most U.S. businesses are pass-throughs, which are called that because their income and deductions pass through to their owners’ individual returns. That group includes many small firms, but it also includes large global law firms, hedge funds and Mr. Trump’s own real estate and branding businesses. These businesses don’t pay the corporate tax rate, which Mr. Trump also wants to lower to 15%.

House Republicans have proposed a 20% corporate tax rate and a 25% top tax rate on pass-through businesses, and those are both ambitious goals that require politically difficult tradeoffs. Mr. Trump’s plan is leaning toward even deeper cuts in tax rates, bigger budget deficits and bold estimates of the economic growth his tax cuts could generate.

By restating core pieces of his campaign-trail plan, Mr. Trump is trying to frame the coming tax debate in Congress. But parts of his plan clash with House Republicans’ ideas, and the party is embarking on the enormous task of trying to rewrite the tax code with major fault lines on tax rates, tax breaks and budgetary goals.

Jensen Comment
Since there are so many loopholes for corporations to legally circumvent corporate taxes I propose doing away with it entirely so that when the Democrats swoop back into power they can pass a more effective VAT tax ---
https://en.wikipedia.org/wiki/Value-added_tax


From the CFO Journal's Morning Ledger on April 24, 2017

PCAOB targets accounting firms
The Public Company Accounting Oversight Board announced six settled actions against non-U.S. accounting firms late last month for failure to report certain disciplinary or regulatory actions.


"Don't count on that government pension," by Terry Savage, The Chicago Tribune, April 17, 2017 ---
http://www.chicagotribune.com/business/sns-201704171833--tms--savagectnts-a20170417-20170417-column,amp.html

. . .

This newly collected data should be frightening to those counting on a state or municipal pension. The latest numbers are available at http://www.statedatalab.org/pensiondatabase. There you can search by state to find both state and local pension statistics. The report for each city and state includes the amount of pension plan assets, the amount of plan promises, and the dollar amount and percentage of pension underfunding. Every plan also receives a letter grade, from A to F.

Of the 237 cities studied, 29 received an "F" grade, reflecting a funding ratio of less than 35 percent. Those plans cover many thousands of workers who cannot possibly be paid their full promised pensions, absent a huge tax increase (which would also come out of their pockets as workers).

Based on the size of its unfunded pension liabilities, Chicago is in the worst shape, with more than $62 billion worth of unfunded pension promises. Chicago has less than 33 cents set aside for every dollar promised.

The Chicago Municipal Employees plan is estimated to run out of assets in seven years, since it is only 20.3 percent funded. The police fund (funded at 25.4 percent) and the firefighter's fund (funded at 21.7 percent) will not be far behind. The Public School Teachers' Pension and Retirement Fund is in slightly better shape with 51.6 percent funding.

New York City is in second worst shape in terms of total dollars needed, with an unfunded pension liability of more than $61 billion, but at least it is 71 percent funded.

At another extreme, Portland, Ore., has set aside less than 1 percent of what it needs to pay its $2.9 billion of pension promises.

What's Going On?

How have these cities gotten away with underfunding their pension promises? Until last year, the Governmental Accounting Standards Board required state and local governments to report only a small fraction of their pension liabilities. And there have been no sanctions, other than public outrage, to force employers to top up their pension funds.

Many states, including Illinois, have constitutional provisions making it difficult to change pension formulas, such as cost-of-living increases. These laws have restricted attempts to substitute more appropriate defined-contribution plans, such as the 401(k) plans, used in most businesses.

In corporate America, there are rules requiring disclosure of pension liabilities and forcing increased contributions to underfunded pensions -- costs that are taken out of earnings. That's why most big corporations phased out their defined-benefit pension plans years ago. Instead, they offer 401(k) plans that allow workers to make their own saving and investment decisions, with matching contributions from employers.

If a corporation declares bankruptcy, the Pension Benefit Guaranty Corporation will pick up promised pension payments, up to certain levels. There is no such guarantee for state and municipal pensions.

Obviously, there are a lot of unfunded promises in America. The largest come from the federal government and are related to Social Security and military and federal worker retirement pension plans.

Continued in article

Explore Your State ---
http://www.statedatalab.org/

Jensen Comment
Compounding the problem of pensions is fraud in state spending. For example, Illinois is having a very bad time honoring state worker pensions. At the same time research uncovered that half the people receiving Medicaid were not eligible for Medicaid.


From the CFO Journal's Morning Ledger on April 24, 2017

Trump administration rejects sanctions waiver for Exxon
President Donald Trump has rejected Exxon Mobil Corp.’s bid to sidestep U.S. sanctions against Moscow and resume an oil venture with a politically powerful Russian energy firm. Mr. Trump’s family and political aides have previously faced scrutiny over their possible ties to Russia. Competitor Chevron Corp. said Monday it would sell its Bangladeshi subsidiary to Chinese investors, Reuters reports.


From the CFO Journal's Morning Ledger on April 24, 2017

Grant Thornton, former partner fined over audit
Grant Thornton U.K. LLP
, a member of professional services network Grant Thornton International, and one of its former partners have admitted misconduct and agreed to fines following an investigation by the Financial Reporting Council, the U.K. watchdog for reporting and audit. This comes after a review of the financial statements of AssetCo PLC, a U.K. company listed on the AIM, a submarket of the London Stock Exchange, Nina Trentmann writes. Grant Thornton acted as the statutory audit firm of AssetCo.

According to the FRC, Grant Thornton and its former partner Robert Napper insufficiently appreciated audit risks arising from AssetCo’s financial statements. “The respondents have admitted widespread and significant failings in their audit work. The…sanctions will send a strong signal to the audit profession of the importance of upholding high standards of conduct,” said Gareth Rees, an executive counsel to the FRC, according to a statement.

Grant Thornton will have to pay £2.27 million ($2.92 million) plus £200,000 as a contribution to the FRC’s costs. Mr. Napper has been fined £130,000

Bob Jensen's threads on the frauds and negligence of Grant Thornton audits ---
http://faculty.trinity.edu/rjensen/fraud001.htm


From the CFO Journal's Morning Ledger on April 24, 2017

Gaining Insights from Innovations in a Financial Statement Audit
New technology innovations, when embedded into audit practices and processes, can provide organizations with business insights that go beyond the core audit. Understand how advanced analytics and cognitive technologies are bringing value to audits, including how senior management and the board can make optimum use of insights derived from audit innovation, how a risk-based approach to an audit might work in practice, and what the audit of the future could look like.

Continue ---
http://deloitte.wsj.com/cfo/2017/04/24/gaining-insights-from-innovations-in-a-financial-statement-audit/?mod=WSJBlog


From the CFO Journal's Morning Ledger on April 21, 2017

IASB suggests changes to IFRS 9 (before it's even out of the station)
The International Accounting Standards Board, which sets reporting standards used in more than 120 countries, said Friday it has proposed amendments to the financial instruments standard IFRS 9, Nina Trentmann reports.

The move is aimed at enabling companies to measure prepayable financial assets with so-called negative compensation at amortized cost, the IASB said in a statement. "These amendments to the standard respond to comments received about the accounting for prepayment options under IFRS 9 and are consistent with the Board’s enhanced focus on supporting implementation of major new Standards," IASB Chairman Hans Hoogervorst said, according to the statement


From the CFO Journal's Morning Ledger on April 21, 2017

President Donald Trump’s bid to stanch imports flowing into the U.S. steel market is fighting strong currents: domestic prices that are among the world’s highest and a buoyant dollar that pushes down the cost of imports, Bob Tita writes.

High labor costs have long pushed up the price of U.S. steel. Domestic producers increased prices further last year after new tariffs helped trim the share of imports in the U.S. steel market in 2016 for the first time in three years. Washington imposed those duties, up to 500%, on some steel products from competitors in China and other countries after U.S. steelmakers complained they were benefiting from unfair government subsidies and selling steel in the U.S. for less than it cost to make.

Meanwhile, the U.S. dollar’s recent strength has made imported steel a bargain for domestic manufacturers and construction companies. Wider duties on imports could encourage U.S. producers to further drive up their prices, complicating another of Mr. Trump’s campaign pledges: to support U.S. manufacturers.

“For every steelworker, there are 60 workers in steel-using industries,” said Lewis Leibowitz, a Washington attorney who has worked on trade cases involving steel in the past. “You need competitive steel prices for those industries to be competitive and to export.”

From the CFO Journal's Morning Ledger on April 20, 2017

IMF warns high corporate leverage could threaten stability
U.S. corporate debt has risen because of cheap credit, reaching levels that exceed those before the 2008 financial crisis. This could shake financial stability, the International Monetary Fund stated.

Jensen Comment
What do you expect when borrowing rates are almost down to zero?


From the CFO Journal's Morning Ledger on April 18, 2017

External auditor assessment tool updated
The Center for Audit Quality and the Audit Committee Collaboration have updated the External Auditor Assessment Tool, a resource that helps audit committees better evaluate audit firms, Accounting Today reports.


From the CFO Journal's Morning Ledger on April 14, 2017

U.S. banks not in the top five on list of biggest banks
The top four spots go to banks in China with $3.5 trillion in total assets at the end of last year. A bank in Japan is number five with $2.6 trillion. J.P. Morgan Chase & Co. comes in at $2.5 trillion, occupying the sixth spot.


From the CFO Journal's Morning Ledger on April 12, 2017

U.S. audit regulator probes leak of confidential information to KPMG. 
Six employees at KPMG LLP have resigned after the Public Company Accounting Oversight Board started investigating a leak of a confidential plan to inspect work performed by the firm.

Scroll Down for Teaching Case on This Issue


From the CFO Journal's Morning Ledger on April 12, 2017

Accountants may need to go beyond their expertise with numbers. The uniform certified public accountant exam began testing candidates on critical thinking, problem solving and analysis at the beginning of the month. The American Institute of CPAs, National Association of State Boards of Accountancy and Prometric announced the change Wednesday. One of the biggest changes is to the "exam blueprints" which have replaced the Content Specification Outline (CSO) and Skill Specification Outline (SSO) as the primary testing element. They identify knowledge linked directly to representative tasks performed by newly licensed CPAs, according to the AICPA. The new assessment will help accountants who are using these skills early in their career “stay ahead of the curve,” said Michael Decker, the vice president of examinations at AICPA, in a written statement

Possibly the Number 1 Resource for CPA Exam Candidates
AICPA:  Uniform CPA Exam Blueprints ---
http://www.aicpa.org/BecomeACPA/CPAExam/ExaminationContent