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

New Bookmarks
Year 2017 Quarter 3:  July 1 - September 30 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

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

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

Choose a Date Below for Additions to the Bookmarks File

2017

September

 

August

 

July

September 2017

Bob Jensen's New Additions to Bookmarks

September 2017

Bob Jensen at Trinity University 

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

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

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

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

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

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

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

"Big data allows you to look at the whole picture rather than just sample points in that picture"
Mike Willis (SEC) in on one of the video links below
Mike's presentation is really interesting --- well worth your time if you are an AAA member!

From an AAA Newsletter on September 28, 2017

The 2017 Accounting IS Big Data Conference held in Brooklyn, NY is now available to AAA members! Sign in with the links below to view videos of all the talks and to access conference resources, including workshop materials/datasets and the pre-conference list of relevant readings and videos.

 

·  View the meeting videos

·  View the participant list and pre-reading lists

·  View Workshop materials

 

Use your AAA member number username and password to sign in as these links are password protected.

Also consider giving a donation to the AAA's link to Shelterbox fund for the homeless (including those who are homeless as result of natural disasters)  ---
https://www.shelterboxusa.org/donate/

Research Refutes Sarbanes-Oxley Critics:   A new study offers strong evidence of a link between auditor-identified weak internal controls and subsequent fraud cases ---
http://ww2.cfo.com/auditing/2017/09/research-refutes-sarbanes-oxley-critics-internal-controls/

How revenue recognition changes are affecting preparers like GE, Microsoft ---
https://www.journalofaccountancy.com/news/2017/sep/revenue-recognition-changes-affecting-preparers-201717560.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=29Sep2017

Move Over California, Japan Has A 26% Bar Passage Rate ---
http://taxprof.typepad.com/taxprof_blog/2017/09/move-over-california-japan-has-a-26-bar-passage-rate.html

Jensen Comment
Sort of like the tough olden days of the CPA examination before the passage rates exploded

Per Usual, the magazine Accounting Today does not consider accounting professors to be "Influential Thought Leaders"
Law professor (now Dean) Paul Caron who maintains the TaxProf Blog seems to be the only influential academic in the eyes of Accounting Today. The American Accounting Association runs an annual cash award for Notable Contributions to the Accounting Literature. As far as I can tell no one considered "Notable" by the AAA as ever in history been considered an "Influential Thought Leader" by Accounting Today. Even Professor Christine Botosan who is a current FASB board member nor any living academic in the Accounting Hall of Fame made Accounting Today's Top 100 thought leaders in 2017.

:Let's face it.
The practice world of accounting does not consider accounting academics to be very relevant, influential, or thought leaders in the profession. In the past Dennis Beresford probably made an annual list, but he would've done so before he became an academic. Has any President of the American Accounting Association been honored by Accounting Today?

Accounting Today:  Our 2017 listing of 100 thought leaders and visionaries who are shaping the accounting profession ---
http://cdn.coverstand.com/37089/434487/5f725cfae941f522c703d8776ea64715a5323540.pdf

September 6, 2017 reply from Denny Beresford

Bob,

As you imply by referring to my former position on this list, most on the list are position holders rather than "thought leaders and visionaries." And the list has evolved so that nearly half are now suppliers to the accounting profession - the organizations that tend to advertise in Accounting Today. It is still noteworthy that AT doesn't even bother to include the current President of AAA or the Executive Director.

Denny

Consumers affected by the Equifax breach of personal information might want to file tax returns early, before anyone else claims their refund, according to the Federal Trade Commission ---
http://www.marketwatch.com/story/how-the-equifax-breach-could-impact-you-during-tax-season-2017-09-08

Jensen Comment
I was always one of those taxpayers who waited until April to file my tax return. Then I got burned in the TurboTax breach of social security numbers and IRS PIN numbers. Some thief trying to rob the US treasury filed for a refund using my SS and PIN numbers. It did not cost me anything, but the IRS refused my April e-file saying that I'd already a tax return and that I already received an enormous refund (which of course I did not receive).

It took a while but with my 1099 forms and other evidence the IRS eventually accepted my paper filing and gave me my requested very small refund.

But with these fake e-filings the government loses billions and billions to scammers who buy the stolen data from Turbo Tax, Equifax, Blue Cross Anthem, etc.

So I plead with you to file your tax returns as soon as possible in 2018. Yeah I know, you have to wait for your W-2 forms and delayed 1099 reports. But do file as soon as you can to interfere with the bad guys who bought your ID from Equifax hackers in 2017.

Fraud Investigation Quiz (click the Submit button to move to the next question) ---
https://www.journalofaccountancy.com/issues/2017/sep/fraud-iq-quiz-fraud-investigations.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Sep2017

Jensen Comment
I disagree with the answer choices on the first question. Unless the fraud investigation is focused on a fraud already detected, I think the purpose of a fraud investigation, like that of an audit in general,  is to prevent frauds and compliance errors from taking place in the first place. In my opinion, employees and taxpayers on average are more honest and more accurate when they know they will be subject to scrutiny by experts. This includes employees that design and implement internal controls. Perhaps the second answer choice to this question covers this, but I think that answer choice should be reworded to make it more clear that the purpose is prevention. Exhibit A is the impact of the 1099 Forms on the reduction of fraud in income reporting on IRS 1040 forms. The 1099 Forms greatly increased the fraud investigation powers of IRS computers. That in turn increased the likelihood that taxpayers will include all taxable revenue on IRS 1040 forms except in cases where income is not reported on a 1099 Form (think underground economy income).

Auditors had identified material weaknesses in financial reporting at about 30 percent of the companies that later disclosed accounting problems. Chief executives were named in 111 of the 127 fraud cases, and chief financial officers were identified in 108 of the cases ---
New York Times:  Sarbanes-Oxley, Bemoaned as a Burden, Is an Investor’s Ally ---
https://www.nytimes.com/2017/09/08/business/sarbanes-oxley-investors.html

De Blasio:  The NYC mayor flat out does not believe in the right to private property ---
http://reason.com/blog/2017/09/08/new-york-mayor-to-property-owners-drop-d
Jensen CommNetent
If his actions catch on across the USA does this change how we account for and value private property?

The Media Has A Probability Problem The media’s demand for certainty — and its lack of statistical rigor — is a bad match for our complex world ---
https://fivethirtyeight.com/features/the-media-has-a-probability-problem/

Jensen Comment
This is a bit analogous to investors demand for fraud discovery in a financial statement audit. Firstly, financial statement auditors are really not all that good at detecting fraud (for example they don't pay millions to whistleblowers). Secondly, the cost of a fraud detection enormously more expensive that traditional financial statement auditing. At best financial statement auditors often have useful recommendations for improving internal controls. Having said this, there are limits to which financial statement auditors can plead they are not responsible for fraud, especially where auditing standards demand certain procedures such as attesting to existence of inventories and warehouses, attesting to existence and collectibles of receivables, etc.

 What to know about the bill-to-limit state taxation of online sales ---
https://www.accountingweb.com/tax/sales-tax/what-to-know-about-the-bill-to-limit-state-taxation-of-online-sales?source=tx092517

Jensen Comment
I question the constitutionality of threatening Fed funds cut off every time Congress wants to block states' rights.

 Does elderly parent care lead to tax breaks?
https://www.accountingweb.com/tax/individuals/tax-breaks-for-elderly-parent-how-to-handle-insurance-proceeds?source=tx092517

 Equifax Executives Sold Stock Before Revealing Data Breach Exposing 143 Million To Identity Theft ---
http://www.nbcchicago.com/news/business/Data-Breach-Could-Affect-143M-Consumers-Equifax-443085613.html

PricewaterhouseCoopers (PwC) is set to launch a law firm in the U.S., a clear sign that the concerted push into legal services by the Big Four accounting firms continues ---
http://www.americanlawyer.com/id=1202798366190/PwC-to-Launch-US-Law-Firm-as-Big-Four-Expand-Legal-Offerings?slreturn=20170821140033

Jensen Comment
When will Amazon offer legal services online?

Gappify Launches Robot For Corporate Accountants ---
https://www.pymnts.com/news/b2b-payments/2017/gappify-creates-corporate-accounting-chatbot/

TIGTA: 64% Of The IRS's Information Technology Is Beyond Its Useful Life (think XP in the newer world if Windows 10) ---
http://taxprof.typepad.com/taxprof_blog/2017/09/tigta-64-of-the-irss-information-technology-hardware-infrastructure-is-beyond-its-useful-life.html

The Swiss National Bank's stock looks like a pump-and-dump scheme ---
http://www.businessinsider.com/swiss-national-bank-pump-and-dump-scheme-crushing-it-2017-9

MAAW's Blog Table of Contents Service Update ---
http://maaw.blogspot.com/2017/09/auditing-journal-of-practice-theory.html

Auditing: A Journal of Practice & Theory  2017, Volumes 36(1)-36(3)
http://maaw.info/AuditingAJournalofPracticeAndTheory2017.htm

Auditing: A Journal of Practice & Theory  2008-2017, Volumes 27(1)-36(3)
http://maaw.info/AuditingAJournalOfPracticeAndTheory.htm

Economic models are broken, and economists have wildly different ideas about how to fix them ---
https://qz.com/1077549/economic-models-are-broken-and-economists-like-joseph-stiglitz-and-researchers-at-the-bank-of-england-have-wildly-different-ideas-about-how-to-fix-them/

How Labor Scholars Missed the Trump Revolt::We thought we knew the white working class. Then 2016 happened ---
http://www.chronicle.com/article/How-Labor-Scholars-Missed-the/241049?cid=cr&utm_source=cr&utm_medium=en&elqTrackId=b44f5357d3404a349f448f3640956c27&elq=d5d986b392174f74b3b44e7844feda33&elqaid=15520&elqat=1&elqCampaignId=6644

When the bottom fell out of the economy in 2008, many in and out of the academy were quick to wag a finger at economists and ask, "Why didn’t you guys see this coming?" Economists responded that the "science" of economics is not of the predictive kind — nor, for that matter, are a lot of the sciences. The economy might have been in unanticipated chaos, but the discipline of economics was still sound.

Others argued that the problem was in the methodology itself — the assumptions and premises that blind practitioners to even the possibility of crisis. The eight American and European scholars who wrote the "Dahlem report," a 2009 analysis of the economics profession, found it "obvious, even to the casual observer that these models fail to account for the actual evolution of the real-world economy." As a result, "in our hour of greatest need," we must fumble in darkness with no explanation, no theory, and no scholarly discipline prepared to answer the simple question: How did we get here?

I am a labor historian — or at least one in recovery. When my colleagues and I saw the financial crisis, our predominant response was something like an exhausted, cynical shrug: "Of course — what did you expect in an age of rampant deregulation and absurd economic inequality?" Yet when the next systemic paroxysm hit our nation — the wave of white, blue-collar rage that helped elect Donald Trump — my field seemed as ill-equipped to explain the "actual evolution of the real-world" situation as the science of economics had been to explain the crash in 2008. One could have polled the entire American Political Science Association and the Organization of American Historians in 2016 and found very few who would have predicted a Trump victory — unless Michael Moore (who nearly alone, in no uncertain terms, predicted a "Rust Belt Brexit," the last stand of the common white guy) happens to be an accidental member of one of those professional organizations.

Richard Hofstadter, the old grandmaster of American political history, laid clear the burdens of being a historian: "The urgency of our national problems seems to demand, more than ever, that the historian have something to say that will help us." The need for salient historical explanation seems more important now than ever, yet a lot of us are coming up empty. Most of what we seemed to know about how class works suddenly seems dated, or simply wrong. As with the economists of the past decade, we may have been blinded by the bedrock assumptions of our own field.

Most labor historians, one way or another, and whether or not they concede it, remain children of the "new labor history." The field emerged in the 1960s and ’70s from several sources: the political vision of the New Left, civil rights, and women’s movements; the rejection of the narrow trade-union economism of the "old" labor history; and, perhaps most important, the 1963 publication of E.P. Thompson’s The Making of the English Working Class. Thompson famously rejected an analysis that addressed class as a "thing," arguing instead for a new analysis that approaches class as a "happening." Smashing icons across the intellectual spectrum, his book began a new age of rich and adventurous writing about the history of working people. He sent historians on a mission to figure out how class worked — without indulging the condescending, instrumental, or teleological traps of previous intellectual models.

 

In place of institutions and economics, the new breed of scholars put culture, consciousness, community, agency, and resistance at the center of their analyses. In rushed two generations of engaged scholarship, freeing workers from prisons of party, union, and state. No longer intellectual pawns, the working class could have its own voice and reveal its own rich complexity. Liberated history, so the assumption went, would lead to liberated workers. And liberation became the project of the new labor history.

But this paradigm never quite escaped its origins in the political romanticism of the New Left that gave birth to it. At its best, it opened up wide vistas of understanding of the entirety of American history; at its worst, it looked like a cultural whirlpool of radicals writing radical history for a radical audience

 

. . .

 

Historians need to reconcile their intellectual frameworks with a "real-world" America that is a messy stew of populist, communitarian, reactionary, progressive, racist, patriarchal, and nativist ingredients. Any historical era has its own mix of these elements, which play in different ways. We should embrace Thompson’s admonition to understand class as a continuing, sometimes volatile happening, and not be blinded by our love affair with dissent as a left-wing movement. Trump voters are dissenters, after all.

My generation’s historiographical compass is left spinning. North is gone. But the white working class is out there. And we still really need to understand it.

Jefferson Cowie is a professor of history at Vanderbilt University. His most recent book is The Great Exception: The New Deal and the Limits of American Politics (Princeton University Press, 2016).

Redefine Statistical Significance
David Giles:  Econometrics Reading List for September 2017---
http://davegiles.blogspot.com/2017/09/econometrics-reading-list-for-september.html

What's the greatest tax loophole of all time?

Hint:  Lucky in law but not in love

Answer
https://www.accountingweb.com/tax/individuals/what-is-the-greatest-tax-loophole-of-all-time?source=tx091117

Jensen Comment
The word "greatest" must be taken in context. This may be super great for those who get to use it, but it may not be the "greatest" in terms of US Treasury aggregate losses.

What loophole costs the government the most aggregate losses?

Tax-exempt income is a good candidate, but probably not enough income that is legally tax exempt unless you consider the illegal  underground, unreported income as being "tax exempt." If you add total unreported income as being the biggest loophole you are probably correct, but I think the context of the article is that the loopholes must be legal loopholes.

In terms of legal loopholes I suspect (without doing a lick of research) that personal exemptions plus the standard deduction add up to the "greatest" aggregate loopholes. Virtually all taxpayers take advantage of both single and multiple-dependent exemptions ---
https://en.wikipedia.org/wiki/Personal_exemption_(United_States)

There are a lot of people 65 or older
In the past, there was an extra exemption when you reached age 65. Now, if you are age 65 or older on the last day of the year and do not itemize deductions, you are en-titled to a higher standard deduction. ... If you are married, you get an additional $1,200 standard deduction..

For nearly half of USA taxpayers any income tax owing after personal exemptions are deducted their tax owing is eliminated by the standard deduction "loophole" ---
https://en.wikipedia.org/wiki/Standard_deduction

This is especially important these days when Congress is considering a nationalized (single-payer) healthcare plan. Other nations in Europe and Canada that have national health care plans do not allow half their taxpayers off the hook when it comes to paying for "free" health treatments and medications. If the USA national health plan is to be paid for mainly with income taxes than the USA should no longer let half the taxpayers pay no income tax. Something will have to be done about the personal exemption and standard deduction loopholes.

An Old and Controversial Classic
A Comparison of Dividend, Cash Flow, and Earnings Approaches to Equity Valuation

SSRN
68 Pages Posted: 31 Mar 1997  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=15043 

Stephen H. Penman

Columbia Business School - Department of Accounting

Theodore Sougiannis

University of Illinois at Urbana-Champaign - Department of Accountancy

Abstract

Standard formulas for valuing the equity of going concerns require prediction of payoffs "to infinity" but practical analysis requires that they be predicted over finite horizons. This truncation inevitably involves (often troublesome) "terminal value" calculations. This paper contrasts dividend discount techniques, discounted cash flow analysis, and techniques based on accrual earnings when applied to a finite-horizon valuation. Valuations based on average ex-post payoffs over various horizons, with and without terminal value calculations, are compared with (ex-ante) market prices to give an indication of the error introduced by each technique in truncating the horizon. Comparisons of these errors show that accrual earnings techniques dominate free cash flow and dividend discounting approaches. Further, the relevant accounting features of techniques that make them less than ideal for finite horizon analysis are discovered. Conditions where a given technique requires particularly long forecasting horizons are identified and the performance of the alternative techniques under those conditions is examined.

JEL Classification: G12, M41

Suggested Citation: Suggested Citation

Penman, Stephen H. and Sougiannis, Theodore, A Comparison of Dividend, Cash Flow, and Earnings Approaches to Equity Valuation. Available at SSRN: https://ssrn.com/abstract=15043 or http://dx.doi.org/10.2139/ssrn.15043

Jensen Comment
None of approaches to equity valuation based only on financial statement numbers impress valuation experts very much because there are so many variables (positive and negative) affecting value that are not in the financial statement numbers or even in the financial statement disclosures (think the value of Apple Corporation human resources).

My favorite real-world teaching case on these issues is the Questrom case below that does a great job illustrating how the various valuations are computed for Federated Department Stores.

Bob Jensen's threads on valuation are at
http://faculty.trinity.edu/rjensen/theory02.htm#FairValue

John Cleese Makes a Stand Against Political Correctness ---
http://www.vulture.com/2017/09/john-cleese-monty-python-in-conversation.html

1,600 MOOCs (Massive Open Online Courses) Getting Started in September: Enroll Today ---
http://www.openculture.com/2017/09/1600-moocs-massive-open-online-courses-getting-started-in-september-enroll-today.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

Includes six courses in financial and forensic accounting

WSU professor says IRS is breaking privacy laws by mining social media ---
http://www.spokesman.com/stories/2017/aug/25/wsu-professor-says-irs-is-breaking-privacy-laws-by/

Mark Zuckerberg will testify in court later this month to defend his plan to create non-voting Facebook shares ---
http://www.businessinsider.com/mark-zuckerberg-to-testify-in-lawsuit-against-plan-to-create-non-voting-facebook-shares-2017-9

Jensen Common
The real issue is why people will buy non-voting common shares. Investors buy non-voting preferred shares because preferred shares often pay dividends at returns higher than bond rates while common shares are paying lower (think zero) dividends. There are also some possible advantages in bankruptcy, although these advantages disappear when even creditors cannot be fully paid off. The place for researchers to look non-voting common shares is in Europe where non-voting common shares are more popular (think Switzerland).

CPA executives concerned about hiring shortage ---
https://www.accountingtoday.com/news/cpa-executives-concerned-about-hiring-shortage

 IRS Frequently Asked Questions Can Be a Trap for the Unwary ---
https://taxpayeradvocate.irs.gov/news/irs-frequently-asked-questions-can-be-a-trap-for-the-unwary?category=Tax News

September 22, 2017 reply from Scott Bonacker

Friday, September 01, 2017

Federal Income Tax Statutes Supersede Treasury Regulations

From time to time, when teaching the basic federal income tax course, a student would approach and explain that he or she was confused because something in the assigned regulations was inconsistent with what was in the statute. The best example is the personal and dependency exemption deduction amount. Though changed from time to time when Congress amended the statute and when adjusted for inflation, the regulations continued to refer to a now outdated $600 amount. I explained to the student, and the class, that with a long list of regulations projects, editing an amount in a regulation was given low priority because it was something people could, and should, figure out for themselves. Confusion over the relationship between Internal Revenue Code and Treasury Regulations apparently is not limited to students in basic federal income tax courses. It popped up in a recent Tax Court case ...........

 

The full article is at the bottom of this page, if you can get through the well-written and informative articles that precede it:

http://mauledagain.blogspot.com/2017/09/

The state pension mess is even worse than you think due to hidden post-employment benefits.---
http://reason.com/blog/2017/09/20/the-hidden-700-billion-debt-owed-to-publ

EY:  FASB proposes clarifying the new guidance for recognizing and measuring financial instruments ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_05601-171US_CMTechCorrections_29September2017/$FILE/TothePoint_05601-171US_CMTechCorrections_29September2017.pdf

What you need to know 

• The FASB proposed amendments to the new guidance on recognizing and measuring financial instruments that would clarify that entities would use a prospective transition 
approach only for equity securities they elect to measure using the new measurement alternative. 

• The amendments would also clarify the guidance on how to apply the measurement alternative and the presentation requirements for financial liabilities measured under the 
fair value option. 

• The amendments would generally have the same effective date and transition requirements as the new guidance, which is effective 1 January 2018 for calendar year 
public business entities. 

• Comments are due by 13 November 2017. 

Overview The Financial Accounting Standards Board (FASB or Board) proposed1 clarifying aspects of the new guidance on recognizing and measuring financial instruments2 
in response to questions raised by stakeholders. The FASB decided to propose these amendments, along with proposed amendments to the new leases guidance, rather than include 
them among the narrow improvements it plans to propose for other standards, to raise awareness about these clarifications. The FASB plans to finalize the amendments before public 
companies adopt the new guidance next year. 

 

EY:  SEC Comments and Trends An analysis of current reporting issues September 2017 ---
http://www.ey.com/Publication/vwLUAssetsAL/SECCommentsTrends_05443-171US_25September2017/$FILE/SECCommentsTrends_05443-171US_25September2017.pdf

Every year, we closely monitor the Securities and Exchange Commission (SEC) staff’s comments on public company filings to provide you with insights on its areas of focus. Understanding the SEC staff’s comments and trends can help you as you head into the year-end reporting season. However, each registrant’s facts and circumstances are different and require judgments about the appropriate accounting treatment and evaluations about materiality. Therefore, while this publication highlights areas where the SEC staff may comment, registrants should carefully consider their disclosures based on whether the information is material to investors.

The SEC continues to encourage registrants to streamline disclosures and make them more meaningful. In light of the Commission’s initiative regarding disclosure effectiveness in recent years, registrants should consider the following points when evaluating the trends in staff comments we highlight in this publication and whether to adjust their disclosures:

• The SEC staff often issues comments to obtain additional information when it believes that a company may not have complied with requirements, omitted information that may be material or provided disclosures that appear misleading to investors. That does not mean the staff has not reached a conclusion that the requested information is material. Registrants should consider the materiality of additional disclosures before including them solely to clear an SEC staff comment.

• Registrants should regularly evaluate whether their disclosures continue to be material to investors as their facts and circumstances change. That is, they may eliminate immaterial disclosures even if they were included in prior filings in response to an SEC staff comment.

• Registrants should improve their disclosures by eliminating repetition and focusing on more meaningful discussion. For example, management’s discussion and analysis (MD&A) disclosure of critical accounting estimates often repeats disclosure from the significant accounting policies footnote without providing additional insight into the judgments and uncertainties underlying management’s estimates.

You can use this publication to identify topics where the SEC staff may challenge the accounting treatment or request enhanced disclosure. In all cases, we encourage companies to include a disclosure only when it is material to users.

 The SEC staff continues to focus on many of the same topics that we highlighted last year. The following chart summarizes the top 10 most frequent comment areas in the current and previous years.

EY:  Updated FRD on statement of cash flows ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_42856_CashFlows_26September2017/$FILE/FinancialReportingDevelopments_42856_CashFlows_26September2017.pdf

. . .

Effects of recent accounting standards updates (updated August 2017)

Significant updates reflected in this publication

ASU 2016-15 In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses certain issues where diversity in practice was identified and may change how an entity classifies certain cash receipts and cash payments on its statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. 

This guidance will generally be applied retrospectively and is effective for public business entities (PBEs) for fiscal years beginning after 15 December 2017, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019. Early adoption is permitted.

All of the amendments in ASU 2016-15 are required to be adopted at the same time. To the extent an entity has previously adopted an accounting policy for a transaction that is now specifically addressed by the amendments in ASU 2016-15, a change to that policy prior to adoption of this update would be subject to a preferability assessment and would require retroactive adjustment of prior period financial statements.

ASU 2016-18 In November 2016, the FASB issued ASU 2016-18 which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, this guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements.

Entities will also have to disclosure the nature of their restricted cash and restricted cash equivalent balances, which is similar to the requirement under Securities and Exchange Commission (SEC) Regulation S-X, Rule 5-02.1.

For PBEs, the guidance is effective for fiscal years beginning after 15 December 2017, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019. Early adoption is permitted. Early adoption in an interim period is permitted, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. 

Entities will be required to apply the guidance retrospectively when adopted and provide the relevant disclosures in ASC 250, in the first interim and annual periods in which they adopt the guidance. 

Other updates reflected in this publication The FASB issued additional updates, summarized in the following table, that modify the guidance in ASC 230. This publication has been updated to reflect the amendments to ASC 230 resulting from these standards.

1 Overview and scope

Financial reporting developments Statement of cash flows | 6

ASU Effective dates1 Early adoption permitted? 2015-07, Fair Value Measurement (Topic 820), Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (P) 16 December 2015 (N) 16 December 2016 Yes 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (P) 16 December 2017 (N) 16 December 2018 Non-PBEs can early adopt the ASU at the same time as PBEs, and both PBEs and non-PBEs can early adopt certain provisions. 2016-02, Leases (Topic 842) (P) 16 December 2018 (N) 16 December 2019 Yes 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (P) 16 December 2016 (N) 16 December 2017 Yes, should be applied as of the beginning of the fiscal year 2016-14, Not-for-Profit Entities (Topic 958) (P) 16 December 2017 (N) 16 December 2017 Yes, only for a fiscal period or the first interim period within the fiscal year of adoption 1  The update is effective for fiscal years beginning on or after the date included in the table. (P) refers to PBEs and (N) refers to all other entities.

The SEC recently issued Rule No. 33-9616, Money Market Reform; Amendments to Form PF, which amends its rules for money market funds. The rule changes may impact which investments in prime money market funds, including institutional money market funds are classified as cash equivalents. The compliance date for the floating net asset value, liquidity fee and redemption restriction requirements is October 14, 2016. Refer to section 2.2.3, Short-term paper, for further discussion of the amended requirements.

Updates not reflected in this publication

ASU 2016-13 The FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which amends the guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities and includes minor amendments to the guidance in ASC 230. ASU 2016-13 is not yet effective for any entity and early adoption is not yet permitted. Accordingly, this publication has not been updated to reflect the amendments resulting from ASU 2016-13. 

ASU 2016-13, will be effective for PBEs that meet the definition of an SEC filer for annual reporting periods beginning after 15 December 2019 (2020 for calendar-year public entities) and interim periods therein. For other PBEs, the standard will be effective for annual reporting periods beginning after 15 December 2020 and interim periods therein. For all other entities, the standard will be effective for annual reporting periods beginning after 15 December 2020, and interim periods within annual reporting periods beginning after 15 December 2021. Early adoption is permitted for all entities for annual periods beginning after 15 December 2018 and interim periods therein.

EY:  Updated FRD on statement of consolidation ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_02856-161US_Consolidations_28September2017/$FILE/FinancialReportingDevelopments_02856-161US_Consolidations_28September2017.pdf

Jensen Comment
This is a very technical document that's difficult to summarize

EY:  Accounting for the Effects of Natural Disasters

What you need to know

• Companies need to consider a number of potential financial reporting effects under US GAAP following a natural disaster.

• Assets may be impaired, either directly or indirectly, and companies should evaluate whether they need to provide additional disclosure.

• Companies need to keep in mind that anticipated insurance proceeds up to the amount of loss recognized are considered insurance recoveries and accounted for only when they are deemed probable. Anticipated insurance proceeds in excess of recognized losses are gain contingencies.

• Companies should consider whether changes in the probability of forecasted transactions occurring at the same time and in the same amounts as they initially expected affect their ability to use hedge accounting. 

• Companies affected by a natural disaster should contact the SEC staff if they want to seek relief from filing deadlines and other SEC regulatory requirements.

Overview When a natural disaster strikes, companies often have questions about how to account for the effects under US GAAP. This publication provides an overview of some of the accounting and reporting guidance that companies directly and indirectly affected by hurricanes such as Harvey and Irma, the recent earthquake in Mexico and other natural disasters should consider.

Jensen Comment
This probably applies to physical disasters in general and not just those deemed "natural" disasters.

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

EY:  Comment letter on the FASB’s proposal for targeted improvements to related party guidance for Variable Interest Entities (VIE) ---
http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_04965-171US_RPVIEs_31August2017/$FILE/CommentLetter_04965-171US_RPVIEs_31August2017.pdf

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

Quiz:  How much do you know about Medicare?
https://www.journalofaccountancy.com/news/2017/sep/medicare-quiz.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=19Sep2017
Click the Submit button for more questions

 In a conventional linear regression model, measurement errors in the dependent variable are not a biog deal. However, the situation is quite different with Logit, Probit, and the LPM.
David Giles, September 22, 2017
http://davegiles.blogspot.com/2017/09/misclassification-in-binary-choice.html

Wells Fargo bank teller stole nearly $200,000 from a customer and spent it on a down payment for his home and several vacations ---
http://www.businessinsider.com/wells-fargo-bank-teller-stole-185000-from-homeless-customer-2017-9

Five years on: Korea sees benefits of IFRS adoption ---
http://www.globalaccountantweb.com/five-years-on-korea-sees-benefits-of-ifrs-adoption/

IASB proposes changes around accounting policies and estimates ---
https://www.journalofaccountancy.com/news/2017/sep/iasb-changes-accounting-policies-estimates-201717430.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=20Sep2017

 The Atlantic:  The History of Sears Predicts Nearly Everything Amazon Is Doing ---
https://www.theatlantic.com/business/archive/2017/09/sears-predicts-amazon/540888/

Exploiting the Medicare Tax Loophole ---
http://taxprof.typepad.com/taxprof_blog/2017/09/burke-exploiting-the-medicare-tax-loophole.html

. . .

Section 1411 imposes a 3.8 percent surtax on investment income of high earners that mirrors Medicare taxes on earned income. The enactment of the net investment income tax highlights gaps in the employment tax rules for passthrough entities — particularly limited partnerships, S corporations, and limited liability companies. This article considers how businesses can be structured to allow active high-income owner-employees of passthrough entities to avoid all three of the 3.8 percent Medicare taxes (SECA, FICA and section 1411).

Continued in article

Corporate Philanthropy and the Cost of Equity Capital: An Examination of Major Philanthropic Gifts

SSRN
50 Pages Posted: 21 Sep 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040170   

J. Scott Judd

University of Illinois at Chicago

Stephen J. Lusch

Texas Christian University - Department of Accounting

Date Written: September 19, 2017

Abstract

Using a dataset of substantial corporate philanthropic gifts, we examine whether corporate philanthropy is associated with a firm’s cost of equity capital. On one hand, philanthropy is an allocation of shareholder returns to a third party resulting in lower cash flows. On the other hand, corporate philanthropy may increase public perceptions of the firm resulting in higher cash flows. Given these competing predictions, the effect of corporate philanthropy on the cost of equity is unclear. Our primary findings indicate that higher levels of corporate philanthropy are associated with a higher cost of equity capital and that this relation is mitigated among firms that are able to use corporate giving as a marketing tool and that have lower agency costs. Furthermore, our findings are robust to accounting for endogeneity using propensity score matching and Heckman’s two-stage procedure. Overall, our findings suggest that corporate philanthropy negatively affects a firm’s external financing costs.

Jensen Comment
It's virtually impossible in most instances to measure the long-term benefits of corporate philanthropy. There are many, many contingencies. For example, a humanitarian gift to Puerto Rico after Hurricane Maria may negatively affect cost of capital in the short run. But who knows what might happen down the road in the long term. For example, years from now Puerto Rico might achieve statehood in the USA. The kids a company helped keep from starving in 2017 may remember the generous company years later, especially any who are eventually elected to Congress. The company is not likely to give expecting such unknown and highly unlikely benefits. But companies often recognize that there can be such benefits from reputation enhancement giving.

The Bright Side of Fair Value Accounting: Evidence from Private Company Valuation

SSRN
50 Pages Posted: 21 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040396

Nicholas Crain

Vanderbilt University - Finance

Kelvin Law

Nanyang Technological University (NTU)

Date Written: September 21, 2017

Abstract

Using proprietary quarterly reports from a large sample of private equity managers, we examine how fair value accounting standards influence the valuations of private companies. We find that after fair value implementation, fund managers are more likely to update the valuations of portfolio companies and lower the magnitude of upward valuation across all quarters. Valuation error is also smaller and less volatile after the implementation, especially among outperforming and mature companies. Our findings show that fair value accounting improves the quality of individual valuations to investors, even when these valuations are subjective and unverifiable.

Keywords: Fair Value; Private Equity; Valuation; Private Company

 Cross-Firm Real Earnings Management

SSRN
46 Pages Posted: 20 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3039038

Eti Einhorn

Tel Aviv University - Faculty of Management

Nisan Langberg

University of Houston - C.T. Bauer College of Business; Tel Aviv University

Tsahi Versano

Tel Aviv University - The Leon Recanati Graduate School of Business Administration

Date Written: September 18, 2017

Abstract

Bob Jensen's threads on creative accounting and earnings management are at
http://faculty.trinity.edu/rjensen/theory02.htm#Manipulation

Earnings Management in Interconnected Networks: A Perspective

Journal of Economic and Administrative Sciences Vol. 33 No. 2

SSRN
21 Pages Posted: 20 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3038925

Peterson K. Ozili

University of Essex - Essex Business School

Date Written: 2017

Abstract

This article examine how firms manage earnings when firms are in interconnected networks, that is, when firms are interconnected to each other in a way that the survival of one firm is crucial to the survival of other firms connected to it. The article employs network typology to provide some insight on the earnings management behaviour of firms in regulated and unregulated networks or systems. We find that firms in the inner core of interconnected networks are more likely to rely on income smoothing behaviour as a preferred form of earnings management because it stabilises the firm’s link with other firms in the network. In regulated networks, we propose a negative relationship between a firm’s network centrality and the number of earnings management strategies the manager can adopt. Also, we propose a positive relationship between a firm’s network centrality and the propensity to smooth earnings or income when firms are concerned about their reputation or regulatory scrutiny. This article is a brief note on earnings management, and an attempt provide a perspective on how earnings management can be explained using a network typology.

Economic Consequences of Financial Reporting and Disclosure Regulation: A Review and Suggestions for Future Research

SSRN
91 Pages Posted: 13 Mar 2008 Last revised: 7 May 2008
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1105398

Christian Leuz

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

Peter D. Wysocki

Boston University Questrom School of Business

Date Written: March 2008

Abstract

This paper surveys the theoretical and empirical literature on the economic consequences of financial reporting and disclosure regulation. We integrate theoretical and empirical studies from accounting, economics, finance and law in order to contribute to the cross-fertilization of these fields. We provide an organizing framework that identifies firm-specific (micro-level) and market-wide (macro-level) costs and benefits of firms' reporting and disclosure activities and then use this framework to discuss potential costs and benefits of regulating these activities and to organize the key insights from the literature. Our survey highlights important unanswered questions and concludes with numerous suggestions for future research.

Keywords: Accounting, Asymmetric information, Capital markets, Institutional economics, International, Mandatory disclosure, Political economy, Regulation, Standards

JEL Classification: D78, D82, G14, G18, G30, G38, K22, K42, M41, M45

Tax Related Implications of Fair Value Accounting

Forthcoming in: The Routledge Companion to Fair Value in Accounting and Reporting, Edited by: Livne, Gilad and Garen Markarian. London: Routledge

SSRN
23 Pages Posted: 18 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3036857

Kay Blaufus

Leibniz Universität Hannover

Martin Jacob

WHU - Otto Beisheim School of Management

Date Written: September 14, 2017

Abstract

The Effect of Mandatory Disclosure on Market Inefficiencies: Evidence from Statement of Financial Accounting Standard Number 161

SSRN
55 Pages Posted: 15 Sep 2017 Last revised: 17 Sep 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3035887

John L. Campbell

University of Georgia - J.M. Tull School of Accounting

Urooj Khan

Columbia Business School - Accounting, Business Law & Taxation

Spencer Pierce

Florida State University - College of Business

Date Written: September 12, 2017

Abstract

Prior research finds that unrealized gains/losses on cash flow hedges are negatively associated with future earnings. However, equity investors and analysts fail to anticipate this association. These studies speculate that the mispricing is due to poor derivative disclosures. In this study, we examine whether the enhanced mandatory derivatives disclosures set forth in FAS 161 improve users’ understanding of firms’ hedging activities, and offer two main findings. First, we find no evidence of mispricing after FAS 161, suggesting that enhanced mandatory derivative disclosures helped correct investors’ understanding of the implication of unrealized cash flow hedge gains/losses for future firm performance. Second, we find that analysts’ forecasts exhibit less error related to cash flow hedges after FAS 161, suggesting that these enhanced disclosures improve the information environment for sophisticated information intermediaries. In additional analysis, we find that the reduction in mispricing holds regardless of a firm’s institutional ownership level, suggesting that the additional disclosures appear to have benefited all investors regardless of their sophistication. Overall, our results suggest that the enhanced mandatory derivative disclosures required by FAS 161 improved investors’ and analysts’ understanding of the effects of derivative and hedging activities on future firm performance and firm value.

Yuji Ijiri: Accounting for a Better Society

SSRN
7 Pages Posted: 15 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3033979

Shyam Sunder

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

Date Written: May 13, 2017

Abstract

Yuji Ijiri was a polymath and pioneer who gave us better understanding and methods of accounting and management. His theories of measurement, aggregation, and double- and triple-entry bookkeeping built an enduring foundation for the discipline and practice of accounting.

Keywords: Yuji Ijiri, accounting, aggregation, historical cost, double-entry, triple-entry bookkeeping, Carnegie Mellon University

Direct Evidence on the Informational Properties of Earnings in Loan Contracts

Journal of Accounting Research, Vol. 55, No. 2, 2017

SSRN
Posted: 15 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3036051

Scott Dyreng

Duke University

Rahul Vashishtha

Duke University

Joseph Weber

Massachusetts Institute of Technology (MIT) - Sloan School of Management

There are 2 versions of this paper

Direct Evidence on the Informational Properties of Earnings in Loan Contracts

Journal of Accounting Research, Forthcoming

Number of pages: 50 Posted: 12 Sep 2014 Last Revised: 02 May 2017

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Direct Evidence on the Informational Properties of Earnings in Loan Contracts

Journal of Accounting Research, Vol. 55, No. 2, 2017

Posted: 15 Sep 2017

You are currently viewing this paper

Date Written: May 1, 2017

Abstract

Using a sample of firms that disclose the realizations of earnings used for determining covenant compliance in loan contracts, we provide direct evidence on the informational properties of earnings used in the performance covenants included in debt contracts. We find that the earnings measure used in performance covenants does not exhibit asymmetric loss timeliness and has significantly greater cash flow predictive ability than GAAP measures of earnings. We suggest that these results reflect the idea that contracting parties design accounting rules for performance covenants to enhance their efficacy as “tripwires.”

Keywords: earnings properties; debt contracts; cash flow prediction; conservatism

A Reexamination of U.S. Corporate Tax Avoidance Over the Past Twenty-Five Years: Estimating Corporate Tax Avoidance with Accounting-Based Measures

SSRN
21 Pages Posted: 14 Sep 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3035592  

Noel P Brock

Eastern Michigan Univeristy

Roy Clemons

New Mexico State University

Adam Nowak

West Virginia University

Date Written: August 18, 2017

Abstract

Dyreng et al. (2017) find that the effective tax rates for both foreign and domestic corporations have steadily declined over the past quarter century. However, contrary to conventional wisdom, the authors also find that U.S. multinational corporations do not have a tax-based cost advantage relative to their domestic counterparts. We investigate this unexpected finding by reexamining corporate income taxes over the past quarter century employing an alternative tax avoidance measure developed by Henry and Sansing (2014). The authors measure addresses both sample selection bias and measurement error that exists when using income as the denominator when calculating effective tax rates. Using the Henry and Sansing (2014) measure of tax avoidance, we find that U.S. multinational corporations do have a tax-based cost advantage relative to their domestic counterparts. Thus, sample selection bias is a plausible explanation for the unexpected tax-based cost advantage of US domestic firms reported in prior research.

Keywords: Multinational Corporations, Effective Tax Rate, Cash Effective Tax Rate, Corporate Tax Avoidance

The Effects of Derivatives Use on Management Forecast Behavior

SSRN
49 Pages Posted: 12 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3034651

John L. Campbell

University of Georgia - J.M. Tull School of Accounting

Sean Cao

Georgia State University - School of Accountancy

Hye Sun Chang

Singapore Management University - School of Accountancy

Raluca Chiorean

Lehigh University - Department of Accounting

Date Written: September 9, 2017

Abstract

Prior research examines the reasons that managers decide to voluntarily disclose information, but does little to examine whether a manager’s day-to-day operational decisions influence disclosure choice. In this study, we fill this void by examining whether a particular operational activity – risk management through the use of derivatives – affects whether a manager decides to issue an earnings forecast. Using a hand-collected sample of derivatives users and non-users, we find that derivatives users are more likely to issue earnings forecasts relative to non-users. We then find that this result is stronger when firms use derivatives to reduce the volatility of earnings, making it easier to predict (and meet) future earnings amounts. However, we find no evidence that managers provide these forecasts due to investor demand. In additional analyses, we find that not only are derivatives users more likely to issue management forecasts but these forecasts are also more precise and accurate. Overall, our results suggest that operational decisions can influence management forecast policy, but only when these decisions make it easier for the manager to forecast (and meet) those forecasts.

The Development of the Management Accountant's Role Revisited: An Example from the Swedish Social Insurance Agency

Forthcoming in Financial Accountability & Management

SSRN
Posted: 7 Sep 2017  
 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3028843

Mikael Holmgren Caicedo

Stockholm Business School, Stockholm University

Maria Martensson

Stockholm University - School of Business

Kristina Tamm Hallström

Stockholm School of Economics

Date Written: September 4, 2017

Abstract

This study traces the development of the management accountant (MA) role at the Swedish Social Insurance Agency (SIA). In 2012, the agency began a reformation by implementing the Lean management system in hopes of increasing customer trust. The results of this study show that the authority of the MA rests on decentralisation and the proximity of MAs to managers, as previous research has shown, and more specifically on a definitional and a moral prerogative that may or may not be awarded to MAs enabling them to act as de facto managers. The study shows how the role of the SIA’s operative level MAs changed into a helpdesk function with the role of assisting other groups to help themselves, in this case operative-level teams that had begun performing management accounting tasks. Thus, this study bears witness not to the expansion and hybridisation of existing MA roles, but to the reduction in authority and de-hybridisation of the MA role, from business partner to a pedagogical role on a consultative basis.

Keywords: Bean counter, Business partner, Lean, Management accountant, NPM

JEL Classification: M4

Predicting Stock Market Returns with an Accounting Factor

SSRN
83 Pages Posted: 31 Aug 2017 Last revised: 17 Sep 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3029049

Louis Yang

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: August 30, 2017

Abstract

A predictive factor constructed from aggregate accounting variables robustly predicts month-ahead stock market returns. The factor obtains out-of-sample R-squared statistics of up to 3.05% and the predictive performance is economically large with mean-variance investors being willing to pay an annual fee of up to 6.81% for access to its forecasts. Furthermore, its predictive ability is higher for short-term returns and it is distinct from other predictors in the forecasting literature. Using Google search volume of stock tickers, we demonstrate that the predictive power stems from slow information diffusion due to investor inattention.

Keywords: forecasting, prediction, stock returns, accounting, out-of-sample, investor attention, Google search

Lean Accounting Comes to Lean Software Development

Seventh International Engaged Management Scholarship Conference

Fox School of Business Research Paper No. 17-030

SSRN
33 Pages Posted: 29 Aug 2017 Last revised: 18 Sep 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3027684

Thomas W. Stone

Temple University - Fox School of Business and Management; Penn State Abington

Date Written: September 8, 2017

Abstract

I argue that lean software development firms become more productive if they align their lean managerial accounting systems and lean software development processes. I conduct an experiment on software development teams that have used lean and agile software development practices. A treatment group is re-trained in lean software development practices, and after three months, the productivity of the treatment group is compared to that of a control group that did not receive this re-training. This first phase (Phase 1) estimates the productivity improvements from using lean software development practices. Results from Phase 1 indicate that these practices shorten average production time by 80% in software development. In the second phase (Phase 2), a treatment group will be exposed to new lean management accounting measures for three months while a control group will only see existing reported metrics. Software development productivity will be measured for both groups before and after this exposure to evaluate the impact of the treatment. I will also survey both groups before and after treatment to evaluate how lean management accounting measures affect employee engagement and empowerment. The experimental site is a large publicly traded software firm that uses lean and agile software development practices.

From the CFO Journal's Morning Ledger on September 28, 2017

VW to take new, $2.9 billion charge
Volkswagen AG warned Friday its third-quarter operating result would take a hit of around €2.5 billion ($2.94 billion), as the company continues to grapple with the fallout of the diesel emissions scandal that erupted two years ago. The new costs stem from an increase in provisions for buyback and retrofitting programs of its 2.01 TDI vehicles in North America.

From the CFO Journal's Morning Ledger on September 22, 2017

Greece finances stabilized, says EU
The EU decided on Monday to end disciplinary procedures against Greece over its excessive deficit, a sign of the progress the country has made in bringing order to its public finances.

There have been at least 123 database breaches disclosed to the SEC by companies that file with the SEC since 2008 --- Now the SEC has itself been breached 

From the CFO Journal's Morning Ledger on September 22, 2017

Good morning. The U.S. Securities and Exchange Commission’s disclosure that its Edgar system was breached in 2016 drew swift response from senior officials who were unaware for months of the incident, and criticism for both its timing and lack of detail, write Tatyana Shumsky, Dave Michaels and Jean Eaglesham.​ 

The SEC Inspector General’s office is investigating the source of the hack and whether any illegal trading occurred as a result of the breach, said Raphael Kozolchyk, a spokesman for the office, late Thursday.

It's an awkward twist for a regulator that has been pushing public companies to both gird against attacks and to promptly disclose them, writes Ms. Shumsky. The response could undermine the agency’s own efforts to push public companies to educate investors on cyberrisks and more swiftly disclose cyberbreaches to the public. It also opens up a discussion among legal and technology experts on the SEC’s vulnerability and underscores the necessity for tighter cybersecurity controls at both the regulatory and company level, according to the WSJ's CIO and CFO Journal.

“A federal governmental agency has a particular responsibility to be transparent,” said former SEC Commissioner Luis Aguilar, who now works for a private-equity firm, Falcon Cyber Investments LLC, which invests in cybersecurity projects. “Particularly an agency that expects “full and fair disclosure” from publicly traded companies.”

The top U.S. financial regulator on Wednesday evening reported that hackers exploited “a software vulnerability in the test filing component” last year to gain access to nonpublic information within the Electronic Data Gathering, Analysis, and Retrieval System, known as Edgar.

The SEC’s statement also notes that hackers attempted “to compromise the credentials of authorized users.” Usernames and passwords used by companies to upload their documents to Edgar may have been compromised, explained Shuman Ghosemajumder, chief technology officer at Shape Security, a company focused on identifying and shutting down attacks and fraudulent activity against apps and websites.

“When a breach like this occurs, everyone wants to know how it happened and how to prevent it from happening again,” said Mr. Ghosemajumder, a former engineer at Alphabet Inc.’s Google who led the search engine’s defense against click fraud.

There have been at least 123 breaches disclosed to the regulator by companies that file with the SEC since 2008, according to Audit Analytics. “Companies are rightly asking themselves what the SEC is doing to protect their data--the very same questions that the SEC has been asking them for years," said Paul Rosen, a partner with Crowell & Moring LLP. "This breach is potentially a game-changer for the SEC and how it executes its mission."

SEC Filings Database Hacked
From the CFO Journal's Morning Ledger on September 21, 2017

Good morning. The U.S. Securities and Exchange Commission -- the country’s top market regulator -- said Wednesday that hackers gained access to its electronic system for public-company filings last year and may have traded on the information, writes WSJ’s Dave Michaels.

The SEC’s chairman, Jay Clayton, disclosed the breach in a lengthy statement that didn’t provide many details about the intrusion, including the extent of any illegal trading.

The SEC said it was investigating the source of the hack, which exploited a software vulnerability in a part of the agency’s Edgar system, a comprehensive database of filings made by thousands of public companies and other financial firms regulated by the agency.

The commission said the hack was detected in 2016, but that regulators didn’t learn about the possibility of related illicit trading until August, when they started an investigation and began cooperating with what the SEC called “appropriate authorities.”

From the CFO Journal's Morning Ledger on September 20, 2017

Fiat Chrysler recalls nearly a half-million trucks
Fiat Chrysler Automobiles NV issued a recall for nearly a half-million Ram pickup and work trucks to fix faulty pumps that could cause overheating and engine fires, the second major truck recall this year by the auto maker.  

Jensen Comment
Consumer Reports alleges that the three least reliable vehicles on the road are all made by Chrysler (since Yugos are no longer available);. The least reliable is a Fiat followed by Jeeps and Dodge Ram trucks. My Jeep Cherokee was the least reliable car I ever owned.

From the CFO Journal's Morning Ledger on September 20, 2017

Good morning. The average cost of health coverage offered by U.S. employers rose to around $19,000 for a family plan this year, while the share of firms providing insurance to workers continued to fall, writes WSJ’s Anna Wilde Mathews.

Annual premiums rose 3% to $18,764 for an employer plan in 2017, from $18,142 last year, the same rate of increase as in 2016. The trend of relatively gradual premium increases has continued for several years, with the growth of premiums damped by a shift toward bigger out-of-pocket costs for employees in the form of high deductibles—a move that slowed this year, as average deductibles were roughly flat compared with 2016.

Still, the rise of premiums over time has resulted in family health plans that can annually cost more than a new car, with the cost split between firms and employees. Employees paid on average $5,714, or 31%, of the premiums, for a family plan in 2017. For an individual worker, the average annual cost of employer coverage was $6,690 in the 2017 survey, or 4% higher than last year, with employees paying 18% of the total.

Bob Jensen's threads on health coverage are at
http://faculty.trinity.edu/rjensen/Health.htm

From the CFO Journal's Morning Ledger on September 16, 2017

Flush with cash
Prosecutors in Geneva are trying to figure out why two women flushed roughly €100,000 ($119,000) in cut-up €500 bank notes down a toilet at a UBS Group AG branch in the Swiss city as well as in toilets at three neighboring restaurants back in May.

Jensen Comment
Forensic accountants should look into whether this was "channel stuffing." Or maybe this was their version of debt forgiveness.

Best guess:  The toilet paper dispensers were empty. When I lived in Bangor a local business club (called City Club) snow mobiled deep into the winter woods for an outing and a night of cards  In the morning the owner of the Case Dealership said he found a whole new use for one-dollar bills in his bill fold.

From the CFO Journal's Morning Ledger on September 16, 2017

KPMG cleared over HBOS audit 
The Financial Reporting Council -- the U.K. regulator for accounting and audit -- said it has closed the investigation into the conduct of KPMG LLP’s audit of defunct bank HBOS PLC for the year ended Dec. 31, 2017, writes Ms. Trentmann. “The firm’s work did not significantly fall short of the standards reasonably expected of the audit,” the FRC said in a statement.

HBOS in early 2008 concluded that its financial statements for the year in question should be prepared on a “going concern” basis. The company did not expect market conditions to worsen and assessed it would be able to fund itself. The auditor at the time accepted this conclusion. Nevertheless, HBOS in October 2008 had to apply for Emergency Liquidity Assistance from the Bank of England. It was taken over by Lloyds Banking Group PLC in 2009.

From the CFO Journal's Morning Ledger on September 16, 2017

Good morning. Toys ‘R’ Us Inc., once the go-to spot for birthday and holiday gifts, filed for chapter 11 bankruptcy protection late Monday night, the result of a hefty debt load and a rapid shift towards online shopping, write WSJ’s Lillian Rizzo and Suzanne Kapner.

The filing in the U.S. Bankruptcy Court for the Eastern District of Virginia was triggered by vendors and suppliers tightening terms with the company ahead of the key holiday selling season, which accounted for 40% of its $11.5 billion in revenue last year. For the past several years, the company has lost money in each quarter except its holiday quarter.

Like many other big-box chains, Toys ‘R’ Us struggled with the rise of discounters like Wal-Mart Stores Inc. and Target Corp., and more recently, Amazon.com Inc. It was late to develop and expand its e-commerce business and placed big bets on licensed toys for “Star Wars” and Lego movies that missed expectations.

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

IASB releases guidelines on how to judge materiality
The International Accounting Standards Board Thursday published guidelines for companies on how to make materiality judgements. The body behind International Financial Reporting Standards said some companies are unsure how to assess materiality and therefore use the disclosure requirements in IFRS standards as a checklist.

This means companies don’t necessarily provide information that is useful to investors. “We are trying to improve the disclosure and effectiveness of financial information provided by companies,” said Sue Lloyd, vice chair of the IASB. Thursday’s non-mandatory practice statement could result in companies providing less, but more targeted information, Ms. Lloyd said.

The IASB is also seeking comment on proposed amendments to the definition of ‘material’. This follows a move by the U.S. Financial Accounting Standards Board which in September 2015 published a proposal for a new materiality definition.

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

London still world’s top financial center, despite Brexit
London remains the world’s most attractive financial center, extending its lead over New York despite the U.K.’s plans to exit the European Union, according to a survey reported by Reuters. Meanwhile, more British firms plan to list on Nasdaq Inc.’s Nordic market, the head of European listings at the stock exchange told Bloomberg.

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

China to close bitcoin exchanges
Chinese authorities plan to shut down domestic bitcoin exchanges, delivering a final blow to a once-thriving industry of commercial trading for virtual currencies, which took off inside the mainland four years ago.

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

Equifax customer complaints keep piling up
Equifax Inc. struggled over the weekend with its response to its massive data breach as consumers continued to criticize the credit-reporting company’s efforts and cited ongoing problems with a website set up to help them.

From the CFO Journal's Morning Ledger on September 6, 2017

COSO to unveil new enterprise risk management guide
A new framework for considering risk management alongside everyday managerial duties is set to be released later on Wednesday.

The Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, overhauled its enterprise risk management guide to connect risk, strategic planning and corporate performance, said chairman Robert Hirth. Executives who fuse the principles and processes described in the guide with their existing strategy and planning efforts are likely to see improved corporate results, he said.

“You will find that you are meeting more of your objectives more of the time because you’re adding this discipline to what you’re already doing,” Mr. Hirth told CFO Journal

From the CFO Journal's Morning Ledger on September 5, 2017

Allianz says new IFRS standards will cost millions
German insurance giant Allianz SE estimates costs for the implementation of two new accounting standards to amount to several hundred- million euros, the firm's head of group accounting and reporting Roman Sauer told Ms. Trentmann. One of the new standards, called IFRS 17, goes in effect 2021, while the other one, IFRS 9, will already apply from Jan. 1, 2018 onwards

In the case of Allianz, the two standards will lead to the centralization of 30 to 40 different actuary platforms, Mr. Sauer said. Despite the cost, Mr. Sauer supports the changes, stating that they would make it easier for Allianz to communicate with investors. "We believe that IFRS 17 will increase the level of comparability in an industry that today often lacks comparability," Mr. Sauer said

From the CFO Journal's Morning Ledger on September 5, 2017

Tesco accounting trial adjourned, company says it’s ‘different’
Tesco PLC on Monday -- the first day of a trial over misstated profits -- said it has made changes to the way it operates, writes Ms. Trentmann. "Over the last three years, we have fundamentally transformed our business, and Tesco today is a very different company," a spokesman said. Three former senior executives of Britain's largest supermarket chain went on trial on Monday in a London court. The trial was later adjourned until Sept. 25. The former Tesco executives are accused of fraud and false accounting in relation to an interim results announcement published in August 2014 which overstated profits by £326 million ($421 million). Tesco entered into a settlement with U.K. regulators earlier this year.

From the CFO Journal's Morning Ledger on September 1, 2017

How to match job seekers with jobs (Yeah right)
The U.S. has a record number of job openings -- 6 million, just about one job for every officially unemployed person in the country. But matching job hunters with the right job can be difficult, reports NPR.

Continued in article

Jensen Comment
It's more complicated than matching job hunters with workers. A huge proportion of unemployed workers do not have the skills needed for jobs (think of job openings for computer programmers) or the talents and motivations to get those skills (think of the drug addicts, alcoholics, and mentally impaired). Complicating matters is that the open jobs are often in urban areas with high costs of living. Even middle class workers like teachers, public safety officers, and staff accountants cannot afford to fill those jobs without enduring horrible commutes and high relocation costs. Compounding this problem is the tendency today for both adults in a nuclear family wanting to be living together and employed.

When I was still on the faculty of Trinity University in San Antonio some of my accounting graduates found it easier to get job offers in San Francisco than in San Antonio. I think the reason was that a new hire in a CPA firm in San Francisco had to be willing to live with lots of roommates in order to afford housing. How much sleep can three people in one sleeping bag get on average?

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

Strong Capital Cushions Industry

By Nicole Friedman and Leslie Scism | Aug 28, 2017

TOPICS: balance sheet equation, Insurance Industry

SUMMARY: While the devastation to the Houston area is heart wrenching, nonetheless business people must discuss the financial implications of this event. The article describes the financial health of the for-profit insurance industry. In the print version of the WSJ, this article is a smaller inset to the related article which focuses on the National Flood Insurance Program. That Program faces poor financial condition and pending Congressional debate because of its upcoming expiration date of Sept. 30. In contrast to the reporting in the article, the related video may indicate that the extensive devastation could approach the level that analysts think is potentially damaging to the industry's financial health.

CLASSROOM APPLICATION: The article may be used to discuss the overall accounting equation and the insurance industry.

QUESTIONS: 

	1. (Advanced) Define the term "capital" as it is used in the opening paragraph of this article referring to a "fatter-than-ever capital cushion." Include in your answer an overall description of the balance sheet (accounting) equation and describe where capital is included in it.
	2. (Advanced) Do you agree with the authors' reference to capital as "the money they have on hand that isn't required to back obligations"? Explain your answer.
	3. (Introductory) The author argues that the effects of Hurricane Harvey are "unlikely to cause extensive damage to the industry's financial strength...." Why do they argue that the timing of losses for this catastrophic event is relatively fortuitous?
	4. (Advanced) Why is it possible to state that the losses from Harvey covered by private insurers "could hurt quarterly earnings for those carriers with blocks of business in hard-hit areas" yet still maintain that Hurricane Harvey is unlikely to hurt insurers' overall financial health?
	5. (Introductory) Refer to the related article. How does the health of the private insurance industry compare to the financial status of the National Flood Insurance Program?

READ THE ARTICLE

RELATED ARTICLES: 
New Dangers for Food Insurance
by Rachel Witkowski and Leslie Scism
Aug 28, 2017
Page: A5

Reviewed By: Judy Beckman, University of Rhode Island

"Strong Capital Cushions Industry," by Nicole Friedman and Leslie Scism, The Wall Street Journal, August 28, 2017 ---
https://www.wsj.com/articles/hurricane-harvey-unlikely-to-damage-insurers-balance-sheets-1503849284?mod=djem_jiewr_AC_domainid

Personal and commercial insurers have record levels of capital with which to absorb potential losses

The insurance and reinsurance industry has a fatter-than-ever capital cushion to absorb losses from Hurricane Harvey, executives and analysts say.

The damage from the Category 4 storm, which hit the Texas coast on Friday, is far from being tallied. It is the first major hurricane to make landfall in the U.S. in more than a decade, and torrential rain will continue this week to cause widespread flooding.

Harvey’s timing is good for insurers and insurance customers from one perspective: Personal and commercial insurers have record levels of capital, the money they have on hand that isn’t required to back obligations. With insurers’ overall strong capital position, Harvey is unlikely to cause extensive damage to the industry’s financial strength, though it could hurt quarterly earnings for those carriers with blocks of business in hard-hit areas.

Most residential flooding isn’t covered by private-sector insurers, but is the responsibility of the U.S. government’s National Flood Insurance Program. Many carriers, however, do sell flood insurance to businesses.

Analysts estimate it would take $100 billion or more of losses in a 12-month period to cause distress within the insurance industry. Hurricane Katrina in 2005, the costliest hurricane in U.S. history, caused nearly $50 billion in insured losses in 2016 dollars, according to Wells Fargo Securities LLC.

“You would need to see a significant level of insured losses to have an impact on the excess capital of the industry [and] have a material impact on the pricing environment,” said Elyse Greenspan, an analyst at Wells Fargo Securities last week.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

" , The Wall Street Journal, August , 2017 ---
Social Capital Hedosophia Holdings will seek a minority position in a private technology company

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

Tech Firms Offered Alternative to IPOs

By Maureen Farrell | Aug 24, 2017

TOPICS: Initial Public Offerings, Investments

SUMMARY: The article describes a new special purpose acquisition vehicle (SPAC) Social Capital Hedsophia Holdings Corp. The SPAC will meet with investors during the second week of September and launch its offering on the New York Stock Exchange (NYSE) in mid-September. The SPAC will raise funds from its own investors in order to offer a financing alternative to "richly valued technology startups." This type of arrangement is also known as asking investors to "write a blank check." In 2016, a SPAC acquired Hostess Brands, Inc. and one focused on energy-related entities "raised more than $1 billion for acquisitions." In total, $6.9 billion has been raised in 2017 through these vehicles which offer alternative financing to startup entities to avoid what are viewed as onerous regulatory requirements and too short-term public market focus on operating performance.

CLASSROOM APPLICATION: The article may be used when discussing the corporate form of business organization in a financial accounting course, when discussing IPOs and disclosure requirements for publicly-traded companies, or, in an intermediate or advanced accounting class, when discussing different methods of accounting for investments..

QUESTIONS: 

	1. (Introductory) What is an initial public offering (IPO)?
	2. (Advanced) What are the benefits of public ownership of a company's stock? Cite your source for this information.
	3. (Advanced) What are the "challenges of the traditional new-issue process"? Cite your source for this information.
	4. (Introductory) What is a special purpose acquisition vehicle, or SPAC? According to the article, who is investing in SPACs?
	5. (Advanced) How does use of a SPAC amount to asking investors to "write a blank check"?
	6. (Introductory) What is a minority interest in a company's stock? What alternative term is used in accounting for this level of equity ownership?
	7. (Introductory) What are the possible ways in which the SPAC could account for investments in nonpublic start up companies? Under what circumstances would each of these methods be used? Explain your answer.

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

"Tech Firms Offered Alternative to IPOs," by Maureen Farrell , The Wall Street Journal, August 24, 2017 ---
https://www.wsj.com/articles/new-trick-for-reluctant-tech-unicorns-bring-the-ipo-to-them-1503527296?mod=djem_jiewr_AC_domainid

Social Capital Hedosophia Holdings will seek a minority position in a private technology company

A group of Silicon Valley entrepreneurs plans to launch an investment vehicle that will offer a richly valued technology startup an alternative route to public ownership.

The group, led by Chamath Palihapitiya, chief executive of venture-capital firm Social Capital, plans to raise at least $500 million from public investors, according to a Securities and Exchange Commission filing Wednesday. The vehicle is to be known as Social Capital Hedosophia Holdings Corp.

The so-called special purpose acquisition vehicle, or SPAC, will then seek to take a minority position in one of the more than 150 private U.S. technology companies valued at $1 billion or more, according to the filing.

Such a deal would give the company in question a public currency without the need for a traditional initial public offering and some of the costs that come with one. The team is planning to meet with investors during the second week of September and launch the offering on the New York Stock Exchange in mid-September, people familiar with the matter said.

The idea, according to the people, is to give technology entrepreneurs a way to capture the benefits of public ownership without some of the challenges of the traditional new-issue process.

A number of tech entrepreneurs have grown wary of public ownership in recent years—because of the increased scrutiny it brings and what they view as the stock market’s short-term orientation—and have been able to avoid it because private funding sources have proliferated. That helps explains why the number of highly valued startups has ballooned.

Snap Inc. illustrates the perils of the traditional IPO in some entrepreneurs’ eyes—even though it is still very early in its life as a public company. The Snapchat parent made its debut in March and after an initial burst of investor enthusiasm the shares have sagged as competitive pressure ratchets up.

The new SPAC’s sponsors aren’t alone in exploring alternatives. Spotify AB, the music-streaming service, has been seriously considering a plan to go public later this year or early next year without raising money or using underwriters, through a rarely used process known as a direct listing. With this route, the Swedish company could save tens of millions of dollars in underwriting fees, which would represent an additional blow to a stock-selling business on Wall Street that has been under pressure in recent years.

On this SPAC, Credit Suisse AG is serving as the sole underwriter.

There is no guarantee, of course, that the group will succeed—either in raising the funds or finding an acceptable deal.

Unlike a traditional IPO, SPACs first raise money through a stock offering and then hunt for a deal on which to spend the funds raised.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

Large Companies Oppose Ideas for Taxing Overseas Profits

By Tatyana Shumsky | Aug 28, 2017

TOPICS: International Tax, Tax Reform

SUMMARY: The article discusses a Republican proposal to address taxation of profits on U.S. multinationals' foreign earnings. Part of the overhaul focused on lowering the corporate tax rate, one proposal is to implement a minimum tax on foreign earnings. Members of the Alliance for Competitive Taxation have reacted to the proposal because they argue that U.S. tax laws differing from worldwide tax laws would place them at a competitive disadvantage. The benefit of the minimum tax would be to create a "'safety net' against companies trying to pay little or no tax on some foreign income...." The related video is a very basic review of U.S. tax treatment of unrepatriated earnings but mentions some more substantive issues such as the fact that companies may hold cash generated from foreign earnings in U.S. dollars in order to avoid the impact of foreign currency fluctuations.

CLASSROOM APPLICATION: The article may be used in a corporate tax class to discuss unrepatriated foreign earnings or tax policy and the lobbying process with the example of foreign earnings.

QUESTIONS: 

	1. (Advanced) What are unrepatriated foreign earnings? Describe the general treatment of these corporate earnings in the U.S. tax code.
	2. (Advanced) How does U.S. tax treatment of earnings from foreign operations differ from the tax treatment in other countries?
	3. (Introductory) What is the Republican proposal on this matter of foreign earnings?
	4. (Introductory) What type of company is most likely to express concern about U.S. Congress's proposals to overhaul the tax code particularly in relation to earnings from overseas?
	5. (Introductory) Which of these companies are cited in the article? How have they organized to express their views to the U.S. Congress?

READ THE ARTICLE

 

VIEW THE VIDEO

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Large Companies Oppose Ideas for Taxing Overseas Profits," by Tatyana Shumsky, The Wall Street Journal, August 28, 2017 ---
https://blogs.wsj.com/cfo/2017/08/28/the-morning-ledger-large-companies-oppose-ideas-for-taxing-profits-overseas/

As Congressional Republicans try to write new tax rules, a group of large, influential companies is warning against the provision on taxing foreign profits, writes WSJ’s Richard Rubin.

Republicans want to lower the corporate-tax rate and let companies bring future global profits home without paying U.S. taxes on top of foreign taxes. One alternative Republicans are considering is a minimum tax on those profits. But such a tax would have “unintended and adverse consequences,” said the business group, in a previously undisclosed policy paper to lawmakers this month. Companies in the group include Eli Lilly & Co., United Technologies Corp. and United Parcel Service Inc.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

Pay Down the Mortgage, Forgo Gains?

By Jo Craven McGinty | Aug 26, 2017

TOPICS: Personal Taxation, Time Value of Money

SUMMARY: This article in the WSJ series "The Numbers" addresses the personal finance question of whether to use a substantial amount of funds sitting in a savings account to pay off a mortgage. The article raises the behavioral concern of risk preference of the individual taxpayer and individual market driven factors such as investment horizon and individual income tax rates. Several finance professors are cited, one focusing on only the interest rate comparison between earnings on the savings and the cost of the mortgage and the others introducing behavioral and other individual specific aspects of market factors such as individual income tax rates.

CLASSROOM APPLICATION: The article may be used when covering the time value of money in a financial accounting class, the impact of taxation on analysis of financial questions, or in a personal finance class.

QUESTIONS: 

	1. (Advanced) Why does the author say that a financial question about whether to pay down a mortgage is a "personality test"?
	2. (Introductory) University of Washington Professor Andrew F. Siegel says that the question of whether or not to use long term savings to pay down a mortgage depends on one factor. What is that one item? What is the reasoning behind that statement?
	3. (Introductory) What is an alternative view from Professor Pedram Nezafat of Michigan State University? What two factors does Dr. Nezafat say influences this decision?
	4. (Advanced) How does taxation impact the comparison made by both professors cited in the article?

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Pay Down the Mortgage, Forgo Gains?" by Jo Craven McGinty, The Wall Street Journal, August 26, 2017 ---
https://www.wsj.com/articles/is-money-in-the-bank-always-the-smarter-bet-1503662401?mod=djem_jiewr_AC_domainid

For a homeowner, a fat savings account might indicate it’s time to weigh other options for that cash

Here’s a personality test masquerading as a financial question:

Suppose you are a homeowner who has a substantial amount of money sitting in a traditional savings account. Should you use it to pay down your mortgage?

“The surprise here is that when deciding whether or not to use long-term savings to pay down your mortgage, you can simply compare the interest rates to one another,” said Andrew F. Siegel, a statistics and finance professor at the University of Washington Foster School of Business, in Seattle. “If your mortgage rate is bigger than your savings rate, then you should reasonably consider paying down the mortgage.”

That sounds sensible, especially with savings accounts currently earning around 1% in interest on average and mortgages costing around 4%.

But in real life, there’s more to the question.

It may make more sense to pay down credit-card debt or an automobile loan that carries a higher interest rate than a mortgage. Or it could be more advantageous, though riskier, to seek greater financial reward in the stock market.

“There’s really no cookie cutter answer,” said Erin Lantz, vice president of mortgages at Zillow, an online real estate marketplace. “On one hand, it can be attractive to pay off debt. Another way to think about it is to compare what you pay on your mortgage with other investment opportunities.”

Ms. Lantz suggested asking yourself the following questions.

How much cash do you want to have on hand in case of an emergency? Are you paying a higher interest rate on other debt than you are paying on your mortgage? And what is your appetite for risk?

“The question is closely related to the concept of portfolio choice,” said Pedram Nezafat, a professor of finance at Michigan State University.

The historical annual average return for the equity market, Dr. Nezafat said, has been about 9.5%, while the return for the bond market has been about 3.5%. These two asset classes have different risk profiles, and depending on risk tolerance and the investment horizon, investors will allocate different amounts to each class.

Likewise, a portfolio that contains both cash and a home is more diversified than one with only a home.

“It is true that the expected rate of return in the bond market is smaller than the one in the equity market, but you hold bonds because they are not as risky as equities,” Dr. Nezafat said. “You may want to hold on to your cash and not increase your ownership in the house because cash is more liquid.”

Homeowners also may weigh whether the benefit of deducting mortgage interest from federal income tax outweighs the benefit of paying down or paying off the debt with savings.

“The question is does the tax deduction fully make up for the loss,” Dr. Siegel said, referring to the difference between the interest paid on the mortgage and the interest earned on the savings. “The answer is no.”

Continued in article

Jensen Comment
I'm not so certain that paying off your mortgage is such a good idea if you're heavy into tax exempt bonds. I still carry a big mortgage for that reason in spite of being able to pay it off when I choose.

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

Durables Orders Signal Investment

By Sarah Chaney | Aug 26, 2017

TOPICS: Capital Expenditures

SUMMARY: The article discusses many trends in corporate investment, carving out aerospace and defense to focus on core capital goods orders by U.S. companies. Overall positive trends are shown graphically. The retail industry exception of disinvestment is discussed. Target Corp. is an "exception to the exception" in making investment of remodeling stores being driven by a strategy of improving backroom operation for online orders.

CLASSROOM APPLICATION: The article may be used in a managerial accounting class to discuss capital investment or in a financial reporting or managerial class to discuss the accounting system source for the information analyzed in the article

QUESTIONS: 

	1. (Introductory) What items of durable goods are companies purchasing? In your answer, comment on the reasoning for discussing "core capital goods."
	2. (Introductory) How do these purchases represent a sign of confidence in the U.S. economic outlook?
	3. (Advanced) What are the sources of data used to assess overall investment in capital goods by U.S. companies? Do you think any of this information arises from U.S. companies' accounting systems? Explain your answer.
	4. (Advanced) How is the capital investment in the overall U.S. economy compared with a more detailed understanding about Target Corp.'s investment? What is the company's reasoning for its capital investment plans?

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Durables Orders Signal Investment," by Sarah Chaney , The Wall Street Journal, August 26, 2017 ---
https://www.wsj.com/articles/u-s-durable-orders-plummeted-in-july-on-weak-aircraft-demand-1503664505?mod=djem_jiewr_AC_domainid

Outside of transportation, orders rose for the third straight month

U.S. business investment is catching a second wind after years of wobbly performance.

Companies are ramping up orders for computers, machinery and electrical appliances, a sign businesses are growing more confident in the economic outlook eight years into an economic expansion.

Durable goods orders fell 6.8% in July, but the decline was driven by aircraft orders, which had surged the month before. Stripped of the volatile transportation category, orders were up 0.5% from a month earlier and up 5.6% from a year earlier.

Orders for core capital goods, which exclude aircraft and defense and which many economists use as a proxy for broader business investment, rose 0.4% in July. They were up 3.5% in July from a year earlier. They bottomed in June 2016 and have risen six times in seven months. That pickup in business investment marks the best run since 2010, when the U.S. was coming out of recession

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 8, 2017

A Provocative Look at the Harm from Corporate Heft

By Greg Ip | Aug 30, 2017

 

TOPICS: Cost Analysis, Cost Behavior

SUMMARY: This article describes results of a study recently published by two European researchers on U.S. companies. "The authors analyze data on every publicly traded company in the U.S. back to 1950 to determine how much its revenue exceeded its variable costs, such as labor and commodities. That excess, what they call the markup of price over marginal cost, fluctuated between 16 % and 32% until 1982 and has since climbed steadily, to 67%. The trend holds across industries, and is more pronounced in smaller rather than the biggest companies". The authors conclude that "...companies are increasingly able to exert "market power," that is, charge higher prices so as to boost profits at the expense of consumers." These findings are consistent with results of work done by President Barack Obama's Council of Economic Advisors. Arguments against the conclusions reached, however, are based on the fact that the analysis ignores the growth and importance of fixed costs as manufacturing has automated. The research paper, referenced in the article, is available online at http://www.janeeckhout.com/wp-content/uploads/RMP.pdf

CLASSROOM APPLICATION: The article may be used in a managerial accounting class to discuss cost behavior and/or to tie these concepts to economic activity and to academic research.

QUESTIONS: 

	1. (Advanced) Define the terms variable cost, fixed cost, marginal cost and markup.
	2. (Introductory) What have been the trends in the relationship between revenues (product prices) and variable costs of producing those products since 1950?
	3. (Introductory) What does economic theory predict about prices that may be charged by companies in a freely competitive market?
	4. (Introductory) How do the authors of the research conclude that their results are evidence of "market power"?
	5. (Advanced) What are the arguments against those conclusions? In particular, comment on the role of fixed costs versus variable costs in this analysis.

READ THE ARTICLE

Reviewed By: Judy Beckman, University of Rhode Island

"A Provocative Look at the Harm from Corporate Heft." by Greg Ip, The Wall Street Journal, August 30, 2017 ---
https://www.wsj.com/articles/a-provocative-look-at-the-harm-fromcorporate-heft-1504108799?mod=djem_jiewr_AC_domainid

A new study finds that lack of competition has driven up prices, hurting U.S. growth, wages and labor-force participation.

Corporate America is getting more concentrated. The country’s largest internet retailer just acquired its largest standalone organic grocer, and two of its largest aviation-parts makers plan to merge. From health insurance to internet search, fewer companies control more of their markets.

That can be good: size and scale can enable companies to reduce costs, invest in better products and compete globally.  But a provocative new study concludes the opposite. It found that in recent decades a lack of competition has driven up prices,  hurting U.S.  growth, wages and labor-force participation.

The study is causing a stir among economists, some of whom are skeptical of its conclusions. Yet its basic finding is eye-opening.

In the study, Jan De Loecker  of Belgium’s University of Leuven and Jan Eeckhout  of University College London start from the economic assumption that in a competitive market, a company can’t charge much more for a product than the cost of making one more (what economists call the “marginal cost”). If it did, another company would swoop in and undercut it.

The authors analyze data on every publicly traded company in the U.S. back to 1950 to determine how much its revenue exceeded its variable costs, such as labor and commodities. That excess, what they call the markup of price over marginal cost, fluctuated between 16 % and 32% until 1982 and has since climbed steadily, to 67%.The trend holds across industries, and is more pronounced in smaller rather than the biggest companies

Companies' markup - the difference between price and marginal cost - has risen steadily. Source: Jan De Loecker, Jan Eeckhout, National Bureau of Economic Research

This, they say, is proof that companies are increasingly able to exert “market power,” that is, charge higher prices so as to boost profits at the expense of consumers.

Other studies have come to similar conclusions. One by former President Barack Obama’s Council of Economic Advisers found return on capital had become astronomical for the most profitable publicly traded companies, which shouldn’t be possible if competitors could freely enter their market.

The latest study goes even further, arguing the prevalence of market power helps explain deeper economic maladies. A company with such power often restricts production to prop up prices and profits. Messrs. De Loecker and Eeckhout argue this reduces demand for labor and thus explains why wages for low-skilled workers have stagnated in recent decades. Lower wages also discourage people from working, which depresses labor-force participation.

They add that markups may be evidence of barriers to entry by new competitors, which is corroborated by slumping business startup rates. The especially sharp rise in markups since 2009, they say, may explain why economic growth has been so tepid since.

The paper’s novel approach and audacious claims have attracted widespread attention in the blogosphere. Dietrich Vollrath, an economist at the University of Houston, calls it  “an intriguing (and very large) step forwards.” 

But some of its claims invite skepticism. Ample evidence already links depressed wages to globalization, weaker unions and the demand for skills. Growth has been weak globally since 2009 and seems due mostly to aging and repairing the damage of the financial crisis. The link to market power thus far appears mostly circumstantial.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 8, 2017

Cash-Strapped Private Colleges Cut Programs, Sell Assets

By Melissa Korn | Sep 01, 2017

 

TOPICS: Cost-Volume-Profit Analysis, NFP, not-for-profit

SUMMARY: The article focuses on the financial difficulties facing smaller colleges and the increasing number of mergers & acquisitions in higher education. It discusses surveys of college "finance chiefs" (typically vice presidents of finance) and assessment of the industry by Moody's Investors Service. Questions focus on having students consider the business nature of operating an institution of higher education and a reference to a break-even analysis done by Sweet Briar College.

CLASSROOM APPLICATION: The article may be used when covering not-for-profit accounting or in a managerial accounting course when covering break-even analysis.

QUESTIONS: 

	1. (Advanced) At what type of higher education institution do you study? What factors led to your decision to study in this institution?
	2. (Introductory) What changes have led to falling enrollments at liberal arts educational institutions?
	3. (Introductory) Why must higher education administrators make "businesslike decisions"? Why are these decisions made under "high stakes" circumstances at small liberal arts colleges?
	4. (Advanced) In the related article (presented as an inset in the print version of the WSJ), Sweet Briar "welcomed 81 new freshmen in August, well below the 200 officials previously estimated the school needs to remain viable." Explain how you think the number 200 would be determined.
	5. (Advanced) What is Moody's Investors Service? Why is Moody's interested in the operating performance of higher education institutions? In your answer, consider how higher education institutions raise funds for long term projects such as buildings.

READ THE ARTICLE

 

RELATED ARTICLES: 
Struggles at Sweet Briar College Persist
by Melissa Korn
Sep 01, 2017
Page: A3

Reviewed By: Judy Beckman, University of Rhode Island

"Cash-Strapped Private Colleges Cut Programs, Sell Assets," by Melissa Korn, The Wall Street Journal, September 1, 2017 ---
https://www.wsj.com/articles/some-cash-strapped-private-colleges-cut-programs-sell-assets-1504171846?mod=djem_jiewr_AC_domainid

Facing deficits, some small schools put buildings on the market, end programs—or even merge

Wheelock College has been searching for a lifeline all summer.

The Boston school, with roughly 1,000 students and falling financial reserves, put up for sale its president’s five-bedroom house and a residence hall in June, eager for a cash infusion amid growing enrollment and operating-cost pressures.

On Tuesday, Wheelock announced it had entered merger talks with Boston University, which sits a mile away and enrolls 33 times as many students.

The move “was undertaken to ensure the mission of the College remains sustainable as the higher education industry faces a changing landscape,” the school said in a press release. Officials declined to provide further details on the potential merger.

Wheelock is far from alone in exploring creative—or, some higher education experts say, desperate—ways to survive, like dropping programs and penning innovative property deals. More incremental changes, such as adding online courses or tinkering with tuition discounts, didn’t boost enrollment or revenue enough for many institutions.

Such businesslike decisions are a dramatic departure for schools where administrators historically bristled at words like “marketing.” They are a sign of the high stakes facing small, private colleges as families balk at rising tuition and question the value of a liberal arts education compared with more vocational alternatives.

The percentage of finance chiefs at private, nonprofit colleges who agreed or strongly agreed that their institutions will be financially stable or sustainable over the next five years fell to 51% this spring, down from 65% the prior year, according to polls by Inside Higher Education and Gallup.

“Many of these schools would not be making these moves were they not under significant financial stress,” said Susan Fitzgerald, associate managing director at Moody’s Investors Service .

While the initiatives may address immediate cash shortfalls or extend the timeline before another existential crisis, she said, they may not solve fundamental issues such as a school’s ability to recruit and retain enough students to cover overhead costs.

More than one-third of colleges with full-time enrollments below 3,000 students had operating deficits in fiscal 2016, according to a Moody’s report, up from 20% in fiscal 2013.

Facing a dire financial future, Marygrove College in Detroit announced earlier this month that it would discontinue undergraduate programs—which comprise about half its students—and focus on graduate students.

The school had already trimmed its expenses as enrollment slid. It solicited new donors. It tried increasing its online presence and recruiting more students.

Marygrove closed out its fiscal 2017 with a $4 million deficit. President Elizabeth Burns estimated the school was weeks away from running out of cash when it announced the plan to stop teaching undergrads.

“How close to the brink can you get?” she asked.

Dr. Burns said the move will cut overhead costs, and that she sees potential for growth in graduate students

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 8, 2017

SEC Chief Wants Investors to Better Understand Cyberrisk

By Dave Michaels | Sep 05, 2017

TOPICS: Cybersecurity, Disclosures, SEC, Securities and Exchange Commission

SUMMARY: "Some cybersecurity experts have in the past called for the SEC to require more specific disclosures by U.S. public companies about cyberrisks, particularly following a 2013 breach at Target Corp. that compromised the credit- and debit-card information of millions of customers." SEC Chairman "Jay Clayton, speaking at an event sponsored by New York University's School of Law, said investors still don't fully appreciate the threat posed by hackers." The chairman said " the SEC would investigate companies that mislead investors about material cyberrisks" and that battling these issues must be a collaborative effort across governmental agencies. The SEC investigated Target Corp. , and Target settled with the agency for a fine of $18.5 million, over what the SEC alleged was "failure to provide reasonable data security." The agency has not yet sued a "public company over how it communicated the threat of hacking or breaches that it suffered."

CLASSROOM APPLICATION: The article may be used in an accounting systems or auditing class discussing cyber risk or in any class covering required disclosures.

QUESTIONS: 

	1. (Advanced) What is the role of the SEC in enforcing U.S. laws for publicly traded companies? Access the SEC's web site information about what the agency does at https://www.sec.gov/Article/whatwedo.html
	2. (Introductory) How does the article differentiate between public companies' responsibilities for safeguarding customers' information versus holding them responsible for appropriate disclosures about cyberrisk issues?
	3. (Advanced) Differentiate between internal control in general and internal control over financial reporting specifically. Under which control system does safeguarding customer information, such as the information breached at Target Corp., fall? Explain your answer.

READ THE ARTICLE

Reviewed By: Judy Beckman, University of Rhode Island

"SEC Chief Wants Investors to Better Understand Cyberrisk," by Dave Michaels, The Wall Street Journal, September 5, 2017 ---
https://www.wsj.com/articles/sec-chief-wants-investors-to-better-understand-cyberrisk-1504651526?tesla=y?mod=djem_jiewr_AC_domainid

Jay Clayton says regulators, Wall Street should do more to educate investors about cyberthreats

NEW YORK—The chairman of the Securities and Exchange Commission said Tuesday that regulators and Wall Street need to do more to educate investors about the serious risks that companies and the financial system face from cyberintrusions.

Jay Clayton, speaking at an event sponsored by New York University’s School of Law, said investors still don’t fully appreciate the threat posed by hackers. “I am not comfortable that the American investing public understands the substantial risk that we face systemically from cyber issues and I would like to see better disclosure around that,” Mr. Clayton said.

Some cybersecurity experts have in the past called for the SEC to require more specific disclosures by U.S. public companies about cyberrisks, particularly following a 2013 breach at Target Corp. TGT +0.08% that compromised the credit- and debit-card information of millions of customers.

Mr. Clayton said the SEC would investigate companies that mislead investors about material cyberrisks, but said the battle against hackers is much broader and shouldn’t be waged in government “silos.”

“We have to have our individual responsibilities, but we also have to do our best to foster a collective approach to the issue,” Mr. Clayton said.

The SEC’s role in policing cybersecurity is more nuanced than that of many state regulators, which investigated Target for what they alleged was its failure to provide reasonable data security. Target agreed in May to pay $18.5 million to resolve the probe.

The SEC is more focused on whether financial companies that it directly supervises, such as brokerage firms and asset managers, are protecting themselves and their clients against hackers. The agency issued a risk alert last month that outlined policies it sees as effective for mitigating the risks and highlighted some deficiencies.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 8, 2017

The Case for Nonvoting Stock

By Dorothy Shapiro Lund | Sep 06, 2017

TOPICS: Stockholders' Equity

SUMMARY: The arguments made by Ms. Lund in favor of companies using separate classes of stock, voting and nonvoting common shares, are based on the assumption that "having two classes of shares leaves decisions to those who are informed....Put differently, there may be companies that are made worse off when all shareholders vote." Investors who do not learn fundamentals about the company may "prefer to free-ride off informed investors." If shareholders such as Index funds hold a higher percentage of outstanding shares than do investors holding their positions based on fundamental analysis, then voting "is unlikely to move the company in the right direction." Further, "consolidating voting ower in the hands of informed investors would make the company more attractive to these investors...." among other benefits. As my partner Doug always says, "in theory..." The practical concern missing from this argument is the potential for expropriation of wealth by those in control. Ms. Lund has written this Opinion page piece while Holman W. Jenkins, Jr., the usual author is away.

CLASSROOM APPLICATION: The article may be used in a financial reporting course when discussing stockholders' equity.

QUESTIONS: 

	1. (Introductory) What types of stock are included in a balance sheet?
	2. (Advanced) What information about shares of stock must be disclosed in the balance sheet?
	3. (Introductory) Consider the traditional forms of preferred versus common stock. Which of these types has voting rights and which does not? What features compensate shareholders who do not have voting rights?
	4. (Introductory) The nonvoting shares discussed in this opinion page piece are common shares. Indices of stock performance, such as Dow Jones Industrial Average and the Standard & Poors 500 shares index, typically include common shares. What are the firms who report these indices saying about nonvoting common stock? Refer to the related article for help with this answer.
	5. (Introductory) What is the "case for nonvoting stock" made in this opinion page piece?
	6. (Advanced) What is a minority or noncontrolling interest? How does holding such an interest compare to holding nonvoting shares?

READ THE ARTICLE

 

RELATED ARTICLES: 
Index Firms Take Issue with Nonvoting Rights
by Richard Teitelbaum
Apr 09, 2017
Page: ##

Reviewed By: Judy Beckman, University of Rhode Island

"The Case for Nonvoting Stock," by Dorothy Shapiro Lund, The Wall Street Journal, September 6, 2017 ---
https://www.wsj.com/articles/the-case-for-nonvoting-stock-1504653033?mod=djem_jiewr_AC_domainid

Having two classes of shares leaves decisions to those who are informed.

S&P Dow Jones Indices will no longer include companies that go public with multiple classes of shares on its major U.S. stock indexes, it announced in July. A few days earlier, FTSE Russell said it would bar dual-class companies from its indexes unless public shareholders hold at least 5% of the voting rights.

These policy changes were made in response to a recent surge in dual-class initial public offerings, in which company insiders raise cash by selling nonvoting or low-voting stock to the public while retaining voting control over the company. Such structures were historically favored by family-owned companies seeking to preserve control but have recently gained popularity among successful technology companies, including Google, Facebook and, more recently, Snap Inc.

The conventional view is that dual-class structures insulate company insiders from investor influence and accountability. When a problem arises at a company, the shareholders most affected have few tools to take action. Separating control from ownership therefore weakens the insiders’ incentives to maximize shareholder welfare. When the insiders slack or skim off the top, they reap all of the benefits but bear only a fraction of the costs.

Dual-class issuers do not deny that low-vote stock shields insiders from influence. They view it as the key benefit. That is because the dual-class structure can allow insiders to operate without interference from outside shareholders who seek short-term gains at the expense of the company’s long-term vision.

Both sides of the debate overlook an important and unrecognized benefit of dual-class structures: A corporation that offers two classes of stock to the public is able to allocate voting power between shareholders who are informed about the company and its performance and those who are not.

Put differently, there may be companies that are made worse off when all shareholders vote. Some shareholders, including many retail investors, have no interest in learning about the company and prefer to free-ride off informed investors. Other passive shareholders, such as index funds, may lack financial incentives to vote intelligently because of their investment strategy. Index funds seek to match the performance of the market, not beat it, so any investment in informed voting would drive up the fund’s costs with little to no benefit.

Index-fund voting, therefore, is unlikely to move the company in the right direction. Yet as index funds own more of the market, uninformed shareholders are likelier to be the ultimate arbiter of shareholder elections.

This is where nonvoting stock could be especially useful: If a company issued nonvoting shares for uninformed investors to buy, all shareholders would be better off. Consolidating voting power in the hands of informed investors would make the company more attractive to those investors, who would get greater influence at a lower cost, and also to uninformed investors, who would save on costs associated with voting.

Moreover, because nonvoting stock generally trades at a discount, voter sorting should occur without legal intervention. Uninformed voters should want to purchase discounted nonvoting shares, while informed voters would likely pay a premium for the right to vote.

But there are reasons to believe that such sorting won’t always occur. Most prominently, the institutional investors that primarily invest in index funds haven’t yet embraced nonvoting stock. Quite the opposite—they have been leading the effort to bar dual-class companies from stock indexes. These largely passive institutional investors explain that because their indexing strategy requires them to buy and hold company stock under all conditions, they need a voice in company affairs. In time, though, the opportunity to purchase stock at a discount and avoid costs associated with voting would likely push uninformed investors, including many index funds, toward nonvoting shares. And when this happens, the company that issued them would be more valuable, not less.

It’s also true that so far the effect of issuing nonvoting stock has been to keep control with company insiders.

But over time, the growing concentration of wealth in the hands of index funds and exchange-traded funds should increase the attractiveness of company structures that concentrate voting power with informed investors—that is, so long as companies are not prohibited from using those structures.

Continued in article

A power struggle between Facebook and investors just ended with Facebook dropping plans to issue non-voting shares ---
http://www.businessinsider.com/facebook-settled-lawsuit-non-voting-shares-zuckerberg-testify-2017-9

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 8, 2017

United Technologies' Heavy Load

By Alex Frangos | Sep 06, 2017

TOPICS: business combinations

SUMMARY: The author of this Heard on the Street article analyzes UTC's acquisition of Rockwell Collins. The strategic reasons for the transaction according to UTC management; the price paid as a premium over the target's stock price two months before news about it leaked; the price paid relative to trailing EBITDA; and the pretax cost savings expected from the transaction are all discussed.

CLASSROOM APPLICATION: The article may be used in an advanced accounting class to discuss strategic reasons for business combinations.

QUESTIONS: 

	1. (Introductory) What is United Technologies (UTC)? Hint: you may access their web site at www.utc.com
	2. (Advanced) Based on the discussion in the article, how do you think UTC classifies this acquisition of Rockwell Colins: as vertical, horizontal, or conglomerate?
	3. (Introductory) What does the author say may be the strategy behind this acquisition?
	4. (Advanced) What is wrong with "using [the company's shares] as currency for the part of the deal not paid in cash" if the CEO's view of UTC shares is correct?
	5. (Advanced) What is the comparison made between the cost savings expected from the business combination and the premium paid for this acquisition? Explain in your own words what the author writes in the article, including a basic description of any supporting analysis.

READ THE ARTICLE

Reviewed By: Judy Beckman, University of Rhode Island

 

"United Technologies' Heavy Load," by Alex Frango, The Wall Street Journal, September 6, 2017 ---
https://www.wsj.com/articles/united-technologiess-big-bet-leaves-investors-on-the-runway-1504628794?mod=djem_jiewr_AC_domainid

United Technologies UTX +2.03% is building an aerospace supermarket. The question is whether anyone needs one.

By buying Rockwell Collins , COL +0.21% United Technologies’s aerospace and jet-engine divisions will become a virtual one-stop shop for building an airplane, producing engines, cockpit gear, seats, toilets, auxiliary power units and landing gear. The company speaks about linking these systems to create “connected airplanes,” though airplanes are already among the most connected devices on the planet. Dividends from further technological leaps would seem to be some way down the road.

Investors should worry that the bigger rationales for the deal are defensive. Becoming a nose-to-tail provisioner of airplane parts gives United Technologies added heft vis-à-vis its biggest customers, Airbus and Boeing . It is an irony that United Technologies rebuffed a 2016 approach by Honeywell , partly on the grounds such a big supplier would upset relationships with those same customers. Bulking up, including raising $14 billion in debt, could be a way to forestall Honeywell trying again and keeps attention away from the company’s slower-growing Otis Elevator and Carrier air conditioning units.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 15, 2017

Treasurers Struggele to Lose the Least When Storing Cash

By Nina Trentmann | Sep 12, 2017

TOPICS: Cash

SUMMARY: The article focuses on the viewpoint of Claire Bechaux, Treasurer of Veolia Environnement SA on reasons for holding cash in European money market funds rather than bank deposits. European money-market fund balances are 1.21 trillion euros; "company holdings of constant net asset value euro funds in Europe rose to 209.4 billion euros at the end of 2016 from 139.3 billion euros at the end of 2012...." Factors cited in the article for these trends include not only today's general low interest rate environment but also Basel III banking regulations increasing costs. These factors coupled together make it onerous for banks to hold large amounts available for the liquidity demanded by corporations from their demand deposits.

CLASSROOM APPLICATION: The article may be used to discuss general corporate cash management practices. In addition, since textbooks often use unrealistic interest rates in time value of money problems, it may be used to bring a current, realistic viewpoint to discussion of that topic as well.

QUESTIONS: 

	1. (Advanced) What are the overall objectives for Veolia Environnement SA in managing its cash balances?
	2. (Introductory) Why does one corporate treasurer say corporations are limited in the amount of cash they hold in bank deposits?
	3. (Introductory) What is an alternative viewpoint expressed by the Chief Financial Officer Neil Sorahan of Ryanair Holdings, PLC?
	4. (Introductory) Where do corporate treasurers keep cash balances instead of bank accounts?
	5. (Introductory) Where do corporate treasurers keep cash balances instead of bank accounts?
	6. (Advanced) What is the concern with holding cash in these alternative places?
	7. (Advanced) Define the term "yield." What yields did Veolia Environnement SA earn on its cash holdings in banks in 2017? In money market funds?

READ THE ARTICLE

Reviewed By: Judy Beckman, University of Rhode Island

 

"Treasurers Struggele to Lose the Least When Storing Cash," by Nina Trentmann, The Wall Street Journal, September 12, 2017 ---
https://www.wsj.com/articles/a-european-treasurers-mission-losing-the-least-amount-of-money-when-storing-cash-1505112034?mod=djem_jiewr_AC_domainid

Firms like Veolia park a large proportion of their cash in money-market funds, despite negative returns

Claire Bechaux doesn’t have a lot of options.

The treasurer of Veolia Environnement SA can only store limited amounts of money in bank deposits without having to pay for it. So, she is forced to park around two-thirds of the French environmental services company’s cash in European money-market funds.

Since December 2016, returns on these investments in money-market funds have been negative. Investors and companies like Veolia use money-market funds as an alternative to bank deposits because they can quickly be converted into cash.

European banks no longer want to hold as much corporate cash. Negative interest rates and regulatory changes make it less attractive for banks to accept large corporate deposits. This presents treasurers and finance chiefs with a daunting task: to lose the least amount possible when storing cash.

“Options to store cash with our banks are limited,” said Ms. Bechaux. “Ideally, we would put much more into our bank deposits.”

Other treasurers are following suit. Company holdings of constant net asset value euro funds in Europe rose to €209.4 billion ($252 billion) at the end of 2016, from €139.3 billion at the end of 2012, according to the Institutional Money Market Fund Association.

In France—a big market for variable net asset value funds—corporate holdings rose to €95 billion in the first quarter of 2017, compared with €72 billion in the first quarter of 2016, according to the AFG asset management association.

Overall, holdings of European money-market funds stood at €1.21 trillion at the end of March, according to the European Central Bank, an increase compared with previous quarters. Still, total holdings are slightly below their March 2009 peak of €1.32 trillion.

BlackRock Inc., the U.S. asset manager, had substantial corporate inflows into its European money-market funds in the first and second quarter. New Basel III bank regulations have “in many cases reduced the availability or attractiveness of bank deposits as an alternative for treasurers to manage short-term cash,” said Beccy Milchem, head of Blackrock’s treasury cash sales team.

Ms. Bechaux therefore only managed to find an interest-yielding deposit for around one-third of the company’s corporate cash, which totaled around €4 billion at the end of June.

“We are trying to get as close to zero as possible,” she said.

On average, Veolia’s money-market fund investments have generated yield of minus 0.08% in 2017. The bank deposits, on the contrary, provided average yield of 0.70% during the same period. “We would move more cash into deposits if the banks provided us with interesting returns,” Ms. Bechaux said. Overall, the company still makes money with its investments, she said.

Changes to European money-market funds, kicking in next year and 2019, could further dent returns, as they prescribe mandatory liquidity fees as well as redemption hurdles. But, the changes are expected to be less dramatic than the reforms that went into effect in the U.S. in October 2016.

“These constraints will probably drive returns down,” said Veolia’s Ms. Bechaux.

Similar to other companies, Veolia’s first priority for its cash investments isn’t yield, but liquidity, coupled with security. Longer-term investments with a higher risk profile therefore don’t serve as alternatives.

This is also the case for Royal Dutch Shell PLC. The company held most of its cash—$24 billion at the end of June—in European money-market funds denominated in U.S. dollars. A small proportion sat in sterling and euro-funds.

“We don’t use money-market funds to achieve higher yield, but to manage liquidity,” said Frances Hinden, vice president of treasury operations at Shell.

Ms. Hinden said Shell isn’t planning to increase its holdings. Other companies, including Germany’s BASF SE, also said they hadn’t made changes to their holdings.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 15, 2017

Most of comScore Board Resigns Ahead of Review

By Ezequiel Minaya | Sep 12, 2017

TOPICS: Restatement, Revenue Recognition

SUMMARY: This article reports on resignations from comScore's Board of Directors as the company has been unable to file financial reports since 2013 and has delayed the expected time frame to complete its restatements to March 2018 at the earliest. The company was delisted from the NASDAQ but is reported to have over a $27 share price over-the-counter. The company announced it needed to restate financials from 2013 to 2015 "after an internal investigation discovered problems with accounting for nonmonetary transactions." Filings for 2016 and 2017 also have not been made. The last available 10-K for 2014 was filed on February 20, 2015. Note 64 from that filing states "During the years ended December 31, 2014 and 2013, the Company recognized $16.3 million and $3.2 million , respectively, in revenue related to nonmonetary transactions, of which $10.7 million and $1.8 million , respectively, was attributable to the related party transaction. During 2014 and 2013, the Company recognized $16.3 million and $1.8 million , respectively, in expense attributable to nonmonetary transactions, of which $14.3 million and $0, respectively, was attributable to the related party transaction. Due to timing differences in the delivery and receipt of the respective nonmonetary assets exchanged, revenue and expense did not offset each other equally in each period presented."

CLASSROOM APPLICATION: The article may be used to cover restatements or revenue recognition in an advanced financial accounting or auditing class.

QUESTIONS: 

	1. (Advanced) What are nonmonetary transactions?
	2. (Advanced) What are accounting restatements? When must a company issue a restatement?
	3. (Introductory) When did comScore announce that the company must restate its 2013 through 2015 results?
	4. (Introductory) How long has comScore been unable to have its stock trading on the NASDAQ?
	5. (Advanced) What are the requirements to recognize revenue from nonmonetary transactions? Cite your source for this description. Hint: you may refer to the second related article to help with this question.
	6. (Introductory) Consider the second related article. How were analysts expressing concern about comScore's nonmonetary exchanges even if the appropriate accounting were being followed by the company at the time (which we now know was not the case)?
	7. (Advanced) At what amount are comScore's shares trading? Why would some shares still trade after delisting and with no financial statement information currently available?

READ THE ARTICLE

RELATED ARTICLES: 
ComScore to Appeal to Nasdaq to Avoid Delisting
by Maria Armental
Sep 02, 2016
Online Exclusive

Is comScore's Revenue Growth as Good as It Seems?
by Miriam Gottfried
Aug 31, 2015
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island

 

"Most of comScore Board Resigns Ahead of Review," by Ezequiel Minaya The Wall Street Journal, September 12, 2017 ---
https://www.wsj.com/articles/comscore-plans-strategic-review-amid-sweeping-board-changes-1505149133?mod=djem_jiewr_AC_domainid

Media-analytics company again delays release of financial statements, citing complexity of the task

ComScore Inc. said Monday that most of its board members will resign and it would complete a strategic review of the business amid pressure from shareholders over the media-analytics company’s management and lack of transparency on finances.

ComScore, which has been dogged by accounting problems that led to it being delisted from the Nasdaq in May, named a new interim finance chief on Monday, but it also delayed the time frame on getting current on overdue financial disclosures because of the complexity of the task.

Earlier this year, comScore said it expected to be done with revisions to financial statements and releasing new statements this summer. With autumn fast approaching, the firm which measures audience and advertising reach through various platforms including digital and television, now expects to be up-to-date on its filings by March 2018 at the earliest.

“We regret the need to extend further the date for filing our restated financials and we share the frustration of our stockholders,” said Gian Fulgoni, comScore’s co-founder and chief executive, in prepared remarks.

Shares in comScore, which now trade over the counter, fell 5.6% to $27.13 in midday trading.

The company said in September 2016 that it needed to restate financial results for 2013, 2014 and 2015 after an internal investigation discovered problems with accounting for nonmonetary transactions. The company hasn’t submitted its annual securities filing for 2015 or any of its filings for 2016 and 2017.

Starboard Value Fund LP, which the company said owns 4.9% of its shares, was among investors to criticize comScore amid concerns including that an annual meeting hadn’t been held in more than two years.

Calls to Starboard and comScore weren’t immediately returned.

With the resignations, comScore reduced the size of its board to five members from 12 members.

The remaining members are Mr. Fulgoni, Bill Livek and Brent Rosenthal and special-committee members Jacques Kerrest and Sue Riley. The special committee is also charged with oversight of comScore’s engagement process with Starboard.

Separately, comScore has named David Kay as its interim chief financial officer, replacing David Chemerow, who resigned from the position Friday. Mr. Kay is a co-founder and managing partner of CrossCountry Consulting LLC, which has been providing accounting consulting services to comScore since July 2016. Mr. Chemerow joined comScore last year following the company’s merger with rival Rentrak Corp., where he was CFO.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 15, 2017

Optimistic Gen Z is On the Job Now

By Francesca Fontana | Sep 13, 2017

TOPICS: Accounting Careers

SUMMARY: This article reports on a survey conducted by EY in July 2017 at its International Intern Leadership Conference, its annual gathering of summer interns. "The survey's findings suggest the cohort places a priority on 'building something better and leaving something better for future generations.' The results also indicate that nearly ¾ of survey respondents feel that a strength which sets them apart from older generations is an ability to "work well with people from different backgrounds and cultures...."

CLASSROOM APPLICATION: The article may be used in any class to discuss career issues.

QUESTIONS: 

	1. (Introductory) Who conducted the survey on which this article reports? Comment on how the firm is described in the article.
	2. (Introductory) When was the survey conducted?
	3. (Advanced) Why do you think this firm is so strongly interested in the viewpoints of new workers?
	4. (Advanced) What do the survey respondents say is an ability which sets them apart from older workers? Do you hold this viewpoint? Explain.
	5. (Advanced) Consider the main survey findings about building and leaving "something better for future generations." Do you think that this viewpoint is shared by generations older than Gen Z? Explain your answer.

READ THE ARTICLE

Reviewed By: Judy Beckman, University of Rhode Island

 

"Optimistic Gen Z is On the Job Now," by Francesca Fontana, The Wall Street Journal, September 13, 2017 ---
https://www.wsj.com/articles/move-over-millennials-generation-z-enters-the-workforce-1505208605?mod=djem_jiewr_AC_domainid

A survey shows members of the latest cohort value diversity, technology and giving back to their communities

As the postmillennial smartphone generation begins joining the workforce, bosses would be wise to prepare for young technophiles with an inclusive view of the workplace and a hunger for employers whose values reflect their own.

That’s according to a new survey conducted in July by EY at the International Intern Leadership Conference, the business consultancy’s annual gathering of interns. The survey of 1,600 Generation Z respondents, born in the mid-1990s or later, aimed to gauge the group’s perspective on the future of work, says Larry Nash, the company’s U.S. recruiting leader.

The survey’s findings suggest the cohort places a priority on “building something better and leaving something better for future generations,” Mr. Nash says. “They want to have a purpose in their work.”

Gen Z’s optimism has been reflected in other surveys. This year Goldman Sachs Group Inc. surveyed 1,700 of its summer interns and found the vast majority planned to get married or form domestic partnerships and have children. Some 83% also expected to buy a house by the time they were 40 and 63% planned to buy a car by age 30.

The consulting firm BridgeWorks estimates that Gen Z accounts for 61 million people in the U.S.

Mr. Nash says managers intent on attracting and retaining these young workers should find ways to take advantage of their talents and understand their career values.

Generation Z’s inclusive mind-set is an asset employers can leverage, Mr. Nash says. More than three-quarters of those surveyed said their ability to work well with people from different backgrounds and cultures set them apart from older workers.

These young workers seek out employers with similar values and opportunities to make a difference in their work, Mr. Nash says.

Mr. Nash suggests providing these young workers with the opportunity to give back to their communities and use their skills in a philanthropic way. Some 27% of respondents assign priority to devoting time to their communities when looking for an employer, according to the survey.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 15, 2017

Apple, Dell Join Bid for Toshiba Unit

By Dana Mattioli and Dana Cimilluca | Sep 14, 2017

TOPICS: business combinations, Segment Reporting

SUMMARY: Apple, Dell, Seagate and others have organized under Bain Capital leadership to bid for Toshiba's memory chip business. This is the latest development in the saga facing Toshiba after losses at its Westinghouse subsidiary totaled billions. The related articles have been covered in previous weekly reviews. The Bain Capital group would plan to "take the chip business private as an independent entity and bring it public again at a later date in Japan" according to the article. To show the revenues and profitability of the unit, the article reports on information from Toshiba's segment reporting, including the fact that the operating unit containing the memory chip business had greater operating profit than the entire Toshiba enterprise as a whole. The reporting also indicates that the analysis of the segment reporting information "eliminated intersegment transfers" in order to examine external sales and profitability by the memory chip unit.

CLASSROOM APPLICATION: The article may be used in an advanced accounting class to discuss strategies behind business combinations and/or segment reporting.

QUESTIONS: 

	1. (Advanced) Why is there a "global auction" for Toshiba's memory-chip manufacturing business? You may refer to the related articles for more information.
	2. (Introductory) Who has joined together under leadership by Bain Capital to make a bid for the Toshiba unit?
	3. (Introductory) Why is this group strongly interested in making this acquisition?
	4. (Advanced) Based on the information in the article, how do you think the acquisition would be structured? Who would own the Toshiba business unit?
	5. (Advanced) The author states that "in Toshiba's results for the April-June quarter...operating profit for [the segment that includes the memory chip business] was greater than the company's total operating profit." How is this possible?
	6. (Advanced) Refer to the graphic entitled "Chip Sale." Whose business segments are being reported?
	7. (Advanced) The note to the graphic states that the "total includes intersegment eliminations not shown." What are intersegment sales? Why must eliminations be applied to the segment revenues shown in the notes to the financial statements?

READ THE ARTICLE

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Page: B3

Toshiba is Facing Difficult Choices
by Kosaku Narioka, Takashi Mochizuki and Peter Landers
Jul 28, 2017
Page: B2

Reviewed By: Judy Beckman, University of Rhode Island

 

"Apple, Dell Join Bid for Toshiba Unit," by Dana Mattioli and Dana Cimilluca, The Wall Street Journal, September 14, 2017 ---
https://www.wsj.com/articles/move-over-millennials-generation-z-enters-the-workforce-1505208605?mod=djem_jiewr_AC_domainid

A survey shows members of the latest cohort value diversity, technology and giving back to their communities

As the postmillennial smartphone generation begins joining the workforce, bosses would be wise to prepare for young technophiles with an inclusive view of the workplace and a hunger for employers whose values reflect their own.

That’s according to a new survey conducted in July by EY at the International Intern Leadership Conference, the business consultancy’s annual gathering of interns. The survey of 1,600 Generation Z respondents, born in the mid-1990s or later, aimed to gauge the group’s perspective on the future of work, says Larry Nash, the company’s U.S. recruiting leader.

The survey’s findings suggest the cohort places a priority on “building something better and leaving something better for future generations,” Mr. Nash says. “They want to have a purpose in their work.”

Gen Z’s optimism has been reflected in other surveys. This year Goldman Sachs Group Inc. surveyed 1,700 of its summer interns and found the vast majority planned to get married or form domestic partnerships and have children. Some 83% also expected to buy a house by the time they were 40 and 63% planned to buy a car by age 30.

The consulting firm BridgeWorks estimates that Gen Z accounts for 61 million people in the U.S.

Mr. Nash says managers intent on attracting and retaining these young workers should find ways to take advantage of their talents and understand their career values.

Generation Z’s inclusive mind-set is an asset employers can leverage, Mr. Nash says. More than three-quarters of those surveyed said their ability to work well with people from different backgrounds and cultures set them apart from older workers.

These young workers seek out employers with similar values and opportunities to make a difference in their work, Mr. Nash says.

Mr. Nash suggests providing these young workers with the opportunity to give back to their communities and use their skills in a philanthropic way. Some 27% of respondents assign priority to devoting time to their communities when looking for an employer, according to the survey.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 15, 2017

Humor for September 2017

Funny CPA Exam Stories ---
https://www.journalofaccountancy.com/newsletters/2017/sep/cpa-exam-memories.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=20Sep2017

Forwarded by Paula

Laughing is said to prolong life.

And apparently, it makes you smarter and happier. 

To bring some festivity to this day, I thought I might invite you to a little funny story that I came across.

I think it's a topic that many of us can relate to: when as an adult we try to get through the supermarket with an impatient child either screaming or being difficult.

This time it's about a grandfather who has found his own special way of dealing with his 3-year-old grandchild — when I read this story to the end , I just couldn't help but to laugh out loud.

So make sure to read it all the way to the end and if you appreciate the story you're more than welcome to click on the share button afterwards in the hope that it'll cheer up more people on a day like this!

A woman in a supermarket is following a grandfather and his badly behaved 3 year old grandson.

It's obvious to her that he has his hands full with the child screaming for sweets in the sweet aisle, biscuits in the biscuit aisle, and for fruit, cereal and pop in the other aisles. 

Meanwhile, granddad is working his way around, saying in a controlled voice,"Easy, William, we won't be long. Easy, boy." 

Another outburst and she hears the grandfather calmly say, "It's okay William, just a couple more minutes and we'll be out of here. Hang in there, boy." 

At the checkout, the little terror is throwing items out of the cart and granddad says again in a very controlled voice, "William, William, relax buddy, don't get upset. We'll be home in five short minutes; stay cool, William." 

Very impressed, the woman goes outside where the grandfather is loading his groceries and the boy into the car. 

She said to the elderly gentleman, "It's none of my business, but you were amazing in there. I don't know how you did it. That whole time, you kept your composure and no matter how loud and disruptive he got, you just calmly kept saying things would be okay. William is very lucky to have you as his grandpa." 

"Thanks," said the grandfather, "but I'm William. The little brat's name is Kevin."

Alleged Facts in History (interesting by not all are proven facts and not all are humorous) ---
http://www.christies.com/features/101-things-we-have-learned-from-the-Online-Magazine-8484-1.aspx

John Cleese Makes a Stand Against Political Correctness ---
http://www.vulture.com/2017/09/john-cleese-monty-python-in-conversation.html

From the CFO Journal's Morning Ledger on September 16, 2017

Flush with cash.
Prosecutors in Geneva are trying to figure out why two women flushed roughly €100,000 ($119,000) in cut-up €500 bank notes down a toilet at a UBS Group AG branch in the Swiss city as well as in toilets at three neighboring restaurants back in May.

Jensen Comment
Forensic accountants should look into whether this was "channel stuffing." Or maybe this was their version of debt forgiveness.

Best guess:  The toilet paper dispensers were empty. When I lived in Bangor a local business club (called City Club) snow mobiled deep into the winter woods for an outing and a night of cards  In the morning the owner of the Case Dealership said he found a whole new use for one-dollar bills in his bill fold.

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 September 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

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

"Big data allows you to look at the whole picture rather than just sample points in that picture"
Mike Willis (SEC) in on one of the video links below
Mike's presentation is really interesting --- well worth your time if you are an AAA member!

From an AAA Newsletter on September 28, 2017

The 2017 Accounting IS Big Data Conference held in Brooklyn, NY is now available to AAA members! Sign in with the links below to view videos of all the talks and to access conference resources, including workshop materials/datasets and the pre-conference list of relevant readings and videos.

 

·  View the meeting videos

·  View the participant list and pre-reading lists

·  View Workshop materials

 

Use your AAA member number username and password to sign in as these links are password protected.

Also consider giving a donation to the AAA's link to Shelterbox fund for the homeless (including those who are homeless as result of natural disasters)  ---
https://www.shelterboxusa.org/donate/

Research Refutes Sarbanes-Oxley Critics:   A new study offers strong evidence of a link between auditor-identified weak internal controls and subsequent fraud cases ---
http://ww2.cfo.com/auditing/2017/09/research-refutes-sarbanes-oxley-critics-internal-controls/

How revenue recognition changes are affecting preparers like GE, Microsoft ---
https://www.journalofaccountancy.com/news/2017/sep/revenue-recognition-changes-affecting-preparers-201717560.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=29Sep2017

Move Over California, Japan Has A 26% Bar Passage Rate ---
http://taxprof.typepad.com/taxprof_blog/2017/09/move-over-california-japan-has-a-26-bar-passage-rate.html

Jensen Comment
Sort of like the tough olden days of the CPA examination before the passage rates exploded

Per Usual, the magazine Accounting Today does not consider accounting professors to be "Influential Thought Leaders"
Law professor (now Dean) Paul Caron who maintains the TaxProf Blog seems to be the only influential academic in the eyes of Accounting Today. The American Accounting Association runs an annual cash award for Notable Contributions to the Accounting Literature. As far as I can tell no one considered "Notable" by the AAA as ever in history been considered an "Influential Thought Leader" by Accounting Today. Even Professor Christine Botosan who is a current FASB board member nor any living academic in the Accounting Hall of Fame made Accounting Today's Top 100 thought leaders in 2017.

:Let's face it.
The practice world of accounting does not consider accounting academics to be very relevant, influential, or thought leaders in the profession. In the past Dennis Beresford probably made an annual list, but he would've done so before he became an academic. Has any President of the American Accounting Association been honored by Accounting Today?

Accounting Today:  Our 2017 listing of 100 thought leaders and visionaries who are shaping the accounting profession ---
http://cdn.coverstand.com/37089/434487/5f725cfae941f522c703d8776ea64715a5323540.pdf

September 6, 2017 reply from Denny Beresford

Bob,

As you imply by referring to my former position on this list, most on the list are position holders rather than "thought leaders and visionaries." And the list has evolved so that nearly half are now suppliers to the accounting profession - the organizations that tend to advertise in Accounting Today. It is still noteworthy that AT doesn't even bother to include the current President of AAA or the Executive Director.

Denny

Consumers affected by the Equifax breach of personal information might want to file tax returns early, before anyone else claims their refund, according to the Federal Trade Commission ---
http://www.marketwatch.com/story/how-the-equifax-breach-could-impact-you-during-tax-season-2017-09-08

Jensen Comment
I was always one of those taxpayers who waited until April to file my tax return. Then I got burned in the TurboTax breach of social security numbers and IRS PIN numbers. Some thief trying to rob the US treasury filed for a refund using my SS and PIN numbers. It did not cost me anything, but the IRS refused my April e-file saying that I'd already a tax return and that I already received an enormous refund (which of course I did not receive).

It took a while but with my 1099 forms and other evidence the IRS eventually accepted my paper filing and gave me my requested very small refund.

But with these fake e-filings the government loses billions and billions to scammers who buy the stolen data from Turbo Tax, Equifax, Blue Cross Anthem, etc.

So I plead with you to file your tax returns as soon as possible in 2018. Yeah I know, you have to wait for your W-2 forms and delayed 1099 reports. But do file as soon as you can to interfere with the bad guys who bought your ID from Equifax hackers in 2017.

Fraud Investigation Quiz (click the Submit button to move to the next question) ---
https://www.journalofaccountancy.com/issues/2017/sep/fraud-iq-quiz-fraud-investigations.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Sep2017

Jensen Comment
I disagree with the answer choices on the first question. Unless the fraud investigation is focused on a fraud already detected, I think the purpose of a fraud investigation, like that of an audit in general,  is to prevent frauds and compliance errors from taking place in the first place. In my opinion, employees and taxpayers on average are more honest and more accurate when they know they will be subject to scrutiny by experts. This includes employees that design and implement internal controls. Perhaps the second answer choice to this question covers this, but I think that answer choice should be reworded to make it more clear that the purpose is prevention. Exhibit A is the impact of the 1099 Forms on the reduction of fraud in income reporting on IRS 1040 forms. The 1099 Forms greatly increased the fraud investigation powers of IRS computers. That in turn increased the likelihood that taxpayers will include all taxable revenue on IRS 1040 forms except in cases where income is not reported on a 1099 Form (think underground economy income).

Auditors had identified material weaknesses in financial reporting at about 30 percent of the companies that later disclosed accounting problems. Chief executives were named in 111 of the 127 fraud cases, and chief financial officers were identified in 108 of the cases ---
New York Times:  Sarbanes-Oxley, Bemoaned as a Burden, Is an Investor’s Ally ---
https://www.nytimes.com/2017/09/08/business/sarbanes-oxley-investors.html

De Blasio:  The NYC mayor flat out does not believe in the right to private property ---
http://reason.com/blog/2017/09/08/new-york-mayor-to-property-owners-drop-d
Jensen CommNetent
If his actions catch on across the USA does this change how we account for and value private property?

The Media Has A Probability Problem The media’s demand for certainty — and its lack of statistical rigor — is a bad match for our complex world ---
https://fivethirtyeight.com/features/the-media-has-a-probability-problem/

Jensen Comment
This is a bit analogous to investors demand for fraud discovery in a financial statement audit. Firstly, financial statement auditors are really not all that good at detecting fraud (for example they don't pay millions to whistleblowers). Secondly, the cost of a fraud detection enormously more expensive that traditional financial statement auditing. At best financial statement auditors often have useful recommendations for improving internal controls. Having said this, there are limits to which financial statement auditors can plead they are not responsible for fraud, especially where auditing standards demand certain procedures such as attesting to existence of inventories and warehouses, attesting to existence and collectibles of receivables, etc.

 What to know about the bill-to-limit state taxation of online sales ---
https://www.accountingweb.com/tax/sales-tax/what-to-know-about-the-bill-to-limit-state-taxation-of-online-sales?source=tx092517

Jensen Comment
I question the constitutionality of threatening Fed funds cut off every time Congress wants to block states' rights.

 Does elderly parent care lead to tax breaks?
https://www.accountingweb.com/tax/individuals/tax-breaks-for-elderly-parent-how-to-handle-insurance-proceeds?source=tx092517

 Equifax Executives Sold Stock Before Revealing Data Breach Exposing 143 Million To Identity Theft ---
http://www.nbcchicago.com/news/business/Data-Breach-Could-Affect-143M-Consumers-Equifax-443085613.html

PricewaterhouseCoopers (PwC) is set to launch a law firm in the U.S., a clear sign that the concerted push into legal services by the Big Four accounting firms continues ---
http://www.americanlawyer.com/id=1202798366190/PwC-to-Launch-US-Law-Firm-as-Big-Four-Expand-Legal-Offerings?slreturn=20170821140033

Jensen Comment
When will Amazon offer legal services online?

Gappify Launches Robot For Corporate Accountants ---
https://www.pymnts.com/news/b2b-payments/2017/gappify-creates-corporate-accounting-chatbot/

TIGTA: 64% Of The IRS's Information Technology Is Beyond Its Useful Life (think XP in the newer world if Windows 10) ---
http://taxprof.typepad.com/taxprof_blog/2017/09/tigta-64-of-the-irss-information-technology-hardware-infrastructure-is-beyond-its-useful-life.html

The Swiss National Bank's stock looks like a pump-and-dump scheme ---
http://www.businessinsider.com/swiss-national-bank-pump-and-dump-scheme-crushing-it-2017-9

MAAW's Blog Table of Contents Service Update ---
http://maaw.blogspot.com/2017/09/auditing-journal-of-practice-theory.html

Auditing: A Journal of Practice & Theory  2017, Volumes 36(1)-36(3)
http://maaw.info/AuditingAJournalofPracticeAndTheory2017.htm

Auditing: A Journal of Practice & Theory  2008-2017, Volumes 27(1)-36(3)
http://maaw.info/AuditingAJournalOfPracticeAndTheory.htm

Economic models are broken, and economists have wildly different ideas about how to fix them ---
https://qz.com/1077549/economic-models-are-broken-and-economists-like-joseph-stiglitz-and-researchers-at-the-bank-of-england-have-wildly-different-ideas-about-how-to-fix-them/

How Labor Scholars Missed the Trump Revolt::We thought we knew the white working class. Then 2016 happened ---
http://www.chronicle.com/article/How-Labor-Scholars-Missed-the/241049?cid=cr&utm_source=cr&utm_medium=en&elqTrackId=b44f5357d3404a349f448f3640956c27&elq=d5d986b392174f74b3b44e7844feda33&elqaid=15520&elqat=1&elqCampaignId=6644

When the bottom fell out of the economy in 2008, many in and out of the academy were quick to wag a finger at economists and ask, "Why didn’t you guys see this coming?" Economists responded that the "science" of economics is not of the predictive kind — nor, for that matter, are a lot of the sciences. The economy might have been in unanticipated chaos, but the discipline of economics was still sound.

Others argued that the problem was in the methodology itself — the assumptions and premises that blind practitioners to even the possibility of crisis. The eight American and European scholars who wrote the "Dahlem report," a 2009 analysis of the economics profession, found it "obvious, even to the casual observer that these models fail to account for the actual evolution of the real-world economy." As a result, "in our hour of greatest need," we must fumble in darkness with no explanation, no theory, and no scholarly discipline prepared to answer the simple question: How did we get here?

I am a labor historian — or at least one in recovery. When my colleagues and I saw the financial crisis, our predominant response was something like an exhausted, cynical shrug: "Of course — what did you expect in an age of rampant deregulation and absurd economic inequality?" Yet when the next systemic paroxysm hit our nation — the wave of white, blue-collar rage that helped elect Donald Trump — my field seemed as ill-equipped to explain the "actual evolution of the real-world" situation as the science of economics had been to explain the crash in 2008. One could have polled the entire American Political Science Association and the Organization of American Historians in 2016 and found very few who would have predicted a Trump victory — unless Michael Moore (who nearly alone, in no uncertain terms, predicted a "Rust Belt Brexit," the last stand of the common white guy) happens to be an accidental member of one of those professional organizations.

Richard Hofstadter, the old grandmaster of American political history, laid clear the burdens of being a historian: "The urgency of our national problems seems to demand, more than ever, that the historian have something to say that will help us." The need for salient historical explanation seems more important now than ever, yet a lot of us are coming up empty. Most of what we seemed to know about how class works suddenly seems dated, or simply wrong. As with the economists of the past decade, we may have been blinded by the bedrock assumptions of our own field.

Most labor historians, one way or another, and whether or not they concede it, remain children of the "new labor history." The field emerged in the 1960s and ’70s from several sources: the political vision of the New Left, civil rights, and women’s movements; the rejection of the narrow trade-union economism of the "old" labor history; and, perhaps most important, the 1963 publication of E.P. Thompson’s The Making of the English Working Class. Thompson famously rejected an analysis that addressed class as a "thing," arguing instead for a new analysis that approaches class as a "happening." Smashing icons across the intellectual spectrum, his book began a new age of rich and adventurous writing about the history of working people. He sent historians on a mission to figure out how class worked — without indulging the condescending, instrumental, or teleological traps of previous intellectual models.

 

In place of institutions and economics, the new breed of scholars put culture, consciousness, community, agency, and resistance at the center of their analyses. In rushed two generations of engaged scholarship, freeing workers from prisons of party, union, and state. No longer intellectual pawns, the working class could have its own voice and reveal its own rich complexity. Liberated history, so the assumption went, would lead to liberated workers. And liberation became the project of the new labor history.

But this paradigm never quite escaped its origins in the political romanticism of the New Left that gave birth to it. At its best, it opened up wide vistas of understanding of the entirety of American history; at its worst, it looked like a cultural whirlpool of radicals writing radical history for a radical audience

 

. . .

 

Historians need to reconcile their intellectual frameworks with a "real-world" America that is a messy stew of populist, communitarian, reactionary, progressive, racist, patriarchal, and nativist ingredients. Any historical era has its own mix of these elements, which play in different ways. We should embrace Thompson’s admonition to understand class as a continuing, sometimes volatile happening, and not be blinded by our love affair with dissent as a left-wing movement. Trump voters are dissenters, after all.

My generation’s historiographical compass is left spinning. North is gone. But the white working class is out there. And we still really need to understand it.

Jefferson Cowie is a professor of history at Vanderbilt University. His most recent book is The Great Exception: The New Deal and the Limits of American Politics (Princeton University Press, 2016).

Redefine Statistical Significance
David Giles:  Econometrics Reading List for September 2017---
http://davegiles.blogspot.com/2017/09/econometrics-reading-list-for-september.html

What's the greatest tax loophole of all time?

Hint:  Lucky in law but not in love

Answer
https://www.accountingweb.com/tax/individuals/what-is-the-greatest-tax-loophole-of-all-time?source=tx091117

Jensen Comment
The word "greatest" must be taken in context. This may be super great for those who get to use it, but it may not be the "greatest" in terms of US Treasury aggregate losses.

What loophole costs the government the most aggregate losses?

Tax-exempt income is a good candidate, but probably not enough income that is legally tax exempt unless you consider the illegal  underground, unreported income as being "tax exempt." If you add total unreported income as being the biggest loophole you are probably correct, but I think the context of the article is that the loopholes must be legal loopholes.

In terms of legal loopholes I suspect (without doing a lick of research) that personal exemptions plus the standard deduction add up to the "greatest" aggregate loopholes. Virtually all taxpayers take advantage of both single and multiple-dependent exemptions ---
https://en.wikipedia.org/wiki/Personal_exemption_(United_States)

There are a lot of people 65 or older
In the past, there was an extra exemption when you reached age 65. Now, if you are age 65 or older on the last day of the year and do not itemize deductions, you are en-titled to a higher standard deduction. ... If you are married, you get an additional $1,200 standard deduction..

For nearly half of USA taxpayers any income tax owing after personal exemptions are deducted their tax owing is eliminated by the standard deduction "loophole" ---
https://en.wikipedia.org/wiki/Standard_deduction

This is especially important these days when Congress is considering a nationalized (single-payer) healthcare plan. Other nations in Europe and Canada that have national health care plans do not allow half their taxpayers off the hook when it comes to paying for "free" health treatments and medications. If the USA national health plan is to be paid for mainly with income taxes than the USA should no longer let half the taxpayers pay no income tax. Something will have to be done about the personal exemption and standard deduction loopholes.

An Old and Controversial Classic
A Comparison of Dividend, Cash Flow, and Earnings Approaches to Equity Valuation

SSRN
68 Pages Posted: 31 Mar 1997  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=15043 

Stephen H. Penman

Columbia Business School - Department of Accounting

Theodore Sougiannis

University of Illinois at Urbana-Champaign - Department of Accountancy

Abstract

Standard formulas for valuing the equity of going concerns require prediction of payoffs "to infinity" but practical analysis requires that they be predicted over finite horizons. This truncation inevitably involves (often troublesome) "terminal value" calculations. This paper contrasts dividend discount techniques, discounted cash flow analysis, and techniques based on accrual earnings when applied to a finite-horizon valuation. Valuations based on average ex-post payoffs over various horizons, with and without terminal value calculations, are compared with (ex-ante) market prices to give an indication of the error introduced by each technique in truncating the horizon. Comparisons of these errors show that accrual earnings techniques dominate free cash flow and dividend discounting approaches. Further, the relevant accounting features of techniques that make them less than ideal for finite horizon analysis are discovered. Conditions where a given technique requires particularly long forecasting horizons are identified and the performance of the alternative techniques under those conditions is examined.

JEL Classification: G12, M41

Suggested Citation: Suggested Citation

Penman, Stephen H. and Sougiannis, Theodore, A Comparison of Dividend, Cash Flow, and Earnings Approaches to Equity Valuation. Available at SSRN: https://ssrn.com/abstract=15043 or http://dx.doi.org/10.2139/ssrn.15043

Jensen Comment
None of approaches to equity valuation based only on financial statement numbers impress valuation experts very much because there are so many variables (positive and negative) affecting value that are not in the financial statement numbers or even in the financial statement disclosures (think the value of Apple Corporation human resources).

My favorite real-world teaching case on these issues is the Questrom case below that does a great job illustrating how the various valuations are computed for Federated Department Stores.

Bob Jensen's threads on valuation are at
http://faculty.trinity.edu/rjensen/theory02.htm#FairValue

John Cleese Makes a Stand Against Political Correctness ---
http://www.vulture.com/2017/09/john-cleese-monty-python-in-conversation.html

1,600 MOOCs (Massive Open Online Courses) Getting Started in September: Enroll Today ---
http://www.openculture.com/2017/09/1600-moocs-massive-open-online-courses-getting-started-in-september-enroll-today.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

Includes six courses in financial and forensic accounting

WSU professor says IRS is breaking privacy laws by mining social media ---
http://www.spokesman.com/stories/2017/aug/25/wsu-professor-says-irs-is-breaking-privacy-laws-by/

Mark Zuckerberg will testify in court later this month to defend his plan to create non-voting Facebook shares ---
http://www.businessinsider.com/mark-zuckerberg-to-testify-in-lawsuit-against-plan-to-create-non-voting-facebook-shares-2017-9

Jensen Common
The real issue is why people will buy non-voting common shares. Investors buy non-voting preferred shares because preferred shares often pay dividends at returns higher than bond rates while common shares are paying lower (think zero) dividends. There are also some possible advantages in bankruptcy, although these advantages disappear when even creditors cannot be fully paid off. The place for researchers to look non-voting common shares is in Europe where non-voting common shares are more popular (think Switzerland).

CPA executives concerned about hiring shortage ---
https://www.accountingtoday.com/news/cpa-executives-concerned-about-hiring-shortage

 IRS Frequently Asked Questions Can Be a Trap for the Unwary ---
https://taxpayeradvocate.irs.gov/news/irs-frequently-asked-questions-can-be-a-trap-for-the-unwary?category=Tax News

September 22, 2017 reply from Scott Bonacker

Friday, September 01, 2017

Federal Income Tax Statutes Supersede Treasury Regulations

From time to time, when teaching the basic federal income tax course, a student would approach and explain that he or she was confused because something in the assigned regulations was inconsistent with what was in the statute. The best example is the personal and dependency exemption deduction amount. Though changed from time to time when Congress amended the statute and when adjusted for inflation, the regulations continued to refer to a now outdated $600 amount. I explained to the student, and the class, that with a long list of regulations projects, editing an amount in a regulation was given low priority because it was something people could, and should, figure out for themselves. Confusion over the relationship between Internal Revenue Code and Treasury Regulations apparently is not limited to students in basic federal income tax courses. It popped up in a recent Tax Court case ...........

 

The full article is at the bottom of this page, if you can get through the well-written and informative articles that precede it:

http://mauledagain.blogspot.com/2017/09/

The state pension mess is even worse than you think due to hidden post-employment benefits.---
http://reason.com/blog/2017/09/20/the-hidden-700-billion-debt-owed-to-publ

EY:  FASB proposes clarifying the new guidance for recognizing and measuring financial instruments ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_05601-171US_CMTechCorrections_29September2017/$FILE/TothePoint_05601-171US_CMTechCorrections_29September2017.pdf

What you need to know 

• The FASB proposed amendments to the new guidance on recognizing and measuring financial instruments that would clarify that entities would use a prospective transition 
approach only for equity securities they elect to measure using the new measurement alternative. 

• The amendments would also clarify the guidance on how to apply the measurement alternative and the presentation requirements for financial liabilities measured under the 
fair value option. 

• The amendments would generally have the same effective date and transition requirements as the new guidance, which is effective 1 January 2018 for calendar year 
public business entities. 

• Comments are due by 13 November 2017. 

Overview The Financial Accounting Standards Board (FASB or Board) proposed1 clarifying aspects of the new guidance on recognizing and measuring financial instruments2 
in response to questions raised by stakeholders. The FASB decided to propose these amendments, along with proposed amendments to the new leases guidance, rather than include 
them among the narrow improvements it plans to propose for other standards, to raise awareness about these clarifications. The FASB plans to finalize the amendments before public 
companies adopt the new guidance next year. 

 

EY:  SEC Comments and Trends An analysis of current reporting issues September 2017 ---
http://www.ey.com/Publication/vwLUAssetsAL/SECCommentsTrends_05443-171US_25September2017/$FILE/SECCommentsTrends_05443-171US_25September2017.pdf

Every year, we closely monitor the Securities and Exchange Commission (SEC) staff’s comments on public company filings to provide you with insights on its areas of focus. Understanding the SEC staff’s comments and trends can help you as you head into the year-end reporting season. However, each registrant’s facts and circumstances are different and require judgments about the appropriate accounting treatment and evaluations about materiality. Therefore, while this publication highlights areas where the SEC staff may comment, registrants should carefully consider their disclosures based on whether the information is material to investors.

The SEC continues to encourage registrants to streamline disclosures and make them more meaningful. In light of the Commission’s initiative regarding disclosure effectiveness in recent years, registrants should consider the following points when evaluating the trends in staff comments we highlight in this publication and whether to adjust their disclosures:

• The SEC staff often issues comments to obtain additional information when it believes that a company may not have complied with requirements, omitted information that may be material or provided disclosures that appear misleading to investors. That does not mean the staff has not reached a conclusion that the requested information is material. Registrants should consider the materiality of additional disclosures before including them solely to clear an SEC staff comment.

• Registrants should regularly evaluate whether their disclosures continue to be material to investors as their facts and circumstances change. That is, they may eliminate immaterial disclosures even if they were included in prior filings in response to an SEC staff comment.

• Registrants should improve their disclosures by eliminating repetition and focusing on more meaningful discussion. For example, management’s discussion and analysis (MD&A) disclosure of critical accounting estimates often repeats disclosure from the significant accounting policies footnote without providing additional insight into the judgments and uncertainties underlying management’s estimates.

You can use this publication to identify topics where the SEC staff may challenge the accounting treatment or request enhanced disclosure. In all cases, we encourage companies to include a disclosure only when it is material to users.

 The SEC staff continues to focus on many of the same topics that we highlighted last year. The following chart summarizes the top 10 most frequent comment areas in the current and previous years.

EY:  Updated FRD on statement of cash flows ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_42856_CashFlows_26September2017/$FILE/FinancialReportingDevelopments_42856_CashFlows_26September2017.pdf

. . .

Effects of recent accounting standards updates (updated August 2017)

Significant updates reflected in this publication

ASU 2016-15 In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses certain issues where diversity in practice was identified and may change how an entity classifies certain cash receipts and cash payments on its statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. 

This guidance will generally be applied retrospectively and is effective for public business entities (PBEs) for fiscal years beginning after 15 December 2017, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019. Early adoption is permitted.

All of the amendments in ASU 2016-15 are required to be adopted at the same time. To the extent an entity has previously adopted an accounting policy for a transaction that is now specifically addressed by the amendments in ASU 2016-15, a change to that policy prior to adoption of this update would be subject to a preferability assessment and would require retroactive adjustment of prior period financial statements.

ASU 2016-18 In November 2016, the FASB issued ASU 2016-18 which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, this guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements.

Entities will also have to disclosure the nature of their restricted cash and restricted cash equivalent balances, which is similar to the requirement under Securities and Exchange Commission (SEC) Regulation S-X, Rule 5-02.1.

For PBEs, the guidance is effective for fiscal years beginning after 15 December 2017, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019. Early adoption is permitted. Early adoption in an interim period is permitted, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. 

Entities will be required to apply the guidance retrospectively when adopted and provide the relevant disclosures in ASC 250, in the first interim and annual periods in which they adopt the guidance. 

Other updates reflected in this publication The FASB issued additional updates, summarized in the following table, that modify the guidance in ASC 230. This publication has been updated to reflect the amendments to ASC 230 resulting from these standards.

1 Overview and scope

Financial reporting developments Statement of cash flows | 6

ASU Effective dates1 Early adoption permitted? 2015-07, Fair Value Measurement (Topic 820), Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (P) 16 December 2015 (N) 16 December 2016 Yes 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (P) 16 December 2017 (N) 16 December 2018 Non-PBEs can early adopt the ASU at the same time as PBEs, and both PBEs and non-PBEs can early adopt certain provisions. 2016-02, Leases (Topic 842) (P) 16 December 2018 (N) 16 December 2019 Yes 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (P) 16 December 2016 (N) 16 December 2017 Yes, should be applied as of the beginning of the fiscal year 2016-14, Not-for-Profit Entities (Topic 958) (P) 16 December 2017 (N) 16 December 2017 Yes, only for a fiscal period or the first interim period within the fiscal year of adoption 1  The update is effective for fiscal years beginning on or after the date included in the table. (P) refers to PBEs and (N) refers to all other entities.

The SEC recently issued Rule No. 33-9616, Money Market Reform; Amendments to Form PF, which amends its rules for money market funds. The rule changes may impact which investments in prime money market funds, including institutional money market funds are classified as cash equivalents. The compliance date for the floating net asset value, liquidity fee and redemption restriction requirements is October 14, 2016. Refer to section 2.2.3, Short-term paper, for further discussion of the amended requirements.

Updates not reflected in this publication

ASU 2016-13 The FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which amends the guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities and includes minor amendments to the guidance in ASC 230. ASU 2016-13 is not yet effective for any entity and early adoption is not yet permitted. Accordingly, this publication has not been updated to reflect the amendments resulting from ASU 2016-13. 

ASU 2016-13, will be effective for PBEs that meet the definition of an SEC filer for annual reporting periods beginning after 15 December 2019 (2020 for calendar-year public entities) and interim periods therein. For other PBEs, the standard will be effective for annual reporting periods beginning after 15 December 2020 and interim periods therein. For all other entities, the standard will be effective for annual reporting periods beginning after 15 December 2020, and interim periods within annual reporting periods beginning after 15 December 2021. Early adoption is permitted for all entities for annual periods beginning after 15 December 2018 and interim periods therein.

EY:  Updated FRD on statement of consolidation ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_02856-161US_Consolidations_28September2017/$FILE/FinancialReportingDevelopments_02856-161US_Consolidations_28September2017.pdf

Jensen Comment
This is a very technical document that's difficult to summarize

EY:  Accounting for the Effects of Natural Disasters

What you need to know

• Companies need to consider a number of potential financial reporting effects under US GAAP following a natural disaster.

• Assets may be impaired, either directly or indirectly, and companies should evaluate whether they need to provide additional disclosure.

• Companies need to keep in mind that anticipated insurance proceeds up to the amount of loss recognized are considered insurance recoveries and accounted for only when they are deemed probable. Anticipated insurance proceeds in excess of recognized losses are gain contingencies.

• Companies should consider whether changes in the probability of forecasted transactions occurring at the same time and in the same amounts as they initially expected affect their ability to use hedge accounting. 

• Companies affected by a natural disaster should contact the SEC staff if they want to seek relief from filing deadlines and other SEC regulatory requirements.

Overview When a natural disaster strikes, companies often have questions about how to account for the effects under US GAAP. This publication provides an overview of some of the accounting and reporting guidance that companies directly and indirectly affected by hurricanes such as Harvey and Irma, the recent earthquake in Mexico and other natural disasters should consider.

Jensen Comment
This probably applies to physical disasters in general and not just those deemed "natural" disasters.

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

EY:  Comment letter on the FASB’s proposal for targeted improvements to related party guidance for Variable Interest Entities (VIE) ---
http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_04965-171US_RPVIEs_31August2017/$FILE/CommentLetter_04965-171US_RPVIEs_31August2017.pdf

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

Quiz:  How much do you know about Medicare?
https://www.journalofaccountancy.com/news/2017/sep/medicare-quiz.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=19Sep2017
Click the Submit button for more questions

 In a conventional linear regression model, measurement errors in the dependent variable are not a biog deal. However, the situation is quite different with Logit, Probit, and the LPM.
David Giles, September 22, 2017
http://davegiles.blogspot.com/2017/09/misclassification-in-binary-choice.html

Wells Fargo bank teller stole nearly $200,000 from a customer and spent it on a down payment for his home and several vacations ---
http://www.businessinsider.com/wells-fargo-bank-teller-stole-185000-from-homeless-customer-2017-9

Five years on: Korea sees benefits of IFRS adoption ---
http://www.globalaccountantweb.com/five-years-on-korea-sees-benefits-of-ifrs-adoption/

IASB proposes changes around accounting policies and estimates ---
https://www.journalofaccountancy.com/news/2017/sep/iasb-changes-accounting-policies-estimates-201717430.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=20Sep2017

 The Atlantic:  The History of Sears Predicts Nearly Everything Amazon Is Doing ---
https://www.theatlantic.com/business/archive/2017/09/sears-predicts-amazon/540888/

Exploiting the Medicare Tax Loophole ---
http://taxprof.typepad.com/taxprof_blog/2017/09/burke-exploiting-the-medicare-tax-loophole.html

. . .

Section 1411 imposes a 3.8 percent surtax on investment income of high earners that mirrors Medicare taxes on earned income. The enactment of the net investment income tax highlights gaps in the employment tax rules for passthrough entities — particularly limited partnerships, S corporations, and limited liability companies. This article considers how businesses can be structured to allow active high-income owner-employees of passthrough entities to avoid all three of the 3.8 percent Medicare taxes (SECA, FICA and section 1411).

Continued in article

Corporate Philanthropy and the Cost of Equity Capital: An Examination of Major Philanthropic Gifts

SSRN
50 Pages Posted: 21 Sep 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040170   

J. Scott Judd

University of Illinois at Chicago

Stephen J. Lusch

Texas Christian University - Department of Accounting

Date Written: September 19, 2017

Abstract

Using a dataset of substantial corporate philanthropic gifts, we examine whether corporate philanthropy is associated with a firm’s cost of equity capital. On one hand, philanthropy is an allocation of shareholder returns to a third party resulting in lower cash flows. On the other hand, corporate philanthropy may increase public perceptions of the firm resulting in higher cash flows. Given these competing predictions, the effect of corporate philanthropy on the cost of equity is unclear. Our primary findings indicate that higher levels of corporate philanthropy are associated with a higher cost of equity capital and that this relation is mitigated among firms that are able to use corporate giving as a marketing tool and that have lower agency costs. Furthermore, our findings are robust to accounting for endogeneity using propensity score matching and Heckman’s two-stage procedure. Overall, our findings suggest that corporate philanthropy negatively affects a firm’s external financing costs.

Jensen Comment
It's virtually impossible in most instances to measure the long-term benefits of corporate philanthropy. There are many, many contingencies. For example, a humanitarian gift to Puerto Rico after Hurricane Maria may negatively affect cost of capital in the short run. But who knows what might happen down the road in the long term. For example, years from now Puerto Rico might achieve statehood in the USA. The kids a company helped keep from starving in 2017 may remember the generous company years later, especially any who are eventually elected to Congress. The company is not likely to give expecting such unknown and highly unlikely benefits. But companies often recognize that there can be such benefits from reputation enhancement giving.

The Bright Side of Fair Value Accounting: Evidence from Private Company Valuation

SSRN
50 Pages Posted: 21 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040396

Nicholas Crain

Vanderbilt University - Finance

Kelvin Law

Nanyang Technological University (NTU)

Date Written: September 21, 2017

Abstract

Using proprietary quarterly reports from a large sample of private equity managers, we examine how fair value accounting standards influence the valuations of private companies. We find that after fair value implementation, fund managers are more likely to update the valuations of portfolio companies and lower the magnitude of upward valuation across all quarters. Valuation error is also smaller and less volatile after the implementation, especially among outperforming and mature companies. Our findings show that fair value accounting improves the quality of individual valuations to investors, even when these valuations are subjective and unverifiable.

Keywords: Fair Value; Private Equity; Valuation; Private Company

 Cross-Firm Real Earnings Management

SSRN
46 Pages Posted: 20 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3039038

Eti Einhorn

Tel Aviv University - Faculty of Management

Nisan Langberg

University of Houston - C.T. Bauer College of Business; Tel Aviv University

Tsahi Versano

Tel Aviv University - The Leon Recanati Graduate School of Business Administration

Date Written: September 18, 2017

Abstract

Bob Jensen's threads on creative accounting and earnings management are at
http://faculty.trinity.edu/rjensen/theory02.htm#Manipulation

Earnings Management in Interconnected Networks: A Perspective

Journal of Economic and Administrative Sciences Vol. 33 No. 2

SSRN
21 Pages Posted: 20 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3038925

Peterson K. Ozili

University of Essex - Essex Business School

Date Written: 2017

Abstract

This article examine how firms manage earnings when firms are in interconnected networks, that is, when firms are interconnected to each other in a way that the survival of one firm is crucial to the survival of other firms connected to it. The article employs network typology to provide some insight on the earnings management behaviour of firms in regulated and unregulated networks or systems. We find that firms in the inner core of interconnected networks are more likely to rely on income smoothing behaviour as a preferred form of earnings management because it stabilises the firm’s link with other firms in the network. In regulated networks, we propose a negative relationship between a firm’s network centrality and the number of earnings management strategies the manager can adopt. Also, we propose a positive relationship between a firm’s network centrality and the propensity to smooth earnings or income when firms are concerned about their reputation or regulatory scrutiny. This article is a brief note on earnings management, and an attempt provide a perspective on how earnings management can be explained using a network typology.

Economic Consequences of Financial Reporting and Disclosure Regulation: A Review and Suggestions for Future Research

SSRN
91 Pages Posted: 13 Mar 2008 Last revised: 7 May 2008
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1105398

Christian Leuz

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

Peter D. Wysocki

Boston University Questrom School of Business

Date Written: March 2008

Abstract

This paper surveys the theoretical and empirical literature on the economic consequences of financial reporting and disclosure regulation. We integrate theoretical and empirical studies from accounting, economics, finance and law in order to contribute to the cross-fertilization of these fields. We provide an organizing framework that identifies firm-specific (micro-level) and market-wide (macro-level) costs and benefits of firms' reporting and disclosure activities and then use this framework to discuss potential costs and benefits of regulating these activities and to organize the key insights from the literature. Our survey highlights important unanswered questions and concludes with numerous suggestions for future research.

Keywords: Accounting, Asymmetric information, Capital markets, Institutional economics, International, Mandatory disclosure, Political economy, Regulation, Standards

JEL Classification: D78, D82, G14, G18, G30, G38, K22, K42, M41, M45

Tax Related Implications of Fair Value Accounting

Forthcoming in: The Routledge Companion to Fair Value in Accounting and Reporting, Edited by: Livne, Gilad and Garen Markarian. London: Routledge

SSRN
23 Pages Posted: 18 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3036857

Kay Blaufus

Leibniz Universität Hannover

Martin Jacob

WHU - Otto Beisheim School of Management

Date Written: September 14, 2017

Abstract

The Effect of Mandatory Disclosure on Market Inefficiencies: Evidence from Statement of Financial Accounting Standard Number 161

SSRN
55 Pages Posted: 15 Sep 2017 Last revised: 17 Sep 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3035887

John L. Campbell

University of Georgia - J.M. Tull School of Accounting

Urooj Khan

Columbia Business School - Accounting, Business Law & Taxation

Spencer Pierce

Florida State University - College of Business

Date Written: September 12, 2017

Abstract

Prior research finds that unrealized gains/losses on cash flow hedges are negatively associated with future earnings. However, equity investors and analysts fail to anticipate this association. These studies speculate that the mispricing is due to poor derivative disclosures. In this study, we examine whether the enhanced mandatory derivatives disclosures set forth in FAS 161 improve users’ understanding of firms’ hedging activities, and offer two main findings. First, we find no evidence of mispricing after FAS 161, suggesting that enhanced mandatory derivative disclosures helped correct investors’ understanding of the implication of unrealized cash flow hedge gains/losses for future firm performance. Second, we find that analysts’ forecasts exhibit less error related to cash flow hedges after FAS 161, suggesting that these enhanced disclosures improve the information environment for sophisticated information intermediaries. In additional analysis, we find that the reduction in mispricing holds regardless of a firm’s institutional ownership level, suggesting that the additional disclosures appear to have benefited all investors regardless of their sophistication. Overall, our results suggest that the enhanced mandatory derivative disclosures required by FAS 161 improved investors’ and analysts’ understanding of the effects of derivative and hedging activities on future firm performance and firm value.

Yuji Ijiri: Accounting for a Better Society

SSRN
7 Pages Posted: 15 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3033979

Shyam Sunder

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

Date Written: May 13, 2017

Abstract

Yuji Ijiri was a polymath and pioneer who gave us better understanding and methods of accounting and management. His theories of measurement, aggregation, and double- and triple-entry bookkeeping built an enduring foundation for the discipline and practice of accounting.

Keywords: Yuji Ijiri, accounting, aggregation, historical cost, double-entry, triple-entry bookkeeping, Carnegie Mellon University

Direct Evidence on the Informational Properties of Earnings in Loan Contracts

Journal of Accounting Research, Vol. 55, No. 2, 2017

SSRN
Posted: 15 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3036051

Scott Dyreng

Duke University

Rahul Vashishtha

Duke University

Joseph Weber

Massachusetts Institute of Technology (MIT) - Sloan School of Management

There are 2 versions of this paper

Direct Evidence on the Informational Properties of Earnings in Loan Contracts

Journal of Accounting Research, Forthcoming

Number of pages: 50 Posted: 12 Sep 2014 Last Revised: 02 May 2017

Downloads 398

Direct Evidence on the Informational Properties of Earnings in Loan Contracts

Journal of Accounting Research, Vol. 55, No. 2, 2017

Posted: 15 Sep 2017

You are currently viewing this paper

Date Written: May 1, 2017

Abstract

Using a sample of firms that disclose the realizations of earnings used for determining covenant compliance in loan contracts, we provide direct evidence on the informational properties of earnings used in the performance covenants included in debt contracts. We find that the earnings measure used in performance covenants does not exhibit asymmetric loss timeliness and has significantly greater cash flow predictive ability than GAAP measures of earnings. We suggest that these results reflect the idea that contracting parties design accounting rules for performance covenants to enhance their efficacy as “tripwires.”

Keywords: earnings properties; debt contracts; cash flow prediction; conservatism

A Reexamination of U.S. Corporate Tax Avoidance Over the Past Twenty-Five Years: Estimating Corporate Tax Avoidance with Accounting-Based Measures

SSRN
21 Pages Posted: 14 Sep 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3035592  

Noel P Brock

Eastern Michigan Univeristy

Roy Clemons

New Mexico State University

Adam Nowak

West Virginia University

Date Written: August 18, 2017

Abstract

Dyreng et al. (2017) find that the effective tax rates for both foreign and domestic corporations have steadily declined over the past quarter century. However, contrary to conventional wisdom, the authors also find that U.S. multinational corporations do not have a tax-based cost advantage relative to their domestic counterparts. We investigate this unexpected finding by reexamining corporate income taxes over the past quarter century employing an alternative tax avoidance measure developed by Henry and Sansing (2014). The authors measure addresses both sample selection bias and measurement error that exists when using income as the denominator when calculating effective tax rates. Using the Henry and Sansing (2014) measure of tax avoidance, we find that U.S. multinational corporations do have a tax-based cost advantage relative to their domestic counterparts. Thus, sample selection bias is a plausible explanation for the unexpected tax-based cost advantage of US domestic firms reported in prior research.

Keywords: Multinational Corporations, Effective Tax Rate, Cash Effective Tax Rate, Corporate Tax Avoidance

The Effects of Derivatives Use on Management Forecast Behavior

SSRN
49 Pages Posted: 12 Sep 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3034651

John L. Campbell

University of Georgia - J.M. Tull School of Accounting

Sean Cao

Georgia State University - School of Accountancy

Hye Sun Chang

Singapore Management University - School of Accountancy

Raluca Chiorean

Lehigh University - Department of Accounting

Date Written: September 9, 2017

Abstract

Prior research examines the reasons that managers decide to voluntarily disclose information, but does little to examine whether a manager’s day-to-day operational decisions influence disclosure choice. In this study, we fill this void by examining whether a particular operational activity – risk management through the use of derivatives – affects whether a manager decides to issue an earnings forecast. Using a hand-collected sample of derivatives users and non-users, we find that derivatives users are more likely to issue earnings forecasts relative to non-users. We then find that this result is stronger when firms use derivatives to reduce the volatility of earnings, making it easier to predict (and meet) future earnings amounts. However, we find no evidence that managers provide these forecasts due to investor demand. In additional analyses, we find that not only are derivatives users more likely to issue management forecasts but these forecasts are also more precise and accurate. Overall, our results suggest that operational decisions can influence management forecast policy, but only when these decisions make it easier for the manager to forecast (and meet) those forecasts.

The Development of the Management Accountant's Role Revisited: An Example from the Swedish Social Insurance Agency

Forthcoming in Financial Accountability & Management

SSRN
Posted: 7 Sep 2017  
 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3028843

Mikael Holmgren Caicedo

Stockholm Business School, Stockholm University

Maria Martensson

Stockholm University - School of Business

Kristina Tamm Hallström

Stockholm School of Economics

Date Written: September 4, 2017

Abstract

This study traces the development of the management accountant (MA) role at the Swedish Social Insurance Agency (SIA). In 2012, the agency began a reformation by implementing the Lean management system in hopes of increasing customer trust. The results of this study show that the authority of the MA rests on decentralisation and the proximity of MAs to managers, as previous research has shown, and more specifically on a definitional and a moral prerogative that may or may not be awarded to MAs enabling them to act as de facto managers. The study shows how the role of the SIA’s operative level MAs changed into a helpdesk function with the role of assisting other groups to help themselves, in this case operative-level teams that had begun performing management accounting tasks. Thus, this study bears witness not to the expansion and hybridisation of existing MA roles, but to the reduction in authority and de-hybridisation of the MA role, from business partner to a pedagogical role on a consultative basis.

Keywords: Bean counter, Business partner, Lean, Management accountant, NPM

JEL Classification: M4

Predicting Stock Market Returns with an Accounting Factor

SSRN
83 Pages Posted: 31 Aug 2017 Last revised: 17 Sep 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3029049

Louis Yang

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: August 30, 2017

Abstract

A predictive factor constructed from aggregate accounting variables robustly predicts month-ahead stock market returns. The factor obtains out-of-sample R-squared statistics of up to 3.05% and the predictive performance is economically large with mean-variance investors being willing to pay an annual fee of up to 6.81% for access to its forecasts. Furthermore, its predictive ability is higher for short-term returns and it is distinct from other predictors in the forecasting literature. Using Google search volume of stock tickers, we demonstrate that the predictive power stems from slow information diffusion due to investor inattention.

Keywords: forecasting, prediction, stock returns, accounting, out-of-sample, investor attention, Google search

Lean Accounting Comes to Lean Software Development

Seventh International Engaged Management Scholarship Conference

Fox School of Business Research Paper No. 17-030

SSRN
33 Pages Posted: 29 Aug 2017 Last revised: 18 Sep 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3027684

Thomas W. Stone

Temple University - Fox School of Business and Management; Penn State Abington

Date Written: September 8, 2017

Abstract

I argue that lean software development firms become more productive if they align their lean managerial accounting systems and lean software development processes. I conduct an experiment on software development teams that have used lean and agile software development practices. A treatment group is re-trained in lean software development practices, and after three months, the productivity of the treatment group is compared to that of a control group that did not receive this re-training. This first phase (Phase 1) estimates the productivity improvements from using lean software development practices. Results from Phase 1 indicate that these practices shorten average production time by 80% in software development. In the second phase (Phase 2), a treatment group will be exposed to new lean management accounting measures for three months while a control group will only see existing reported metrics. Software development productivity will be measured for both groups before and after this exposure to evaluate the impact of the treatment. I will also survey both groups before and after treatment to evaluate how lean management accounting measures affect employee engagement and empowerment. The experimental site is a large publicly traded software firm that uses lean and agile software development practices.

From the CFO Journal's Morning Ledger on September 28, 2017

VW to take new, $2.9 billion charge
Volkswagen AG warned Friday its third-quarter operating result would take a hit of around €2.5 billion ($2.94 billion), as the company continues to grapple with the fallout of the diesel emissions scandal that erupted two years ago. The new costs stem from an increase in provisions for buyback and retrofitting programs of its 2.01 TDI vehicles in North America.

From the CFO Journal's Morning Ledger on September 22, 2017

Greece finances stabilized, says EU
The EU decided on Monday to end disciplinary procedures against Greece over its excessive deficit, a sign of the progress the country has made in bringing order to its public finances.

There have been at least 123 database breaches disclosed to the SEC by companies that file with the SEC since 2008 --- Now the SEC has itself been breached 

From the CFO Journal's Morning Ledger on September 22, 2017

Good morning. The U.S. Securities and Exchange Commission’s disclosure that its Edgar system was breached in 2016 drew swift response from senior officials who were unaware for months of the incident, and criticism for both its timing and lack of detail, write Tatyana Shumsky, Dave Michaels and Jean Eaglesham.​ 

The SEC Inspector General’s office is investigating the source of the hack and whether any illegal trading occurred as a result of the breach, said Raphael Kozolchyk, a spokesman for the office, late Thursday.

It's an awkward twist for a regulator that has been pushing public companies to both gird against attacks and to promptly disclose them, writes Ms. Shumsky. The response could undermine the agency’s own efforts to push public companies to educate investors on cyberrisks and more swiftly disclose cyberbreaches to the public. It also opens up a discussion among legal and technology experts on the SEC’s vulnerability and underscores the necessity for tighter cybersecurity controls at both the regulatory and company level, according to the WSJ's CIO and CFO Journal.

“A federal governmental agency has a particular responsibility to be transparent,” said former SEC Commissioner Luis Aguilar, who now works for a private-equity firm, Falcon Cyber Investments LLC, which invests in cybersecurity projects. “Particularly an agency that expects “full and fair disclosure” from publicly traded companies.”

The top U.S. financial regulator on Wednesday evening reported that hackers exploited “a software vulnerability in the test filing component” last year to gain access to nonpublic information within the Electronic Data Gathering, Analysis, and Retrieval System, known as Edgar.

The SEC’s statement also notes that hackers attempted “to compromise the credentials of authorized users.” Usernames and passwords used by companies to upload their documents to Edgar may have been compromised, explained Shuman Ghosemajumder, chief technology officer at Shape Security, a company focused on identifying and shutting down attacks and fraudulent activity against apps and websites.

“When a breach like this occurs, everyone wants to know how it happened and how to prevent it from happening again,” said Mr. Ghosemajumder, a former engineer at Alphabet Inc.’s Google who led the search engine’s defense against click fraud.

There have been at least 123 breaches disclosed to the regulator by companies that file with the SEC since 2008, according to Audit Analytics. “Companies are rightly asking themselves what the SEC is doing to protect their data--the very same questions that the SEC has been asking them for years," said Paul Rosen, a partner with Crowell & Moring LLP. "This breach is potentially a game-changer for the SEC and how it executes its mission."

SEC Filings Database Hacked
From the CFO Journal's Morning Ledger on September 21, 2017

Good morning. The U.S. Securities and Exchange Commission -- the country’s top market regulator -- said Wednesday that hackers gained access to its electronic system for public-company filings last year and may have traded on the information, writes WSJ’s Dave Michaels.

The SEC’s chairman, Jay Clayton, disclosed the breach in a lengthy statement that didn’t provide many details about the intrusion, including the extent of any illegal trading.

The SEC said it was investigating the source of the hack, which exploited a software vulnerability in a part of the agency’s Edgar system, a comprehensive database of filings made by thousands of public companies and other financial firms regulated by the agency.

The commission said the hack was detected in 2016, but that regulators didn’t learn about the possibility of related illicit trading until August, when they started an investigation and began cooperating with what the SEC called “appropriate authorities.”

From the CFO Journal's Morning Ledger on September 20, 2017

Fiat Chrysler recalls nearly a half-million trucks
Fiat Chrysler Automobiles NV issued a recall for nearly a half-million Ram pickup and work trucks to fix faulty pumps that could cause overheating and engine fires, the second major truck recall this year by the auto maker.  

Jensen Comment
Consumer Reports alleges that the three least reliable vehicles on the road are all made by Chrysler (since Yugos are no longer available);. The least reliable is a Fiat followed by Jeeps and Dodge Ram trucks. My Jeep Cherokee was the least reliable car I ever owned.

From the CFO Journal's Morning Ledger on September 20, 2017

Good morning. The average cost of health coverage offered by U.S. employers rose to around $19,000 for a family plan this year, while the share of firms providing insurance to workers continued to fall, writes WSJ’s Anna Wilde Mathews.

Annual premiums rose 3% to $18,764 for an employer plan in 2017, from $18,142 last year, the same rate of increase as in 2016. The trend of relatively gradual premium increases has continued for several years, with the growth of premiums damped by a shift toward bigger out-of-pocket costs for employees in the form of high deductibles—a move that slowed this year, as average deductibles were roughly flat compared with 2016.

Still, the rise of premiums over time has resulted in family health plans that can annually cost more than a new car, with the cost split between firms and employees. Employees paid on average $5,714, or 31%, of the premiums, for a family plan in 2017. For an individual worker, the average annual cost of employer coverage was $6,690 in the 2017 survey, or 4% higher than last year, with employees paying 18% of the total.

Bob Jensen's threads on health coverage are at
http://faculty.trinity.edu/rjensen/Health.htm

From the CFO Journal's Morning Ledger on September 16, 2017

Flush with cash
Prosecutors in Geneva are trying to figure out why two women flushed roughly €100,000 ($119,000) in cut-up €500 bank notes down a toilet at a UBS Group AG branch in the Swiss city as well as in toilets at three neighboring restaurants back in May.

Jensen Comment
Forensic accountants should look into whether this was "channel stuffing." Or maybe this was their version of debt forgiveness.

Best guess:  The toilet paper dispensers were empty. When I lived in Bangor a local business club (called City Club) snow mobiled deep into the winter woods for an outing and a night of cards  In the morning the owner of the Case Dealership said he found a whole new use for one-dollar bills in his bill fold.

From the CFO Journal's Morning Ledger on September 16, 2017

KPMG cleared over HBOS audit 
The Financial Reporting Council -- the U.K. regulator for accounting and audit -- said it has closed the investigation into the conduct of KPMG LLP’s audit of defunct bank HBOS PLC for the year ended Dec. 31, 2017, writes Ms. Trentmann. “The firm’s work did not significantly fall short of the standards reasonably expected of the audit,” the FRC said in a statement.

HBOS in early 2008 concluded that its financial statements for the year in question should be prepared on a “going concern” basis. The company did not expect market conditions to worsen and assessed it would be able to fund itself. The auditor at the time accepted this conclusion. Nevertheless, HBOS in October 2008 had to apply for Emergency Liquidity Assistance from the Bank of England. It was taken over by Lloyds Banking Group PLC in 2009.

From the CFO Journal's Morning Ledger on September 16, 2017

Good morning. Toys ‘R’ Us Inc., once the go-to spot for birthday and holiday gifts, filed for chapter 11 bankruptcy protection late Monday night, the result of a hefty debt load and a rapid shift towards online shopping, write WSJ’s Lillian Rizzo and Suzanne Kapner.

The filing in the U.S. Bankruptcy Court for the Eastern District of Virginia was triggered by vendors and suppliers tightening terms with the company ahead of the key holiday selling season, which accounted for 40% of its $11.5 billion in revenue last year. For the past several years, the company has lost money in each quarter except its holiday quarter.

Like many other big-box chains, Toys ‘R’ Us struggled with the rise of discounters like Wal-Mart Stores Inc. and Target Corp., and more recently, Amazon.com Inc. It was late to develop and expand its e-commerce business and placed big bets on licensed toys for “Star Wars” and Lego movies that missed expectations.

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

IASB releases guidelines on how to judge materiality
The International Accounting Standards Board Thursday published guidelines for companies on how to make materiality judgements. The body behind International Financial Reporting Standards said some companies are unsure how to assess materiality and therefore use the disclosure requirements in IFRS standards as a checklist.

This means companies don’t necessarily provide information that is useful to investors. “We are trying to improve the disclosure and effectiveness of financial information provided by companies,” said Sue Lloyd, vice chair of the IASB. Thursday’s non-mandatory practice statement could result in companies providing less, but more targeted information, Ms. Lloyd said.

The IASB is also seeking comment on proposed amendments to the definition of ‘material’. This follows a move by the U.S. Financial Accounting Standards Board which in September 2015 published a proposal for a new materiality definition.

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

London still world’s top financial center, despite Brexit
London remains the world’s most attractive financial center, extending its lead over New York despite the U.K.’s plans to exit the European Union, according to a survey reported by Reuters. Meanwhile, more British firms plan to list on Nasdaq Inc.’s Nordic market, the head of European listings at the stock exchange told Bloomberg.

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

China to close bitcoin exchanges
Chinese authorities plan to shut down domestic bitcoin exchanges, delivering a final blow to a once-thriving industry of commercial trading for virtual currencies, which took off inside the mainland four years ago.

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

Equifax customer complaints keep piling up
Equifax Inc. struggled over the weekend with its response to its massive data breach as consumers continued to criticize the credit-reporting company’s efforts and cited ongoing problems with a website set up to help them.

From the CFO Journal's Morning Ledger on September 6, 2017

COSO to unveil new enterprise risk management guide
A new framework for considering risk management alongside everyday managerial duties is set to be released later on Wednesday.

The Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, overhauled its enterprise risk management guide to connect risk, strategic planning and corporate performance, said chairman Robert Hirth. Executives who fuse the principles and processes described in the guide with their existing strategy and planning efforts are likely to see improved corporate results, he said.

“You will find that you are meeting more of your objectives more of the time because you’re adding this discipline to what you’re already doing,” Mr. Hirth told CFO Journal

From the CFO Journal's Morning Ledger on September 5, 2017

Allianz says new IFRS standards will cost millions
German insurance giant Allianz SE estimates costs for the implementation of two new accounting standards to amount to several hundred- million euros, the firm's head of group accounting and reporting Roman Sauer told Ms. Trentmann. One of the new standards, called IFRS 17, goes in effect 2021, while the other one, IFRS 9, will already apply from Jan. 1, 2018 onwards

In the case of Allianz, the two standards will lead to the centralization of 30 to 40 different actuary platforms, Mr. Sauer said. Despite the cost, Mr. Sauer supports the changes, stating that they would make it easier for Allianz to communicate with investors. "We believe that IFRS 17 will increase the level of comparability in an industry that today often lacks comparability," Mr. Sauer said

From the CFO Journal's Morning Ledger on September 5, 2017

Tesco accounting trial adjourned, company says it’s ‘different’
Tesco PLC on Monday -- the first day of a trial over misstated profits -- said it has made changes to the way it operates, writes Ms. Trentmann. "Over the last three years, we have fundamentally transformed our business, and Tesco today is a very different company," a spokesman said. Three former senior executives of Britain's largest supermarket chain went on trial on Monday in a London court. The trial was later adjourned until Sept. 25. The former Tesco executives are accused of fraud and false accounting in relation to an interim results announcement published in August 2014 which overstated profits by £326 million ($421 million). Tesco entered into a settlement with U.K. regulators earlier this year.

From the CFO Journal's Morning Ledger on September 1, 2017

How to match job seekers with jobs (Yeah right)
The U.S. has a record number of job openings -- 6 million, just about one job for every officially unemployed person in the country. But matching job hunters with the right job can be difficult, reports NPR.

Continued in article

Jensen Comment
It's more complicated than matching job hunters with workers. A huge proportion of unemployed workers do not have the skills needed for jobs (think of job openings for computer programmers) or the talents and motivations to get those skills (think of the drug addicts, alcoholics, and mentally impaired). Complicating matters is that the open jobs are often in urban areas with high costs of living. Even middle class workers like teachers, public safety officers, and staff accountants cannot afford to fill those jobs without enduring horrible commutes and high relocation costs. Compounding this problem is the tendency today for both adults in a nuclear family wanting to be living together and employed.

When I was still on the faculty of Trinity University in San Antonio some of my accounting graduates found it easier to get job offers in San Francisco than in San Antonio. I think the reason was that a new hire in a CPA firm in San Francisco had to be willing to live with lots of roommates in order to afford housing. How much sleep can three people in one sleeping bag get on average?

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

Strong Capital Cushions Industry

By Nicole Friedman and Leslie Scism | Aug 28, 2017

TOPICS: balance sheet equation, Insurance Industry

SUMMARY: While the devastation to the Houston area is heart wrenching, nonetheless business people must discuss the financial implications of this event. The article describes the financial health of the for-profit insurance industry. In the print version of the WSJ, this article is a smaller inset to the related article which focuses on the National Flood Insurance Program. That Program faces poor financial condition and pending Congressional debate because of its upcoming expiration date of Sept. 30. In contrast to the reporting in the article, the related video may indicate that the extensive devastation could approach the level that analysts think is potentially damaging to the industry's financial health.

CLASSROOM APPLICATION: The article may be used to discuss the overall accounting equation and the insurance industry.

QUESTIONS: 

	1. (Advanced) Define the term "capital" as it is used in the opening paragraph of this article referring to a "fatter-than-ever capital cushion." Include in your answer an overall description of the balance sheet (accounting) equation and describe where capital is included in it.
	2. (Advanced) Do you agree with the authors' reference to capital as "the money they have on hand that isn't required to back obligations"? Explain your answer.
	3. (Introductory) The author argues that the effects of Hurricane Harvey are "unlikely to cause extensive damage to the industry's financial strength...." Why do they argue that the timing of losses for this catastrophic event is relatively fortuitous?
	4. (Advanced) Why is it possible to state that the losses from Harvey covered by private insurers "could hurt quarterly earnings for those carriers with blocks of business in hard-hit areas" yet still maintain that Hurricane Harvey is unlikely to hurt insurers' overall financial health?
	5. (Introductory) Refer to the related article. How does the health of the private insurance industry compare to the financial status of the National Flood Insurance Program?

READ THE ARTICLE

RELATED ARTICLES: 
New Dangers for Food Insurance
by Rachel Witkowski and Leslie Scism
Aug 28, 2017
Page: A5

Reviewed By: Judy Beckman, University of Rhode Island

"Strong Capital Cushions Industry," by Nicole Friedman and Leslie Scism, The Wall Street Journal, August 28, 2017 ---
https://www.wsj.com/articles/hurricane-harvey-unlikely-to-damage-insurers-balance-sheets-1503849284?mod=djem_jiewr_AC_domainid

Personal and commercial insurers have record levels of capital with which to absorb potential losses

The insurance and reinsurance industry has a fatter-than-ever capital cushion to absorb losses from Hurricane Harvey, executives and analysts say.

The damage from the Category 4 storm, which hit the Texas coast on Friday, is far from being tallied. It is the first major hurricane to make landfall in the U.S. in more than a decade, and torrential rain will continue this week to cause widespread flooding.

Harvey’s timing is good for insurers and insurance customers from one perspective: Personal and commercial insurers have record levels of capital, the money they have on hand that isn’t required to back obligations. With insurers’ overall strong capital position, Harvey is unlikely to cause extensive damage to the industry’s financial strength, though it could hurt quarterly earnings for those carriers with blocks of business in hard-hit areas.

Most residential flooding isn’t covered by private-sector insurers, but is the responsibility of the U.S. government’s National Flood Insurance Program. Many carriers, however, do sell flood insurance to businesses.

Analysts estimate it would take $100 billion or more of losses in a 12-month period to cause distress within the insurance industry. Hurricane Katrina in 2005, the costliest hurricane in U.S. history, caused nearly $50 billion in insured losses in 2016 dollars, according to Wells Fargo Securities LLC.

“You would need to see a significant level of insured losses to have an impact on the excess capital of the industry [and] have a material impact on the pricing environment,” said Elyse Greenspan, an analyst at Wells Fargo Securities last week.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

" , The Wall Street Journal, August , 2017 ---
Social Capital Hedosophia Holdings will seek a minority position in a private technology company

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

Tech Firms Offered Alternative to IPOs

By Maureen Farrell | Aug 24, 2017

TOPICS: Initial Public Offerings, Investments

SUMMARY: The article describes a new special purpose acquisition vehicle (SPAC) Social Capital Hedsophia Holdings Corp. The SPAC will meet with investors during the second week of September and launch its offering on the New York Stock Exchange (NYSE) in mid-September. The SPAC will raise funds from its own investors in order to offer a financing alternative to "richly valued technology startups." This type of arrangement is also known as asking investors to "write a blank check." In 2016, a SPAC acquired Hostess Brands, Inc. and one focused on energy-related entities "raised more than $1 billion for acquisitions." In total, $6.9 billion has been raised in 2017 through these vehicles which offer alternative financing to startup entities to avoid what are viewed as onerous regulatory requirements and too short-term public market focus on operating performance.

CLASSROOM APPLICATION: The article may be used when discussing the corporate form of business organization in a financial accounting course, when discussing IPOs and disclosure requirements for publicly-traded companies, or, in an intermediate or advanced accounting class, when discussing different methods of accounting for investments..

QUESTIONS: 

	1. (Introductory) What is an initial public offering (IPO)?
	2. (Advanced) What are the benefits of public ownership of a company's stock? Cite your source for this information.
	3. (Advanced) What are the "challenges of the traditional new-issue process"? Cite your source for this information.
	4. (Introductory) What is a special purpose acquisition vehicle, or SPAC? According to the article, who is investing in SPACs?
	5. (Advanced) How does use of a SPAC amount to asking investors to "write a blank check"?
	6. (Introductory) What is a minority interest in a company's stock? What alternative term is used in accounting for this level of equity ownership?
	7. (Introductory) What are the possible ways in which the SPAC could account for investments in nonpublic start up companies? Under what circumstances would each of these methods be used? Explain your answer.

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

"Tech Firms Offered Alternative to IPOs," by Maureen Farrell , The Wall Street Journal, August 24, 2017 ---
https://www.wsj.com/articles/new-trick-for-reluctant-tech-unicorns-bring-the-ipo-to-them-1503527296?mod=djem_jiewr_AC_domainid

Social Capital Hedosophia Holdings will seek a minority position in a private technology company

A group of Silicon Valley entrepreneurs plans to launch an investment vehicle that will offer a richly valued technology startup an alternative route to public ownership.

The group, led by Chamath Palihapitiya, chief executive of venture-capital firm Social Capital, plans to raise at least $500 million from public investors, according to a Securities and Exchange Commission filing Wednesday. The vehicle is to be known as Social Capital Hedosophia Holdings Corp.

The so-called special purpose acquisition vehicle, or SPAC, will then seek to take a minority position in one of the more than 150 private U.S. technology companies valued at $1 billion or more, according to the filing.

Such a deal would give the company in question a public currency without the need for a traditional initial public offering and some of the costs that come with one. The team is planning to meet with investors during the second week of September and launch the offering on the New York Stock Exchange in mid-September, people familiar with the matter said.

The idea, according to the people, is to give technology entrepreneurs a way to capture the benefits of public ownership without some of the challenges of the traditional new-issue process.

A number of tech entrepreneurs have grown wary of public ownership in recent years—because of the increased scrutiny it brings and what they view as the stock market’s short-term orientation—and have been able to avoid it because private funding sources have proliferated. That helps explains why the number of highly valued startups has ballooned.

Snap Inc. illustrates the perils of the traditional IPO in some entrepreneurs’ eyes—even though it is still very early in its life as a public company. The Snapchat parent made its debut in March and after an initial burst of investor enthusiasm the shares have sagged as competitive pressure ratchets up.

The new SPAC’s sponsors aren’t alone in exploring alternatives. Spotify AB, the music-streaming service, has been seriously considering a plan to go public later this year or early next year without raising money or using underwriters, through a rarely used process known as a direct listing. With this route, the Swedish company could save tens of millions of dollars in underwriting fees, which would represent an additional blow to a stock-selling business on Wall Street that has been under pressure in recent years.

On this SPAC, Credit Suisse AG is serving as the sole underwriter.

There is no guarantee, of course, that the group will succeed—either in raising the funds or finding an acceptable deal.

Unlike a traditional IPO, SPACs first raise money through a stock offering and then hunt for a deal on which to spend the funds raised.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

Large Companies Oppose Ideas for Taxing Overseas Profits

By Tatyana Shumsky | Aug 28, 2017

TOPICS: International Tax, Tax Reform

SUMMARY: The article discusses a Republican proposal to address taxation of profits on U.S. multinationals' foreign earnings. Part of the overhaul focused on lowering the corporate tax rate, one proposal is to implement a minimum tax on foreign earnings. Members of the Alliance for Competitive Taxation have reacted to the proposal because they argue that U.S. tax laws differing from worldwide tax laws would place them at a competitive disadvantage. The benefit of the minimum tax would be to create a "'safety net' against companies trying to pay little or no tax on some foreign income...." The related video is a very basic review of U.S. tax treatment of unrepatriated earnings but mentions some more substantive issues such as the fact that companies may hold cash generated from foreign earnings in U.S. dollars in order to avoid the impact of foreign currency fluctuations.

CLASSROOM APPLICATION: The article may be used in a corporate tax class to discuss unrepatriated foreign earnings or tax policy and the lobbying process with the example of foreign earnings.

QUESTIONS: 

	1. (Advanced) What are unrepatriated foreign earnings? Describe the general treatment of these corporate earnings in the U.S. tax code.
	2. (Advanced) How does U.S. tax treatment of earnings from foreign operations differ from the tax treatment in other countries?
	3. (Introductory) What is the Republican proposal on this matter of foreign earnings?
	4. (Introductory) What type of company is most likely to express concern about U.S. Congress's proposals to overhaul the tax code particularly in relation to earnings from overseas?
	5. (Introductory) Which of these companies are cited in the article? How have they organized to express their views to the U.S. Congress?

READ THE ARTICLE

 

VIEW THE VIDEO

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Large Companies Oppose Ideas for Taxing Overseas Profits," by Tatyana Shumsky, The Wall Street Journal, August 28, 2017 ---
https://blogs.wsj.com/cfo/2017/08/28/the-morning-ledger-large-companies-oppose-ideas-for-taxing-profits-overseas/

As Congressional Republicans try to write new tax rules, a group of large, influential companies is warning against the provision on taxing foreign profits, writes WSJ’s Richard Rubin.

Republicans want to lower the corporate-tax rate and let companies bring future global profits home without paying U.S. taxes on top of foreign taxes. One alternative Republicans are considering is a minimum tax on those profits. But such a tax would have “unintended and adverse consequences,” said the business group, in a previously undisclosed policy paper to lawmakers this month. Companies in the group include Eli Lilly & Co., United Technologies Corp. and United Parcel Service Inc.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

Pay Down the Mortgage, Forgo Gains?

By Jo Craven McGinty | Aug 26, 2017

TOPICS: Personal Taxation, Time Value of Money

SUMMARY: This article in the WSJ series "The Numbers" addresses the personal finance question of whether to use a substantial amount of funds sitting in a savings account to pay off a mortgage. The article raises the behavioral concern of risk preference of the individual taxpayer and individual market driven factors such as investment horizon and individual income tax rates. Several finance professors are cited, one focusing on only the interest rate comparison between earnings on the savings and the cost of the mortgage and the others introducing behavioral and other individual specific aspects of market factors such as individual income tax rates.

CLASSROOM APPLICATION: The article may be used when covering the time value of money in a financial accounting class, the impact of taxation on analysis of financial questions, or in a personal finance class.

QUESTIONS: 

	1. (Advanced) Why does the author say that a financial question about whether to pay down a mortgage is a "personality test"?
	2. (Introductory) University of Washington Professor Andrew F. Siegel says that the question of whether or not to use long term savings to pay down a mortgage depends on one factor. What is that one item? What is the reasoning behind that statement?
	3. (Introductory) What is an alternative view from Professor Pedram Nezafat of Michigan State University? What two factors does Dr. Nezafat say influences this decision?
	4. (Advanced) How does taxation impact the comparison made by both professors cited in the article?

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Pay Down the Mortgage, Forgo Gains?" by Jo Craven McGinty, The Wall Street Journal, August 26, 2017 ---
https://www.wsj.com/articles/is-money-in-the-bank-always-the-smarter-bet-1503662401?mod=djem_jiewr_AC_domainid

For a homeowner, a fat savings account might indicate it’s time to weigh other options for that cash

Here’s a personality test masquerading as a financial question:

Suppose you are a homeowner who has a substantial amount of money sitting in a traditional savings account. Should you use it to pay down your mortgage?

“The surprise here is that when deciding whether or not to use long-term savings to pay down your mortgage, you can simply compare the interest rates to one another,” said Andrew F. Siegel, a statistics and finance professor at the University of Washington Foster School of Business, in Seattle. “If your mortgage rate is bigger than your savings rate, then you should reasonably consider paying down the mortgage.”

That sounds sensible, especially with savings accounts currently earning around 1% in interest on average and mortgages costing around 4%.

But in real life, there’s more to the question.

It may make more sense to pay down credit-card debt or an automobile loan that carries a higher interest rate than a mortgage. Or it could be more advantageous, though riskier, to seek greater financial reward in the stock market.

“There’s really no cookie cutter answer,” said Erin Lantz, vice president of mortgages at Zillow, an online real estate marketplace. “On one hand, it can be attractive to pay off debt. Another way to think about it is to compare what you pay on your mortgage with other investment opportunities.”

Ms. Lantz suggested asking yourself the following questions.

How much cash do you want to have on hand in case of an emergency? Are you paying a higher interest rate on other debt than you are paying on your mortgage? And what is your appetite for risk?

“The question is closely related to the concept of portfolio choice,” said Pedram Nezafat, a professor of finance at Michigan State University.

The historical annual average return for the equity market, Dr. Nezafat said, has been about 9.5%, while the return for the bond market has been about 3.5%. These two asset classes have different risk profiles, and depending on risk tolerance and the investment horizon, investors will allocate different amounts to each class.

Likewise, a portfolio that contains both cash and a home is more diversified than one with only a home.

“It is true that the expected rate of return in the bond market is smaller than the one in the equity market, but you hold bonds because they are not as risky as equities,” Dr. Nezafat said. “You may want to hold on to your cash and not increase your ownership in the house because cash is more liquid.”

Homeowners also may weigh whether the benefit of deducting mortgage interest from federal income tax outweighs the benefit of paying down or paying off the debt with savings.

“The question is does the tax deduction fully make up for the loss,” Dr. Siegel said, referring to the difference between the interest paid on the mortgage and the interest earned on the savings. “The answer is no.”

Continued in article

Jensen Comment
I'm not so certain that paying off your mortgage is such a good idea if you're heavy into tax exempt bonds. I still carry a big mortgage for that reason in spite of being able to pay it off when I choose.

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 1, 2017

Durables Orders Signal Investment

By Sarah Chaney | Aug 26, 2017

TOPICS: Capital Expenditures

SUMMARY: The article discusses many trends in corporate investment, carving out aerospace and defense to focus on core capital goods orders by U.S. companies. Overall positive trends are shown graphically. The retail industry exception of disinvestment is discussed. Target Corp. is an "exception to the exception" in making investment of remodeling stores being driven by a strategy of improving backroom operation for online orders.

CLASSROOM APPLICATION: The article may be used in a managerial accounting class to discuss capital investment or in a financial reporting or managerial class to discuss the accounting system source for the information analyzed in the article

QUESTIONS: 

	1. (Introductory) What items of durable goods are companies purchasing? In your answer, comment on the reasoning for discussing "core capital goods."
	2. (Introductory) How do these purchases represent a sign of confidence in the U.S. economic outlook?
	3. (Advanced) What are the sources of data used to assess overall investment in capital goods by U.S. companies? Do you think any of this information arises from U.S. companies' accounting systems? Explain your answer.
	4. (Advanced) How is the capital investment in the overall U.S. economy compared with a more detailed understanding about Target Corp.'s investment? What is the company's reasoning for its capital investment plans?

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Durables Orders Signal Investment," by Sarah Chaney , The Wall Street Journal, August 26, 2017 ---
https://www.wsj.com/articles/u-s-durable-orders-plummeted-in-july-on-weak-aircraft-demand-1503664505?mod=djem_jiewr_AC_domainid

Outside of transportation, orders rose for the third straight month

U.S. business investment is catching a second wind after years of wobbly performance.

Companies are ramping up orders for computers, machinery and electrical appliances, a sign businesses are growing more confident in the economic outlook eight years into an economic expansion.

Durable goods orders fell 6.8% in July, but the decline was driven by aircraft orders, which had surged the month before. Stripped of the volatile transportation category, orders were up 0.5% from a month earlier and up 5.6% from a year earlier.

Orders for core capital goods, which exclude aircraft and defense and which many economists use as a proxy for broader business investment, rose 0.4% in July. They were up 3.5% in July from a year earlier. They bottomed in June 2016 and have risen six times in seven months. That pickup in business investment marks the best run since 2010, when the U.S. was coming out of recession

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 8, 2017

A Provocative Look at the Harm from Corporate Heft

By Greg Ip | Aug 30, 2017

 

TOPICS: Cost Analysis, Cost Behavior

SUMMARY: This article describes results of a study recently published by two European researchers on U.S. companies. "The authors analyze data on every publicly traded company in the U.S. back to 1950 to determine how much its revenue exceeded its variable costs, such as labor and commodities. That excess, what they call the markup of price over marginal cost, fluctuated between 16 % and 32% until 1982 and has since climbed steadily, to 67%. The trend holds across industries, and is more pronounced in smaller rather than the biggest companies". The authors conclude that "...companies are increasingly able to exert "market power," that is, charge higher prices so as to boost profits at the expense of consumers." These findings are consistent with results of work done by President Barack Obama's Council of Economic Advisors. Arguments against the conclusions reached, however, are based on the fact that the analysis ignores the growth and importance of fixed costs as manufacturing has automated. The research paper, referenced in the article, is available online at http://www.janeeckhout.com/wp-content/uploads/RMP.pdf

CLASSROOM APPLICATION: The article may be used in a managerial accounting class to discuss cost behavior and/or to tie these concepts to economic activity and to academic research.

QUESTIONS: 

	1. (Advanced) Define the terms variable cost, fixed cost, marginal cost and markup.
	2. (Introductory) What have been the trends in the relationship between revenues (product prices) and variable costs of producing those products since 1950?
	3. (Introductory) What does economic theory predict about prices that may be charged by companies in a freely competitive market?
	4. (Introductory) How do the authors of the research conclude that their results are evidence of "market power"?
	5. (Advanced) What are the arguments against those conclusions? In particular, comment on the role of fixed costs versus variable costs in this analysis.

READ THE ARTICLE

Reviewed By: Judy Beckman, University of Rhode Island

"A Provocative Look at the Harm from Corporate Heft." by Greg Ip, The Wall Street Journal, August 30, 2017 ---
https://www.wsj.com/articles/a-provocative-look-at-the-harm-fromcorporate-heft-1504108799?mod=djem_jiewr_AC_domainid

A new study finds that lack of competition has driven up prices, hurting U.S. growth, wages and labor-force participation.

Corporate America is getting more concentrated. The country’s largest internet retailer just acquired its largest standalone organic grocer, and two of its largest aviation-parts makers plan to merge. From health insurance to internet search, fewer companies control more of their markets.

That can be good: size and scale can enable companies to reduce costs, invest in better products and compete globally.  But a provocative new study concludes the opposite. It found that in recent decades a lack of competition has driven up prices,  hurting U.S.  growth, wages and labor-force participation.

The study is causing a stir among economists, some of whom are skeptical of its conclusions. Yet its basic finding is eye-opening.

In the study, Jan De Loecker  of Belgium’s University of Leuven and Jan Eeckhout  of University College London start from the economic assumption that in a competitive market, a company can’t charge much more for a product than the cost of making one more (what economists call the “marginal cost”). If it did, another company would swoop in and undercut it.

The authors analyze data on every publicly traded company in the U.S. back to 1950 to determine how much its revenue exceeded its variable costs, such as labor and commodities. That excess, what they call the markup of price over marginal cost, fluctuated between 16 % and 32% until 1982 and has since climbed steadily, to 67%.The trend holds across industries, and is more pronounced in smaller rather than the biggest companies

Companies' markup - the difference between price and marginal cost - has risen steadily. Source: Jan De Loecker, Jan Eeckhout, National Bureau of Economic Research

This, they say, is proof that companies are increasingly able to exert “market power,” that is, charge higher prices so as to boost profits at the expense of consumers.

Other studies have come to similar conclusions. One by former President Barack Obama’s Council of Economic Advisers found return on capital had become astronomical for the most profitable publicly traded companies, which shouldn’t be possible if competitors could freely enter their market.

The latest study goes even further, arguing the prevalence of market power helps explain deeper economic maladies. A company with such power often restricts production to prop up prices and profits. Messrs. De Loecker and Eeckhout argue this reduces demand for labor and thus explains why wages for low-skilled workers have stagnated in recent decades. Lower wages also discourage people from working, which depresses labor-force participation.

They add that markups may be evidence of barriers to entry by new competitors, which is corroborated by slumping business startup rates. The especially sharp rise in markups since 2009, they say, may explain why economic growth has been so tepid since.

The paper’s novel approach and audacious claims have attracted widespread attention in the blogosphere. Dietrich Vollrath, an economist at the University of Houston, calls it  “an intriguing (and very large) step forwards.” 

But some of its claims invite skepticism. Ample evidence already links depressed wages to globalization, weaker unions and the demand for skills. Growth has been weak globally since 2009 and seems due mostly to aging and repairing the damage of the financial crisis. The link to market power thus far appears mostly circumstantial.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 8, 2017

Cash-Strapped Private Colleges Cut Programs, Sell Assets

By Melissa Korn | Sep 01, 2017

 

TOPICS: Cost-Volume-Profit Analysis, NFP, not-for-profit

SUMMARY: The article focuses on the financial difficulties facing smaller colleges and the increasing number of mergers & acquisitions in higher education. It discusses surveys of college "finance chiefs" (typically vice presidents of finance) and assessment of the industry by Moody's Investors Service. Questions focus on having students consider the business nature of operating an institution of higher education and a reference to a break-even analysis done by Sweet Briar College.

CLASSROOM APPLICATION: The article may be used when covering not-for-profit accounting or in a managerial accounting course when covering break-even analysis.

QUESTIONS: 

	1. (Advanced) At what type of higher education institution do you study? What factors led to your decision to study in this institution?
	2. (Introductory) What changes have led to falling enrollments at liberal arts educational institutions?
	3. (Introductory) Why must higher education administrators make "businesslike decisions"? Why are these decisions made under "high stakes" circumstances at small liberal arts colleges?
	4. (Advanced) In the related article (presented as an inset in the print version of the WSJ), Sweet Briar "welcomed 81 new freshmen in August, well below the 200 officials previously estimated the school needs to remain viable." Explain how you think the number 200 would be determined.
	5. (Advanced) What is Moody's Investors Service? Why is Moody's interested in the operating performance of higher education institutions? In your answer, consider how higher education institutions raise funds for long term projects such as buildings.

READ THE ARTICLE

 

RELATED ARTICLES: 
Struggles at Sweet Briar College Persist
by Melissa Korn
Sep 01, 2017
Page: A3

Reviewed By: Judy Beckman, University of Rhode Island

"Cash-Strapped Private Colleges Cut Programs, Sell Assets," by Melissa Korn, The Wall Street Journal, September 1, 2017 ---
https://www.wsj.com/articles/some-cash-strapped-private-colleges-cut-programs-sell-assets-1504171846?mod=djem_jiewr_AC_domainid

Facing deficits, some small schools put buildings on the market, end programs—or even merge

Wheelock College has been searching for a lifeline all summer.

The Boston school, with roughly 1,000 students and falling financial reserves, put up for sale its president’s five-bedroom house and a residence hall in June, eager for a cash infusion amid growing enrollment and operating-cost pressures.

On Tuesday, Wheelock announced it had entered merger talks with Boston University, which sits a mile away and enrolls 33 times as many students.

The move “was undertaken to ensure the mission of the College remains sustainable as the higher education industry faces a changing landscape,” the school said in a press release. Officials declined to provide further details on the potential merger.

Wheelock is far from alone in exploring creative—or, some higher education experts say, desperate—ways to survive, like dropping programs and penning innovative property deals. More incremental changes, such as adding online courses or tinkering with tuition discounts, didn’t boost enrollment or revenue enough for many institutions.

Such businesslike decisions are a dramatic departure for schools where administrators historically bristled at words like “marketing.” They are a sign of the high stakes facing small, private colleges as families balk at rising tuition and question the value of a liberal arts education compared with more vocational alternatives.

The percentage of finance chiefs at private, nonprofit colleges who agreed or strongly agreed that their institutions will be financially stable or sustainable over the next five years fell to 51% this spring, down from 65% the prior year, according to polls by Inside Higher Education and Gallup.

“Many of these schools would not be making these moves were they not under significant financial stress,” said Susan Fitzgerald, associate managing director at Moody’s Investors Service .

While the initiatives may address immediate cash shortfalls or extend the timeline before another existential crisis, she said, they may not solve fundamental issues such as a school’s ability to recruit and retain enough students to cover overhead costs.

More than one-third of colleges with full-time enrollments below 3,000 students had operating deficits in fiscal 2016, according to a Moody’s report, up from 20% in fiscal 2013.

Facing a dire financial future, Marygrove College in Detroit announced earlier this month that it would discontinue undergraduate programs—which comprise about half its students—and focus on graduate students.

The school had already trimmed its expenses as enrollment slid. It solicited new donors. It tried increasing its online presence and recruiting more students.

Marygrove closed out its fiscal 2017 with a $4 million deficit. President Elizabeth Burns estimated the school was weeks away from running out of cash when it announced the plan to stop teaching undergrads.

“How close to the brink can you get?” she asked.

Dr. Burns said the move will cut overhead costs, and that she sees potential for growth in graduate students

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 8, 2017

SEC Chief Wants Investors to Better Understand Cyberrisk

By Dave Michaels | Sep 05, 2017

TOPICS: Cybersecurity, Disclosures, SEC, Securities and Exchange Commission

SUMMARY: "Some cybersecurity experts have in the past called for the SEC to require more specific disclosures by U.S. public companies about cyberrisks, particularly following a 2013 breach at Target Corp. that compromised the credit- and debit-card information of millions of customers." SEC Chairman "Jay Clayton, speaking at an event sponsored by New York University's School of Law, said investors still don't fully appreciate the threat posed by hackers." The chairman said " the SEC would investigate companies that mislead investors about material cyberrisks" and that battling these issues must be a collaborative effort across governmental agencies. The SEC investigated Target Corp. , and Target settled with the agency for a fine of $18.5 million, over what the SEC alleged was "failure to provide reasonable data security." The agency has not yet sued a "public company over how it communicated the threat of hacking or breaches that it suffered."

CLASSROOM APPLICATION: The article may be used in an accounting systems or auditing class discussing cyber risk or in any class covering required disclosures.

QUESTIONS: 

	1. (Advanced) What is the role of the SEC in enforcing U.S. laws for publicly traded companies? Access the SEC's web site information about what the agency does at https://www.sec.gov/Article/whatwedo.html
	2. (Introductory) How does the article differentiate between public companies' responsibilities for safeguarding customers' information versus holding them responsible for appropriate disclosures about cyberrisk issues?
	3. (Advanced) Differentiate between internal control in general and internal control over financial reporting specifically. Under which control system does safeguarding customer information, such as the information breached at Target Corp., fall? Explain your answer.

READ THE ARTICLE

Reviewed By: Judy Beckman, University of Rhode Island

"SEC Chief Wants Investors to Better Understand Cyberrisk," by Dave Michaels, The Wall Street Journal, September 5, 2017 ---
https://www.wsj.com/articles/sec-chief-wants-investors-to-better-understand-cyberrisk-1504651526?tesla=y?mod=djem_jiewr_AC_domainid

Jay Clayton says regulators, Wall Street should do more to educate investors about cyberthreats

NEW YORK—The chairman of the Securities and Exchange Commission said Tuesday that regulators and Wall Street need to do more to educate investors about the serious risks that companies and the financial system face from cyberintrusions.

Jay Clayton, speaking at an event sponsored by New York University’s School of Law, said investors still don’t fully appreciate the threat posed by hackers. “I am not comfortable that the American investing public understands the substantial risk that we face systemically from cyber issues and I would like to see better disclosure around that,” Mr. Clayton said.

Some cybersecurity experts have in the past called for the SEC to require more specific disclosures by U.S. public companies about cyberrisks, particularly following a 2013 breach at Target Corp. TGT +0.08% that compromised the credit- and debit-card information of millions of customers.

Mr. Clayton said the SEC would investigate companies that mislead investors about material cyberrisks, but said the battle against hackers is much broader and shouldn’t be waged in government “silos.”

“We have to have our individual responsibilities, but we also have to do our best to foster a collective approach to the issue,” Mr. Clayton said.

The SEC’s role in policing cybersecurity is more nuanced than that of many state regulators, which investigated Target for what they alleged was its failure to provide reasonable data security. Target agreed in May to pay $18.5 million to resolve the probe.

The SEC is more focused on whether financial companies that it directly supervises, such as brokerage firms and asset managers, are protecting themselves and their clients against hackers. The agency issued a risk alert last month that outlined policies it sees as effective for mitigating the risks and highlighted some deficiencies.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 8, 2017

The Case for Nonvoting Stock

By Dorothy Shapiro Lund | Sep 06, 2017

TOPICS: Stockholders' Equity

SUMMARY: The arguments made by Ms. Lund in favor of companies using separate classes of stock, voting and nonvoting common shares, are based on the assumption that "having two classes of shares leaves decisions to those who are informed....Put differently, there may be companies that are made worse off when all shareholders vote." Investors who do not learn fundamentals about the company may "prefer to free-ride off informed investors." If shareholders such as Index funds hold a higher percentage of outstanding shares than do investors holding their positions based on fundamental analysis, then voting "is unlikely to move the company in the right direction." Further, "consolidating voting ower in the hands of informed investors would make the company more attractive to these investors...." among other benefits. As my partner Doug always says, "in theory..." The practical concern missing from this argument is the potential for expropriation of wealth by those in control. Ms. Lund has written this Opinion page piece while Holman W. Jenkins, Jr., the usual author is away.

CLASSROOM APPLICATION: The article may be used in a financial reporting course when discussing stockholders' equity.

QUESTIONS: 

	1. (Introductory) What types of stock are included in a balance sheet?
	2. (Advanced) What information about shares of stock must be disclosed in the balance sheet?
	3. (Introductory) Consider the traditional forms of preferred versus common stock. Which of these types has voting rights and which does not? What features compensate shareholders who do not have voting rights?
	4. (Introductory) The nonvoting shares discussed in this opinion page piece are common shares. Indices of stock performance, such as Dow Jones Industrial Average and the Standard & Poors 500 shares index, typically include common shares. What are the firms who report these indices saying about nonvoting common stock? Refer to the related article for help with this answer.
	5. (Introductory) What is the "case for nonvoting stock" made in this opinion page piece?
	6. (Advanced) What is a minority or noncontrolling interest? How does holding such an interest compare to holding nonvoting shares?

READ THE ARTICLE

 

RELATED ARTICLES: 
Index Firms Take Issue with Nonvoting Rights
by Richard Teitelbaum
Apr 09, 2017
Page: ##

Reviewed By: Judy Beckman, University of Rhode Island

"The Case for Nonvoting Stock," by Dorothy Shapiro Lund, The Wall Street Journal, September 6, 2017 ---
https://www.wsj.com/articles/the-case-for-nonvoting-stock-1504653033?mod=djem_jiewr_AC_domainid

Having two classes of shares leaves decisions to those who are informed.

S&P Dow Jones Indices will no longer include companies that go public with multiple classes of shares on its major U.S. stock indexes, it announced in July. A few days earlier, FTSE Russell said it would bar dual-class companies from its indexes unless public shareholders hold at least 5% of the voting rights.

These policy changes were made in response to a recent surge in dual-class initial public offerings, in which company insiders raise cash by selling nonvoting or low-voting stock to the public while retaining voting control over the company. Such structures were historically favored by family-owned companies seeking to preserve control but have recently gained popularity among successful technology companies, including Google, Facebook and, more recently, Snap Inc.

The conventional view is that dual-class structures insulate company insiders from investor influence and accountability. When a problem arises at a company, the shareholders most affected have few tools to take action. Separating control from ownership therefore weakens the insiders’ incentives to maximize shareholder welfare. When the insiders slack or skim off the top, they reap all of the benefits but bear only a fraction of the costs.

Dual-class issuers do not deny that low-vote stock shields insiders from influence. They view it as the key benefit. That is because the dual-class structure can allow insiders to operate without interference from outside shareholders who seek short-term gains at the expense of the company’s long-term vision.

Both sides of the debate overlook an important and unrecognized benefit of dual-class structures: A corporation that offers two classes of stock to the public is able to allocate voting power between shareholders who are informed about the company and its performance and those who are not.

Put differently, there may be companies that are made worse off when all shareholders vote. Some shareholders, including many retail investors, have no interest in learning about the company and prefer to free-ride off informed investors. Other passive shareholders, such as index funds, may lack financial incentives to vote intelligently because of their investment strategy. Index funds seek to match the performance of the market, not beat it, so any investment in informed voting would drive up the fund’s costs with little to no benefit.

Index-fund voting, therefore, is unlikely to move the company in the right direction. Yet as index funds own more of the market, uninformed shareholders are likelier to be the ultimate arbiter of shareholder elections.

This is where nonvoting stock could be especially useful: If a company issued nonvoting shares for uninformed investors to buy, all shareholders would be better off. Consolidating voting power in the hands of informed investors would make the company more attractive to those investors, who would get greater influence at a lower cost, and also to uninformed investors, who would save on costs associated with voting.

Moreover, because nonvoting stock generally trades at a discount, voter sorting should occur without legal intervention. Uninformed voters should want to purchase discounted nonvoting shares, while informed voters would likely pay a premium for the right to vote.

But there are reasons to believe that such sorting won’t always occur. Most prominently, the institutional investors that primarily invest in index funds haven’t yet embraced nonvoting stock. Quite the opposite—they have been leading the effort to bar dual-class companies from stock indexes. These largely passive institutional investors explain that because their indexing strategy requires them to buy and hold company stock under all conditions, they need a voice in company affairs. In time, though, the opportunity to purchase stock at a discount and avoid costs associated with voting would likely push uninformed investors, including many index funds, toward nonvoting shares. And when this happens, the company that issued them would be more valuable, not less.

It’s also true that so far the effect of issuing nonvoting stock has been to keep control with company insiders.

But over time, the growing concentration of wealth in the hands of index funds and exchange-traded funds should increase the attractiveness of company structures that concentrate voting power with informed investors—that is, so long as companies are not prohibited from using those structures.

Continued in article

A power struggle between Facebook and investors just ended with Facebook dropping plans to issue non-voting shares ---
http://www.businessinsider.com/facebook-settled-lawsuit-non-voting-shares-zuckerberg-testify-2017-9

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 8, 2017

United Technologies' Heavy Load

By Alex Frangos | Sep 06, 2017

TOPICS: business combinations

SUMMARY: The author of this Heard on the Street article analyzes UTC's acquisition of Rockwell Collins. The strategic reasons for the transaction according to UTC management; the price paid as a premium over the target's stock price two months before news about it leaked; the price paid relative to trailing EBITDA; and the pretax cost savings expected from the transaction are all discussed.

CLASSROOM APPLICATION: The article may be used in an advanced accounting class to discuss strategic reasons for business combinations.

QUESTIONS: 

	1. (Introductory) What is United Technologies (UTC)? Hint: you may access their web site at www.utc.com
	2. (Advanced) Based on the discussion in the article, how do you think UTC classifies this acquisition of Rockwell Colins: as vertical, horizontal, or conglomerate?
	3. (Introductory) What does the author say may be the strategy behind this acquisition?
	4. (Advanced) What is wrong with "using [the company's shares] as currency for the part of the deal not paid in cash" if the CEO's view of UTC shares is correct?
	5. (Advanced) What is the comparison made between the cost savings expected from the business combination and the premium paid for this acquisition? Explain in your own words what the author writes in the article, including a basic description of any supporting analysis.

READ THE ARTICLE

Reviewed By: Judy Beckman, University of Rhode Island

 

"United Technologies' Heavy Load," by Alex Frango, The Wall Street Journal, September 6, 2017 ---
https://www.wsj.com/articles/united-technologiess-big-bet-leaves-investors-on-the-runway-1504628794?mod=djem_jiewr_AC_domainid

United Technologies UTX +2.03% is building an aerospace supermarket. The question is whether anyone needs one.

By buying Rockwell Collins , COL +0.21% United Technologies’s aerospace and jet-engine divisions will become a virtual one-stop shop for building an airplane, producing engines, cockpit gear, seats, toilets, auxiliary power units and landing gear. The company speaks about linking these systems to create “connected airplanes,” though airplanes are already among the most connected devices on the planet. Dividends from further technological leaps would seem to be some way down the road.

Investors should worry that the bigger rationales for the deal are defensive. Becoming a nose-to-tail provisioner of airplane parts gives United Technologies added heft vis-à-vis its biggest customers, Airbus and Boeing . It is an irony that United Technologies rebuffed a 2016 approach by Honeywell , partly on the grounds such a big supplier would upset relationships with those same customers. Bulking up, including raising $14 billion in debt, could be a way to forestall Honeywell trying again and keeps attention away from the company’s slower-growing Otis Elevator and Carrier air conditioning units.

Continued in article

Teaching Case From The Wall Street Journal's Weekly Accounting Review on September 15, 2017

Treasurers Struggele to Lose the Least When Storing Cash

By Nina Trentmann | Sep 12, 2017

TOPICS: Cash

SUMMARY: The article focuses on the viewpoint of Claire Bechaux, Treasurer of Veolia Environnement SA on reasons for holding cash in European money market funds rather than bank deposits. European money-market fund balances are 1.21 trillion euros; "company holdings of constant net asset value euro funds in Europe rose to 209.4 billion euros at the end of 2016 from 139.3 billion euros at the end of 2012...." Factors cited in the article for these trends include not only today's general low interest rate environment but also Basel III banking regulations increasing costs. These factors coupled together make it onerous for banks to hold large amounts available for the liquidity demanded by corporations from their demand deposits.

CLASSROOM APPLICATION: The article may be used to discuss general corporate cash management practices. In addition, since textbooks often use unrealistic interest rates in time value of money problems, it may be used to bring a current, realistic viewpoint to discussion of that topic as well.

QUESTIONS: 

	1. (Advanced) What are the overall objectives for Veolia Environnement SA in managing its cash balances?
	2. (Introductory) Why does one corporate treasurer say corporations are limited in the amount of cash they hold in bank deposits?
	3. (Introductory) What is an alternative viewpoint expressed by the Chief Financial Officer Neil Sorahan of Ryanair Holdings, PLC?
	4. (Introductory) Where do corporate treasurers keep cash balances instead of bank accounts?
	5. (Introductory) Where do corporate treasurers keep cash balances instead of bank accounts?
	6. (Advanced) What is the concern with holding cash in these alternative places?
	7. (Advanced) Define the term "yield." What yields did Veolia Environnement SA earn on its cash holdings in banks in 2017? In money market funds?

READ THE ARTICLE

Reviewed By: Judy Beckman, University of Rhode Island