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


New Bookmarks
Year 2017 Quarter 4:  October 1 - December 31 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

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

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

Bob Jensen's Threads ---

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



Choose a Date Below for Additions to the Bookmarks File


December 2017

November 2017

October 2017



December 2017


Bob Jensen's New Additions to Bookmarks

December 2017

Bob Jensen at Trinity University 


USA Debt Clock --- ubl

How Your Federal Tax Dollars are Spent ---

To Whom Does the USA Federal Government Owe Money (the booked obligation of $20+ trillion) ---
The US Debt Clock in Real Time --- 
Remember the Jane Fonda Movie called "Rollover" ---
One worry is that nations holding trillions of dollars invested in USA debt are dependent upon sales of oil and gas to sustain those investments.

To Whom Does the USA Federal Government Owe Money (the unbooked obligation of $100 trillion and unknown more in contracted entitlements) ---
The biggest worry of the entitlements obligations is enormous obligation for the future under the Medicare and Medicaid programs that are now deemed totally unsustainable ---

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

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

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


Bob Jensen's Pictures and Stories


All my online pictures ---

David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
Bob Jensen
February 19, 2014
SSRN Download:  

Google Scholar ---

Wikipedia ---

Bob Jensen's search helpers ---

Bob Jensen's World Library ---

Possibly the Number 1 Resource for CPA Exam Candidates
AICPA:  Uniform CPA Exam Blueprints ---

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 ---

Bob Jensen's CPA Exam Helpers ---

Art Wyatt was an icon in both the accounting academic and profession worlds. On occasion years ago, when Art was the lead technical partner for Andersen, I would occasionally write to Art with my own technical questions. His obituary is at

Art's Accounting Hall of Fame module is under 1998 at

The New York Times Interactive Tax Calculator

Jensen Comment
This is an example where averages can be misleading. For example, because my wife and I have relatively large medical deductions the NYT Calculator is seriously incorrect. It will be even more incorrect for those having long-term care nursing expenses (fortunately not us, yet) --
In fairness the NYT article mentions many of the misleading aspects of its calculator.

December 22, 2017 reply from Carl Hubbard

I use for basic tax estimates. Seems to be accurate.


The New Yorker Data Mining Illustration:  A former journalist, equipped with an algorithm and the largest collection of murder records in the country, finds patterns in crime ---

Jensen Comment
In the early years of computing much of my research and attention was on cluster analysis and numerical taxonomy. But the tools were crude in those days. Now the tools are much more sophisticated, usually much more sophisticated than the operations people (e.g., the police) who resist using it.

Algorithms for Big Data: A Free Course from Harvard ---

How closely did you follow accounting news in 2017?

The free AECM would've taken you to most of the answers in 2017 --- along with the controversies --- 

Can you identify titular colonicity in academic accounting research?
Please reference any articles!

National Academies Press ---

Titular Colonicity and Scholarship:  New Zealand Research and Scholarly Impact ---

Thanks to biologist Bob Blystone for the heads up. Bob reveals "titular colonicity" is

. . .

Seven of the first ten most download papers (recently linked at the National Academies Press) are examples of “titular colonicity”. J.T. Dillon
in 1981 presented the idea that a colon in a scholarly publication title was a correlate to
quality. He called it “titular colonicity”. I have added a brief review of this idea by
Townsend at the end of this email. NAP articles 11 through 20 have colons in five of their

The State of K-12 USA Education for 2017 in 10 Charts ---

Jensen Comment
The first chart showing Wyoming and much of New England ahead of the other states in the USA confuses me somewhat. It's not exactly a Red versus Blue state issue since Blue states of Vermont and Massachusetts come out high along with Wyoming. I don't count New Hampshire as a Blue state since it is only Blue because it allows residents of Vermont and Massachusetts to vote in NH elections. It's not a large versus small population issue according to this initial chart. Reasons could be somewhat racial in nature, but this is a cloudy factor given outcomes in such states as Maine, Rhode Island, Utah, Idaho, and Montana. My conclusion is that any serious explanation of the first chart will have to be quite complicated.

2017’s Top 10 Quotes on Education Issues ---

From the American Accounting Association
You can view the current issue, as well as past issues of the
Accounting Education News dating back to 2001, online at

Jensen Comment
In the late Fall Issue of AEN especially note the August luncheon address by the AAA's 2017-1018 President Anne L. Christensen concerning initiatives to make academic accounting research "more relevant."

Free CPA Exam Prep Videos to accompany fee-based prep materials --- 
The site gives a short review of some commercial competitors

How to boost Excel efficiency with Power Query:   Microsoft tool makes ongoing data mining of general ledgers much easier ---

Most of the $3 Trillion in Overseas Holdings Is Already in the U.S. ---

Harvard:  Most Doctors Have Little or No Management Training, and That’s a Problem ---

December 15, 2017 marks the end of an era for an early chatapp called Instant Messenger from AOL ---

Jensen Comment
Accounting education's pioneer in both online teaching and instant messaging was Amy Dunbar at the University of Connecticut who taught online courses early on from a computer nest in her home ---
Amy was willing to take the time to provide IM conversations when her online tax students wanted to chat.

December 15, 2017 Reply from Amy Dunbar

Thanks, Bob. I still have my computer nest at home and I still love teaching online. Now I use Blackboard Instant Messenger, which automatically adds students. I love it! Students also like the asynchronous tools in google drive files. I set up the google groups so I get all the “chat” streams. Makes it easy to tell who is participating.


Connecticut has the most underfunded pension system in the nation, amassing more than $127.7 billion in liabilities ---
Jensen Comment
This does not mean it was the most fraudulent. I think California and Illinois share top honors for pension fraud.

Why aren't our leading accounting research journals providing warning labels on p-values common to virtually all published empirical studies in accounting?

p-value ---

In science p-values have fallen from grace, and leading scientists are recommending something tantamount to warning labels on tables of p-values in virtually all statistical inference presentations ---

But our editors of leading accounting research journals seem to be totally oblivious to what scientists now recommend regarding warning labels for p-values.

Is there any accounting research journal policy statement that even acknowledges the need for warning labels on p-values published in articles?

Is there any accounting research article having a table of p-values with a warning label?

My Exhibit A today is the following recent article published authors who are our discipline's leading accountics science researchers. I read this article and, in particular, was interested in finding warning labels for the p-values published in the article. I find no such warning labels. Nothing is provided with respect to p-value warnings that are becoming increasingly common in scientific papers.

I track a lot of published accounting research. But I've yet to find accounting research article that provides warning labels about p-values presented in that paper?

Are any of you aware of a published accounting research paper that has warning labels or any discussion about how p-values can be misleading in the world of science and accounting?

Are any of you aware of where an accounting research journal policy statement even acknowledges the fall from grace of p-values in scientific research?

It's not that p-values should be avoided? What's important is that there are warnings about how they can be misleading.

I'm serious here about finding any evidence that editors of our accounting research journals do not still have their heads in the sand regarding p-values. In a recent AECM message Dan Stone at the University of Kentucky mentioned having a working paper on p-values but he did not share that paper with us. I think it might be under review by one of our accounting research journals.

I could have easily have missed where a published study in accounting research provides warning labels on its p-values. Please help me out by sending me references where accountics researchers are keeping up with the times regarding p-values.


December 4, 2017 reply from Paul Williams

The key statement in the abstract is "we find evidence consistent with agency explanations" which is absolutely mandatory for any accountics paper to be published in the American journals. The agenda behind accountics research is fundamentally ideological. It serves the purpose very well to ignore the problems with p-values because disclaimers immediately cast doubt and doubt about basic premises underlying accountics research is simply unacceptable. Accountics research is not motivated by a desire to learn something, but by a desire to prove something. We have "confirmed" agency explanations so many times over the past 30 years that to continue to look for such explanations seems pointless unless the purpose is to continuously reaffirm the faith so that only the faithful become the elite.

December 4, 2017 reply from Jagdish Gangolly


As to p-values etc., the latest issue of the journal Nature has an excellent discussion ("Five ways to fix statistics"). Since I downloaded it directly from Nature I presume it is legit to share it here. This should be required reading for anyone interested in "archival" (Oh, how I hate that term) folks. If they assimilate the views there, I am sure most who have published archival stuff, with the exception of a very few, would hang their head in shame.



Five ways to fix statistics

JEFF LEEK: Adjust for human cognition

. . .

BLAKELEY B. MCSHANE & ANDREW GELMAN: Abandon statistical significance

In many fields, decisions about whether to publish an empirical finding, pursue a line of research or enact a policy are considered only when results are ‘statistically significant’, defined as having a P value (or similar metric) that falls below some pre-specified threshold. This approach is called null hypothesis significance testing (NHST). It encourages researchers to investigate so many paths in their analyses that whatever appears in papers is an unrepresentative selection of the data. 

Worse, NHST is often taken to mean that any data can be used to decide between two inverse claims: either ‘an effect’ that posits a relationship between, say, a treatment and an outcome (typically the favoured hypothesis) or ‘no effect’ (defined as the null hypothesis). 

In practice, this often amounts to uncertainty laundering. Any study, no matter how poorly designed and conducted, can lead to statistical significance and thus a declaration of truth or falsity. NHST was supposed to protect researchers from over-interpreting noisy data. Now it has the opposite effect.

This year has seen a debate about whether tightening the threshold for statistical significance would improve science. More than 150 researchers have weighed in4,5. We think improvements will come not from tighter thresholds, but from dropping them altogether. We have no desire to ban P values. Instead, we wish them to be considered as just one piece of evidence among many, along with prior knowledge, plausibility of mechanism, study design and data quality, real-world costs and benefits, and other factors. For more, see our article with David Gal at the University of Illinois at Chicago, Christian Robert at the University of Paris-Dauphine and Jennifer Tackett at Northwestern University6.

For example, consider a claim, published in a leading psychology journal in 2011, that a single exposure to the US flag shifts support towards the Republican Party for up to eight months7. In our view, this finding has no backing from political-science theory or polling data; the reported effect is implausibly large and long-lasting; the sample sizes were small and nonrepresentative; and the measurements (for example, those of voting and political ideology) were noisy. Although the authors stand by their findings, we argue that their P values provide very little information.

Statistical-significance thresholds are perhaps useful under certain conditions: when effects are large and vary little under the conditions being studied, and when variables can be measured accurately. This may well describe the experiments for which NHST and canonical statistical methods were developed, such as agricultural trials in the 1920s and 1930s examining how various fertilizers affected crop yields. Nowadays, however, in areas ranging from policy analysis to biomedicine, changes tend to be small, situation-dependent and difficult to measure. For example, in nutrition studies, it can be a challenge to get accurate reporting of dietary choices and health outcomes.

Open-science practices can benefit science by making it more difficult for researchers to make overly strong claims from noisy data, but cannot by themselves compensate for poor experiments. Real advances will require researchers to make predictions more capable of probing their theories and invest in more precise measurements featuring, in many cases, within-person comparisons.

A crucial step is to move beyond the alchemy of binary statements about ‘an effect’ or ‘no effect’ with only a P value dividing them. Instead, researchers must accept uncertainty and embrace variation under different circumstances. 


DAVID COLQUHOUN: State false-positive risk, too

. . .

MICHÈLE B. NUIJTEN: Share analysis plans and results

. . .

STEVEN N. GOODMAN: Change norms from within


Jensen Comment
In science p-values have fallen from grace, and leading scientists are recommending something tantamount to warning labels on tables of p-values in virtually all statistical inference presentations ---


GASB issues OPEB implementation guide ---

Harvard:  Breaking Down New U.S. Corporate Tax Law ---

Behavioral Economics Finally Goes Mainstream:  Four Essential Reads ---

VIDEO: FASB Chief Outlines 2018 Goals ---

AICPA Exposure Drafts Call for Major Changes to Auditors’ Reports ---

AICPA:  CPA Examination Blueprints ---

Bob Jensen's Helpers for Prospective CPA and CMA Candidates ---

The JOBS Act and Information Uncertainty in IPO Firms

The Accounting Review
Volume 92, Issue 6 (November 2017)

Mary E. Barth
Stanford University

Wayne R. Landsman
The University of North Carolina at Chapel Hill

Daniel J. Taylor
University of Pennsylvania

Supplemental material can be accessed by clicking the link in Appendix A.


This study examines the effect of the Jumpstart Our Business Startups Act (JOBS Act) on information uncertainty in IPO firms. The JOBS Act creates a new category of issuer, the Emerging Growth Company (EGC), and exempts EGCs from several disclosures required for non-EGCs. Our findings are consistent with proprietary cost concerns motivating EGCs to eliminate some of the previously mandatory disclosures, which increases information uncertainty in the IPO market, attracts investors who rely more on private information, and leads EGCs to provide additional post-IPO disclosures to mitigate the increased information uncertainty. Our results also are consistent with agency explanations, whereby EGCs exploit the JOBS Act provisions to avoid compensation-related disclosures, which results in larger IPO underpricing for such firms. Overall, we provide evidence on how reduced mandatory disclosure affects the IPO market.

Keywords: JOBS Act, mandatory disclosure, voluntary disclosure, proprietary costs, information uncertainty, underpricing, volatility

Here are the 18 biggest bankruptcies of the 'retail apocalypse' of 2017 ---

Jensen Comment
In the case of retail chains, many stores close in bankruptcy but some stores often remain (possibly with new owners).

Lack of Research Validity/Replication Testing:  The Dismal Science Remains Dismal, Say Scientists ---

Jensen Comment
The lack of replication and validity testing is even worse in academic accounting research, but nobody cares ---

CPA Journal:  The State of the Accounting Profession at the End of 2017 ---

CPA Journal:  2017 Year in Review ---

CPA Journal:  The End of Accounting and the Path Forward
by Arthur J. Radin, CPA and Thomas Selling

CPA Journal
Editors’ Note: Published this past June, Baruch Lev and Fang Gu’s The End of Accounting and the Path Forward for Investors and Managers (Wiley) has generated a great deal of controversy within the profession. The CPA Journal presents two contrasting perspectives on this thought-provoking book: Arthur J. Radin questions whether the authors are right about the conclusions they draw from the data, and Thomas I. Selling agrees with some of their recommendations but disagrees about the linkages to value creation.

Jensen Comment 1
This is my Comment 1 since I want to reflect more on the Radin and Selling review of the Lev and Gu arguments. Let me say that I really like parts Radin and Selling review. I've always been disappointed in Baruch Lev's many writings on intangibles. Lev is great at finding fault but offers nothing (as far as I can tell it's zero) to find a better way to reliably measure or even disclose intangibles. Lev writes so much, and for me Lev's attempted positive contributions are always a huge disappointment.

If Lev's proposals (actually unrealistic dreams) really lowered cost of capital more firms would be routinely applying Lev's proposals.

Like Ijiri's "Force Accounting" Lev is reaching into the clouds to touch the angels.

The title "The End of Accounting" seems to be an attempt to attract attention with an absurd title just like political economist Francis Fukuyama tried to attract attention with his book "The End of History." Obviously neither accounting nor history will come to an "end." Accounting will come to an end when audited financial statements no longer impact portfolio decisions of investors and employment decisions of business firms such as the firing of a CEO who fails to meet "earnings" targets. Fukuyama later wrote that history did not end after all. I wish Lev and Gu would write an article that admits accounting did not end after all (no thanks to them).

Let me come back to Comment 2 on these matters once I have more time to think about Comment 2.

Comment 2
Added on December 19, 2017

Comment 2
Accountancy evolved over thousands of years to become what it is rather than what some academic theorists would like it to be. The best example is the most popular index used by financial analysts and investors, namely the accounting net income of a business or some variation thereof such as earnings-per-share (eps) or other comprehensive income (OCI). Economic theorists would prefer economic income defined as the amount of discounted net cash flows of a business over all future time. But neither economists nor accountants have ever been able to measure economic income reliably because only soothsayers estimate all future net cash flows, and those soothsayers never agree on the numbers appearing in their fortune-telling crystal balls.

Traditional for-profit (business) and not-for-profit (e.g., governmental) accountancy now guided by either national standard setters (e.g., the FASB and GASB  in the USA) or international accounting standard setters (e.g., the IASB) survived Darwinian-styled evolution over thousands of years because multiple stakeholders find it to have utility for predicting financial futures of an organization, stewardship and inputs into macroeconomic analyses. Today accounting traditions and rules are rooted in the past (e.g. historical cost book values), present (e.g., market values of derivatives and other marketable securities), and future (e.g., discounted values of pension obligations).

Baruch Lev's many writings suggest that the biggest controversy in accountancy is how intangibles are measured and disclosed. See the many books and papers cited at his home page at

Baruch writes very well when it comes to emphasizing the importance of intangibles in predicting a firm's financial future and laying out criticisms of the present accounting traditions and standards in measuring and otherwise disclosing such standards. But the world pretty much ignores his soothsayer suggestions for intangibles measurement and disclosure.

My best illustration of this is what Baruch has to say about Enron's intangibles as documented at***EnronIntangibles

Where were Enron's intangible assets?  In particular, what was its main intangible asset that has been overlooked in terms of accounting for intangibles?

 My answer is at***EnronIntangibles


Lev's answer essentially was that since he could not find Enron's intangibles there weren't any intangible assets. My answer is that there were highly significant intangible assets that could neither be measured in any meaningful way nor even disclosed without self-incrimination since many of them arose from illegal bribes and other crimes that gave Enron power around the world and most importantly inside USA government. Most of Enron's future revenues derived from the intangible asset of political power. To the extent this intangible asset arises from shady political activities Enron could not disclose, let alone measure, the massive value of its political power intangible asset.

Tom Selling leans toward replacement cost valuation of intangible and tangible assets. I would contend that only soothsayers can measure the replacement cost of political power.

However, as Radin and Selling suggest not being able to disclose and measure all important intangibles does not destroy the utility of accountancy or cause the "end of accountancy" as we know it today. Just because the medical profession cannot prevent cancer or even save the majority of Stage 4 cancer patients does not destroy the utility of what the medical profession can do for such patents. Accountancy is what it is and I do not think it will "end" because of things it cannot yet do and probably will never be able to do such as measure and disclose the intangible asset of political power of a multinational company.

Tom Selling:  Double-Entry Accounting in Modern Times (May 17, 2017) ---

Truth in labeling —Starting with a clean sheet should also mean jettisoning such time-worn terminology as “earnings” and “financial position” that have come to promise more than they can deliver.  There might have been a time long ago when accounting came reasonably close to measuring economic earnings and financial position, but not anymore, and likely never again.

Jensen Comment
What Tom needs to avoid is what I call the Baruch Lev mistake of promising more than can be delivered realities of "truth" and measurement of "economic earnings." Truth to me entails facts that are so obvious they cannot be disputed by rational beings. Economists have never found truth except in artificial worlds built on hypothetical assumptions detached from the real world. This is probably why the SEC approached the accounting profession rather than the economics profession when it passed the baton on standard setting for financial reporting in capital markets.

Economic earnings cannot be measured in the real world because there are so many intangibles that cannot be reliably measured.  Baruch Lev preaches these intangibles can be measured, but he's not convinced business decision makers that he has reliable measurement systems.

Tom wants to "jettisoning such time-worn terminology as 'earnings' and 'financial position' that have come to promise more than they can deliver. Note how Tom fails to mention the vast body of literature demonstrating (by empirical studies and by interviews and by case studies) where "earnings" and "financial position" have considerable impact on financial and business operating decisions. Tom avoids this literature by sticking his head in the sand. Starting with a blank sheet is doomed to failure if it ignores the scholarly literature of the past and present. For example, has he looked at the vast amount of evidence that suggests "earnings" however badly designed as a plug figure that makes the balance sheet balance is predictive of future earnings.

I keep looking for citations and references in Tom's posts. His "blank sheet" will never impress academics or practitioners until he cites prior research and builds upon such research.

He will one day have to demonstrate to decision makers that his own definitions are more predictive and reliable. I doubt that he will succeed here, but I greatly look forward to when he has a measurable "earnings" and "financial position" surrogates that are more predictive and reliable.  

Indeed I fear that his concepts will depend upon value appraisals in thin and unstable markets that are far less reliable than present measures assets and liabilities.


Reconcile, reconcile —  The property of double-entry accounting that comprehensively links stocks to flows (i.e., “articulation”) will be exploited to the maximum extent practicable through detailed quantitative disclosures that are linked directly and explicitly to the financial statements, and among themselves.

My mentor, Yuji Ijiri, modeled the perfect accounting system for reconciliation. But it was totally impractical for the real world. As you build soft numbers into the system it becomes even less and less reliable.


Corresponding recognition criteria — Although I can’t say this for sure, I wouldn’t be surprised if Pacioli had realized that a claims on one entity must also be an asset of some other entity (more on that in a follow-up post).  Therefore, a non-corresponding definition for liabilities, and other non-residual claims, is not necessary.  All that is needed is a definition of “asset” for accounting purposes.


I always remember a statement made by a University of Chicago professor years ago. He said Boeing wants to book a sale of an airplane purchased by Eastern Airlines. Eastern Airlines denies it purchased an airplane (back in the days when even capital leases were not booked by lessees).

Do current accounting standards require correspondence in initial booking by independent buyers and sellers? They do when payment is made in cash. But in barter transactions (say real estate exchanges) between X and W does the booked value of the property received by X have to equal the booked value of the property received in exchange by Y?


Claims presentation — Instead of liabilities versus owners’ equity, S-OFA will refer to ‘non-residual interests’ versus ‘the residual interest’ (the latter being measured as the difference between total assets and total non-residual interests).  Thus, the question that has bedeviled the FASB of what is a liability, or what is not, will come down to a question of presentation.  For example, pure liabilities may be presented as a group, apart from the hybrid claims I mentioned earlier

The huge complicating factor here will be "residual interests" that involve contingency claims based upon outcomes of the unknown future.

Presumably Tom intends to define a bright line for the real world that partitions residual and non-residual claims. We don't do that now very well at the moment, and it's not at all clear that Tom can pull this bright line out of the hat for the millions of kinds of variations in contingency claims in the real world.


Closing Comment
Financial accounting academic research in my opinion is pretty much a big yawn these days. Both Tom Selling and Baruch Lev add some excitement to the accountics studies that for four decades have dominated the field. Some of those studies are useful and interesting, but there's little excitement and commentary about the findings. Tom and Baruch add some excitement, But I'm not optimistic about their pending contributions to the real world.

In any case I'm watching and will keep the AECM posted when I find something that I think is worth noting. Hopefully others will also watch and point out things that I miss.

I might make the following proposition:
I think Tom Selling needs to retain double entry to avoid having to define earnings as something other than a plug to make balance sheets balance.

May 24, 2017 reply from Tom Selling


Thanks for posting a link to my blog and for taking the time to respond in a systematic fashion.  But I need to point out some fundamental misunderstandings on your part:


I have tried to make it crystal clear that I do not intend to claim that S-OFA will be capable of reporting economic earnings.    I didn’t mention this in my post, but the term I am thinking about using to replace “net income” is “recognized earnings.”  It implies that S-OFA will estimate a subset of economic earnings.  It is similar in concept to Tobin’s Q where economic value is seen as the replacement cost of recognized net assets plus the value of unrecognized intangibles.

 None of the empirical literature I am aware of that documents the relevance of reported earnings to investors deals with the question of whether we could do better.  I intend to show that U.S. GAAP lacks face validity – ie, it clearly does not reflect the concept it purports to measure.  S-OFA will have higher face validity by, among other things, not using misleading terminology, not committing numerous egregious violations of mathematical principles, and enhancing representational faithfulness.

 Yuji Ijiri was a great theoretician. I will be proposing implementable improvements to actual deficiencies in U.S. GAAP.  I believe that my proposals will be compelling because they will result in better information, be more understandable, less costly to implement, and reduce opportunities to manipulate the financial statements.

The FASB already solved the claims presentation problem in a proposal with a bright line.  It was called basic ownership interests.   It was shot down by the EU and the IASB, so the FASB backed away from implementation.  I’m going to implement it. 


As to your proposition, the point of my post is that double-entry accounting is still useful, even if no longer for the reasons contemplated in the 15th century.


As to applicability to the “real world,” I admit that you could well be correct.  S-OFA will be apolitical, which is not the way the real world works.  My clean sheet of paper metaphor is an allusion to Rawls theory of social justice.  Very loosely speaking, if the writers of accounting rules could not know how it would affect them, what would the rules provide for?



May 14, 2017 reply from Bob Jensen

Hi Tom,

One thing you will have to address is the economics studies pointing to failures of Tobin's Q. The number one problem is that Tobin's Q was found to not predict as well as traditional fundamentals --- check out the literature, including the findings of Larry Summers and Wesley Mitchell.

Similar findings were found with the FASB's FAS 33 effort to provide replacement cost numbers:

Watts, R. L. and J. L. Zimmerman. 1980. On the irrelevance of replacement cost disclosures for security prices. Journal of Accounting and Economics (August): 95-106.

Beaver, W. H., P. A. Griffin and W. R. Landsman. 1982.The incremental information content of replacement cost earnings. Journal of Accounting and Economics (July): 15-39.

Schaefer, T. F. 1984. The information content of current cost income relative to dividends and historical cost income. Journal of Accounting Research (Autumn): 647-656

Sutton, T. G. 1988. The proposed introduction of current cost accounting in the U.K.: Determinants of corporate preference. Journal of Accounting and Economics (April): 127-149.

Swanson, E. P. 1990. Relative measurement errors in valuing plant and equipment under current cost and replacement cost. The Accounting Review (October): 911-924.


The real problem with exit value or entry value (replacement cost) appraisals of disaggregated assets is that the market (e.g., yard sale transactions prices or current construction costs) ignore the synergies of "value in use" --- that illusive measurement that economists and accountants have never been able to measure reliably because it varies so much between "uses" of an asset among the other assets for which that asset is only a small part. For example, does the replacement cost estimate of a giant warehouse really mean much apart from the how the owner uses it such as when the owner of Amazon versus Sears.

The best estimate of value in use is share prices, but share prices have too much noise in that that they reflect things other than value in use such as daily political happenings, terror incidents somewhere in the world, and fake news in the media. Quant models that trade on current events affecting transitory share prices may capture gains and losses totally apart from the fundamental value in use of aggregated net assets of a business firm.


It's easy to criticize enduring historical cost accounting in terms of neither measuring either disaggregated or aggregated value of an asset. However, as AC Littleton and Yuji Ijiri point out the purpose of historical cost accounting is not to measure economic value. Investors don't divide the reported retained earnings by the number of outstanding shares to look for pricing opportunities on the stock market when historical cost accounting is the main basis for measuring retained earnings. Nor could they do so if all assets and liabilities were measured reliably at entry values (replacement costs) or exit values. It's that aggregative value in use thing that none of the bases of accounting (entry value, exit value, historical cost, PLA historical cost) provide.

Bob Jensen


Update from MAAW
Tschakert, N., J. Kokina, S. Kozlowski and M. Vasarhelyi. 2017.
How business schools can integrate data analytics into the accounting curriculum. The CPA Journal (September): 10-12.

Five Step Guide for Using Data Analytics in an Audit ---

Bitcoin ---

The Bitcoin Paradox ---

Tax avoidance is causing a surge in bitcoin loans ---

A guide to paying taxes on cryptocurrency (e.g. bitcoin) profit ---

GOP Proposed Income Tax Reform
Will the share of households that itemize their tax returns would fall to approximately 5 percent from the current 30 percent (thereby hurting charities, real estate markets, local taxpayers, old folks needing medical deductions, etc.) ?

Using audit data analytics in performing a risk-assessment procedure ---

Kroger is taking a direct shot at Amazon and Walmart and making checkout lanes obsolete ---

Walmart is planning a store without cashiers ---

Jensen Comment
The ultimate technology will be one that scans the entire cart as a customer leaves the store without having to scan each item. Perhaps this will work something like RFID technology. This would even detect prices of goods stuffed down bras and inside pockets ---

The fact that Kroger is doing this in 400+ stores surprises me since Kroger is a strong union shop relative to Walmart and many smaller chains.

As more stores in town put cashiers out of business and more stores unload driverless trucks and stock shelves with robots, I'm wondering where the town will find customers. I grew up in Iowa when four or more farm families had homes and buildings on a section (square mile) of land. Now a section of land is barely enough for one family, and most farms are even larger than one section. The Iowa farm I inherited had our home and all other buildings torn down to reclaim more land for crops farmed by giant tractors and other machinery.

And it's no surprise that there are 75% or fewer families around to shop in an Iowa farm town. Most stores on main street are boarded up, schools are regionally consolidated with long bus rides, and town homes are practically given away to retired old folks living on Social Security.

Will this same thing even happen to larger towns as robots take over for workers in retail stores?

December Econometrics Readings Suggested by David Giles ---

Here are some suggestions for your Holiday reading:

Athey, S. and G. Imbens, 2016. The state of econometrics - Causality and policy evaluation. Mimeo., Graduate School of Business, Stanford University., J. D., 2010. Testing a random number generator. Chapter 10, in T. Rily and A. Goucher (eds.), Beautiful Testing, O' Reilly Media, Sebastol, CA. 

Ivanov, V. and L. Kilian, 2005. A practitioner's guide to lag order selection for VAR impulse response analysis. Studies in Nonlinear Dynamics and Econometrics, 9, article 2.

Polanin, J. A., E. A. Hennessy, and E. E. Tanner-Smith, 2016. A review of meta-analysis packages in R. Journal of Educational and Behavioural Statistics, 42, 206-242.

Young, A., 2017. Consistency without inference: Instrumental variables in practical application. Mimeo.,  London School of Economics.

Zhang, L., 2017, Partial unit root and surplus-lag Granger causality testing: A Monte Carlo simulation study. Communications in Statistics - Theory and Methods, 46, 12317-12323.

What to Do With Ideas from QB Connect 2017

Home Depot is buying back $15 billion of stock ---

Jensen Comment
In addition to having your accounting students debate how book this buyback, have them debate the arguments for and against such a buyback.

The suicide rate for farmers is more than double that of veterans. Former farmer Debbie Weingarten gives an insider’s perspective on farm life – and how to help ---
This appears to be a global phenomenon.

. . .

Rosmann has developed what he calls the agrarian imperative theory – though he is quick to say it sits on the shoulders of other psychologists. “People engaged in farming,” he explains, “have a strong urge to supply essentials for human life, such as food and materials for clothing, shelter and fuel, and to hang on to their land other resources needed to produce these goods at all costs.”

When farmers can’t fulfill this instinctual purpose, they feel despair. Thus, within the theory lies an important paradox: the drive that makes a farmer successful is the same that exacerbates failure, sometimes to the point of suicide. In an article, Rosmann wrote that the agrarian imperative theory “is a plausible explanation of the motivations of farmers to be agricultural producers and to sometimes end their lives”.

Since  2013, net farm income for US farmers has declined 50%. Median farm income for 2017 is projected to be negative $1,325. And without parity in place (essentially a minimum price floor for farm products), most commodity prices remain below the cost of production.

In an email, Rosmann wrote, “The rate of self-imposed [farmer] death rises and falls in accordance with their economic well-being … Suicide is currently rising because of our current farm recession.”

Inside the sunny lobby of the newly remodeled Onaga community hospital, where Joyce Blaske happens to work in the business department, Dr Nancy Zidek has just finished her rounds. As a family medicine doctor, she sees behavioral health issues frequently among her farmer patients, which she attributes to the stressors inherent in farming.

“If your farm is struggling, you’re certainly going to be depressed and going to be worried about how to put food on the table, how to get your kids to college,” she says.

In August 2017, Tom Giessel, farmer and president of the Pawnee County Kansas Farmers Union produced a short video called “Ten Things a Bushel of Wheat Won’t Buy”. At $3.27 per bushel (60lb), Giessel says, “The grain I produce and harvest is my ‘currency’ and it is less than one-fifth of what it should be priced.”

He shows snapshots of consumer goods that cost more than a bushel of wheat: six English muffins, four rolls of toilet paper, a single loaf of bread – even though one bushel of wheat is enough to make 70 one-pound breadloaves.

Continued in article

Jensen Comment
Suicide is very complicated in terms of causes, and statistics can be misleading. For example, prices alone are not the cause of profit declines. In accounting profits are the result of revenues minus expenses, and the expenses of farming have risen dramatically in terms of land rents, big machinery prices, crop insurance, chemicals for weed control and fertilizer, and harvesting costs such as the need for 18-wheel trucks to all grain to markets. In many parts of the USA the weather has become more unpredictable. Some things have also helped such as the decline in interest rates.

Machinery is so efficient that huge planters, sprayers, and combines are used only for a few weeks each year and sit idle (and wastefully) the rest of the year.

Farming for animals changed spectacularly. When I was a kid on an Iowa farm we had a few a few work horses and mules, a few milk cows, a few beef cows, a few hogs, and some chickens. We raised corn and oats for feed as well as cash to meet expenses. Laws for dairy farming changed such that having a few cows just won't pay to meet the investment required by dairy regulations. Hogs and chickens are now raised in multi-million dollar confinement factories and fed with purchased bulk feed. State and local laws restrict selling produce in small farm markets. Crops must be hauled further to processing plants or distribution points such a docks on the Mississippi River.

My guess is that a great many farmers who commit suicide are heavily burdened by the debts of land rents or taxes, debts of machinery, debts on seed, debts on crop insurance, debts on confinement feeding investments, etc. that overwhelm revenues from commodity prices, especially if the produce is not quite up to the quality of product bought and sold in commodities markets in Chicago, Minneapolis, and other scattered commodities markets distant from the farms themselves.

I've not studied the problem of chemical exposure, but exposure to chemicals directly plus leeching of chemicals into ground water may well affect health and well being for farmers. Poor health often leads to suffering and suicide such as suicide during Stage Four cancer.

TaxProf Blog:  'Holy Crap': Experts Find Tax Plan Riddled With Glitches ---
Jensen Comment
Criticisms by tax experts is decidedly bipartisan. One problem is that even the brightest bulbs in Congress are pretty dim (witted). Being street smart and charismatic does not make a legislator an expert in economics and taxation. And advice from experts is not exactly unbiased. Many of the experts advising legislators live on loopholes and bad legislation. Obamacare, Trumpcare, and tax reforms are all examples of overly complex and horrible pieces of self-defeating legislation.

Blockchain ---

Blockchain Is Pumping New Life Into Old-School Companies Like IBM ---

Demand for the technology, best known for supporting bitcoin, is growing so much that it will be one of the largest users of capacity next year at about 60 data centers worldwide that IBM rents out to other companies.

December 26, 2017 reply from Bill McCarthy

Another view of blockchain accounting from a recent talk to ABC (Accounting blockchain Coalition).

Blockchain ---

Blockchain considerations for management and auditors ---

GASB proposals address capitalization of interest costs, implementation ---

PCAOB issues staff guidance on new auditor’s report ---

Harvard:  The Real Reason Companies Are So Focused on the Short-Term ---

Chatbot ---

THE CHATBOT MONETIZATION REPORT: Sizing the market, key strategies, and how to navigate the chatbot opportunity ---

QuickBooks jumps on the chatbot bandwagon ---

Jensen Comment
If I were still teaching I would be developing chatbots for my courses and for other technical accountancy modules. There's a great opportunity for chatbot development consulting.

The EU has published its first 'blacklist' of tax havens — here are the named countries ---

. . .

The 17 blacklisted countries are:

American Samoa





South Korea


The Marshall Islands





St Lucia


Trinidad & Tobago


The United Arab Emirates.

It also published a "greylist" of 47 countries, which include the British Overseas Territories (OTs) and Crown Dependencies (CDs) of Jersey, Guernsey, Bermuda and the Cayman Islands.

Countries were blacklisted if they were deemed to have failed to meet international standards on tax transparency and tax rates, and had not provided sufficient commitments that they would change in the months leading up to the list's publication. Those on the greylist made promises to reform their tax structures, which include changes to ensure companies are not using 0% corporate tax rates to avoid paying tax on profits.

Continued in article

With the Ernst & Young) move, three of Big Four U.S. accounting firms will be run by women ---
Thank you Denny Beresford for the heads up

Ernst & Young LLP named Kelly Grier as its new chairman and managing partner Wednesday, making her the first woman to lead the giant accounting and professional-services firm in the U.S.

Ms. Grier is currently central U.S. regional managing partner for Ernst & Young, which brands itself as EY. She will replace current chairman Steve Howe  July 1. Mr. Howe will retire at the end of 2018 after a 36-year career at the firm.

When the 48-year-old Ms. Grier assumes the chairmanship, three of the Big Four U.S. accounting firms will be led by women. She was elected for a four-year term as chairman and managing partner by the board and partners of EY, which has more than $13 billion in annual revenue in the U.S.

Continued in article

AICPA:  2017 CPA Firm Gender Survey ---

Partnership on average remains overwhelmingly male, with women representing only 22% of partners in CPA firms.

Smaller firms continue to have higher percentages of women partners than average.

A growing percentage of women are serving as directors or non-equity partners.

Only 47% of all firms have a formal succession planning process, and only 2% include a formal gender component in their plans.

A total of 89% of the firms surveyed had one or more types of modified work arrangement . and a large majority of firms believe they are worthwhile.

Flexible work hours are the most popular program, followed by reduced hours and telecommuting.

Substantially more women use modified work arrangements at the non-equity partner level. Mentoring is the most popular advancement program among firms, used by 45% of firms, while sponsorship is substantially behind, used by only 12%.

Firms that used advancement programs strongly believed that they achieved their goals.

 The vast majority of firms that have implemented diversity initiatives found them to be successful . Gender initiatives were the most common, followed by combined diversity and inclusion efforts and then minority initiatives.

Jensen Comment
The article is not clear about how much there's a mixing of international versus national statistics for the large Big Four firms that are now all headquartered outside the USA except for Deloitte -

One would not expect that women do much better outside the USA in large accounting firms. Even in the most progressive nations such as those in Scandinavia the proportion of women in business executive suites is abysmal --- not what one would expect in progressive nations.

I'm no expert on reasons for the lag in gender equality in the executive suites. It would appear that the initiatives to hire women in multinational CPA firms has been far more successful than initiatives for gender equality in equity partnerships. More than half the entry-level hires are now women whereas less than 25% equity partners are women.

I'm not sure what happened or is still happening with the huge gender discrimination suit by KMPG women.

Revealed: the number of female equity partners at PwC, KPMG, EY and Deloitte ---

PwC is lagging its big four accounting and advisory rivals when it comes to the proportion of female equity partners at the firm in spite of a range of strategies designed to get more women to the top.

The percentage of female equity partners at PwC has not improved during the past three years while it has increased year-on-year at rival big four accounting and advisory firms Deloitte, KPMG and EY, according to data from the Workplace Gender Equality Agency (WGEA).

Overall, the percentage of equity female partners is highest at Deloitte, at 24 per cent, around 20 per cent at KPMG and EY, and at 17 per cent at PwC, based on data supplied by the firms to WGEA as of March 31.

PwC says it has increased the level of women being promoted to partner and made other moves to address the gender imbalance and said there is a time lag for these to kick into effect.

Continued in article

December 2, 2017 reply from Dennis Beresford



I've been reading EY's excellent 2017 quality report. It contains a large number of metrics, including several relating to the diversity of the US audit practice. (I haven't looked at reports for the other Big 4 firms yet but I suspect they have similar information.)


EY reports that 24% of its audit partners are female in fiscal 2017, the same as the year before but up one percentage point from fiscal 2015. But the numbers get more interesting at other levels. 52% of EY's "Executive Directors," 43% of senior managers and managers, and 47% of seniors and staff are female. 


Overall, 44% of the firm's US audit professionals are female and 43% of new partners this past year were female or minorities. And 44% of campus hires were female in the latest year - nearly 30% were minorities.


Clearly, the pipeline is being filled and the major firms like EY are doing a pretty good job of developing outstanding talent whatever its gender or ethnicity.



Bob Jensen's threads on the history of women in accountancy are at

SEC:  More Than $16 Million Awarded to Two Whistleblowers ---

Washington D.C., Nov. 30, 2017 —

The Securities and Exchange Commission today announced awards of more than $8 million each to two whistleblowers whose critical information and continuing assistance helped the agency bring the successful underlying enforcement action.

With this case, SEC enforcement actions involving whistleblower awards have now resulted in more than $1 billion in financial remedies ordered against wrongdoers.

The first whistleblower alerted SEC enforcement staff of the particular misconduct that would become the focus of the staff’s investigation and the cornerstone of the agency’s subsequent enforcement action.  The second whistleblower provided additional significant information and ongoing cooperation to the staff during the investigation that saved a substantial amount of time and agency resources.   

“Whistleblowers have played a crucial role in the progression of many investigations and the success of enforcement actions since the inception of the whistleblower program,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “The value of whistleblowers can be seen in the more than $1 billion in financial remedies ordered against wrongdoers based on actionable information from whistleblowers, including more than $671 million in disgorgement of ill-gotten gains, much of which has been or is scheduled to be returned to harmed investors.” 

The SEC’s whistleblower program has now awarded more than $175 million to 49 whistleblowers since issuing its first award in 2012.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. 

Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. 

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

For more information about the whistleblower program and how to report a tip, visit

IRS Whistleblower Awards Jump 322% ---

Bob Jensen's threads on whistleblowing ---

Ten startups that died in 2017 — despite $1.7 billion in funding ---

A $250M ‘oasis’: Oil tycoon T. Boone Pickens puts prized Texas Panhandle ranch on the market ---

Jensen Comment
To put things into context, compare the cost of this 100 square mile ranch with the cost "tiny" bits of real estate in the Silicon Valley and cities where wealth is concentrated like New York, Hong Kong, London, Los Angeles, and San Francisco. At the moment there's an identically priced ($250M) house in Los Angeles ---
For $410 million you can buy a house on a mere 35 acres in South France ---

One thing to note in this article is that T. Boone Pickens is not an avid fan of wealth inheritance. He's given away much of his fortune and will give away the lion's share of the proceeds from the sale of his ranch.

Zorba:  Rapid Expansion in Use of XBRL
Bob Jensen's XBRL threads ---

Zorba:  AI Requires Good Data ---

Zorba:  How Companies use Social Media for Corporate Reporting ---

XBRL History and Overview ---

Zorba:  Corporate Actions should be reported in XBRL ---

Lawyer who once advised Martin Shkreli has been convicted of helping him defraud a pharmaceutical company ---

Bob Jensen's Fraud Updates ---

Is this a wonderful or terrible idea caused by the $10,000 income and property tax limit in the Federal tax reform legislation?
Liberal economist Dean Baker advocates repeal state income taxes, replacing them with payroll taxes --

Andrew Cuomo is waging an all-out assault on the GOP tax law to save New York's higher income and very wealthy residents ---

Jensen Comment
It certainly does not seem like a "liberal" idea to me. Think of all those passive incomes that would not be taxed such as interest and dividends and capital gains on savings? Think of all those rental incomes that might not be taxed.
It seems to me that states would still have to tax some types of income or let wealthier people off the hook for taxes.
Some states without income taxes (think New Hampshire) tax interest and dividends partly but exclude interest and dividends factored into pension incomes. Also the NH interest and dividends tax is relatively low rate with up to a $5,000 exclusion. Also capital gains are not taxed. All told the NH interest and dividends tax is more of a nuisance than a serious tax like a state income tax.

Dean Baker does propose a new state taxes on dividends and interest and capital gains. Presumably these would not be deductible above the $10,000 cap on total come deductions in the Trump income tax revision law..

One thing is likely. States, especially our liberal blue states, will probably will come up with new and very complicated state taxation codes that will keep tax accountants up nights.

We can expect demand for accounting degrees to soar because of all the new jobs created in the public and private sectors within our states.

Add to this the possibility (quite likely actually) that the Democratic Party will soon take control of both the USA House of Representatives and the USA Senate such that most or all Trump tax Reforms of 2018 will be repealed. Think of all the cost and confusion of rewriting tax codes in most of our 50 states that will have become wasted efforts in a very short period of time!

Departed tax chief John Koskinen explains why even he can't see Trump’s taxes—and why we should ‘beware the collapse of the IRS.’ ---
Trump's tax returns are locked away in a special safe.

Bitcoin ---

How to buy and sell bitcoin using one of the most popular cryptocurrency apps on the iPhone ---

Bitcoin Futures Trading Gets Green Light from USA Regulators ---

Bitcoin's Six Biggest Risks ---

The Unlucky Man Who Accidentally Threw Away Bitcoin Worth $100 million ---

Interest in Bitcoin Is Spreading ‘Like a Contagion,’ Says Nobel-Winning Economist Who Predicted the Housing Bubble ---

From the CFO Journal's Morning Ledger on December 12, 2017

SEC chairman warns investors against bitcoin
Wall Street’s top regulator on Monday raised alarms about the money flooding into bitcoin trading and other cryptocurrency markets, warning the red-hot corner of less-regulated finance is burning with risk for retail investors.


Francine:  New (revenue accounting) rule forces big car makers into big changes in how they count revenues ---

GAAP and the Federal Budget Deficit, by Tom Selling, The Accounting Onion, December 5, 2017 ---

. . .

The formal question addressed in EITF 96-15 is whether a marketable debt security designated as “available-for-sale” is a foreign currency transaction. Notice that the EITF is not questioning whether marketable debt securities designated as “trading,” or as “held-to-maturity” are foreign currency transactions – but only those debt securities that are arbitrarily and capriciously designated by management to be AFS. Knowing only that should tell you that the fix was in before the first word of “debate” among the cheerleaders for issuer interests had been uttered.

What sounds like a serious question is but an absurdity.  An AFS marketable debt security is still at bottom a receivable.  Perhaps, marketability may be a consideration in determining the appropriate accounting treatment, but some arbitrary AFS designation doesn’t change its basic nature as a receivable.  FAS 52 is crystal clear as to the treatment of a receivable: it’s a foreign currency transaction.

Yet, the EITF found a way to arrive at the opposite conclusion. By an alchemy that can only be fully appreciated by those ordained as accounting policy makers, the EITF stated that in their view, a marketable debt security arbitrarily designated as AFS, could not be a “monetary item.”  (It’s like the old accounting joke:  two plus two can be anything you want it to be.)   By that twisted logic, an AFS marketable debt security, unlike every other kind of receivable, is not a foreign currency transaction.

Eureka! The formula for turning copper into gold!  Waive the AFS magic wand over any marketable receivable, and presto change-o, you no longer have to worry about income statement exposure.

Back to the proposed income tax legislation of the present, much of the debate concerns its effect on the federal budget deficit. I want Congress and the public to know that if EITF 96-15 were rescinded, it would unambiguously work to lower it: managers would be more inclined to repatriate the cash if they couldn’t reduce the accounting exposure to foreign exchange movements while it is overseas.  This will sound like heresy to supporters of the FASB and EITF, but I would be happy to see Congress enact a law that does just that.

Continued in article

Reply from Bob Jensen on December 11, 2017

EITF 96-15
Accounting for the Effects of Changes in Foreign Currency Exchange Rates on Foreign-Currency-Denominated Available-for-Sale Debt Securities ---

Before getting excited about the significance of EITF 96-15 on motivation to not repatriate foreign earnings I would first investigate how many of those "receivables" are in fact classified as Available for Sale (AFS). EITF 96-15 does not apply unless they are designated as AFS, and my guess is that the overwhelming amount of "receivables" attributable to non-repatriated earnings are not designated as AFS. I suspect that the impact of EITF 96-15 on repatriation of earnings is not significant relative to the many factors that are significant such as foreign nations applying pressure to not repatriate earnings attributable to sales in those nations.

Bob Jensen

December 11, 2017 reply from Tom Selling


Thanks, as always, for circulating and commenting.  This is a two-part response.  The first part relates to the significance of the issue and my motivation for writing the post.  The second part is an explanation of the actual mechanics of the accounting.


Part I

Accumulated unremitted foreign earnings is in the neighborhood of $3 trillion dollars.  I don’t know how much of that EITF 96-15 accounts for.  But for the sake of argument, let’s say that it’s between 0.1% and 10%, and that the marginal tax rate is 35%.  That would put the effect at between $1 billion and $100 billion. I know that this is a very coarse calculation, but I want to illustrate that one shouldn’t dismiss this consequence of EITF 96-15 without looking at actual data.  We could be talking about a lot of money.

Note, however, that I am not claiming that the EITF had in mind to help companies facilitate their tax avoidance, but that is one of its consequences.  The more evident consequence of 96-15 is to allow managers to smooth their income, which presumably shifts wealth from shareholders to executives in the form of “compensation.”  


But, even that is not why I chose to write a blog post about it.  My main objection, setting aside larger concerns about use of OCI, is the accounting “reasoning” they used to get to their desired answer.  They based their consensus on one of the biggest leaps in illogic – that AFS debt securities are nonmonetary – that I can think of in the history of GAAP standards setting.  The EITF couldn’t come up with a real justification for treating AFS debt securities differently than other monetary assets, so they made one up.  Even if the wealth and tax effects are marginal, this alone would serve as motivation for me to write about it.  The FASB should at least be saying to the EITF that it needs to come up with better logic than that!  It may not look so bad, because very few people actually understand what is going on.  Based on your question at the end of the post, that would even include someone as smart and informed as you, Bob.  I don’t mean that in an insulting way at all.  I only mean to show that GAAP is so complicated that no one person has knowledge of all of its implications at their fingertips.  I happen to know this one, because I work with it a lot.  This brings me to Part II.

Part II

A foreign currency transaction —whether intercompany or not — is supposed to result in exposure to forex gains and losses on the consolidated financial statements through “remeasurement” of the transaction into the functional currency of the entity.  The mechanical “translation” from the functional currency to the reporting currency will create an offsetting effect on OCI, but these may not be netted on the consolidated financial statements.  The rationale, I believe, is that if you are going to treat the foreign operation as an independent cash generator, then forex gains and losses from holding a foreign currency other than the functional currency — even if that currency happens to be the consolidated reporting currency — has to affect net income.




December 14, 2017 reply from Bob Jensen

Hi Tom,

When, as you say, EITF 96-15 exposes a parent to foreign exchange FX gains and losses on monetary items, I would like to point out that these FX exposures can be hedged. Although purchased options can be costly,  a company can hedge without cost using FX futures contracts. This takes FX exposures resulting from EITF 96-15 out of worry without any cost in doing so other than eliminating possible FX gains as well as losses.

Ira Kawaller shows when an FX forward contract (e.g., futures contract) might be preferred to a cross-currency hedge.

For purposes of illustration, consider an intercompany loan
where a USD-functional parent lends US dollars to its EUR-functional subsidiary. As noted above, the subsidiary bears an interest expense on the loan (i.e., principal × rate × time), as well as a re-measurement gain or loss on the debt. A cross-currency interest-rate swap would address both of these exposures. In consolidation, however, the USD interest expenses paid by the subsidiary are equal and opposite to the USD interest revenues (again, principal × rate × time) received by the parent. Thus, these two interest components to earnings self-cancel, leaving the re-measurement effect as the only currency-related earnings impact that “survives” in consolidation.

Thus, from the perspective of the consolidated entity, the standard forward contract (as opposed to a cross-currency interest-rate swap) would likely be the preferred hedge.


Alternative accounting treatments for FX forwards ---

Ira summarizes FX accounting and hedging things to consider in general at in general in an excellent short article at

Ira discusses cross-currency swap hedge accounting for multinationals at

Also see

An excellent summary of cross-currency swaps is at

Complying with FAS 133 when there are FX hedges ---

Fintech ---

Fintech could be bigger than ATMs, PayPal, and Bitcoin combined ---

Will The Lawyers Ring the Death Knell for Football (USA style football)?

Jensen Comment
How are colleges reporting these contingent liabilities in their financial statements?
Think of how this might boost academic standards in Division 1 universities?

How to Hedge Currency (FX) Risks ---

Jensen Comment
Cross-currency derivatives can be used to simultaneously hedge FX and price risks. The original FAS 133 did not allow hedging both of these risks with one contract, but after the FASB discovered how common it was to hedge with cross-currency derivatives the FAS 138 amendment allowed for hedge accounting using cross-currency instruments. You can read more about accounting for FX hedges at

The CPA Journal
Interest Rate Swaps: Simplified Accounting for a Perfect Fair Value Hedge ---

Jensen Comment
This is a good example for introducing fair value hedge accounting to your students (as opposed to cash flow hedges and FX hedges). It also avoids the complexity of hedges that are not perfectly effective. Note that the "shortcut method" illustrated in this article is an option in the USA but is not an option under IFRS international standards.

For other illustrations of hedge accounting see Bob Jensen's PowerPoint tutorials at

Also see Bob Jensen's hedge accounting glossary at

One of the most difficult aspects of interest rate swap hedge accounting is the valuation of interest rate swaps ---

The CPA Journal
Characteristics of Financial Restatements and Frauds An Analysis of Corporate Reporting Quality from 2000–2014 ---

Corporate reporting quality has been at the forefront of the profession since the major corporate accounting scandals such as Enron and WorldCom at the beginning of the century. Within the last 15 years, the corporate reporting environment has been reshaped by revised corporate reporting standards. This article analyzes various characteristics of financial statement restatements and frauds discovered from 2000 to 2014 to shed some light on how financial restatements and frauds have been affected by shifts in the regulatory and economic environment.

Bob Jensen's blog on fraud ---

Audit Firm Charged With Fraud in Audits of Penny Stock Companies ---

Bob Jensen's Fraud Updates Blog --- 

The (London) Times:  Big payouts for victims of tracker mortgage scandal ---

Borrowers caught in the tracker mortgage scandal could be in line for compensation payouts of up to €500,000 after the government outlined new measures to rein in rogue banks.

Bob Jensen's blog on fraud ---

Affinity Fraud ---

FBI Warns About Affinity Fraud ---

Jensen Comment
Bernie Madoff ensnared a lot of his victims with affinity fraud in the Jewish faith.

Bob Jensen's Fraud Updates Blog --- 

The IRS Scandal, Day 1671: Lois Lerner’s Secrets ---

Wall Street Journal editorial, Lois Lerner’s Secrets: The Former IRS Official Wants a Court to Seal Her Testimony:

If only the National Security Agency were as good at keeping secrets as Lois Lerner. When news that the IRS had targeted conservative groups led to congressional hearings, the former director of the Exempt Organizations division declared her innocence and then clammed up. Now she and her former IRS associate, Holly Paz, are asking a federal judge to seal forever their depositions in a lawsuit that the IRS settled last month for $3.5 million.

Ms. Lerner and Ms. Paz say they or their families have endured harassment or death threats. But Edward Greim, the attorney for the roughly 400 tea-party clients who sued, notes in reply that the last threat Ms. Lerner and Ms. Paz cited was from early 2014.

Leave aside that the usual way of dealing with threats or harassment is to notify police or the FBI—not to keep information about an abuse of power by public officials from the public. Every other party is united for disclosure: the defense (i.e., the government, which has admitted wrongdoing and apologized); the plaintiffs; and the Cincinnati Enquirer, which has filed a motion to lift the seal. ...

American taxpayers who will fork out $3.5 million for Ms. Lerner’s actions have a right to hear how she justified what she did at the IRS.

Jensen Comment
Lois Lerner readily confessed to and apologized for, as an IRS administrator, her violation of the law by targeting conservative groups for delaying or blocking their efforts to get tax exempt status.
She resigned from the IRS in disgrace and the IRS belatedly settled recently for $3.5 million.
What prolongs this "scandal" for years is her refusal to testify under oath whether or not she was doing so at the behest of the Obama Whitehouse, --- which would've made it an enormous scandal that threatened his presidency in the second term All of that is now history except for the possible embarrassment such dirty and illegal politics would bring to memories of his presidency. Lois Lerner could end the scandal by testifying in public that she was not acting at the behest of the White House or by having "secrets" of the depositions exposed.

Nobody knows how much the IRS silence on this matter damaged the IRS in terms of operating budges. It's one of many excuses Republican lawmakers use to damage the IRS. President Trump does not bring this matter up in his many public outrages. I don't think it's a factor among the many differences between him and the Democratic Party. He's not perpetuating this "scandal." But other Republicans will not let it go.


Simple Analysis is Never a Solution in Valuing Complex Derivative Securities

10 Pages Posted: 19 Dec 2017  

Scott David Hakala

ValueScope, Inc.

Date Written: December 14, 2017


The valuation of complex derivative securities (options, warrants, and conversion elements with a variety of features) within these companies has evolved from a niche academic pursuit into a widespread practice and is often required for tax, financial accounting, reporting fair values, or for management purposes. Sadly, many valuation analysts resort to simplified or “canned” models and assumptions that are inappropriate for valuing contemporary derivative securities: employing inappropriate volatility assumptions; using inappropriate models or formulas; and/or ignoring the interactions between the values of various outstanding securities and dilutive securities within a company’s capital structure as the value of the company changes over time. Three important considerations demand the use of more sophisticated valuation modeling: unknown potential corporate volatility, leverage & related default risk, and multiple securities within a single corporate entity.

Keywords: derivative securities, option pricing, contingent claims, valuation

Statistical Studies of Financial Reports and Stock Markets

Journal of Capital Markets Studies, Vol. 1 Issue: 1, pp.5-9, doi: 10.1108/JCMS-10-2017-006

6 Pages Posted: 12 Dec 2017  

Shyam Sunder

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

There are 2 versions of this paper

Date Written: July 17, 2017


Purpose – The purpose of this paper is to examine the usefulness of statistical studies of financial reports and stock market data for improving corporate financial reports.

Design/methodology/approach – Analytical writing.

Findings – It is often claimed that statistical studies of co-variation between financial and stock market data can help set better financial reporting policy. Such co-variation, even when it can be estimated, tells us little about which financial reports help to make better financial decisions. A case in support of such claims remains to be made.

Practical implications – The readers are advised to be extremely careful in drawing inferences from studies of co-variation between accounting and stock market data for financial reporting policy.

Social implications – Inference from accounting empirical studies to policy needs better rationale to avoid bad policy consequences.

Originality/value – This paper raises original questions about policy inferences from a large class of empirical research in accounting.

Keywords: Efficient markets, Financial reporting policy, Statistical co-variation

JEL Classification: M41

Investor Behavior and the Benefits of Direct Stock Ownership


54 Pages
Posted: 20 Dec 2017  

Darren Bernard

London Business School - Department of Accounting

Nicole L. Cade

University of Pittsburgh - Accounting Group

Frank D. Hodge

University of Washington - Michael G. Foster School of Business

Date Written: December 19, 2017


Using an experiment to rule out reverse causality, we examine whether a small investment in a company’s stock leads investors to purchase more of the company’s products and adopt other views and preferences that benefit the company. We pre-register our research methods, hypotheses, and supplemental analyses via the Journal of Accounting Research’s registration based editorial process. We find little evidence consistent with these hypotheses for the average investor in our sample using our planned univariate hypothesis tests, and planned Bayesian parameter estimation shows substantial downward belief revision for more optimistic ex ante expectations of the treatment effects. In planned supplemental analyses, however, we do find that the effects of ownership on product purchase behavior and on regulatory preferences are intuitively stronger for certain subgroups of investors — namely, for investors who are most likely to purchase the types of products offered by the company and for investors who are most likely to vote on political matters. The results contribute to our understanding of the benefits of direct stock ownership and are informative to public company managers and directors.



Keywords: Direct Stock Ownership, Investor Behavior, Bayesian Analysis, Registered Report

JEL Classification: M41, G32, G40

Home Prices and Fundamentals: Solving the Mystery for the G-7 by Accounting for Nonlinearities

28 Pages Posted: 19 Dec 2017  

William Miles

Wichita State University - W. Frank Barton School of Business

Date Written: December 15, 2017


Home prices and their fundamental determinants, such as income, should, according to theory and intuition have a stable long run relationship. While bubbles exist, these are deviations from this long run relationship. However, numerous empirical studies have failed to find such long run stationarity between home values and income. This presents a puzzle-could house prices really drift away from income indefinitely, with no tendency to return to some equilibrium?

Previous studies have imposed linear adjustment to deviations from equilibrium in their tests. However, it has been clearly established that both home prices and income exhibit nonlinear dynamics. Moreover, tests for stationarity have low power in the presence of nonlinearity. We accordingly address this issue for the G-7 countries. First, we have a longer span of data than previous studies. In addition we employ tests which detect and allow for nonlinear adjustment to shocks. For the US, we are able to reject the null hypothesis of nonstationarity in the price/income ratio with this longer span of data and the use of a linear, but powerful testing procedure heretofore not utilized in this literature. However, we do not find a stable relationship using this procedure for the remaining six G-7 nations. We do find evidence, for these six countries, of nonlinearity, and upon applying a test which posits asymmetric adjustment we obtain results which indicate stationary, long run relationships between values and income in five of the remaining six G-7 countries.

Keywords: House Prices, Asset Prices, Bubbles, G-7, Housing Supply And Markets

JEL Classification: C22, G12, R31

Productivity in Top-10 Academic Accounting Journals by Researchers at Canadian Universities at the Start of the 21st Century

Accounting Perspectives, Vol. 16, No. 4, pp. 270-313.

Posted: 18 Dec 2017  

Bruce J. McConomy

Wilfrid Laurier University

Merridee L. Bujaki

Carleton University - Eric Sprott School of Business

Date Written: December 12, 2017


We assess the research publication productivity of Canadian-based accounting researchers in highly ranked accounting journals for the 2001–13 period. Our research provides important benchmarks for use by individual researchers and universities for matters such as promotion and tenure decisions. For example, each Canadian-based faculty member had approximately 0.50 of a weighted article for the 13-year period, and 45 percent of all accounting faculty members published at least once in a top-10 accounting journal. We also provide an overview of the type of research being published by Canadian-based researchers in each of the top-10 journals (financial accounting, managerial, audit, tax or other) and we assess how productivity at top-10 journals has changed over time. In supplemental analysis, we compare and contrast the productivity of the 15 male and 15 female academics that publish most in top-10 accounting journals to assess the breadth of outlets being used beyond top-10 outlets (including FT 45 journals, accounting journals ranked “A”, “B”, and “non-A/B”; non-accounting peer-reviewed journals, non-peer-reviewed outlets). The supplemental analysis also helps to shed light on the finding from this paper, and prior research, that women are less likely to be represented on lists of those with most publications in highly ranked accounting journals, by comparing the two groups of researchers across a variety of institutional and other factors.

Keywords: Research productivity, Canadian, Top-10 journals, Male and female academics

JEL Classification: M40

A Proposal for Distinguishing Liabilities from Equity: Internal Capital Versus External Capital


41 Pages
Posted: 18 Dec 2017  

Mary Hill

University of Oklahoma - Michael F. Price College of Business

Richard A. Price III

University of Oklahoma

George W. Ruch

University of Oklahoma - Michael F. Price College of Business

Date Written: December 12, 2017


In response to a longstanding debate within the accounting profession on how to clearly distinguish liabilities from equity, we propose a liability-equity classification scheme in which capital received from external sources (“external capital”) is classified as liabilities and capital earned and retained from the firm’s internal operations (“internal capital”) is classified as equity. To validate our classification scheme, we theorize that the presence of liabilities in a firm’s capital structure is positively associated with its solvency risk. Consistent with this prediction, we find that the ratio of external capital in a firm’s capital structure is positively associated with proxies for solvency risk, and that this positive association is attributable to both capital contributed by shareholders (“stock capital”) and capital contributed by debtholders (“debt capital”). Our findings support the proposed classification scheme, which asserts that stock capital represents the firm’s liabilities to its shareholders, over the existing classification scheme, which asserts that stock capital represents equity.



Keywords: Liabilities Versus Equity, Financial Reporting, Capital Structure

Value Relevance and the Adoption of IFRS: The Canadian Experience

Forthcoming in International Journal of Accounting and Information Management, 26(4)

Posted: 18 Dec 2017

Chun-Da Chen

Lamar University

Date Written: December 18, 2017


This study investigates whether mandatory adoption of International Financial Reporting Standards (IFRS) in Canada resulted in capital market benefits from enhanced financial reporting quality. We examine the effects of implementing IFRS for financial statements of the largest Canadian firms (S&P/TSX 60) listed on the Toronto Stock Exchange (TSX). We compare accounting numbers reported under pre-changeover Canadian GAAP (CGAAP) with those under IFRS for the same period, and document how IFRS adoption changes key accounting measures and financial ratios. Significant accounting standard differences between two accounting frameworks having direct impact on financial measures in transition to IFRS are analyzed. Our analysis was also separately performed for companies representing Basic Materials and Energy and the Financial Services sectors because of the large concentration of companies engaged in these industries in our sample, finding that significant effects of adopting IFRS are associated with industry practices. The empirical results show that the adoption of IFRS in Canada improved the relevancy of financial reporting as gauged by the association between book value of equity and net income with the market value of company shares in the post-adoption periods. The study should be of interest to U.S. regulators considering IFRS adoption by U.S. publicly traded companies as well as to regulators, standard setters and listed companies in all countries worldwide that are in transition to IFRS.



Keywords: IFRS Adoption, Canadian Companies, Financial Statement Effects, Value Relevance

Measuring the Comparability of Company Accounts Conditionally: A Research Note

Abacus, Vol. 53, Issue 4, pp. 527-542, 2017

16 Pages Posted: 17 Dec 2017  

Ross Taplin

Curtin University - School of Accounting

Date Written: December 2017


Comparability indices summarize the level of comparability between companies at a national and international level, an issue of importance to investors, regulators, and standard setters. Comparability indices can identify areas where comparability is low and where comparability is deteriorating. Furthermore, they can be used to quantify the extent to which initiatives such as International Financial Reporting Standards (IFRS) are successful in raising comparability between company accounts. Despite past literature emphasizing how factors other than country influence accounting methods used by companies, current comparability indices ignore these other factors. This paper introduces new national and international indices within the T index framework to fill this gap in the literature. Formula for the new national and international indices, and their standard errors, are provided. An example using European data is used to demonstrate the calculations and illustrate the importance of controlling for these firm specific factors.

Keywords: Comparability, Harmonization, Industry sector, IFRS, T index

Does Fair Value Accounting Provide More Useful Financial Statements Than Current GAAP for Banks?

The Accounting Review, Forthcoming

Posted: 8 Dec 2017  

John M. McInnis

University of Texas at Austin - Department of Accounting

Yong Yu

University of Texas at Austin

Christopher G. Yust

Texas A&M University

Date Written: November 21, 2017


Standard setters contend fair value accounting yields the most relevant measurement for financial instruments. We examine this claim by comparing the value relevance of banks’ financial statements under fair value accounting with that under current GAAP, which is largely based on historical costs. We find the combined value relevance of book value of equity and income under fair value is less than that under GAAP. We also find fair value income is less value relevant than GAAP income because of the inclusion of transitory unrealized gains and losses in fair value income. More surprisingly, we find book value of equity under fair value is not more value relevant than under GAAP, due both to divergence between exit value and value-in-use and to measurement error in fair value estimates. Overall, our results suggest that financial statements under fair value accounting provide less relevant information for bank valuation than financial statements under current GAAP.

Keywords: fair value, historical cost, financial instrument, bank, value relevance

JEL Classification: G12, G34, M41, M44

Accounting Ratio-Based Predictions: An Analysis of the Relationship between Indicators of Financial Health and Those of Accounting Manipulation

European Accounting and Management Review, Vol. 3, No. 2

16 Pages Posted: 6 Dec 2017  

Joan Llobet-Dalmases

Open University of Catalunya (UOC) (Open University of Catalonia)

Dolors Plana

Open University of Catalunya (UOC) (Open University of Catalonia)

M Angels Fito


Date Written: May 1, 2017


Against a backdrop of global accounting harmonization, financial information is required to be useful and trustworthy for investors and other users. This study contributes to establishing whether there is a relationship between the Z-score model for predicting financial distress and the Z Vladu model for predicting earnings manipulation. Both models discriminate between companies using financial statement ratios.

Extracting data from the Sistema de Análisis de Balances Ibéricos (Iberian Accounts Analysis System, or SABI) database for medium-sized and large Spanish companies for the period 2005 to 2015, both summary indicators have been calculated and descriptive and bivariate analyses have been performed.

The results show that there is a relationship between both indicators, albeit a weak one.

Keywords: financial distress, Z-score, earnings manipulation, earnings management, earnings quality, Spanish firms

JEL Classification: M00

Fuzzy Finances: Grading the Financial Reports of Canada's Municipalities

C.D. Howe Institute Commentary 496

24 Pages Posted: 6 Dec 2017  

Benjamin Dachis

C.D. Howe Institute

William B. P. Robson

C.D. Howe Institute

Farah Omran

C.D. Howe Institute

Date Written: November 28, 2017


In nearly all larger Canadian municipalities, obscure financial reports – notably inconsistent presentations of key numbers in budgets and end-of-year financial statements – hamper city councillors, ratepayers and voters seeking to hold their municipal governments to account. Simple questions like, “How much does your municipal government plan to spend this year?” or “How does what it plans to spend this year compare to what it spent last year?” are hard or impossible for a non-expert citizen or councillor to answer. The differences between budget accounting methods and presentations of financial results have real world consequences. For example, by presenting net rather than gross budget figures, municipalities obscure key activities and understate both their revenue and spending. By using cash rather than accrual accounting, they exaggerate infrastructure investment costs, hide the cost of pension obligations and make it hard to match the costs and benefits of municipal activities. Moreover, many municipalities approve their budgets after significant money has already been committed or spent in the fiscal year, do not publish their financial results in a timely way, and bury key numbers deep in their statements. This report card grades the financial presentations of major Canadian municipalities in their most recent budgets and financial statements. Calgary registered the largest year-over-year decline in budget clarity: like Durham Region, it provides little information in reader-friendly form. More happily, Vancouver, Surrey, B.C., and Peel and Niagara Regions in Ontario garnered the highest marks for clarity of financial presentation. Our key recommendations are: (1) that municipal governments should present their annual budgets on the same accounting basis as their year-end financial statements and (2) that budgets should show gross, not net, revenue and spending figures. Budgets should use accrual accounting, recording revenues and expenses as the relevant activities occur. For their part, provincial governments that impede the use of accrual-based budgets – by mandating that cities present separate operating and capital budgets, for example – should stop doing so. Indeed, provinces should mandate cities to present accrual budgets so the fiscal picture of municipalities and the province use the same transparent standard. Even in cases where a province is an impediment, municipalities could release the relevant information on their own – and they should.

Keywords: Fiscal and Tax Policy

JEL Classification: H72; R50; R5

Proposal to Implement the Balanced Scorecard in a Non-Profit Organization

European Accounting and Management Review, Volume 4, Issue 1, Article 3, 49-74, November 2017

26 Pages
Posted: 6 Dec 2017  

Patricia Rodrigues Quesado

Polytechnic Institute of Cavado and Ave

João Carlos Fernandes Branco

Polytechnic Institute of Cavado and Ave

Fernando Jorge Rodrigues

Polytechnic Institute of Cavado and Ave

Date Written: October 6, 2017


In this paper we aim to develop a Balanced Scorecard (BSC) model for a nonprofit organization whose activity focuses on the teaching of chess. In order to answer the research question, we have carried out a qualitative research based on the case study. Our study is characterized by a descriptive analysis. The results allow us to conclude that the BSC is a tool that will allow to define the strategy in a clearer and objective way, allowing a greater awareness of the importance of an internal organization that allows to reach the defined objectives through a set of initiatives. The study presents a contribution to the current state of knowledge, since we seek to provide the organization with a management tool that allows to measure its performance and the value it adds to society and to outline a consistent and sustainable long-term strategy. In addition, a theoretical basis is provided for subsequent research, evidencing the breadth of research on the topic studied.



Keywords: Balanced Scorecard, Management Accounting, Management Control, Non-profit Organizations

JEL Classification: M00

The CPA Journal
A Proper Risk-Based Approach to the Search for Unrecorded Liabilities ---

A search for unrecorded liabilities is a fundamental, almost universally applied procedure in all audits. The scope of such a search frequently includes a sampling of subsequent cash disbursements, which is an example of testing one population for understatement by sampling through a “reciprocal” population where unrecorded or otherwise missing balances or transactions are likely to reside. Unfortunately, in practice one often finds auditors sampling through subsequent disbursements without regard for as-yet unpaid purchase or expense invoices that have been entered post–balance sheet into a payables system (i.e., through a payables or purchases journal or voucher register) or that have not yet been entered into any system and are sitting on someone’s desk. Accordingly, auditors must understand the business’s method and timeliness (in relation to cutting checks) of recording payables and be cognizant of, and address, these risks.

When there is a longer-than-usual time interval between recording payables and cutting the checks—a common circumstance with financially troubled entities or during periods of economic stress—an auditor should consider merging the populations from the post–balance sheet payables journal (or whatever it is called) and the disbursements journal and eliminate duplicates before sampling (IDEA or Excel software should be able to do this easily). Lastly, auditors should consider whether the client has an unentered invoice file that needs to be examined for possible underaccruals. If the business does not maintain physical control of the unentered invoices, then extended audit procedures such as payables confirmations are probably warranted. One certainly should not wait until near the end of the audit to make that decision.

Continued in article

The CPA Journal
Essentials of Personal Financial Planning ---

Many CPAs and most tax specialists perform personal financial planning (PFP) services; the AICPA estimates that more than 100,000 of its members perform some form of PFP for clients. The AICPA tried to unify and formalize PFP services with a credential—the Personal Finance Specialist (PFS)—but it doesn’t seem to have gained the wide acceptance it should have, based on the importance of these services. Essentials of Personal Financial Planning is a textbook aimed at reaching graduate students with an organized protocol of how to perform PFP services. More than that, it has excellent coverage of the entire range of these services and is an effective guide for all practitioners.

Currently, the financial planning industry is facing an upheaval because of the Department of Labor’s insistence that people offering PFP services act in the best interests of their clients. This seems like a given, but experience has shown that it is not. This book was written to challenge the status quo by promoting PFP services as a profession practiced with integrity and objectivity, and not as a sales tool for those seeking assets to manage or individuals to sell policies and annuities to.

The book has a comprehensive description of every area of PFP services and can be valuable to active practitioners as a complete reference source. It describes all services under the PFP umbrella; while it does not present planning tools, it offers thorough descriptions that can be quickly read, understood, and used, and is written in a way that can easily be explained to clients.

PFP is a very broad field, which covers helping clients develop their financial goals and planning for cash flow, budgeting, charitable giving, education funding, estate matters, gift and wealth transfers, investment management, retirement, employee benefits and executive compensation, risk management, insurance, and taxes. Chapters cover full explanations of each area and also their practical application. Also included are the time value of money, licensing and regulatory requirements, and business models.

Continued in article

Bob Jensen's helpers for personal finance ---

The CPA Journal
A Non-GAAP Reporting Sampler ---

Baruch Lev recently reported in his article, “Surprise: Investors Like Non-GAAP Earnings” (Seeking Alpha, Apr. 6, 2017, that his analysis of a sample of S&P 500 companies found that 80% disclosed non-GAAP earnings. Several other sources have set the use of non-GAAP measures by S&P 500 companies at over 90%. David Trainer reports in Forbes (“SEC Starting to Worry About Non-GAAP Earnings,” May 5, 2016, that based on a random sample of 40 S&P companies, 92% reported higher non-GAAP earnings than GAAP numbers.

No professional organization appears to have taken up this issue as yet, and the current state of affairs can be seen in both the controversies and the lack of organized resources. CPAs are in the interesting position of being able to see both investor concerns about misleading presentations and management focus on portraying positive information. Does this create an opportunity for practicing CPAs to take the lead? This month’s column presents a sampler of some interesting, and hopefully useful, resources on non-GAAP reporting.

Articles and Reports

Readers will find easy access to the SEC’s newest and updated Compliance and Disclosure Interpretations (CDIs) on “Non-GAAP Financial Measures,” issued in May 2016 at (See sidebar for more information.) The original post–Sarbanes-Oxley Act of 2002 (SOX) Final Rule defined what is and is not a non-GAAP measure, as well as disclosure and reconciliation requirements. The May 2016 CDI, presented in question-and-answer format, addresses potential misleading non-GAAP measures and presentations, necessary disclosures, and other topics such as segment reporting (

Continued in article

From The Wall Street Journal Weekly Accounting Review on November 3, 2017

GE Numbers Game Puzzles Investors

By Michael Rapoport | Oct 31, 2017


TOPICS: Long-Term Contracts, Non-GAAP Reporting

SUMMARY: "Investors have long grumbled about complex, aggressive accounting at GE, while the Securities and Exchange Commission has questioned some practices, too. And a lack of faith in GE'S numbers has left it with dwindling support and goodwill from investors after GE on Oct. 20 missed third-quarter earnings estimates and slashed its 2017 earnings outlook by more than a third...GE is re-evaluating its earnings metrics and is looking to take "a back-to-the-basics approach" to its financial reporting, Jamie Miller, GE's incoming finance chief, said during the company's recent earnings call."

CLASSROOM APPLICATION: The article is useful to cover both non-GAAP reporting, the importance of financial statement users having confidence in reported results for understandability, and long-term contract accounting for revenue. .



1. (Introductory) GE "recently provided four different versions" of its earnings. How is that possible?


2. (Advanced) "Analysts also fret over how GE handles contract assets...and its ability to turn earnings into cash flow." What are contract assets?


3. (Advanced) The article states that GE's "$29.8 billion portfolio...has grown by 18% this year as GE adjusts estimates and assumptions about how much profit it will ultimately reap from those contracts." Describe the estimates that help to assess future profit under long-term contract accounting.


4. (Advanced) Why do the estimates described above impact current profits such as in 2016 when they "added $2.2 billion to GE's earnings...."?


5. (Introductory) What is non-GAAP metric? What did the SEC say in a letter to GE about its reporting of non-GAAP metrics?


6. (Advanced) GE says it plans to get "back to basics" in its approach to financial reporting. Based on the information in the article, how do you think the company will benefit from that approach?


7. (Introductory) Identify a qualitative characteristic of financial reporting that apparently has been violated by GE's practices. Explain your answer.



Reviewed By: Judy Beckman, University of Rhode Island


"GE Numbers Game Puzzles Investors," by Michael Rapoport, The Wall Street Journal, October 31, 2017

The company’s heavy use of customized earnings metrics sparks investor concerns

What are General Electric Co.’s GE -0.45% earnings? The question doesn’t have a single answer—the company recently provided four different versions of them.

Investors have long grumbled about complex, aggressive accounting at GE, while the Securities and Exchange Commission has questioned some practices, too. And a lack of faith in GE’S numbers has left it with dwindling support and goodwill from investors after GE on Oct. 20 missed third-quarter earnings estimates and slashed its 2017 earnings outlook by more than a third.

GE shares have lost more than 13% since then, tumbling to their lowest level in nearly five years. The stock is now down more than 35% year-to-date; the S&P 500 has risen about 15%. The stock closed Monday at $20.41, down 1.8%, its sixth straight daily loss.

Topping investor concerns is GE’s heavy use of customized earnings metrics—the company has four different measures of earnings per share in its third-quarter earnings release. These range from plain net income to “Industrial operating + Verticals earnings,” and GE also reports customized measures of revenue, margins and cash flow.

Analysts also fret over how GE handles so-called contract assets—revenues the company books on long-term contracts before it has the cash in hand—and its ability to turn earnings into cash flow.

Earnings Four Ways / General Electric earnings per share, various measures Source: the company

“Everybody knows there’s a problem,” said John Inch, a Deutsche Bank analyst who has been critical of GE over the quality of its earnings and disclosure. “If you want to rebuild from whatever the business turns out to be, you need to have conviction the numbers GE is putting up are real numbers.”

GE is re-evaluating its earnings metrics and is looking to take “a back-to-the-basics approach” to its financial reporting, Jamie Miller, GE’s incoming finance chief, said during the company’s recent earnings call.

In a statement, GE said complexity in its accounting was “due to the scale and breadth of our operations.” Additionally, the company said its moves to sell most of its GE Capital finance arm have affected financial results and led it to provide additional metrics. From now on, “we anticipate needing to use fewer metrics and therefore will have less complexity going forward,” GE said. The company said it plans to provide more details on Nov. 13.

GE’s streamlining of its accounting is expected to be part of a broader overhaul, in which the company has said it plans to sell more than $20 billion in assets over the next year or two and cut billions of dollars in costs. The company is under pressure to improve its performance from activist investor Trian Fund Management LP, which owns about 71 million GE shares and was recently given a seat on the board.

GE’s customized earnings measures strip out various costs to present what the company has contended is a more accurate picture of its operating performance. Of its different measures, the one GE focuses on most in its earnings reports is called “Industrial operating + Verticals” earnings, which excludes certain pension costs and businesses the company expects to sell.

In the third quarter, GE had earnings of $1.9 billion from continuing operations. But it then took out $371 million in pension costs such as interest expenses and expected return on assets, and added in only $299 million in “Verticals” earnings—from the slice of GE Capital that the company plans to retain. The result: “Industrial operating + Verticals” earnings were $2.55 billion.

GE also reports customized metrics like “industrial segment organic revenues,” “industrial operating margin” and “industrial cash flows from operating activities,” with and without certain items.

Multiple non-GAAP metrics—those that don’t comply with generally accepted accounting principles—“make it very confusing for investors to know how well they are really doing,” said Peter Cohan, a management consultant and author who teaches business strategy and entrepreneurship at Babson College.

The SEC has focused on GE’s non-GAAP reporting and said in a June 2016 comment letter to the company that investors “may find it difficult to understand the differences” among measures and how each provides useful information. In a July 2017 letter, the SEC said GE’s practice of lumping together in a single line item all its non-GAAP adjustments “makes it difficult to fully understand the nature and amounts of each of the adjustments.”

In both cases, GE agreed to change disclosures. The SEC completed its inquiries without taking action.

Another area of concern is how GE accounts for its $29.8 billion portfolio of assets relating to long-term equipment and product-service contracts. That portfolio has grown 18% this year, as GE adjusts estimates and assumptions about how much profit it will ultimately reap from those contracts. Such adjustments added $2.2 billion to GE’s earnings in 2016, the company said in its annual report.

Some analysts are concerned because GE provides little visibility into those estimates and assumptions—and because the company’s actions can boost its earnings but not current free cash flow. Typically, big gaps between earnings, which are calculated on an accrual basis, and cash flow, which is money going into and out of a company, are a red flag for investors.

Under Contract / Contract assets on General Electric's balance sheet Source: the company

GE says its contract assets have grown significantly for valid reasons, and that ultimately all the assets will turn into cash for the company. Ms. Miller, who was GE’s chief accounting officer when she started at the company in 2008, said during the earnings call that she had “seen nothing that gives me any indication of an accounting issue here.”

Continued in article

In just one month Russia’s budget deficit for 2017 nearly doubled ---
Jensen Comment
Russian accounting throughout history always leaves a lot to be doubted.

EY:  Third parties and related risks ---

EY:  Accounting for the effects of the Tax Cuts and Jobs Act ---$FILE/TechnicalLine_07172-171US_TaxReform_19December2017.pdf

EY:  Comment Letter on Codification Improvements ---$FILE/CommentLetter_06871-171US_CodificationImprovements_4December2017.pdf

EY: Financial Reporting Briefs for December 2017 ---$FILE/FinancialReportingBriefs_07031-171US_14December2017.pdf

EY:  Pro forma financial information A guide for applying Article 11 of Regulation S-X (over 100 pages) ---$FILE/ProForma_06549-171US_30November2017.pdf

Bob Jensen's threads on pro forma reporting ---

EY:  Accounting for Effects of Tax Cuts and the Jobs Act---$FILE/TechnicalLine_07172-171US_TaxReform_19December2017.pdf

What you need to know


The Tax Cuts and Jobs Act is expected to be enacted this week, and companies will need to account for the effects of this significant change in tax law in the period of enactment.


The law President Donald Trump is expected to sign reduces the corporate income tax rate to 21%, creates a territorial tax system (with a one-time mandatory tax on previously deferred foreign earnings), broadens the tax base and allows for immediate capital expensing of certain qualified property.


It creates anti-base erosion rules that require companies to pay minimum taxes on foreign earnings and subjects certain payments from US corporations to foreign related parties to additional taxes.


The financial reporting effects of these changes may be complex, especially for multinationals. Companies also will need to make appropriate disclosures.

EY:  Comment Letter on the AICPA's Proposed New Attestation Engagements ---$FILE/CommentLetter_06850-171US_SelectedProcedures_1December2017.pdf

The CPA Journal
Not All PCAOB Inspections Are Created Equal ---

The PCAOB’s Role in Improving Audit Quality ---

The Effectiveness of Usage of Online Multiple Choice Questions on Student Performance in Introductory Accounting

Issues in Accounting Education
Volume 32, Issue 4 (November 2017)

Dianne Massoudi
The University of Western Australia

SzeKee Koh
Singapore Institute of Technology

Phillip J. Hancock
The University of Western Australia

Lucia Fung
Hong Kong Baptist University


In this paper we investigate the effectiveness of an online learning resource for introductory financial accounting students using a suite of online multiple choice questions (MCQ) for summative and formative purposes. We found that the availability and use of an online resource resulted in improved examination performance for those students who actively used the online learning resource. Further, we found a positive relationship between formative MCQ and unit content related to challenging financial accounting concepts. However, better examination performance was also linked to other factors, such as prior academic performance, tutorial participation, and demographics, including gender and attending university as an international student.

JEL Classifications: I20; M41.

Jensen Comment
Writing good multiple choice questions is a difficult chore. Beware of using test bank questions from textbook publishers. Firstly, these often are not great questions. Secondly, some students in the course probably have purchased these test banks from eBay, Craigslist, or other vendors. They may also be available in fraternities, sororities, and dorm archives. CPA preparation vendors have better questions, but those questions are widely pirated by students.

The Roslyn School District Fraud: Improving School District Internal Control and Financial Oversight

Issues in Accounting Education
Volume 32, Issue 4 (November 2017)

Randal J. Elder
The University of North Carolina at Greensboro

Alfred A. Yebba
Binghamton University, SUNY


The voters in Roslyn, New York inadvertently funded a multi-year embezzlement of $11 million of school district tax funds. Disguised by exceptional school rankings, and supported through a strong tax base, it was the largest embezzlement of school district funds to occur in the United States. Perpetrated by a school superintendent and his conspirators, initial evidence of the cash fraud was discovered two years prior to a formal investigation; however, a series of cover-ups by board of education members along with substandard audit work allowed the embezzlement to continue. State regulators responded to the crisis with the passage of a series of fiscal reform legislation aimed at improving school district internal control through changes in school district governance, the procurement of independent auditing, and state agency oversight. The case explores the incentives, rationalization, and opportunities for the perpetration and concealment of the Roslyn fraud as well as the overall impact of the state's fiscal reform legislation on New York's independent audit markets and reporting quality. This case is suitable for use in both auditing and governmental and not-for-profit courses.

Keywords: auditor regulation, fraud, internal control, auditor requisitioning, auditor rotation

A Corporate Tax Return Simulation: Utilizing Electronic Work Papers and Resolving Ambiguous Issues

Issues in Accounting Education
Volume 32, Issue 4 (November 2017)

Ellen E. Best
University of North Georgia

Jennifer Kahle Schafer
Kennesaw State University

Supplemental materials can be accessed by clicking the links in Appendix B.


Practitioners routinely note that new staff lack documentation skills, communication skills, and strong Excel skills. Further, new staff report critical-thinking, written and oral communication, teamwork, and project management skills deserve greater emphasis in Master of Accountancy programs. The AICPA's (2014) Model Tax Curriculum suggests that active learning approaches be used to enable students to build communication, critical-thinking, and interpersonal skills. This case uses a realistic corporate tax return preparation experience to address these criticisms by focusing on four main areas: time management, communication, research, and technical skills. The case is divided into two phases. In Phase 1, students review client information, generate requests from the client for missing information, keep a log of hours spent on the project, research ambiguous issues, meet with the project “senior” to obtain guidance, and prepare electronic work papers. In Phase 2, students incorporate feedback from the senior's review of their work papers to make corrections, prepare a corporate tax return, and create a client letter. Student feedback about the project is positive.

Keywords: electronic tax work papers, corporations, tax research, tax return, tax education, tax compliance

Critical Accounting Estimate Disclosures and the Predictive Value of Earnings

Accounting Horizons
Volume 31, Issue 4 (December 2017)

Matthew Glendening
University of Missouri


In the early 2000s, the Securities and Exchange Commission (SEC) called on firms to provide new Management's Discussion and Analysis (MD&A) disclosures about their critical accounting estimates (CAEs). The quantitative sensitivity disclosures outline reasonably likely changes in firms' highly uncertain accounting estimates and allow firms to communicate with users about accounting measurement uncertainty. Using a sample of S&P 500 firms, I find that the predictive value of earnings with respect to future cash flows is negatively associated with the presence of a CAE disclosure. Consistent with the SEC's intended purpose of the new disclosure practice, this finding suggests that CAE disclosures convey instances of heightened accounting measurement uncertainty and potentially aid users in assessing the level of uncertainty in accounting estimates.

JEL Classifications: M41.

Keywords: critical accounting estimates, quantitative sensitivity disclosures, measurement uncertainty, predictive value

The Impact of Quantitative versus Qualitative Risk Reporting on Risk Professionals' Strategic and Operational Risk Judgments

Accounting Horizons
Volume 31, Issue 4 (December 2017)

M. Dale Stoel, Brian Ballou, and Dan L. Heitger
Miami University

The authors thank the Risk and Insurance Management Society (RIMS) for its assistance in and support for this project.

Editor's note: Accepted by Vernon J. Richardson.


Enterprise risk management (ERM) programs are an emerging component of managerial accounting that enable senior management to manage critical threats to the organization and identify strategic opportunities to exploit. A growing area of debate within ERM involves the extent to which risk reports should be assessed qualitatively or measured quantitatively (Risk and Insurance Management Society [RIMS] 2012). In many settings, quantitative reports are used and appear to be preferred due to their precision. Additional research suggests, however, that the directional nature of qualitative reports might fit better with senior management's cognitive expectations when considering strategic risks. We conduct an experiment that manipulates risk reporting format (quantitative versus qualitative) across both strategic and operational settings to examine their impact on risk management professionals' perceptions related to the preparer of the reports and the underlying quality of the information. We find that qualitative (quantitative) report information has a positive (negative) indirect association with managerial perceptions regarding strategic risk management activities. Specifically, in the strategic risk setting, the choice of format is directly associated with the perceived reliability and perceived relevance of the risk information. However, we do not find this relationship in the setting where risk reports focus on operational risks. These findings suggest that senior management favors qualitative information for strategic risks, whereas they are skeptical about quantitative measures for complex strategic risks.

Keywords: managerial accounting, enterprise risk management, information quality, reporting, risk quantification, calculative culture

The JOBS Act and Information Uncertainty in IPO Firms

The Accounting Review
Volume 92, Issue 6 (November 2017)

Mary E. Barth
Stanford University

Wayne R. Landsman
The University of North Carolina at Chapel Hill

Daniel J. Taylor
University of Pennsylvania

Supplemental material can be accessed by clicking the link in Appendix A.


This study examines the effect of the Jumpstart Our Business Startups Act (JOBS Act) on information uncertainty in IPO firms. The JOBS Act creates a new category of issuer, the Emerging Growth Company (EGC), and exempts EGCs from several disclosures required for non-EGCs. Our findings are consistent with proprietary cost concerns motivating EGCs to eliminate some of the previously mandatory disclosures, which increases information uncertainty in the IPO market, attracts investors who rely more on private information, and leads EGCs to provide additional post-IPO disclosures to mitigate the increased information uncertainty. Our results also are consistent with agency explanations, whereby EGCs exploit the JOBS Act provisions to avoid compensation-related disclosures, which results in larger IPO underpricing for such firms. Overall, we provide evidence on how reduced mandatory disclosure affects the IPO market.

Keywords: JOBS Act, mandatory disclosure, voluntary disclosure, proprietary costs, information uncertainty, underpricing, volatility

Remote Auditing Versus Onsite Auditing ---

Paul Ryan: 'Twas The Night Before Taxmas ---
You may need to hit CTRL + a few times to read this

A researcher specializing in post-traumatic stress disorder is facing jail time for allegedly embezzling tens of thousands of dollars of federal grant money ---

Where is Robert Shapiro's fraud similar to the fraud of Bernie Madoff, and where is it different?

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

In other news, the SEC sued Robert Shapiro, accusing the former chief executive of Woodbridge Group of Companies LLC of operating a Ponzi scheme that raised more than $1 billion from individual investors for the now-bankrupt real estate operation.

Bob Jensen's threads on Ponzi schemes ---

From the CFO Journal's Morning Ledger on December 21, 2017

Still, the tax overhaul is set to hit Dell Technologies Inc. and other heavily indebted companies. Dell won’t be able to deduct a big chunk of the roughly $2 billion it pays yearly in interest on its debt due to new limits on such deductions—and that tax bill could rise further a few years from now, write Michael Rapoport and Rachel King.

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

U.K. Financial Reporting Council issues more fines in Tech Data Ltd. case.  The Financial Reporting Council -- the U.K. regulator for audit, accounting and reporting -- has fined a former controller at Tech Data Ltd. for misconduct in relation to the preparation of financial statements for the years ended Jan. 31, 2012 and Jan. 31, 2013, writes Ms. Trentmann. Kevin Silverwood will have to pay a reduced fine of £11,250 ($15,066), the FRC said in a statement.


"Misconduct by accountants undermines public confidence in the profession and in the reliability of financial statements," said Claudia Mortimore, interim executive counsel at the FRC. "The sanctions in this case send a message to the profession that members must uphold high standards of conduct and act with integrity in all areas of their work," Ms. Mortimore said. The FRC earlier this year fined Ernst & Young LLP and a senior statutory auditor for misconduct in relation to the financial statements of Tech Data Ltd. for the financial year ended Jan. 31, 2012.

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

Tax overhaul makes U.S. investments more attractive, says German industry group
Ms. Trentmann writes from London: The Republican tax overall makes the U.S. a more attractive place to do business, according to Joachim Lang, managing director of the German industry association BDI. "The U.S. legislative package, with improved depreciation and tightening regulations, provides significant incentives for international companies to relocate corporate functions and investments to the U.S.," Mr. Lang said in a statement. A lowered corporate tax rate of 21% is "well below" the 25% that companies on average pay in other developed countries, Mr. Lang said. The drop in the corporate tax rate heightens international tax competition, he added.

How much will you have to divert from other savings to buy 100 shares of Berkshire Hathaway this week?

From the CFO Journal's Morning Ledger on December 19, 2017

Berkshire shares hit $300,000
Warren Buffet paid $7.50 a share for his initial stake in Berkshire Hathaway Inc.,
purchased fifty-five years ago. The stock jumped above $300,000 mark for the first time on Monday.


From the CFO Journal's Morning Ledger on December 19, 2017

Good morning. Some of the world’s richest technology companies might see their tax rates rise under congressional Republicans’ proposed tax overhaul, write WSJ’s Douglas MacMillan, Richard Rubin and Jay Greene.

The proposed law lowers the corporate tax rate to 21% from 35%, but at the same time puts a minimum tax on profits overseas. That setup would force companies such as Microsoft Corp. to pay a minimum 10.5% tax on future offshore profits, removing some of the benefit from the company's offshore facilities, tax experts say.

Still, the final tax bill offers much of what large companies hoped to gain from the Republican overhaul: the billboard corporate rate was knocked down, cuts were accelerated and key credits were preserved, writes WSJ's Theo Francis. Among the provisions that made business leaders happiest was one that went missing in the final bill: the corporate alternative minimum tax.

The one-time tax foreign profits held in liquid assets will be 15%, higher than both the House and Senate proposals. However, it is meant to serve as a transition from the old “world-wide” system to a new “territorial” one in which foreign profits will generally not be taxed at all, with exceptions intended to discourage abuse of foreign tax havens.

Meanwhile, Republican leaders planning to put their tax package to a vote in the coming days got a boost late Monday when Sen. Susan Collins of Maine, who had yet to commit to backing the proposal, said she would be a “yes,” report Siobhan Hughes and Richard Rubin.

From the CFO Journal's Morning Ledger on December 18, 2017

U.S. government shifts gears on Fannie Mae, Freddie Mac
U.S. lawmakers in both parties and the Trump administration are negotiating overhauls of the two companies that could keep them at the center of the U.S. mortgage market for years to come, abandoning long-stalled proposals to wind them down.

From the CFO Journal's Morning Ledger on December 18, 2017

GM faces reckoning in ignition-switch settlement ($1 Billion in Stock?)
General Motors Co.
faces a potential payout of $1 billion in stock to address claims related to the car maker’s ignition-switch crisis, depending on the outcome of a trial set to start Monday in a Manhattan federal bankruptcy court.

From the CFO Journal's Morning Ledger on December 18, 2017

Good morning. Corporate accountants might have to cancel their plans for Christmas should the U.S. Congress pass -- and President Donald Trump sign -- the tax bill on or before Dec. 25, reports CFO Journal’s Tatyana Shumsky. In some cases, companies may have to rifle through three decades of records.

House and Senate Republicans reached a deal on the final tax bill,  paving the way for lawmakers to vote on the measure before Christmas. The agreement would set the corporate tax rate at 21%, down from the current 35%, and it would take effect in 2018.

A December signing would send finance teams scrambling to calculate the new law’s effect on their balance sheets and income statements, whereas a January signing allows accountants more time to compute the impact of the rules before companies report it in their first-quarter financials.

The overhaul might be ushering in a new period of instability in the tax code, as the plan is advancing without bipartisan support and with expiration dates that guarantee it will be revisited for years, writes WSJ’s Richard Rubin.

From the CFO Journal's Morning Ledger on December 14, 2017

New suite of board members appointed at PCAOB
Five new members were appointed Tuesday to oversee the Public Company Accounting Oversight Board. The picks include William Duhnke, a Republican Senate aide who will be the board’s chairman, and James Kaiser, a PwC partner, marking the first time an auditor has joined the regulator from a Big Four accounting firm.

From the CFO Journal's Morning Ledger on December 14, 2017

Toyota sees half of sales coming from hybrids, EVs
Toyota Motor Corp.’s president on Wednesday became the latest auto chief to offer ambitious targets for hybrid and electric vehicles, saying the category would make up half of Toyota’s global sales by 2030.

Jensen Comment
For years Japanese automobile manufacturers have been optimistic about hydrogen fuel cells relative to to how Elon Musk feels about the future of hydrogen fuel cells. With technology breakthroughs on the cost of hydrogen these could add greatly to the range of electric vehicles.

Net Neutrality ---

From the CFO Journal's Morning Ledger on December 14, 2017

Netflix backs away from internet fight
Netflix Inc. helped spark the debate over net neutrality three years ago by raising concerns about how its internet traffic was being handled. But as the U.S. government prepares to repeal the rules Thursday, the video giant has been less vocal on a key issue because its concerns have largely been addressed by commercial deals.

Jensen Question
My monthly Netflix fee just went up. Is this what is meant by "commercial deal?" If not, please explain to me how NetFlix customers like me benefit from the Trump Administration's decision to do away with net neutrality

From the CFO Journal's Morning Ledger on December 14, 2017

Good morning. House and Senate Republican negotiators have agreed on the final version of the party’s tax bill, setting a lower rate for the top-earning individuals and a slightly higher corporate rate than has been discussed, report WSJ’s Richard Rubin and Siobhan Hughes.

The agreement would set the top individual tax rate at 37%, two people familiar with the deal told the Wall Street Journal. That is lower than today’s 39.6% top rate and lower than the top rate in each of the bills that passed the House and Senate. The corporate rate would be 21%, the people said. That is higher than the 20% rate Republicans included in the House and Senate tax bills, and it would take effect in 2018.

The full details of what is likely to be a $1.4 trillion tax cut over a decade will be released later this week. Full House and Senate votes are expected next week, which would allow the GOP to complete a big legislative priority before Christmas.

The agreement is also expected to eliminate the corporate alternative-minimum tax, the people said. Keeping that, as the Senate bill did, would have undercut the value of many popular business tax breaks, including a research-and-development tax credit.

Bitcoin ---

From the CFO Journal's Morning Ledger on December 12, 2017

SEC chairman warns investors against bitcoin
Wall Street’s top regulator on Monday raised alarms about the money flooding into bitcoin trading and other cryptocurrency markets, warning the red-hot corner of less-regulated finance is burning with risk for retail investors.

From the CFO Journal's Morning Ledger on December 8, 2017

Anheuser-Busch orders 40 Tesla semi trucks
The U.S. subsidiary of Anheuser-Busch InBev NV has reserved 40 of Tesla Inc.’s all-electric Semi trucks, as the maker of Budweiser beer seeks to reduce fuel costs and vehicle emissions.

. . .

The Semi tractors are designed to travel as much as 500 miles on a single charge. Some question whether electric vehicles are a viable option for long-haul trucking, citing concerns about range and battery weight.

Still, companies looking to trim transportation costs are seeking to test out the Tesla truck. J.B. Hunt Transport Services Inc. and Wal-Mart Stores Inc., which each operate thousands of trucks, have reserved Semis, as has Deutsche Post AG’s DHL Supply Chain and truck-leasing and fleet-management company Ryder System Inc.

Fuel, along with labor, is historically one of the biggest expenses for trucking companies, according to the American Transportation Research Institute, an industry research group.

Anheuser-Busch spends about $120 million on fuel each year for its dedicated fleets and long-haul transportation by for-hire carriers moving beer between breweries and wholesalers, Mr. Sembrot said. The company wants to cut its carbon footprint by 30% by 2025, and has invested in alternative-fuel vehicles, such as leasing delivery trucks that run on compressed natural gas. It is also in discussions with Nikola Motor Co., which is developing hydrogen-electric semi-trucks.

Mr. Sembrot said Anheuser-Busch views the Tesla truck and the Nikola vehicle, which the company says will be able to travel from 800 to 1,200 miles on one fill-up, as potentially complementary technologies.

“We have needs for all those types of distances,” he said.

How much the Semi can haul remains in question, however.

“You don’t have a transmission, you don’t have an engine, but how much exactly does the battery weigh,” Mr. Sembrot said. “We’re not shipping cotton balls around, so the weight of the equipment matters to us.”

But many trucking companies, which move freight thousands of miles across the country, might not be as eager to test out the new Tesla trucks.

“We’re going to sit on the sidelines and watch that develop,” said James Welch, chief executive of YRC Worldwide Inc., one of the largest less-than-truckload carriers.

YRC trucks make both local and long-distance trips, and the Tesla truck’s 500-mile range would be a liability on long-haul routes, he said. The company would also have difficulty maximizing electric trucks’ time on the road because they need longer to recharge, compared with time needed to refuel a diesel-powered big rig.

“Recharging time has to be quick because you’re paying a driver whether he or she is running or sitting,” Mr. Welch said.

Jensen Comment
My guess is that these trucks will haul beer mostly in metro areas rather than on the open road with big hills and mountains. Still it does point to the future of big electric trucks.

Fudging the Numbers
Elon Musk touted (sem-truck) ranges and charging times that don’t compute with the current physics and economics of batteries. Experts suspect Tesla may be banking on technological improvements between now and when new vehicles are actually ready for delivery ---

Former GM exec calls Tesla a 'losing enterprise,' and says it's 'going out of business' ---

From the CFO Journal's Morning Ledger on December 8, 2017

Caterpillar railcar unit to plead guilty, pay fine for dumping parts
A unit of Caterpillar Inc. admitted that it cheated customers by performing unnecessary repairs to their railcars and agreed to plead guilty to dumping brake shoes and other parts into the ocean to hide evidence, according to court documents.

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

GE's power division to cut 12,000 jobs
General Electric Co.’s power division said Thursday it was cutting 12,000 jobs as part of its efforts to reduce structural costs by $1 billion next year.

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

. . .

Meanwhile, Citigroup Inc. finance chief John Gerspach said Wednesday the bank is likely to take a hit of about $20 billion to profits under the tax plans recently passed by Congress, but the charge won't affect the bank's plan to return $60 billion to investors through 2020.

And Swiss banking giant Credit Suisse Group AG would have to take a $2.1 billion charge against profit the year the bill is signed, though it wouldn’t affect the bank’s capital baseCredit Suisse

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

 Sleepy’s owner Steinhoff faces accounting probe
Retail giant Steinhoff International Holdings NV, which owns American mattress brand Sleepy’s and a string of chains across Europe, said its chief executive has resigned amid an investigation into accounting irregularities.

Jensen Question
Did Sleepy's internal auditing department fall asleep on the job? hee hee

From the CFO Journal's Morning Ledger on December 4, 2017

SEC targets initial coin offering ‘scam’ 
The U.S. Securities and Exchange Commission on Monday announced its first-ever enforcement action by its new cyber unit against an initial coin offering, alleging a Canadian company violated U.S. securities laws in raising $15 million through this new, red-hot area of finance.

From the CFO Journal's Morning Ledger on December 4, 2017

Chicago readies legal team to battle corporate wrongdoing
City officials here are creating a special legal team to pursue cases against companies that Chicago says the U.S. isn’t taking up, or for the city to sue the federal government itself.

Jensen Comment
Is the pot calling the kettle black here?

From the CFO Journal's Morning Ledger on December 4, 2017

African supermarket chain collapse highlights market risks
The near-empty shelves and deserted aisles at a sprawling outlet of Kenya’s homegrown supermarket giant, Nakumatt Holdings Ltd.,
 are reminders of the risks—and opportunities—presented by East Africa’s biggest retail market.

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

GM aims for self-driving taxi fleet by 2019
General Motors Co. said the robotaxi service it is developing could potentially eclipse the profits it earns in the core automotive business within a decade, an ambitious target based on the company’s strategy of lowering its reliance on manufacturing by providing high-margin services.

Teaching Cases 

Harvard Business School
Case Study: Should a Hotel Giant Eliminate Some Brands and Refocus?

IMA Case Journal
Volume 10 Issue 4

IMA Educational Case Journal
ISSN 1940-204X


Repackaging a Global Brand: A Case Study Analyzing the Capital Expenditure Decision

Barbara Tarasovich, Sacred Heart University
Bridget Lyons, Sacred Heart University

THIS CASE IS INTENDED FOR STUDENTS IN an undergraduate- or graduate-level accounting course. At the under­graduate level, this case is suitable for an introductory managerial or financial accounting course. At the graduate level, this case can be used in managerial or advanced accounting courses. The case introduces the financial and business considerations that occur when analyzing capital investment decisions for internal repackaging of products. This is an actual case based on a real-world packaging decision for a product manufactured by Unilever, a Global 200 company.

Students analyze the financial information, project costs, capital investment and projected savings of a project to repackage one of the company’s major brands. The case introduces students to the process and forms used in practice—a capital expenditure proposal.

Keywords: Capital investment, NPV, IRR, MIRR, Payback, ROIC, Break-even.

EcoBags, Inc.: Production Planning in a Standard Cost Environment

David Gray, North Central College

THE CASE IS A SIMPLIFIED VERSION OF A REAL manufacturing planning and costing situation. EcoBags, Inc. is a privately owned manufacturer of flexible intermediate bulk containers (FIBCs) that has successfully created a market niche by developing products made from recycled materials. The founder and majority owner must con­sider the impacts that planned production levels will have on forecasted income and working capital spending. This production-level decision is complicated by the firm’s expected need to stay within a defined debt-to-equity ratio limit required by their lender. While published cases and classroom exercises have shown the impacts associated with overproduction, many frame the issue in terms of a manager seeking to raise reported absorption income to garner a better income-based bonus. This case represents a different dilemma in which the owner and founder must consider both income and cash flow impacts based on varying manufacturing planning schedules.

Keywords: Production planning, standard costing, financial impacts of overproduction.

Consolidated Western Wear Retailers: Regression Analysis to Understand Cost Drivers in a Purchasing Department

Anne Sergeant, Grand Valley State University

THIS CASE IS DESIGNED TO PROVIDE STUDENTS WITH PRACTICE USING least-squares regression analysis and to apply the results to a business problem. It integrates statistical analysis and activity-based cost management with the management concepts of centralized decision making and implementation of change. The case can be used in either an undergraduate cost accounting course or a master’s of business administration (MBA) managerial accounting course. Upon completing the case, students should be able to develop regression models, use the models to make cost-saving recommendations, and communicate the findings and recommendations using professional business writing. The necessary prior learning includes an exposure to least-squares regression theory, Excel skills with a basic understanding of the data analysis tool pack, activity-based cost drivers, and cost management through activity management. The case analyzes purchasing department costs in a fictitious, entrepreneurial setting. The class time needed to complete the discussion is 45 minutes.

Keywords: Least-squares regression, Excel, cost drivers, activity-based cost management, centralization, change management.

Jensen Comment
I think there's goof on this page that does not provide links to two of the three case

Teaching Case
Heineken's Acquisition of Asia Pacific Breweries: Accounting for Business Combinations and Changes in Ownership Interests

Issues in Accounting Education
Article Volume 32, Issue 4 (November 2017)

Pearl Tan
Singapore Management University

Chu-Yeong Lim
Singapore Institute of Technology


On July 20, 2012, Heineken, a Dutch brewery offered S$5.125 billion (Singapore dollars; approximately US$4.1 billion) to buy Asia Pacific Breweries Ltd (APB; formerly, Malayan Breweries Limited) from its Singapore-based joint venture partner, Fraser and Neave, Limited. (F&N). At that point, Heineken and F&N had joint control over APB through the joint venture vehicle Asia Pacific Investments Pte Ltd (APIPL). Brewery business under the joint arrangement had moved on quite predictably from the time APB was formed in 1931. However, the calm changed to high drama when Thai Beverage, owned by one of Thailand's tycoons, made a bid for F&N and APB. Heineken was quick to respond by aggressively buying shares of APB, leading to a large control premium being paid in the final offer price. The bidding war was largely motivated by the Dutch and Thai beer giants, each wanting to own the iconic Tiger beer brand that was owned by APB and thus take control of APB's strong market share in the fast-growing market of Asia. The Heineken bid for APB presents an interesting case study regarding the motivations for acquisitions, the nature of control, and accounting for acquisitions. The case also presents rich issues in accounting for changes in ownership interests with and without gain of control.

Keywords: business combinations, acquisition accounting, bidding war, goodwill, control, changes in ownership interests, International Financial Reporting Standards


From The Wall Street Journal Weekly Accounting Review on December 1, 2017

New Accounting Rule to Revamp Firms' Financials

By Nina Trentmann | Nov 20, 2017

TOPICS: Revenue Recognition

SUMMARY: Rolls Royce reports under IFRS. According to the press release for the first half of 2017 (available at, the company has been providing detailed representations of operating results, particularly from the Civil Aerospace division, to help analysts understand the transition to the new revenue recognition standard. They have provided this information earlier than most companies. The appendix at the end of the press release identifies significant changes to the timing of revenue and profit recognition: Original Equipment: changed to more closely reflect the cash received on original equipment sales Aftermarket: changed to match the timing of actual work done to provide aftermarket services, irrespective of the commercial value of implicit activities (this new aftermarket approach is known as the 'input' method) For 2016, the company estimates that implementing IFRS 15 will reduce Civil aerospace revenues by .8 billion pounds for original equipment sales and .5 billion pounds for aftermarket services (on total civil aerospace segment revenues of 7.067 billion pounds according to data supplementing the 2016 annual report available at The changes result from new requirements to separate equipment sales from aftermarket maintenance contracts based on these transactions' separate performance obligations.

CLASSROOM APPLICATION: The article may be used to discuss implementation of the new revenue recognition standard, particularly from an international perspective with IFRS 15. Specific questions relate to identifying performance obligations under contracts



1. (Advanced) What are performance obligations on a contract? Cite an authoritative source for this definition.


2. (Advanced) Based on the description in the article, Rolls Royce undertakes at least two performance obligations with every sale of aircraft engines. What do you think these are? Support your answer.


3. (Introductory) What is the expected impact on Rolls Royce reported results of changing to the new revenue recognition accounting standard, IFRS 15? According to the article, what is the reason for that impact?


4. (Introductory) What has Vodafone Group PLC said about its expectations under the revenue standard?


5. (Introductory) According to a KPMG poll, is the status for Vodafone Group unusual? When is the latest possible timing for disclosure similar to that made by Rolls Royce?



Reviewed By: Judy Beckman, University of Rhode Island


"New Accounting Rule to Revamp Firms' Financials," by Nina Trentmann, The Wall Street Journal, November 20, 2017

Change in standards to rejigger how firms recognize revenue, require more detailed information

Finance managers at Rolls-Royce Holdings RYCEY -2.66% PLC two years ago predicted a plunge in the aircraft engine maker’s 2018 revenue and profit.

Starting Jan. 1, 2018, Rolls-Royce will no longer be able to put money from maintenance contracts on its books years before it begins to do the work. The company must wait to record that revenue until the actual service is provided, said John Dawson, director of investor relations. This is typically years after the company sells the engines at a loss.

The change is the result of a new accounting standard that will force businesses in more than 100 countries to rejigger how they recognize revenue. It is similar to a rule U.S. public companies will have to follow as of Dec. 15.

The new rules come as Rolls-Royce’s order book is growing. Customers have placed around 500 orders for large engines that include Rolls-Royce’s “TotalCare” maintenance program for next year, up from 450 this year and around 320 in 2016. When executives at Rolls-Royce recalculated some of the company’s 2015 results using the new accounting rules, both revenue and profit were £900 million ($1.18 billion) lower than reported.

Rolls-Royce started updating investors, analysts and other stakeholders about potential changes to its financials about a year and a half ago, earlier than most other companies. “We have been proactive in handling this,” said Mr. Dawson.

The new rules will supersede virtually all existing revenue recognition requirements under International Financial Reporting Standards. A similar change is under way with U.S. Generally Accepted Accounting Principles. Under both standards, companies will be required to provide more detailed information about their contracts and accounting judgments, some of which they haven’t gathered before.

Some sectors, such as telecommunications, media and pharmaceuticals, are expected to be affected more than others. So far, 29% of FTSE 100 companies still haven’t disclosed an impact assessment, according to a September report by KPMG LLP.

“The impact will vary, depending on the individual company, their sector and their business model,” said Nick Chandler, a partner at KPMG. The new revenue standard “requires a far deeper understanding of companies’ contracts than previous rules. It’s a huge exercise,” Mr. Chandler said.

According to the KPMG study, only a small number of firms—9%—expect the new rules to have a material effect. Still, all listed companies filing results under international financial reporting standards must publicly disclose that they have assessed the impact.

Deutsche Telekom AG is one company that expects a material change to its financials. The German telecommunications company’s 2018 opening balance sheet will reflect a one-time increase of €3 to €4 billion ($3.5 billion to $4.7 billion) in retained earnings.

Going forward, the company is expected to post lower revenue in its mobile-service business but higher revenue in its hardware business starting from the first quarter.

The company also will have to provide more details about how it subsidizes the cost of a mobile phone with revenue from contracts sold alongside the device, said Guillaume Maisondieu, head of group accounting.

Deutsche Telekom has had around 50 people working on implementing the new standard for the past two years, Mr. Maisondieu said. That compares with several hundred employees are involved with preparing the company’s financial statements.

The company plans to host webinars and calls to educate investors and other stakeholders about the accounting changes early next year, Mr. Maisondieu said.

By contrast, competitor Vodafone Group PLC has only indicated that the rules will apply to its results for the financial year commencing April 1, 2018. “We will have something to talk about later this year,” said a spokesman of the British telecommunications firm.

Analysts say companies’ impact assessments of accounting rules help them adjust their forecasts.

“In terms of my models, there were many material changes to the numbers in the profit and loss account” for Rolls-Royce, said Sandy Morris, an analyst at Jefferies LLC who covers the company. Mr. Morris said the company’s disclosures and information sessions “were extremely helpful.”

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 1, 2017

Stop Using Excel, Finance Chiefs Tell Staffs

By Tatyana Shumsky | Nov 22, 2017

TOPICS: Accounting Careers, Accounting Information Systems

SUMMARY: The article quotes chief financial officers from Adobe, Inc., P.F. Chang, Wintrust Financial (operator of 15 chartered community banks in Illinois and Wisconsin) and ABM Industrustries on their efforts to move away from Excel-based analyses on disparate financial information systems. Software connected to Enterprise Resource Planning (ERP) systems allowing remote collaboration and use of common data include products from Anaplan, Inc., Workiva Inc., Adaptive Insights and others.

CLASSROOM APPLICATION: The article may be used in an accounting systems class or in any class to discuss career skills.



1. (Introductory) Does the title imply that the author found companies expecting to stop using excel altogether? Explain your answer.


2. (Introductory) What are problems with using Excel highlighted in this article?


3. (Introductory) What skills and capabilities does Adobe Inc.'s chief financial officer want from his finance staff?


4. (Advanced) What are Enterprise Resource Planning (ERP) systems? Which of these systems is mentioned in this article?


5. (Advanced) Which software systems are you using in your accounting education?


6. (Advanced) Do you think that using Excel can still help you develop the skills you will need to begin an accounting career? Explain.



Reviewed By: Judy Beckman, University of Rhode Island


"Stop Using Excel, Finance Chiefs Tell Staffs," by Tatyana Shumsky, Nov 22, 2017

Ubiquitous spreadsheet software that revolutionized accounting hasn’t kept up, CFOs say

“Excel just wasn’t designed to do some of the heavy lifting that companies need to do in finance,” said Paul Hammerman, a business applications analyst at Forrester Research Inc.

Instead, companies are turning to new, cloud-based technologies from Anaplan Inc., Workiva Inc., Adaptive Insights and their competitors.

The newer software connects with existing accounting and enterprise resource management systems, including those made by Oracle Corp. or SAP SE . This lets accountants aggregate, analyze and report data on one unified platform, often without additional training.

Adobe switched to Anaplan early last year and many of the tasks previously performed in spreadsheets are now done in the system, maintaining “one source of truth,” Mr. Garrett said.

Reports, including about head count, are compiled faster, he said.

P.F. Chang’s finance chief Jim Bell said he switched the company to Adaptive Insights from Excel because it fosters collaboration and cuts down on administrative tasks.

Mr. Bell said he was examining how kitchen staff cuts at the company’s Boston restaurants affected profitability while on a flight from Spokane, Wash., to Phoenix in early October. The company’s northeast regional manager followed along from his office across the country.

“If I was trying to do this on a spreadsheet, it just wouldn’t happen,” Mr. Bell said.

A year ago, Mr. Bell’s team spent hours distributing hundreds of Excel spreadsheets to regional and unit leaders each month for planning and performance tracking of the company’s 415 U.S. restaurants, he said. Now the same process takes minutes.

Excel has been evolving to better serve its many groups of specialized customers, including in the financial community, said Brian Jones, head of Microsoft’s Excel product strategy.

The latest version, launched this summer, allows multiple users to collaborate in a single document, crunch more than 100 million rows of data and comes with automated tools that find trends and suggest visualization, he said.

And while many finance-industry customers might graduate to more specialized software as their needs evolve, most of these solutions have an “export to Excel” button, Mr. Jones said.

“You’re still going to use Excel for the things you’re not using a tailored solution for,” he said. Excel also has broad reach. Office 365, which includes Excel, has more than 120 million monthly users, said Ron Markezich, Microsoft’s corporate vice president of Office 365.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 1, 2017

Recalls Mar Ford's Drive for New Vigor

By Mike Spector and Mike Colias | Nov 27, 2017

TOPICS: Contingent Liabilities, Product Recall

SUMMARY: Since 2016, Ford Motor Company has announced $1.3 billion in charges for vehicle recalls. The most recent was announced October 18, 2017; the SEC filing associated with the announcement is available at The article compares Ford favorably in its ability to "avoid successive, significant recall expenses" in comparison to General Motors Co. and Takata Corp. The article quotes Ford's global operations executive emphasizing that the company has 'achieved some of the industry's lowest warranty costs..." and describes the difference between warranty and recall costs. The related graphic ties recall announcements to stock price trends.

CLASSROOM APPLICATION: The article may be used in a financial reporting class discussing contingent liabilities in general and specifically warranty and recall costs.



1. (Introductory) How much in recall expenses has Ford disclosed since September 2016?


2. (Introductory) Refer to the related graphic "Total Recall." Describe the information presented.


3. (Advanced) Refer again to the related graphic. Do the announcements of recalls seem to impact the company's stock price? Support your answer.


4. (Advanced) The graphic shows the most recent announcement of recalls for faulty door latches on October 18, 2017. Access the SEC filing regarding this announcement at Describe the form and content of this SEC filing.


5. (Introductory) Explain the accounting for recall expenses in general-use journal entries showing debit(s) and credit(s) with the amount(s) from the October18 recall information. In what time period will these entries impact Ford Motor Company's financial statements?


6. (Introductory) The end of the article quotes Joe Henrichs, Ford's global operations chief, contending that these recalls do not indicate pervasive quality concerns in the company's products. What is the basis for his argument? In your answer, explain the difference between warranty and recall costs. Also refer to the method(s) of accounting for both of these categories of costs.



Reviewed By: Judy Beckman, University of Rhode Island


"Recalls Mar Ford's Drive for New Vigor," by Mike Spector and Mike Colias, The Wall Street Journal, November 27, 2017

Unexpected costs mar CEO Jim Hackett’s focus on electric, driverless cars

Ford Motor Co. Chief Executive Jim Hackett wants to push the 114-year-old auto maker toward the future as fast as he can. Right now, though, he is contending with mounting costs from safety recalls.

Ford has disclosed more than $1.3 billion in charges for recalling vehicles since September 2016, with the latest coming at a time when Mr. Hackett aims to divert a portion of profits from booming truck sales to development of electric cars and driverless vehicles.

The recall expenses have caught Wall Street’s attention as Mr. Hackett, who became CEO in May, is trying to revive investor enthusiasm for the company’s vision. He has committed to significantly cut spending on conventional car making.


The sizable expenses are the latest to hit a mainline automotive manufacturer since 2014, when revelations of deadly flaws with General Motors Co. ignition switches and Takata Corp. air bags led to eventual criminal charges against both companies and record industrywide recalls of at least roughly 50 million vehicles annually in the U.S. for several years.

Ford until recently had largely managed to avoid a number of successive, significant recall expenses, and the charges and other consequences for the company haven’t reached levels suffered elsewhere. GM spent roughly $6 billion spanning 2014 and 2015 on recalls and legal settlements stemming from the ignition switches and other safety problems. Takata, facing a multibillion-dollar recall tab, filed for bankruptcy protection.

Still, Ford’s recall charges are a reminder of the challenges traditional car manufacturers face in the race to compete with Silicon Valley tech giants on driverless vehicles. The complexity of vehicles and the supply chain needed to build them can sometimes contribute to expensive manufacturing problems just as auto makers place bets on future technologies with limited profit potential in the short run.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 1, 2017

Supreme Court Questions Whether Dodd-Frank Protects All Whistleblowers

By Dave Michaels | Nov 28, 2017

TOPICS: Dodd-Frank, Sarbanes-Oxley Act, SEC

SUMMARY: As reported in the first related article, former Securities and Exchange Commission Enforcement Director Andrew Ceresney said in a September 2016 speech that "Individuals who make internal reports of possible securities law violations are protected under the commission's whistleblower rules." The U.S. Supreme Court has now agreed to hear a case to decide whether that SEC interpretation of the Dodd-Frank law is appropriate. Whistleblower protections bar employers from retaliating against workers who report possible wrongdoing and were enacted in both the Sarbanes-Oxely and Dodd-Frank laws to encourage workers to come forward with such information. However, the Dodd-Frank law specifically includes words defining whistleblowers as those who file with the SEC. Whistleblowers filing with the Securities and Exchange Commission also are entitled to a portion of any financial penalties imposed in successful enforcement cases that stem from their information.

CLASSROOM APPLICATION: The article may be used in an ethics class, an auditing class, or any financial reporting class discussing regulation via Sarbanes-Oxley and Dodd-Frank laws.



1. (Advanced) Why do both the Sarbanes-Oxley and Dodd Frank laws provide legal protections to whistleblowers? The related article is helpful in answering this question.


2. (Introductory) Approximately what proportion of whistleblowers first raise their concerns internally in the companies where they work?


3. (Advanced) If the Supreme Court rules that whistleblowers are only protected from retaliation if they report to the SEC about corporate misconduct, what impact will likely confront the operations at the Securities and Exchange Commission?


4. (Introductory) How do these issues relate to the practice of accounting?



Supreme Court to Consider How Broadly a Whistleblower Provision Applies
by Andrew Ackerman
Jun 26, 2017
Page: ##

The Law is What It Says
by WSJ Opinion Page Editors
Nov 30, 2017
Page: ##

Reviewed By: Judy Beckman, University of Rhode Island

"Supreme Court Questions Whether Dodd-Frank Protects All Whistleblowers," by Dave Michaels, The Wall Street Journal, November 28, 2017

Justices from conservative and liberal blocs express skepticism that 2010 law shields people who never reported wrongdoing to SEC

WASHINGTON—Supreme Court justices on Tuesday expressed skepticism that whistleblowers who report corporate wrongdoing internally instead of to the Securities and Exchange Commission are protected from retaliation under the 2010 Dodd-Frank regulatory-overhaul law.

The question stems from a lawsuit filed by a whistleblower, Paul Somers, who says he was fired from Digital Realty Trust Inc. DLR 1.81% in 2014 after complaining internally about accounting irregularities, among other matters. Mr. Somers argues he was protected by a Dodd-Frank provision that encourages people to inform the SEC about corporate misconduct and shields them from retaliation.

Digital Realty, the operator of a real-estate investment trust, argues Mr. Somers didn’t qualify for protection because he didn’t meet the Dodd-Frank definition of a whistleblower: someone who reports a violation to the SEC.

At Tuesday’s oral arguments, justices questioned why the SEC and lower courts had expanded the definition beyond language in Dodd-Frank that said a whistleblower is someone who reports to the SEC. “I’m just stuck on the plain language here,” said Justice Neil Gorsuch, a member of the court’s conservative wing. “How much clearer could Congress have been than to say in this section the following definitions shall apply, and whistleblower is defined as including a report to the commission.”

Kannon Shanmugam, a lawyer representing Digital Realty, told the justices that certain whistleblowers are protected from retaliation if they report wrongdoing under a different process spelled out by the 2002 Sarbanes-Oxley Act. But Mr. Somers’s claim cited protections afforded by Dodd-Frank, which doesn’t apply to his case, Mr. Shanmugam argued.

Justice Stephen Breyer, a member of the court’s liberal bloc, also questioned whether Congress intended to protect internal whistleblowers within the anti-retaliation provisions of Dodd-Frank, if they were already protected by Sarbanes-Oxley. “If we read it your way, we’ve basically eliminated Sarbanes-Oxley because everybody would bring it this way,” he said to Mr. Somers’s attorneys.

Mr. Somers’s argument partly rests on how the SEC interpreted Dodd-Frank’s language when it issued rules for its own whistleblower-awards program. The SEC decided that one clause of the law, added late in the legislative process, was meant to arm all whistleblowers with protection from retaliation, not just people who report violations to the commission in order to claim an award. The SEC and the Justice Department wrote a friend-of-the-court brief in support of Mr. Somers.

Since there was no record of congressional debate to clarify the clause, the SEC inferred that Congress meant to strengthen whistleblower protections included in earlier laws, such as Sarbanes-Oxley. The SEC reasoned its view would buttress internal reporting, allowing companies to resolve some problems by themselves without intrusive government investigations.

Judges in the Second Circuit U.S. Court of Appeals who ruled for a whistleblower in an earlier case, Berman v. Neo@Ogilvy LLC, deferred to the SEC’s interpretation of Dodd-Frank. The judges applied a Supreme Court tenet known as the Chevron doctrine, which holds that courts should defer to government agencies’ reasonable interpretations of ambiguous laws.

Justice Gorsuch said Tuesday that he couldn’t fathom why the SEC had been granted that deference, because it failed to let the public know that it might expand the whistleblower definition to include people who never reported to the SEC. The agency’s proposed rules, issued in 2011, asked whether the protections should “be applied broadly to any person who provides information to the commission concerning a potential violation of the securities laws.”

“‘To the commission,’ right?” Justice Gorsuch asked of Daniel Geyser, the attorney for Mr. Somers.

A majority of a three-judge panel on the Ninth U.S. Circuit Court of Appeals in San Francisco sided with Mr. Somers in March.

Before that decision, appeals courts were already divided over how to apply the law to cases where a whistleblower only discloses the information internally. Judges on the Second Circuit ruled in 2015 that the law protected internal whistleblowers such as Mr. Somers, while jurists on the Fifth Circuit found in 2013 that it didn’t apply to them.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 1, 2017

Justices from conservative and liberal blocs express skepticism that 2010 law shields people who never reported wrongdoing to SEC

How One Entrepreneur Conquered her Math Fear

By Alexandra Samuel | Nov 27, 2017

TOPICS: Financial Literacy

SUMMARY: "Ms. Samuel is a technology researcher and author of 'Work Smarter with Social Media." The article discusses how she overcame math problems stemming from school experiences she recalls. She lists four tactics she used to overcome her issues with math concepts. More importantly, she describes the widespread use of data across many business functions and executives' need to combine math data with financial information.

CLASSROOM APPLICATION: While accounting students are unlikely to have entered school with a fear of math, understanding how widespread are the applications of mathematical concepts in today's data-driven environment is useful in any class, particularly introductory financial and managerial accounting.



1. (Introductory) What does the author of this article do for work? How does that work relate to using mathematical concepts?


2. (Introductory) What techniques did the author engage in order to overcome her math phobia?


3. (Advanced) Give two examples from the article of business functions involving use of mathematics with data for decision-making. Do you think knowledge of accounting is related to this use of data? Explain.


4. (Advanced) The author mentions that executives need to work with financial information as well as all types of data for decision-making. Do you think that only executives need to understand financial information, use of data, and the interaction between the two? Explain.



Reviewed By: Judy Beckman, University of Rhode Island


"How One Entrepreneur Conquered her Math Fear," by Alexandra Samuel, The Wall Street Journal, November 27, 2017

Find good mentors to help you, and get inspired by math-heavy projects you’re passionate about

It was functions and relations that finally killed me. I was 15 years old, in a class taught by an old guy named Mr. Fox—and by “old,” I mean around 46, the age I am now. Mr. Fox was the last in a string of math teachers who presided over my gradual descent into math phobia.

By the time I landed in his class, math was no longer something to be learned, but merely to be endured. I slogged through each lesson, dutifully following the template for solving each problem, without ever understanding what a “function” or “relation” actually was. When I switched to a new school in the middle of that year, I convinced my mother to let me drop math.

More than 30 years later, I find myself in a career that involves regular and persistent engagement with the world of numbers: writing data-driven articles and reports is now the lion’s share of my work. That has required me to finally conquer my math phobia by using a few different strategies that can work for others, too.

While it wasn’t easy, I recognized that in this era of abundant data, math phobia is a recipe for missing out on the professional insights and opportunities that make the difference between a business that scrapes by, and a business that is wildly successful.

Smart businesses of all sizes now use data to drive decision-making on everything from product development to marketing. The proliferation of low-cost (and even free) data sets, as well as tools and expertise to analyze that data, means that small and medium-size businesses are increasingly data-driven. You can count on your competitors using data to outsmart you, unless you’re as data-driven as they are.

The Business of Roadside Attractions

A look at how corn mazes, banana museums and giant balls of twine draw us in.

Click to Read Story

When Family-Business Owners Don’t Want to Retire

A lot of entrepreneurs in their 60s are hanging on. So how do their children fit in?

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 8, 2017

SEC Aims to Revamp Auditor Regulator (PCAOB)

By Dave Michaels | Dec 06, 2017

TOPICS: PCAOB, SEC, Securities and Exchange Commission

SUMMARY: The Securities and Exchange Commission (SEC) directly oversees the Public Company Accounting Oversight Board (PCAOB) under requirements of the Sarbanes-Oxley Act of 2002 which also established the Board. The PCAOB has been operating with fewer than a full slate of board members during the transition to operating under the new SEC Chair, Jay Clayton. The SEC now reports it is close to appointing a new chair of the PCAOB. The article describes concerns about PCAOB operations during the tenure of current chair James Doty.

CLASSROOM APPLICATION: The article may be used in an auditing class to discuss regulation of the profession.



1. (Introductory) When was the Public Company Accounting Oversight Board (PCAOB) established?


2. (Introductory) Why is the SEC Chair choosing new members of the PCAOB?


3. (Advanced) Members of the PCAOB are among the highest paid regulators in Washington. Why do you think that is the case?


4. (Advanced) Do you think the level of pay is helpful to attract the talent needed for effective regulation? Support your answer.


5. (Introductory) What have been the concerns with PCAOB performance under James Doty's tenure? List all that you can identify in the article.



SEC: Accounting Board is Dragging Feet
by Michael Rapoport
Dec 14, 2014
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island

"SEC Aims to Revamp Auditor Regulator," by Dave Michaels, The Wall Street Journal, December 6, 2017

Senate Republican staff member William Duhnke is SEC Chairman Jay Clayton’s pick for PCAOB chairm

WASHINGTON—The Securities and Exchange Commission is preparing to overhaul the board of the country’s premier audit watchdog, including replacing its chairman with a longtime Republican aide on Capitol Hill.

William Duhnke, a former Naval officer who has worked in the Senate since 1995, would replace James Doty as chairman of the Public Company Accounting Oversight Board. The board, a private regulator that answers to the SEC, regulates auditors who review the financial statements of companies listed on U.S. stock exchanges.

Seats on the PCAOB are among the most sought-after regulatory roles in Washington. Board members there earn about $547,000 a year, while the chairman takes home more than $672,000 annually.

SEC Chairman Jay Clayton has picked several members including Mr. Duhnke to join the PCAOB, according to people familiar with the matter. Mr. Clayton and the SEC’s two other commissioners are likely to vote on the nominees in the next several weeks, the people said. The names of the other nominees couldn’t be learned.

The near-wholesale replacement of the audit watchdog’s board follows a period during which SEC officials sometimes publicly chastised the PCAOB for the slow pace of its rule making. Mr. Doty, a former SEC general counsel who took over the PCAOB in 2011, pushed rules that forced auditors to disclose more about what they do.


Mr. Doty’s PCAOB sometimes riled up the nation’s biggest business lobbying group. In 2015, the U.S. Chamber of Commerce complained the PCAOB’s aggressive inspections of internal controls, the processes and systems that companies use to manage risk and prevent fraud, were driving up costs for public companies.

Fierce opposition from the industry and some members of Congress also prompted Mr. Doty to shelve an idea that would have required companies to periodically change their audit firms.

Mr. Duhnke, who began his career with the U.S. Navy and later became an aide to Sen. Richard Shelby (R., Ala.) could be more favorable to the Big Four—Ernst & Young LLP, Deloitte & Touche LLP, KPMG LLP and PricewaterhouseCoopers LLP—and could signal a change in priorities at the PCAOB, where Mr. Doty has sometimes clashed with the industry, the SEC and Congress.

Mr. Duhnke has served as staff director of three Senate committees: Intelligence, Banking and Rules. Mr. Shelby has served stints as chairman of each panel.

“Bill Duhnke has been a trusted adviser for nearly two decades in a number of roles,” Mr. Shelby said. “As a respected manager and former staff director of the banking committee, he is well-versed on the issues at hand would step into this leadership position with ease. I believe Bill would be an outstanding choice to lead the PCAOB.”

Congress created the PCAOB in 2002 to be the independent regulator of accounting firms that audit public companies, following the Enron Corp. and WorldCom Inc. accounting scandals that significantly dented investor confidence in the audit profession. In an attempt to make the PCAOB more independent from the audit profession, Congress prohibited the hiring of a current auditor as its chairman.

Continued in article

Bitcoin ---

Cryptocurrency ---

This graphic (scroll down) shows the craziness of the cryptocurrency craze ---

How to buy and sell bitcoin using one of the most popular cryptocurrency apps on the iPhone ---

Bitcoin Futures Trading Gets Green Light from USA Regulators ---

Bitcoin's Six Biggest Risks ---

The Unlucky Man Who Accidentally Threw Away Bitcoin Worth $100 million ---

Interest in Bitcoin Is Spreading ‘Like a Contagion,’ Says Nobel-Winning Economist Who Predicted the Housing Bubble ---

From the CFO Journal's Morning Ledger on December 12, 2017

SEC chairman warns investors against bitcoin
Wall Street’s top regulator on Monday raised alarms about the money flooding into bitcoin trading and other cryptocurrency markets, warning the red-hot corner of less-regulated finance is burning with risk for retail investors.



Bitcoin ---

How to buy and sell bitcoin using one of the most popular cryptocurrency apps on the iPhone ---

Bitcoin Futures Trading Gets Green Light from USA Regulators ---

Bitcoin's Six Biggest Risks ---

The Unlucky Man Who Accidentally Threw Away Bitcoin Worth $100 million ---

Interest in Bitcoin Is Spreading ‘Like a Contagion,’ Says Nobel-Winning Economist Who Predicted the Housing Bubble ---

From the CFO Journal's Morning Ledger on December 12, 2017

SEC chairman warns investors against bitcoin
Wall Street’s top regulator on Monday raised alarms about the money flooding into bitcoin trading and other cryptocurrency markets, warning the red-hot corner of less-regulated finance is burning with risk for retail investors.

Teaching Case
From The Wall Street Journal Weekly Accounting Review on December 8, 2017

SEC Cyber Unit Alleges Scam in Coin Offering

By Paul Vigna | Dec 05, 2017

TOPICS: Bitcoin, blockchain technology, Fraud, SEC, Securities and Exchange Commission

SUMMARY: On Monday, December 4, 2017, the U.S. Securities and Exchange Commission (SEC) announced its first-ever enforcement action by its new cyber unit against an initial coin offering, alleging a Canadian company violated U.S. securities laws in raising $15 million. This and the related articles explain bitcoin, coin offerings, and the SEC's concerns with both potential for fraud and the possibility that some offerings are in reality securities that fall under regulatory requirements.

CLASSROOM APPLICATION: The article may be used in a financial reporting or an auditing class to discuss current events and regulation.



1. (Introductory) What is bitcoin?


2. (Introductory) What is an initial coin offering?


3. (Advanced) What is crowdfunding? How do crowdfundings differ from initial coin offerings?


4. (Advanced) Why is the Securities and Exchange Commission particularly concerned about fraud in these offerings?


5. (Advanced) Even in the absence of fraud, why are the U.S. Securities and Exchange Commission and other regulators concerned about these transactions?



What's an Initial Coin Offering? ICOs Explained in 11 Questions
by Paul Vigna
Oct 02, 2017
Online Exclusive

SEC Chief Fires Warning Shot Against Coin Offerings
by Dave Michaels and Paul Vigna
Nov 09, 2017
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island


"SEC Cyber Unit Alleges Scam in Coin Offering," by Paul Vigna, The Wall Street Journal, December 5,

Regulator accuses Canada’s PlexCorps of violating securities laws by selling up to $15 million of cryptocurrencies

The U.S. Securities and Exchange Commission on Monday announced its first-ever enforcement action by its new cyber unit against an initial coin offering, alleging a Canadian company violated U.S. securities laws in raising $15 million through this new, red-hot area of finance.

Charges against the company, described by the agency as a “scam” run by a “recidivist Canadian securities law violator,” were brought by the unit as it looks to crack down on potential abuse in the cryptocurrency arena.

The SEC alleged that PlexCorps violated securities laws by marketing and selling up to $15 million worth of cryptocurrencies, also called PlexCoins, to investors in the U.S. and elsewhere. The commission also charged Dominic Lacroix and Sabrina Paradis-Royer, the company’s founders, in connection with the sale.

The SEC said it had obtained an emergency court order to freeze the assets of PlexCorps and the two individuals.

In July, the Financial Markets Administrative Tribunal of Quebec banned PlexCorps and Mr. Lacroix from all investment-related activities targeted at Quebec residents. In October, Quebec’s Superior Court declared the company and Mr. Lacroix in contempt of court, finding the defendants continued to market and solicit investments in PlexCorps.

The company, Mr. Lacroix and Ms. Paradis-Royer couldn’t immediately be reached for comment. A Facebook page for PlexCorps was active as recently as Friday.

The action against PlexCorps is a concrete indication of the SEC’s interest in pursuing potential fraud in the mushrooming area of digital coin offerings. Private firms have raised more than $3 billion this year alone by selling newly created cryptocurrencies, according to research firm CoinDesk.

This area of finance is largely unregulated and many companies involved aren’t based in the U.S. or say the offerings aren’t open to U.S. investors.

Initial coin offering don’t typically offer equity in a company issuing them. Rather, the offerings as more akin to crowdfundings, usually offering buyers of digital tokens the right to use them at some future date to buy a product or service the company plans to develop.

The SEC has said it is focused both on the prospects for fraud in such sales, as well as the possibility that startups will sell tokens that should be registered as securities. The commission formed its cyber unit in September to focus on the area of cryptocurrencies.

In the PlexCorps action, the SEC alleged the company promised investors that their money would be going toward development of a new cryptocurrency along with related products. Investors were also promised a return of 1,354% over 29 days on their investment.

The SEC also alleged the company claimed to have a group of experts around the world working on the project, but had only a few employees in Quebec. The commission further alleged the company purposefully kept secret the involvement of Mr. Lacroix, who had previously violated securities laws in Canada.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 8, 2017

Why Sexual-Harrassment Scandals Matter to Investors

By Elizabeth Winkler | Dec 06, 2017

TOPICS: Board of Directors, Sustainability Accounting

SUMMARY: A recent WSJ/NBC poll "found that nearly 50% of employed women have been sexually harassed at work." Yet another poll, by Boardlist and Qualtrics, finds that the vast majority of U.S. corporate boards hadn't talked about sexual harassment, evaluated the company's risks in this area, or implemented any plan of action despite the plethora recent revelations. "Their most commonly cited reason for inaction: A perception that sexual harassment wasn't a problem at the company." The article identifies corporate costs of revelations of sexual harassment, particularly by key employees, and places the reporting of risk management in this area within the realm of sustainability reporting.

CLASSROOM APPLICATION: The article may be used in any class discussing sustainability reporting or the impact of ethical lapses on firm value.



1. (Advanced) What is sustainability reporting?


2. (Introductory) What evidence in corporate reporting demonstrates that "thinking about issues like child labor or climate change has become mainstream"?


3. (Introductory) To what extent have corporate Boards of Directors considered strategies to cope with potential revelations of harassment in the companies they direct?


4. (Advanced) Why are investors concerned with potential sexual harassment issues inside companies even when focusing solely on the goal of earning shareholder returns?



Reviewed By: Judy Beckman, University of Rhode Island


"Why Sexual-Harrassment Scandals Matter to Investors," by Elizabeth Winkler, The Wall Street Journal, December 6, 2017

It poses legal, financial, and reputational risks that investors are increasingly focusing on.

There was a time when what happened inside a company stayed inside a company. Today, corporate culture and the behavior of top employees matter to profits, stock prices and to a company’s competitive position.

U.S. investors overseeing around $10 trillion in assets now incorporate nonfinancial factors such as environmental, social and governance metrics in their decision making. For both corporate boards and investors, thinking about issues like child labor or climate change has become mainstream.

Yet thinking about sexual harassment has lagged behind. An October study by theBoardlist and Qualtrics found that 77% of boards hadn’t talked about sexual harassment, 88% hadn’t implemented a plan of action as a result of recent revelations and 83% hadn’t evaluated the company’s risks when it came to sexual harassment.

Their most commonly cited reason for inaction? A perception that sexual harassment wasn’t a problem at the company.

That is foolish. A recent Wall Street Journal/NBC poll found that nearly 50% of employed women have been sexually harassed at work. It is now clear that sexual harassment poses significant legal, financial, and reputational costs.

Take 21st Century Fox, where the cost is racking up. The company’s settlements involving accusations against Bill O’Reilly and Roger Ailes now top $100 million. And it isn’t over. One woman who reached a settlement with Mr. O’Reilly is suing him and Fox News for defamation and breach of contract. The woman, whose allegations included abuse but not sexual harassment, claims they violated the settlement. 21st Century Fox and Wall Street Journal parent News Corp share common ownership.

. . .

Then there is the loss of valuable assets. Mr. O’Reilly at Fox, Kevin Spacey at Netflix, and Matt Lauer at Comcast’s NBC were central to their companies’ success.

Advertisers, attuned to the new landscape, are paying close attention. “That helps explain why NBC pulled the plug so quickly,” on Mr. Lauer, says Jon Hale of Morningstar. “They don’t want to take the reputational hit of a long, drawn-out process that could cost them viewers and ad revenue.”

And even if a company isn’t hit with publicity-generating accusations, sexual harassment can be a slow, costly drain. A 2007 study found that it has a negative effect on employee recruitment and retention, increases sick leave costs, and lowers productivity. Lost talent and ideas are more difficult to quantify. But research shows that gender-diverse companies deliver higher returns on capital and lower volatility.

Smart investors will ask boards what actions they are taking to mitigate these risks. They should also look at telling indicators, like whether the company has a culture that supports women. An obvious step is pushing companies to put more women on their boards. Chances are they will have a slightly different view on whether sexual harassment is a problem.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 8, 2017

Part-Time Work in Retirement: Where to Start

By Glenn Ruffenach | Dec 04, 2017

TOPICS: Financial Reporting, Individual Income Taxation, IRAs

SUMMARY: The sub-title to this article is "Also: We answer questions on IRAs and on continuing-care retirement communities." That is where the accounting material surfaces: one is a discussion of IRAs and the second is a discussion of financial information provided by continuing-care retirement communities. The article mentiones CARF International, "a nonprofit group that accredits health and human services including [continuing care retirement communities] (CCRCs). Their guide for understanding financial performance and reporting in this community is available at file:///C:/Users/beckman/Downloads/CCRC%20Consumer%20Guide%20to%20Financial%20Performance-June%202016.pdf The document contains a financial primer beginning on p. 9.

CLASSROOM APPLICATION: The article may be used a financial reporting, tax, or personal financial planning class.



1. (Advanced) Define the terms individual retirement account (IRA) and charitable remainder unit trust.


2. (Introductory) Describe the transaction that a couple in their 80s wanted to undertake between their IRA accounts and remainder unit trust. Why did this couple want to take this step?


3. (Introductory) What recommendation does a lawyer specializing in retirement benefits make to this couple?


4. (Advanced) What nonprofit organization accredits health and human services offerings?


5. (Introductory) Why does the author write that individuals considering moving to retirement community should request financial reports from a continuing care community?


6. (Advanced) Why should one "walk away from" a continuing care community operation whose managers are reluctant or unwilling to share financial information?



Reviewed By: Judy Beckman, University of Rhode Island


"Part-Time Work in Retirement: Where to Start," by Glenn Ruffenach, The Wall Street Journal, December 4, 2017

Retirement columnist Glenn Ruffenach also answers questions about charitable remainder unitrusts and continuing-care retirement communities

I would like to work part time in retirement. But I want to try something that’s different from my primary career. Any good starting points? Any suggestions?

You certainly won’t be alone.

In the coming decade, the 65- to 74-year-old and 75-and-older age groups will be the fastest-growing segments in the labor force, according to the Bureau of Labor Statistics. Currently, among all workers age 65 and older, 40% work part time.

Yes, part-time work enables people to beef up their retirement savings. But other benefits are equally important: keeping your mind active; staying engaged with other people; easing the transition to (what could become) full-time retirement; and, ideally, finding satisfaction in a new career. In a survey published in March by the Employee Benefit Research Institute in Washington, 90% of retirees who work for pay said they do so because they “want to stay active and involved”; 82% said they simply enjoy working.

As for good starting points, one of my favorite books about retirement is “Second-Act Careers,” by Nancy Collamer, a career coach in Old Greenwich, Conn. The book is divided into two parts. The first highlights different models for turning one’s interests and passions into income. Real-life examples (including food bloggers, pet photographers, nutrition coaches and tour guides) are plentiful and enlightening. The second part helps readers figure out what type of life and work they might want to pursue.

Equally valuable: Ms. Collamer maintains a list on her website,, of more than 100 “Second-Act Career Resources.” The focus here is on “flexible, part-time and entrepreneurial options.” Want to learn how to breed dogs? Write a novel? Work in a national park? Teach English overseas? There’s a resource for that.

Also, check out, a San Francisco-based nonprofit that promotes encore careers; and “The Encore Career Handbook,” by Marci Alboher, a guide to finding ways to “make a living and a difference in the second half of life.” Both are essential reading.

My wife and I (ages 81 and 85) each have a regular individual retirement account, primarily invested in stocks, and have made annual cash withdrawals every year since we became age-eligible. We also have a long-established charitable remainder unitrust at a state university, and have been making annual contributions to it by transferring appreciated stocks from our regular stock account for 20 years, receiving a computed deduction. This trust pays us 5% a year on the account value and is taxed as income.

Our question: Can we transfer stocks and/or cash from our IRAs directly to this trust without having it be considered taxable and at the same time meet the required-annual-withdrawal rule?

I’m sorry, but you can’t do this.

Some background: With a charitable remainder trust, a person places an appreciated asset (stocks, property) inside a trust. The trust typically pays income for life to the donor, and after the donor dies it gives the remaining assets to one or more charities. A charitable remainder unitrust, among other wrinkles, allows the donor to make additional contributions to the trust over time.

As you probably know, transfers directly from an IRA to a charity (known as “qualified charitable distributions”) are permitted for people over age 70½. But to get the tax break associated with such transfers, several requirements must be met.

One requirement, says Natalie Choate, a lawyer specializing in retirement benefits at Nutter McClennen & Fish in Boston, is that 100% of the gift must go immediately into the charity’s coffers, with the donor/IRA owner getting nothing back. But a gift to a charitable remainder trust (or unitrust) doesn’t meet that test, Ms. Choate notes, since the charity doesn’t get the money immediately and the donor is getting something in return.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 8, 2017

Firms Press for Tax Breaks

By Theo Francis and Richard Rubin | Dec 05, 2017

TOPICS: Alternative Minimum Tax, AMT, Corporate Taxation, Tax Reform

SUMMARY: In negotiating the tax bill which passed the U.S. Senate early Saturday morning, legislators made a last minute decision to retain the provisions of the Alternative Minimum Tax (AMT). This tax compares the tax liability of a taxpayer-in this case a corporation-to a minimum amount that does not allow for certain deductions. "Currently, the corporate AMT of 20% rarely appies, since most corporations face a higher 35% tax rate and benefit from breaks eligible under both systems." However, reducing the overall corporate tax rate but leaving the AMT intact likely will lead to its trigger much more frequently and, consequently, negate the benefits of tax overhaul designed to promote U.S. economic growth.

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



1. (Introductory) What is the status of legislation aimed at overhauling the U.S. tax code?


2. (Advanced) What is the alternative minimum tax (AMT)? To what types of taxpayers does this tax provision apply?


3. (Introductory) What types of companies are concerned about the corporate AMT in particular? Why are they concerned?


4. (Advanced) What factors enter into a decision to spend on Research and Development (R&D)? Who makes those decisions?


5. (Advanced) Refer to the related article. Why does Andrew Bartels of Forrester Research, Inc., think that the potential tax changes won't impact R&D spending in a significant way?


6. (Introductory) Again refer to the related article. Why does Chris Bard, BDO national lead for R&D tax services practice, think that the tax proposal will impact R&D spending?



Reviewed By: Judy Beckman, University of Rhode Island


"Firms Press for Tax Breaks, by Theo Francis and Richard Rubin, The Wall Street Journal, December 5, 2017

Business lobbyists say keeping corporate alternative minimum tax would undercut several goals of legislation

Technology, banking and other industries mounted a new round of lobbying Monday to save a wide range of tax breaks following the last-minute switch in the federal tax overhaul by the U.S. Senate.

The Senate on Saturday decided to keep a corporate alternative minimum tax, or AMT, a move that gave the senators $40 billion over a decade to use on other priorities, according to the official estimate.

The move blindsided CEOs and business groups, who acted quickly on Monday to try to persuade legislators to kill or modify the provision, arguing that keeping it would undercut several goals of the legislation, including fostering investment in the U.S.

The corporate AMT is a parallel system with low rates and fewer breaks that kicks in if a variety of tax breaks bring a firm’s regular tax bill too low. Currently, the corporate AMT of 20% rarely applies, since most corporations face a higher 35% tax rate and benefit from breaks eligible under both systems.

With a proposed 20% corporate rate, many companies could end up in the AMT—and lose some of their tax breaks in the process.

Business lobbyists argue that keeping the corporate AMT would make it harder for tech companies to claim tax credits for research and development spending and for banks to claim credits for investing in troubled U.S. areas. It also could undermine the international-tax structure Republicans created elsewhere in the same bill, undercutting incentives to put intellectual property in the U.S., tax experts say.

The provision is “hugely problematic,” said Jennifer McCloskey, director of government affairs at the Information Technology Industry Council, whose members include Inc., Apple Inc. and Alphabet Inc. “We will be working to see it resolved this week.”

A congressional aide familiar with the legislative change said it is unlikely the alternative minimum tax would have the dramatic effect that critics fear, since the Joint Committee on Taxation pegged its savings below the value of the R&D tax credit. Other tax experts, in contrast, warn the $40 billion estimate could prove too small.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 15, 2017

Steinhoff Seeks to Shore Up Finances With Help of Extra Advisers

By Alexandra Wexler | Dec 11, 2017

TOPICS: Auditing, Auditing Services, off balance sheet financing

SUMMARY: "Steinhoff International Holdings NV has appointed additional outside advisers as the retail giant battles a burgeoning financial crisis that has engulfed the firm since it disclosed possible accounting irregularities last week." Last week, the company also announced that the CEO had resigned amid allegations that "the company's management used off-balance-sheet entities to hide losses in its operations and artificially pump up its valuation."

CLASSROOM APPLICATION: The article may be used in a class on consolidations to discuss off-balance-sheet entities. It also may be used to discuss the role of auditors in finding alleged irregularities.



1. (Introductory) What financial statement was due to be released by Steinhoff International Holdings NV?


2. (Introductory) What announcement did the company make instead of releasing its financials?


3. (Introductory) Who is the company's auditor? What other public accounting firm has been hired to investigate these accounting concerns?


4. (Advanced) What accounting irregularities have so far been disclosed in this case?


5. (Advanced) A described in the article, what are the possible accounting and business outcomes that could stem from accounting irregularities being investigated?



Shares in Sleepy's Owner Steinhoff Plunge on Accounting Probe
by Alexandra Wexler, Zeke Turner and William Boston
Dec 06, 2017
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island


"Steinhoff Seeks to Shore Up Finances With Help of Extra Advisers," by Alexandra Wexler, The Wall Street Journal, December 11, 2017

JOHANNESBURG—Steinhoff International Holdings NV has appointed additional outside advisers as the retail giant battles a burgeoning financial crisis that has engulfed the firm since it disclosed possible accounting irregularities last week.

Shares in the company, which owns America’s Mattress Firm and has operations on five continents, plunged 82% last week after it said its chief executive had resigned and that it had identified possible accounting problems that could affect some $7 billion in assets.

The warning put a fresh spotlight on allegations the company’s management used off-balance-sheet entities to hide losses in its operations and artificially pump up its valuation. Prosecutors in Oldenburg, Germany announced a probe into those allegations in August.

The situation has humbled what was a rising star and rapidly growing global furniture and clothing retailer dubbed “Africa’s IKEA,” although Steinhoff says its business continues to operate as normal.

Steinhoff said Monday its focus was now on stabilizing its finances so it could fund its operations and that it was asking for and required the continued support of its lenders.

As such it has appointed Moelis & Company to support its discussions with lenders and hired AlixPartners to assist on liquidity management and operational measures. The company has also created a board subcommittee composed of independent nonexecutive directors to bolster governance. Steinhoff’s stock jumped more than 20% in early trading Monday before giving up some gains to be up about 10% by midday in Frankfurt, where it is listed.

The measures are in addition to an existing investigation by PwC into the allegations of accounting irregularities. The company says it can’t comment further on the issue until it gets feedback from the investigation. Its audit committee is working with Deloitte to facilitate the release of the company’s audited financial statements, which were delayed because of the accounting probe.

Steinhoff said it hopes to give an update on its operational and financial situation at an annual lender meeting on Dec. 19. The meeting had initially been scheduled to take place Monday.

To bolster its finances Steinhoff said last week it plans to extract about €1 billion ($1.18 billion) through a refinancing of its separate African-focused retail business listed in Johannesburg. It also plans to seek an additional €1 billion through asset sales.

Last week’s disclosures have had the South African government, international investors, lenders and bondholders scrambling to gauge any exposure to the firm.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 15, 2017

Government Cleans House at Audit Regulator

By Dave Michaels | Dec 13, 2017

TOPICS: PCAOB, SEC, Securities and Exchange Commission

SUMMARY: "Five new members were appointed Tuesday [December 12, 2017] to...the Public Company Accounting Oversight Board [PCAOB]." This total overhaul of the board signals "a break with an era during which the PCAOB sometimes clashed with the SEC and the accounting firms over the pace and emphasis of its rule making." The article specifically refers to the recent overhaul of the form of an auditor's report to include critical audit matters (CAMs) and that certain SEC officials had urged the former chair to focus more on performance standards or standards of field work.

CLASSROOM APPLICATION: The article may be used in an auditing class to cover current events and/or the regulation of the profession.



1. (Introductory) What does the PCAOB do?


2. (Introductory) How and when was the PCAOB created?


3. (Advanced) Give an example of a recent standard set by the PCAOB. Do you think the auditing profession is concerned about implementing this standard? Explain your answer.


4. (Advanced) Two of the SEC's choices for PCAOB membership include former partners from large public accounting firms. What is the likely reason that one of these two wasn't offered the position as new chairman? Base your answer on comments in the article.


5. (Advanced) Consider Professor Shaub's comments about the profession "shout[ing] be heard." What do you think this means?



Reviewed By: Judy Beckman, University of Rhode Island


"Government Cleans House at Audit Regulator," by Dave Michaels, The Wall Street Journal, December 13, 2017

Five new board members will join PCAOB, including a longtime Republican Senate aide

WASHINGTON—The nation’s main audit regulator is getting a full makeover.

Five new members were appointed Tuesday to oversee the Public Company Accounting Oversight Board, a regulator of auditors who examine the books of publicly traded companies.

The picks include William Duhnke, a Republican Senate aide who will be the board’s chairman, and James Kaiser, a PricewaterhouseCoopers partner, marking the first time an auditor has joined the regulator from a Big Four accounting firm.

The changes show how the Securities and Exchange Commission’s new chairman, Jay Clayton, is putting his imprint on the PCAOB. Mr. Clayton, whose agency oversees the board, didn’t reappoint any of the board’s members, signaling a break with an era during which the PCAOB sometimes clashed with the SEC and the accounting firms over the pace and emphasis of its rule making.

James Doty, the board’s exiting chairman, pushed rules that forced auditors to disclose more about their roles and critical judgments, which the audit profession often opposed.

Under Mr. Doty’s watch, the PCAOB recently approved a rule that will require auditors to tell investors about any “critical audit matters”—areas of their audit that were especially challenging or complex. Some SEC officials had urged Mr. Doty to focus more on standards that govern the nitty-gritty of how auditors do their jobs.

“Obviously there has been some tension that has built up over the years, particularly between the firms, the business lobby and the board,” said Michael Shaub, an accounting professor at Texas A&M University. “It looks like they are reconstituting it. It’s literally a reset.”

Mr. Duhnke, a lawyer and former Navy officer, will occupy one of the most prized jobs in financial regulation. His position pays more than $672,000 annually. Board members earn about $547,000 a year.

Unlike some of his predecessors, Mr. Duhnke isn’t a specialist in securities law or financial reporting, having worked on Senate panels as diverse as the Intelligence, Banking and Rules committees.

The other board members include: University of Denver law professor Jay Brown, Kathleen Hamm of Promontory Financial Group LLC and Exelon Corp. Controller Duane DesParte. Mr. DesParte is a former audit partner at accounting firms Deloitte and Arthur Andersen, according to his LinkedIn profile.

The SEC has never before declined to reappoint PCAOB members who were eligible to serve another term, said Lewis Ferguson, one of the departing board members.

Current PCAOB member Jeanette Franzel had sought reappointment but wasn’t kept on. Mr. Doty was also eligible for another term and wasn’t picked. Mr. Ferguson was in the middle of term that expires in 2019 and was told he would be replaced, he said, adding that he was told “it had nothing to do with me personally.” Board member Steven Harris had completed two terms that began in 2008 and wasn’t eligible for another term.

“My sense is this administration and this SEC wanted to put their own stamp on the board, and frankly I feel honored that I got to serve as long as I did,” said Mr. Ferguson, an attorney who joined as a board member in 2011.

The Sarbanes-Oxley law that created the PCAOB effectively barred a practicing public accountant from serving as chairman, a restriction intended to boost the regulator’s independence from the accounting industry.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 15, 2017

Facebook to Give Countries a Chance to Tax Its Profits From Local Ad

By Sam Schechner | Dec 13, 2017

TOPICS: International Tax

SUMMARY: Facebook announced plans to "start recording advertising sales made through local representatives in the countries where they are located, rather than funneling that money directly to Ireland...." Facebook will also start booking costs locally as well, meaning that worldwide locations will pay intellectual property fees against those revenues. The bulk of the company's revenue comes from mature markets that have established advertising offices. This change will not affect the company's accounting for advertising purchased over the web by advertisers from all over the world. The article emphasizes that 'Facebook's announcement is the latest example of multinational companies...changing tax practices to cope with tighter rules and pressure from governments...."

CLASSROOM APPLICATION: Questions cover both international tax and geographic disclosures required in financial reports. Questions ask students to refer to Facebook's geographic and segment reporting footnote which merely shows domestic and worldwide revenues. The latter has increased exponentially in recent years.



1. (Introductory) In what country does Facebook currently report most of its taxable income from European transactions?


2. (Introductory) According to a Facebook announcement on Tuesday, December 12, why does the company report income in this way?


3. (Introductory) How many countries would see an increase in recorded revenues by Facebook? What is the source of the company's revenue?


4. (Introductory) What costs does Facebook charge against its revenues in determining profits earned in its various worldwide operations?


5. (Advanced) Access the Facebook annual report for 2016 filed with the U.S. Securities and Exchange Commission available at Click on Notes to Financial Statements on the left hand side of the page and then click on Geographical Information. How much revenue does Facebook earn outside of the U.S.? How has that amount trended in recent years?


6. (Advanced) What does Facebook disclose about the countries in which it earns revenues outside the U.S.? Do you think that disclosure will change in the future? Make your assessment based on disclosure required for geographic location and cite authoritative literature in your answer.


7. (Advanced) Return to the SEC filing page and click on the link to Income Taxes. What is Facebook's effective tax rate? How does its international operations impact that effective rate?


U.S. Tax Plan Draws Ire
by Andrea Thomas and Todd Buell
Dec 12, 2017
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island

"Facebook to Give Countries a Chance to Tax Its Profits From Local Ad," by Sam Schechner, The Wall Street Journal, December 13, 2017

Fewer ad sales would be redirected through low-tax Ireland

PARIS—Facebook Inc. plans to book more revenue in the countries where it sells ads, becoming the latest U.S. tech giant to bow to pressure from foreign governments to simplify its tax structure and potentially pay more income tax overseas.

The social-networking company Tuesday said it plans over the next year to start recording advertising sales made through local representatives in the countries where they are located, rather than funneling that money directly to Ireland, which has a lower corporate income-tax rate than many other countries.

The move would significantly boost Facebook’s revenue recorded in the 27 countries where it plans to make the change, including Germany, Japan and Argentina. It hopes to complete the move by the first half of 2019.

It isn’t clear, though, how much the change will boost Facebook’s tax bills. The company also will start booking costs, including for the use of intellectual property, locally as well, a spokesman said. That could potentially offset any new profit.

“Moving to a local selling structure will provide more transparency to governments and policy makers around the world,” Dave Wehner, Facebook’s chief financial officer, said in a blog post.

There is a lot of money at issue for Facebook, which is making its shift more broadly than some other tech firms. In the third quarter, Facebook earned 57%, or $5.85 billion, of its revenue overseas. Moreover, the bulk of the company’s revenue comes from mature markets that have advertising offices of the type that will be included in the shift announced Tuesday.

There is a big caveat that could reduce the impact: The change won’t affect Facebook’s self-service ads, bought directly on its website by millions of advertisers. A Facebook spokesman declined to break out what portion of its revenue would be redirected under the plan.

Facebook’s announcement is the latest example of multinational companies, particularly U.S. tech giants, changing tax practices to cope with tighter rules and pressure from governments, particularly in Europe.

The United Kingdom in 2015 passed a tax on profits the tax authority says have been inappropriately shifted to low-tax regimes. More recently, France, Germany and other big European countries have proposed a tax on big internet companies to make up for the income tax they would pay if they reported their profit in the countries where they do business.

A spokeswoman for the French Finance Ministry, which proposed the new tax, declined to comment on Facebook’s plan, saying it was too early to do so.

Facebook’s change also comes as U.S. lawmakers and the Trump administration work on a tax-code overhaul meant, in part, to encourage U.S. firms to repatriate more of their profits so they can be taxed in the U.S. Inc. in 2015 began collecting revenue from units in individual European countries, rather than through Luxembourg. The company is in a tussle with the European Union over whether it owes additional taxes from a period before that change, with the EU demanding Amazon pay €250 million ($293 million] in back taxes to Luxembourg. Amazon has said it paid all the tax it owes.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 22, 2017

Corporate Accountants Can Cancel Christmas: Swift, Complex Changes May Be Required for Tax Bill

By Tatyana Shumsky | Dec 15, 2017

TOPICS: Deferred Taxes

SUMMARY: The article describes both the impact of tax rate changes and changing treatment of unrepatriated corporate earnings in the new tax overahual. "In some cases, companies may have to rifle through three decades of records...U.S. accounting rules require companies to reflect the impact of the new law on their books in the quarter it is signed by the president, even if those measures go into effect at a future date, said Sheryl Vander Baan, a partner at Crowe Horwath."

CLASSROOM APPLICATION: The article may be used in a financial reporting class covering accounting for income taxes, particularly deferred taxes.



1. (Advanced) "U.S. accounting rules require companies to reflect the impact of the new law on their books in the quarter it is signed by the president, even if those measures go into effect at a future date...." State the authoritative accounting guidance behind this statement.


2. (Introductory) Assume you are a corporate accountant at a corporation with a December 31 year end date. If the new tax law is signed by President Trump before the end of 2017, in what specific financial reporting time periods must the impact of this tax law change be addressed?


3. (Introductory) Why does the article specifically say that corporate accountants will face a Christmas burden but not public accountants? Why will a January signing bring relief to accountants?


4. (Advanced) "[One of] the two most time-consuming accounting tasks for CFOs will be ... reassessing the value of their deferred tax items." How will signing the new tax law impact determination of deferred tax assets and liabilities? Be specific in describing this calculation that supports the quotation in the article that "if the corporate tax rate changes, then the tax benefit or cost of those deferred items also changes."



Changes Force Fast Adjustments
by Kate Davidson
Dec 21, 2017
Page: A5

Reviewed By: Judy Beckman, University of Rhode Island


"Corporate Accountants Can Cancel Christmas: Swift, Complex Changes May Be Required for Tax Bill," by Tatyana Shumsky, The Wall Street Journal, December 15, 2017

Companies may have to rifle through three decades of records to reflect impact of new law

There may be few tidings of comfort and joy among those preparing corporate balance sheets should Congress pass—and President Donald Trump sign—the tax bill on or before Dec. 25.

In some cases, companies may have to rifle through three decades of records.

House and Senate Republicans reached a deal on the final tax bill last week, paving the way for lawmakers to vote on the measure before Christmas. The agreement would set the corporate tax rate at 21%, down from the current 35%, and it would take effect in 2018.

A December signing would send finance teams scrambling to calculate the new law’s effect on their balance sheets and income statements. U.S. accounting rules require companies to reflect the impact of the new law on their books in the quarter it is signed by the president, even if those measures go into effect at a future date, said Sheryl Vander Baan, a partner at Crowe Horwath.

A January signing allows accountants more time to compute the impact of the rules before companies report it in their first-quarter financials.

“I know the president thinks this will be a big Christmas gift to people, but it won’t feel like a Christmas gift to tax accountants,” Ms. Vander Baan said.

The two most time-consuming accounting tasks for CFOs will be estimating the tax liability related to offshore cash and reassessing the value of their deferred tax items.

The GOP tax plan introduces a mandatory one-time tax on unrepatriated earnings and profits made after 1986—the year of the last major tax overhaul—not just the cash currently sitting in the bank. Corporate offshore cash would be taxed at 15.5% while overseas earnings invested in illiquid assets would be taxed at 8%.

U.S. corporate offshore cash reserves are expected to hit a record $1.4 trillion by the end of 2017, according to a November report by Moody’s Investors Service Inc.

The one-time tax could require some companies to go through 30 years of financial statements to provide investors with a number in the next earnings report, accountants said. Some of the largest U.S.-listed companies that follow a calendar-year reporting schedule will have to share this information no later than 60 days into the new year.

“The critical obstacle for most CFOs will simply be a lack of resources in the time that they have to get ready,” said April Little, a partner at Grant Thornton.

Finance executives will need to look at their books country by country to calculate the expected liability under this new rule, said Joan Schumaker, a partner at Ernst & Young. That liability could also be offset by a company’s foreign tax credits, complicating the computations, she said.

Corporate tax accountants must also recalculate the value of any deferred tax items at the new tax rate, which would be reduced to 21% as of Jan. 1, 2018. These balance-sheet entries reflect differences in tax and financial accounting treatments of certain events. Examples include future tax deductions for past losses or an accrual for pension obligations that haven’t been deducted.

Finance leaders would also have to assess whether they expect to get the full benefit of those deferred tax assets and record an offset to reflect their new expectations, Ms. Schumaker said.

“If the corporate tax rate changes, then the tax benefit or cost of those deferred items also changes,” she said.

For some companies, reducing the assets on their balance sheet could trigger debt covenants tied to net assets or other financial statement benchmarks, Grant Thornton’s Ms. Little said.

“A tax reduction sounds great, but it can have unintended consequences,” she said.

Banks, auto makers and airlines are particularly affected by this change due to steep losses incurred during the financial crisis, accountants said.

Citigroup Inc. CFO Joseph Gerspach said about $16 billion of the expected $20 billion charge the bank would take as a result of the new tax would be from writing down the value of the tax assets.

Regardless of when the bill is signed, companies will be required to expand their disclosures. Management must tell investors about any material impacts of such overhauls even if they occur in the window between the close of the reporting period and when the company files its financials.

Long term, many U.S.-listed multinationals will likely reconfigure their operations to take advantage of the sweeping bill.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 22, 2017

Tax Overhaul Leaves Little Time for Adapting to the Changes

By Kate Davidson | Dec 21, 2017

TOPICS: Accounting Careers

SUMMARY: Major pieces of legislation often aren't effective immediately to give "rule-writers and outside experts time to interpret the laws and offer guidance." Not so with the tax overhaul bill. Though not yet signed by President Trump (see the related article), the bill will take effect immediately upon his widely-expected signing. "Taken together, the short turnaround time and uncertainty about when the bill will be signed could leave taxpayers and their advisers struggling to adapt...."

CLASSROOM APPLICATION: The article may be used to discuss accounting careers and the significant impact on tax and other professionals of this major legislation.



1. (Introductory) Why does the tax overhaul legislation impact the tax and accounting profession more than past bills such as the Affordable Care Act and the Dodd-Frank financial overhaul?


2. (Introductory) According to the article, what factors may influence whether President Trump will sign the tax law before or after the calendar year end?


3. (Advanced) Give an example of the implementation costs of the tax bill. Who must do this work to implement changes?


4. (Advanced) Specifically, consider the work that the Internal Revenue Service (IRS) must do. What has this agency ask of the federal government because of this expected workload?


5. (Advanced) What options are available to the IRS if it is unsuccessful in its request to the federal government?





Reviewed By: Judy Beckman, University of Rhode Island

Sweeping Tax Bill Heads to Trump But Uncertain When He Will Sign
by Siobhan Hughes
Dec 20, 2017
Page: ##

"Tax Overhaul Leaves Little Time for Adapting to the Changes," by Kate Davidson, The Wall Street Journal, December 21, 2017

Many provisions in the rewrite of the tax code take effect in days, leaving scant time for government agencies, businesses and individuals to adjust

The extensive rewrite of the U.S. tax code leaves little time for government agencies, businesses and individuals to adjust to its wide-ranging changes, many of which take effect in a matter of days.

Major pieces of legislation, such as the Affordable Care Act and the Dodd-Frank financial overhaul, often weren’t effective immediately, giving rule-writers and outside experts time to interpret the laws and offer guidance.

In this case, the Treasury Department and Internal Revenue Service have little time to adapt. The law sets most of the new tax rules in place starting Jan. 1, before the IRS has had much time to interpret the law.

Complicating matters, it is uncertain when President Donald Trump will sign the legislation. He may wait until after the new year to avoid mandatory spending cuts associated with the tax bill and budget rules. The timing of his signature affects how businesses account for some of the tax code changes.

Taken together, the short turnaround time and uncertainty about when the bill will be signed could leave taxpayers and their advisers struggling to adapt, raising the risk of errors and disruptions, tax policy experts warn.

The legislation, which Congress passed Wednesday, provides deep tax cuts for corporations and lower rates for many individuals. It also includes a significant overhaul of business taxation and international tax rules, and scales back key tax breaks.

“The implementation costs here are massive,” said Bryan Camp, a law professor at Texas Tech’s School of Law and former lawyer in the IRS chief counsel’s office. “I don’t think anyone probably has thought through all the different administrative ramifications of the bill.”

Treasury officials have acknowledged the challenges in implementing the law, and have begun coordinating with the IRS and seeking feedback from trade groups on provisions requiring immediate action or guidance.

For example, the American Payroll Association, the largest payroll-industry trade group, warned lawmakers in a letter this month that its members were starting to panic over the prospect of changes to the W-4 form, which employers and employees use to determine how much tax to withhold from paychecks.

Millions of employees could need to file new W-4 forms, but it isn’t clear when new ones will be ready.

The IRS is in the process of updating the tax withholding tables, according to a senior Treasury official. But the agency said last week that changes likely won’t be reflected in workers’ paychecks until February.

Gary Cohn, director of the White House National Economic Council, said Wednesday Mr. Trump may wait until early next year to sign the legislation if lawmakers don’t separately pass a provision to waive certain budget rules related to it.

That wouldn’t affect the rollout of the new withholding tables, but would have significant consequences for many businesses.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 22, 2017

Grocers Absorb Rise in Food Prices to Keep Customers From Straying

By Heather Haddon | Dec 18, 2017

TOPICS: Cost Management, Profitability

SUMMARY: As shown in the graphic entitled Price Gap, consumers are facing much smaller rates of price increases than producers' rates of cost increase. Competitive reasons for this situation in the grocery business are discussed in the article. Grocers building online operations want to compete with Amazon which has slashed prices at Whole Foods following its acquisition. Competition among brick-and mortar grocers also is fierce as deep-discount chains such as Aldi and Lidl have opened new stores.

CLASSROOM APPLICATION: The accounting application asks students to understand the relationship between the competition in the industry and reported financial performance. The article may be used in a basic level financial reporting course.



1. (Introductory) What food costs have increased in 2017 according to the U. S. Department of Labor?


2. (Introductory) Why aren't consumers bearing the increased cost of food?


3. (Advanced) How does the increasing cost of food items, coupled with grocers' pricing decision, impact their gross profit and profit margin? In your answer, define these two terms.


4. (Advanced) Refer to the graph entitled "price gap." Does this chart indicate that costs of producing food are higher than costs of purchasing food according to the consumer price index? Explain.



Reviewed By: Judy Beckman, University of Rhode Island


"Grocers Absorb Rise in Food Prices to Keep Customers From Straying," by Heather Haddon, The Wall Street Journal, December 18

Retailers hold line on prices, fearing they will lose business to discounters and new rivals online

Food costs are ticking up after a multiyear glut of many staples. But consumers aren’t paying much more yet because grocers, discounters and online retailers are all holding down prices to win business.

Higher prices for vegetables, beef and eggs helped push the food portion of the producer-price index up 3.5% annually in November, according to the Labor Department. Meanwhile consumers paid just 0.6% more for groceries that month than a year earlier, the department said on Wednesday. The spread between producer and retail prices is the widest in more than three years, according to Barclays.

That gap is putting grocers under increasing pressure as they try to manage shrinking margins without losing customers. Some executives say they are looking for new ways to cut costs, fearing they can’t afford to raise prices at a time when deals are getting easier to find online. Many grocers are investing in e-commerce operations to keep up with Inc., which has slashed prices on products including avocados, organic milk and chicken since it acquired Whole Foods Market this summer.

“Price competition is getting more severe,” said Kemper Isely, co-president of the Colorado-based Natural Grocers by Vitamin Cottage Inc., a health-food chain that competes with Whole Foods in the West. The chain has cut prices this year in part to try to beat Whole Foods discounts.


Inflation began to return to meat, pork, eggs and some other farm prices earlier this year as demand started to catch up with production in some commodities and oil prices increased. Volatile weather in California, Mexico and Florida has also contributed to rising prices of produce.

Farmers should benefit from the inflation, though the price rise isn’t close to levels that triggered the previous buildup in commodities and the effects for many growers will be muted, said Ryland Maltsbarger, associate director of the Agriculture Pricing and Purchasing Service at IHS Markit .

“It’s good, not great,” Mr. Maltsbarger said about the price increases for farmers so far. “It’s not the best time for grocers either.”

Grocers say they are focused on holding down the price of staples like milk, eggs and meat that shoppers watch closely. Kroger Co., the nation’s largest grocery chain by stores and sales, told investors last month that it was “aggressively managing” operating expenses to hold down prices, in part by fining suppliers for late orders.

“Our inflation at cost is still above our inflation at retail,” Mike Schlotman, CFO of grocer Kroger, told investors this month. “We didn’t pass all of it on.”

The price of a comparable basket of goods at chains such as Kroger, Target Corp. and Albertsons Co.’s Randalls stores in Houston fell 1% last month compared with the previous November, according to a Wolfe Research note to investors. In Virginia Beach, Va., where growing deep-discount chains Aldi and Lidl have opened five stores recently, Wal-Mart Stores Inc. cut prices for its store brands by an average of 6%, Wolfe found.

Jeff Carr, chief financial officer at Koninklijke Ahold Delhaize NV, said the price war between Lidl and Wal-Mart is holding down grocery prices in the Southeast. “The shelf price inflation is a little lower,” he said.

Analysts say they expect retailers’ margins to suffer if they stand by lower prices as their own costs rise. Grocers will have to cut more costs to absorb the expense, said Mr. Maltsbarger.

“They are having to get much better at negotiating with their suppliers. They are going to have to go after them,” he said.

Grocery executives say eventually they will have to pass along rising prices to customers. Some have slowly started. David Hirz, chief executive of California-based Smart & Final Stores , Inc., said the warehouse-style grocer has raised some prices as long as their advantage over competitors remains.

Food distributors and restaurants are facing rising food prices, too. Sysco Co. , the world’s largest food distributor, said more expensive meat, poultry and dairy helped push its supply costs up 4% during the quarter ending in September. SpartanNash Co. , a food distributor and the largest grocery provider to military commissaries, said costs in its food-distribution segment are rising for the first time in a year. Competition in food retail is making it difficult to pass along increases there, company CFO Mark Shamber said.

Restaurants already were fighting tepid traffic and rising wages before food costs began to rise. Now restaurants expect food prices to rise up to 3% next year, said David Maloni, president of the American Restaurant Association, a consultancy.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 22, 2017

Stitch Fix's Customers and Sales Rise, but Profits Are Pinched

By Khadeeja Safdar | Dec 20, 2017

TOPICS: Earning Announcements, Earnings, Earnings Forecasts

SUMMARY: The article describes Stitch Fix's first earnings report as a public company for the period ended October 28, 2017. Results show increasing customers and profitable operations but also increasing costs for expansion into men's clothing and plus-sizes. "Both categories are a 'drag on the business in the short term, but represent a significant opportunity in the future," said the CEO of this company which has so recently gone public.

CLASSROOM APPLICATION: The article is useful to discuss general financial reporting, management guidance, and analysts' forecasts.



1. (Advanced) What is notable about the financial report that has been issued by Stitch Fix? What time period does it cover?


2. (Introductory) What favorable, customer-related results did the company obtain?


3. (Advanced) Based on information provided in the article, how profitable is Stitch Fix?


4. (Introductory) What increasing costs impacted Stitch Fix's results?


5. (Advanced) How did the company's stock price react to these operating results?


6. (Advanced) According to the related article, what factors led to this market reaction?



Stitch Fix Investors Are Singing the Blue Apron Blues
by Elizabeth Winkler
Dec 21, 2017
Page: B11

Reviewed By: Judy Beckman, University of Rhode Island


"Stitch Fix's Customers and Sales Rise, but Profits Are Pinched ," by Khadeeja Safdar, The Wall Street Journal, December 20, 2017

Profits hurt by costs of expanding into men’s and plus-size apparel; shares fall

Stitch Fix Inc., SFIX 6.17% the fashion startup that went public last month, reported strong customer gains Tuesday but said profits were pinched by the costs of expanding into men’s and plus-size apparel.

The company, which selects and ships outfits to its customers, has struggled to convince IPO investors about its ability to keep up growth and fend off potential competition. Its shares had priced at $15 apiece, below its target range, but have rallied 65% since. In after hours trading Tuesday, the stock fell 11% to $22.

“The business we’re in is personalization,” CEO Katrina Lake said in an interview Tuesday. “It takes more than 45 minutes to articulate how this business is different and to show how data science actually drives our business.”

In a letter to investors, Stitch Fix emphasized ways in which the company differs from typical e-commerce and brick-and-mortar retailers. For example, the San Francisco company said it doesn’t experience the usual jump in holiday sales, since most of its customers are buying outfits for themselves rather than as gifts.

Active clients reached 2.4 million in the three months ended Oct. 28, up about 202,000 from the end of July. The company defines an active client as a person who reviewed an order in the preceding 12 months.

Profit margins declined slightly from a year earlier as the company invested in plus-size women’s clothing and men’s apparel, which drove up inventory and shipping costs.

Both categories are “drag on the business in the short term, but represent a significant opportunity in the future,” said Ms. Lake, who started the business in 2011 and remains one of its biggest shareholders.

The company reported net income of $13.5 million, compared with $13.2 million a year ago. Revenue rose 25% to $295.6 million. For the second quarter, the company forecast a revenue increase of between 21% and 24%.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 22, 2017

Harvard Endowment Chief Pushed for Steeper Devaluation of Assets

By Juliet Chung and Dawn Lim | Dec 15, 2017

TOPICS: Fair-Value Accounting Rules, Investments

SUMMARY: Harvard University has a new endowment portfolio manager, N.P. Narvekar, who has led the endowment board to approve write downs that have driven returns to the lowest level among ivy league universities. The article describes the most significant write downs as stemming from natural resources held as an investment; most other endowments invest in such assets through other fund managers. "Many asset managers and appraisers say valuing assets that trade infrequently or aren't generating difficult."

CLASSROOM APPLICATION: The article may be used to address mark-to-market accounting and determination of assets' fair values in investment portfolios. The last question is based on auditing; it may be excluded if students aren't yet prepared to integrate that material.



1. (Advanced) Briefly explain the general accounting treatment of investments in availablej-for-sale and trading securities.


2. (Introductory) How does the title of this article reflect the judgment inherent in applying the accounting you described in answer to question 1? Cite all factors you note in the article that provide evidence about this judgment.


3. (Introductory) Consider Harvard's investment in a natural-resources portfolio of forests and other assets. What did Harvard's endowment manager do that might have helped value these assets?


4. (Advanced) Define the three levels of methods that might be used to determine the fair value of an investment portfolio such as Harvard's.


5. (Introductory) Under which of these categories do you think the investment in natural resources might fall? Support your answer.


6. (Introductory) The article states that "valuations...were approved by the board, reviewed by Harvard and...independently verified by external auditors...." Why must an auditor verify these judgmental valuation steps? Give one example of an audit procedure that could be applied in this case and explain the purpose of your selected test.



Reviewed By: Judy Beckman, University of Rhode Island


"Harvard Endowment Chief Pushed for Steeper Devaluation of Assets," by Juliet Chung and Dawn Lim, The Wall Street Journal, December 15, 2017

University’s decision to write down portfolio of forests and farms helped make it worst performer in Ivy League

The new chief of Harvard University’s endowment pushed to slash the value of some investments last year, dragging down returns, and people familiar with the matter said he would have cut deeper except for pushback from other board members.

The write-downs of these natural-resources investments contributed to Harvard posting the worst performance in the Ivy League in 2017, and cut the return for the fiscal year ended June 30 to 8.1% from more than 11%.

Harvard’s new investment chief, N.P. “Narv” Narvekar, had pushed for even steeper cuts to the value of Harvard’s natural-resources portfolio of forests, farms and vineyards given his bearish outlook on some of the assets. If he had prevailed, the endowment’s return would have dropped into the 7% range, some of the people said.

But some members of the $37.1 billion endowment’s board disagreed about the scale of those markdowns, said people familiar with the matter, and the board, which includes Mr. Narvekar, eventually settled for a roughly $1 billion reduction in the value of the assets.

The magnitude of Harvard’s write-down and the lack of detail disclosed about it have sparked a debate among university and endowment executives, past and present, about whether Harvard inflated past valuations or if Mr. Narvekar was overly aggressive in pushing for writedowns.

“We are moving quickly to restructure the portfolio, resolve legacy issues and position the endowment for long term success,” Mr. Narvekar said in a statement.

He has previously described the return of the world’s largest university endowment as “disappointing.”

“The return on the overall endowment is strictly a function of the valuation of its parts,” an endowment spokesman said in a statement.

New endowment chiefs often have an incentive to write down investments they inherit. Such moves can remove a potential burden if some assets were overvalued or add luster to executives’ own subsequent performance and, sometimes, compensation.

Mr. Narvekar, who started last December, has described Harvard Management Co. as having “deep structural problems” that would take five years to restructure. “An honest, reflective, and clear-sighted recognition of these problems is the first critical step towards generating solutions,” he wrote in his first annual letter in September.

Under Mr. Narvekar, Harvard sliced by more than 25% the value of its natural-resources investments, an unprecedented write-down for that portfolio. Harvard had valued the portfolio at roughly $4 billion at the end of the prior fiscal year.

Harvard is an anomaly among endowments for the large natural-resources portfolio of forests and other assets it directly owns, instead of having exposure through outside fund managers.

Continued in article

From The Wall Street Journal Weekly Accounting Review on December 22, 2017


", The Wall Street Journal, December


Continued in article

Humor for December 2017

Darwin Awards ---

Smart Kid Figures Out Santa is Fake ---

Forwarded by Paula

When four of Santa's elves got sick, the trainee elves did not produce toys as fast as the regular ones, and Santa began to feel the Pre-Christmas pressure.

Then, Mrs. Claus told Santa her Mother was coming to visit, which stressed Santa even more.

He went to harness the reindeer, he found that three of them were about to give birth and two others had jumped the fence and were out, Heaven knows where.

When he began to load the sleigh, one of the floorboards cracked, the toy bag fell to the ground and all the toys were scattered.

Frustrated, Santa went in the house for a glass of cider and a shot of rum.

He went to the cupboard, he discovered the elves had drunk all the cider and hidden the rum.

In his frustration, he accidentally dropped the cider jug, and it broke into hundreds of little glass pieces all over the kitchen floor.

He went to get the broom and found the mice had eaten all the straw off the end of the broom.

Just then the doorbell rang, and an irritated Santa marched to the door, yanked it open, and there stood a little angel with a great big Christmas tree.

The angel said very cheerfully, 'Merry Christmas, Santa. Isn't this a lovely day? I have a beautiful tree for you. Where would you like me to stick it?'

And so began the tradition of the little angel on top of the Christmas tree.

Not a lot of people know this.


Forwarded by Dick Wolff


It was mealtime during a flight on Alaska Airlines. 'Would you like dinner?' the flight attendant asked John, seated in front. 'What are my choices?' John asked. 'Yes or no,' she replied. 

A flight attendant was stationed at the departure gate to check tickets. 
As a man approached, she reached for the ticket and he opened his trench coat and flashed her. 
Without missing a beat, she said, 'Sir, I need to see your ticket not your stub.' 

A lady was picking through the frozen turkeys at the market but couldn't find one big enough for her family. She asked a stock boy, 'Do these turkeys get any bigger?' The stock boy replied, 'No ma'am, they're dead.' 

The cop got out of his car and the kid who was stopped for speeding rolled down his window. 
'I've been waiting for you all day,' the cop said. The kid replied, 'Yeah, well I got here as fast as I could.' 
When the cop finally stopped laughing, he sent the kid on his way without a ticket. 

A truck driver was driving along on the freeway. A sign comes up that reads, ' Low Bridge Ahead.' 
Before he knows it, the bridge is right ahead of him and he gets stuck under the bridge. 
Cars are backed up for miles. Finally, a police car pulls up. The cop gets out of his car and walks to the truck driver, puts his hands on his hips and says, 'Got stuck, huh?' 
The truck driver says, 'No, I was delivering this bridge and ran out of gas.' 


A college teacher reminds her class of tomorrow's final exam. 'Now class, I won't tolerate any excuses for you not being here tomorrow.
 I might consider a nuclear attack or a serious personal injury, illness, 
Or a death in your immediate family, but that's it, no other excuses whatsoever!' 
A smart-ass guy in the back of the room raised his hand and asked, 'What would you say if tomorrow I said I was suffering from complete and utter sexual exhaustion?' The entire class is reduced to laughter and snickering. When silence is restored, the teacher smiles knowingly at the student, shakes her head and sweetly says, 'Well, I guess you'd have to write the exam with your other hand.'

Forwarded by Dick Wolf


I changed my car horn to gunshot sounds.  People get out of the way much faster now.

Gone are the days when girls used to cook like their mothers.  Now they drink like their fathers.

You know that tingly little feeling you get when you really like someone?  That's common sense leaving your body.

I didn't make it to the gym today.  That makes five years in a row.

I decided to stop calling the bathroom the “John” and renamed it the “Jim”.  I feel so much better saying I went to the Jim this morning.

Old age is coming at a really bad time.  When I was a child I thought “Nap Time” was a punishment.  Now, as a grownup, it feels like a small vacation.

The biggest lie I tell myself is...."I don't need to write that down, I'll remember it."

I don't have gray hair; I have "wisdom highlights"!  I'm just very wise.

If God wanted me to touch my toes, He would've put them on my knees.

Last year I joined a support group for procrastinators.  We haven't met yet…

Why do I have to press one for English when you're just going to transfer me to someone I can't understand anyway?

Of course I talk to myself; sometimes I need expert advice.

At my age "Getting lucky" means walking into a room and remembering what I came in there for.

Actually I'm not complaining because I am a Senager (Senior teenager - not senile).  I have everything that I wanted as a teenager, only 60 years later.  I don’t have to go to school or work.  I get an allowance every month.  I have my own pad.  I don’t have a curfew.  I have a driver’s license and my own car.  The people I hang around with are not scared of getting anyone pregnant.  And I don’t have acne…Life is great!

I have more friends I should send this to, but right now I can't remember their names. Now, I’m wondering…did I send this to you, or did you send it to me?


Humor December 2017--- 

Humor November 2017--- 

Humor October 2017---

Humor September 2017---

Humor August 2017---

Humor July 2017---

Humor June 2017 ---

Humor June 2017 --- 

Humor May 2017 --- 

Humor April 2017 --- 

Humor March 2017 ---

Humor February 2017 ---

Humor January 2017 ---

Humor December 2016 --- 

Humor November 2016 --- 

Humor October 2016 ---

Humor September 2016 ---

Humor August  2016 ---

Humor July  2016 ---  

Humor June  2016 ---

Humor May  2016 ---

Humor April  2016 ---

Humor March  2016 ---

Humor February  2016 ---

Humor January  2016 ---

Tidbits Archives ---

And that's the way it was on December 31, 2017 with a little help from my friends.


Bob Jensen's gateway to millions of other blogs and social/professional networks ---

Bob Jensen's Threads ---

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

Free Online Textbooks, Videos, and Tutorials ---
Free Tutorials in Various Disciplines ---
Edutainment and Learning Games ---
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Bob Jensen's Resume ---

Bob Jensen's Homepage ---

Accounting Historians Journal ---  and
Accounting Historians Journal
Accounting History Photographs ---







November 2017


Bob Jensen's New Additions to Bookmarks

November 2017

Bob Jensen at Trinity University 


USA Debt Clock --- ubl

How Your Federal Tax Dollars are Spent ---

To Whom Does the USA Federal Government Owe Money (the booked obligation of $20+ trillion) ---
The US Debt Clock in Real Time --- 
Remember the Jane Fonda Movie called "Rollover" ---
One worry is that nations holding trillions of dollars invested in USA debt are dependent upon sales of oil and gas to sustain those investments.

To Whom Does the USA Federal Government Owe Money (the unbooked obligation of $100 trillion and unknown more in contracted entitlements) ---
The biggest worry of the entitlements obligations is enormous obligation for the future under the Medicare and Medicaid programs that are now deemed totally unsustainable ---

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

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

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


Bob Jensen's Pictures and Stories


All my online pictures ---

David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
Bob Jensen
February 19, 2014
SSRN Download:  

Google Scholar ---

Wikipedia ---

Bob Jensen's search helpers ---

Bob Jensen's World Library ---

Possibly the Number 1 Resource for CPA Exam Candidates
AICPA:  Uniform CPA Exam Blueprints ---

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 ---

Bob Jensen's CPA Exam Helpers ---

Wikibooks ---

Wikibooks is a source of evolving free textbooks ---

For example, here's what's available and planned for accountancy ---

One of the Best Sources of Free Learning Videos in Various Disciplines is the Ever-Growing Khan Academy ---

For Example this is What's Available in Accountancy and Taxation ---

More than 100 colleges have set up channels on YouTube ---
Many universities offer over 100 videos, whereas Stanford offers a whopping 583
Search for words like “accounting”

For example, in the search box enter the word "accounting" to see accounting videos available to date.

Bob Jensen's threads on free electronic literature ---

Bob Jensen's World Library ---

Microsoft Word: Enable Word’s AutoRecovery tool ---

From the American Accounting Association on November 7, 2017

Issues in Accounting Education invites submissions for a themed issue on “Educating the Future Accounting Professional: Actively Shaping Professional Identities for a Rapidly Changing World. This themed issue welcomes all views on educating the future accounting professional with all types of articles, empirical, theoretical, case studies, autobiographical, or opinion pieces being considered. Submissions should be original work, which investigates an aspect of accounting education for the future professional. The themed issue will focus primarily on the impacts to education rather than focusing on the disruptive forces themselves. 

The deadline for submissions is December 1, 2018. For more information and information on how to submit, please click HERE --- in Accounting Education_Future_Call_For_Papers.pdf

State-by-State Guide to Taxes on Retirees --- |
Thank you Ed Scribner for the heads up

Blockchain ---

Blockchain: An opportunity for accountants? Or a threat? ---

Student Debt ---

Well Over $1 Trillion in USA Student Debt Level is Unsustainable
Something Has to Give

California's pension fund looks to shift blame and avoid (union) responsibility:  CalPERS is never going to state the obvious: "We know these massive, underfunded pensions are not sustainable, but we're going to do everything possible to push the problem into the future and blame everyone else for the problem." ---

India:  One year after demonetisation: Where did all that cash go? ---

Crytocurrency ---

Video:  The CIO of a crypto hedge fund explains the value in cryptocurrency — and why the market will explode over the next 2 years ---

How Congress Keeps Its Sexual Harassment Hush Money Secret ---

. . .

Under public pressure, the Office of Compliance, which acts as the House's rough simulacrum of a human resources department, released documents showing it had paid out $17 million since 1997 to settle a variety of workplace claims, including sexual harassment.

The details of those settlements, including their nature, are confidential. Claimants are required to sign a nondisclosure agreement to begin the lengthy mediation process.

Continued in article

Seven TED talks for accountants ---

Bob Jensen's helpers for finding careers ---

Best Motto:  Be Prepared
What IFRS 9 Meant for Banks ---
November 24, 2017

Euro zone banks better prepared to adapt new accounting rules called IFRS 9 suffered a more modest reduction in their capital from the changed standards, the European Central Bank said on Friday.

In the first quarter of the year, bigger banks that were considered best prepared for IFRS 9 had their regulatory Common Equity Tier 1 capital reduced by about 40 basis points, the ECB said in a statement.

“This impact is lower than the average impact for the entire sample of significant institutions covered by the thematic review,” the ECB said, referring to the new rules, which will be applied to next year’s stress test for the first time.

In case of less significant institutions, the negative impact was 59 basis points for better prepared banks, the ECB added.

Continued in article

Future Tax Traps Lurk For Multinationals In Senate Tax Bill ---

AICPA Online Conference on Current SEC and PCAOB Developments ---

The Spirit of Accounting:  The Faulty Paradigm ---

Jensen Comment

Perhaps this will always be the problem as long as we can only define earnings as a plugs that make the mish mash of balance sheets balance.

The problem's analogous to trying to measure "intelligence." There will always be controversy about measuring things we cannot precisely define in the first place ---

Amazon Merchants Continue to Find Ways to Cheat ---

Jensen Comment
This is great material for an ethics course or seminar.

Stanford:  How Washington Gave Insiders an Edge on IPOs ---

Bob Jensen's Fraud Updates ---

Starbucks is using the oldest trick in the book to boost its stock price (stock repurchases) ---

A Cost Accounting Challenge:  Environmental Cost of Electric Vehicles

A Tesla driven in the U.S. Midwest produces 226g of carbon dioxide per kilometre over its lifecycle. That's higher than some total output by traditional combustion engine models when accounting for charging electricity and manufacturing processes ---
Jensen Comment
This will change as electricity generation entails less carbon pollution. However, this also ignores the more serious environmental hazards of lithium battery production, use, and disposal.

How to make better use of Excel’s IF function ---

Dayton, Vermont Offer 3+2 Programs: Undergraduate + Law Degree In 5 Years ---

Jensen Comment
In a related way Purdue now offers a three-year undergraduate degree that cuts about $9,000 off the cost of that degree plus savings on not having to pay room and board for a fourth year. One risk is student burnout from the workloads and intensity of these accelerated programs. Another problem is the loss of earnings and work experience. from having time to work for pay part-time during the school year and full-time during the summer.

The New Yorker Writes About a "Small" Iowa Town:  Leave or Stay
In a small town in Iowa where the American dream lives on, residents wonder whether to resolve conflicts or fulfill their longings by moving away or staying put ---

Jensen Comment
Note that Orange City featured in this is a relatively large Iowa town in a state filled with towns having less than 1,000 residents. There were many "thriving" Iowa towns back in the days when they were surrounded by small family farms of 80-160 acres. When I grew up in the 1950s on both a farm and later in town farmers did not have to invest heavily in equipment, and most farmers were still supplementing a small tractor with horses and mules. At harvest time threshing machines moved from farm to farm, thereby making it unnecessary for every farmer to own a threshing machine. Now making a living on 240 acres is a marginal operation given the nearly $2 million needed for enormous tractors, combines, sprayers. planters, tanks, etc. There's no profit in raising a few cows, sheep, chickens, and turkeys that are now raised in enormous containment feeding operations holding thousands or tens of thousands of animals.

When the families sold off their small farms to bigger farms there were fewer and fewer customers shopping in small Iowa farm towns. Many downtown stores were boarded up or torn down and town schools closed to become part of every larger school districts covering multiple towns. Jobs dried up in the small towns such that residents that wanted to stay either could not find and work or could only find part-time work at minimum wage --- not a living wage for a family.

One of the things that shocked me is that there was almost no market for the big two-story house my grandfather built in Swea City around 1900. The oak-paneled house had four bedrooms plus a den along with a living room, dining room, big kitchen, and den. When I returned for a visit to Swea City in the 1960s this well-maintained house with a big porch could be purchased for less than $10,000. In Des Moines such a house would be priced at well over $100,000. The thing is that Des Moines has a viable economy with over 200,000 residents and many career opportunities to work in town. Swea City has around 500 residents, most of whom are retired farmers who choose living in Swea City because of the cheap housing. But they have to drive over 30 miles to larger towns for shopping since the grocery stores, the clothing stores, the hardware stores, the drug stores, etc. are now boarded over in Swea City. There are very few jobs available today in Swea City, Iowa.

What caused the demise of small Iowa towns like Swea City?
 Firstly, it was the demise of the small family farms that used to surround the towns with a customer base. Second, it was the change in professional services where professionals like physicians and lawyers now prefer to no longer be sole-practitioners serving a small community. Now professionals prefer to be in medical clinics and multiple-partner law firms located in larger towns and serving smaller communities from a distance. What medical school graduate or law school graduate wants to set up a one-person practice in Swea City, Iowa? Thirdly, it was changing roads and vehicles. In the 1960s Iowa knocked the curbs off its narrow highways and straitened out the sharp curves such that the trip from Swea to the larger Algona now takes about 30 minutes for shopping rather than upwards of an hour that it used to take in the 1930s. Plus in the 1930s drivers sometimes had to stop once or twice to put patches on inner tubes of flat tires. In the 21st Century it's relatively rare to have a flat tire driving from Swea City to Algona.

The economic sacrifice made to raise a family in a small Iowa town is negatively correlated with the size of the town coupled with other factors such as having an area college and hospital in the town and commuting distance to a larger town for jobs. Orange City featured in the above article has over 6,000 residents making it a relatively large Iowa town. But it's also remotely located such that not many residents want to commute elsewhere for jobs. That makes the above article somewhat interesting since there are some economic opportunities in Orange City for those who want to remain and raise their families in Orange City.

Bob Jensen's Memories About Growing Up in Iowa

·         Short story entitled My Glimpse of Heaven:  What I learned from Max and Gwen

Sequel:  About My Grandfather Dourte with a link to  Hierogliphe's ancestry
A short story about my grandfather Christian Granville Dourte

·         Short story entitled Mrs. Applegate's Boarding House (with Navy pictures)

Jet fuel from sugarcane? It’s not a flight of fancy ---

Coffee grounds to help power London's buses ---

Bloomberg:  America’s ‘Retail Apocalypse’ Is Really Just Beginning ---

More than 3,000 stores opened this year in the U.S.—but almost 6,800 closed. This comes while there is sky-high consumer confidence, unemployment is at a historical low, and the U.S. economy keeps growing. Those are normally all the ingredients for a retail boom, yet more chains are filing for bankruptcy and rated distressed than during the financial crisis.

Chatbot ---

QuickBooks jumps on the chatbot bandwagon ---

Here's a super-short history of 2,400 years of emerging markets ---

A Brief History of the Corporation: 1600 to 2100 by Venkatesh Rao ---
Links to accounting history over the same time periods ---

Dennis Elam on Globalscape GSB
A Real-World Lesson on Earnings Reporting ---

Will voice assistants also change the landscape between teachers and students?

THE VOICE ASSISTANT LANDSCAPE REPORT: How artificially intelligent voice assistants are changing the relationship between consumers and computers ---

Jensen Comment
I'm betting that the next big thing in education technology will be Chatbots ---

Second Life Virtual World ---

The Atlantic:  The Digital Ruins of a Forgotten Future ---

Bob Jensen's threads on Second Life and Other Virtual Worlds (including accounting education and IRS experiments) ---

California's government workers have a whole range of ways to game the pension system ---

Harvard:  5 Ways U.S. Hospitals Can Handle Financial Losses from Medicare Patients ---

Surprise! How Obamacare is beginning to look a lot like Medicaid ---

The Washington Post
A team of archaeologists was able to analyze 12,000 clay tablets detailing business transactions mentioning 26 ancient cities

From David Giles

Econometrics Reading List for November

Some suggestions........


Garcia, J. and D. E. Ramirez, 2017. The successive raising estimator and its relation with the ridge estimator. Communications in Statistics - Theory and Methods, 46, 11123-11142.

Silva, I. R., 2017. On the correspondence between frequentist and Bayesian tests. Communications in Statistics - Theory and Methods, online.

Steel, M. F. J., 2017. Model averaging and its use in economics. MPRA Paper No. 81568.

Teräsvirta, T., 2017. Nonlinear models in macroeconometrics. CREATES Research Paper 2017-32.

Witmer, J., 2017. Bayes and MCMC for undergraduates. American Statistician, 71, 259-274. 

            Zimmerman, C., 2015. On the need for a replication journal. Federal Reserve Bank of St. Louis, Working Paper 2015-016A.

Big Data and Analytics in the Modern Audit Engagement: Research Needs
AUDITING: A Journal of Practice & Theory
Article Volume 36, Issue 4 (November 2017

Deniz Appelbaum
Montclair State University

Alexander Kogan
Miklos A. Vasarhelyi
Rutgers, The State University of New Jersey, Newark


Modern audit engagements often involve examination of clients that are using Big Data and analytics to remain competitive and relevant in today's business environment. Client systems now are integrated with the cloud, the Internet of Things, and external data sources such as social media. Furthermore, many engagement clients are now integrating this Big Data with new and complex business analytical approaches to generate intelligence for decision making. This scenario provides almost limitless opportunities and the urgency for the external auditor to utilize advanced analytics. This paper first positions the need for the external audit profession to move toward Big Data and audit analytics. It then reviews the regulations regarding audit evidence and analytical procedures, in contrast to the emerging environment of Big Data and advanced analytics. In a Big Data environment, the audit profession has the potential to undertake more advanced predictive and prescriptive-oriented analytics. The next section proposes and discusses six key research questions and ideas, followed with emphasis on the research needs of quantification of measurement and reporting. This paper provides a synthesis and review of the concerns facing the audit community with the growing use of Big Data and complex analytics by their clients. It contributes to the literature by expanding upon these emerging concerns and providing opportunities for future research.

Keywords: audit analytics, Big Data, external audit, audit evidence

Audit Partner Identification: Unintended Consequences on Audit Judgment
AUDITING: A Journal of Practice & Theory
Article Volume 36, Issue 4 (November 2017


Anna M. Cianci
Wake Forest University

 Richard W. Houston
The University of Alabama

Norma R. Montague
Wake Forest University

 Ryan Vogel
Temple University



We examine the impact of partner identification, a regulation proposed by the PCAOB and contested by the audit profession, on audit partners' judgments. Based on accountability theory (e.g., Lerner and Tetlock 1999) and professionalism literature (e.g., Hall 1968; Adler and Kwon 2013), we conduct an experiment in which we manipulate partner identification at three levels (i.e., no identification, disclosure identification, signature identification) and ask 83 partners to make inventory writedown assessments and other judgments underlying their decision making. We find that, contrary to the PCAOB's stated purpose of enhancing audit quality, and consistent with the professionalism literature, partner identification—in the form of either disclosure or signature—yields more aggressive writedown judgments through its negative impact on partners' self-reported measures of commitment to the profession and, in turn, commitment to the public. This result suggests that regulators should consider possible unintended consequences of accountability-inducing regulations.

Keywords: accountability, identifiability, partner identification

Corporate Deleveraging and Financial Flexibility

Fisher College of Business Working Paper No. 2017-03-028
Charles A. Dice Working Paper No. 2017-03-028

73 Pages Posted: 17 Nov 2017

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

Andrei S. Gonçalves
Ohio State University (OSU), Fisher College of Business, Department of Finance

René M. Stulz
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: November 17, 2017


Most firms deleverage from their historical peak market-leverage (ML) ratios to near-zero ML, while also markedly increasing cash balances to high levels. Among 4,476 nonfinancial firms with five or more years of post-peak data, median ML is 0.543 at the peak and 0.026 at the later trough, with a six-year median time from peak to trough and with debt repayment and earnings retention accounting for 93.7% of the median peak-to-trough decline in ML. The findings support theories in which firms deleverage to restore ample financial flexibility and are difficult to reconcile with most firms having materially positive leverage targets.

Keywords: deleveraging, financial flexibility, capital structure, payout policy, cash balances, leverage dynamics, financial distress

JEL Classification: G31, G33, G35

The Role of International Prestigious Auditors in Cross-Border Mergers and Acquisitions by Firms with Weak Institutions

48 Pages Posted: 16 Nov 2017 Last revised: 17 Nov 2017

Qihui Gong
Zhejiang University

Oliver Zhen Li
National University of Singapore (NUS)

Yupeng Lin
National University of Singapore

Liansheng Wu
Peking University - Guanghua School of Management

Zilong Zhang
City University of Hong Kong

Date Written: November 14, 2017


Cross-border mergers and acquisitions (M&As) by emerging market firms have given concerns to a negative spillover effect of country-specific weak institutions on target firms. Using a China setting, we examine the positive role of international prestigious auditors in mitigating this negative spillover effect. Consistent with the notion that privately contracted corporate governance complements country-specific institutions, hiring international Big4 auditors increases the likelihood of Chinese firms in initiating cross-border M&As and leads to a lower failure rate in cross-border M&As. Further, the positive effect of international Big4s is stronger when an acquirer has a low level of institutional ownership or few analysts following, when the target’s country has a high level of uncertainty avoidance, when the difference in accounting standards between two parties is large, and when the target is from a high-tech industry. Finally, there are higher announcement returns and better post-M&A performance for acquirers hiring Big4 auditors.

Keywords: Auditor Certification, Big 4, Mergers and Acquisitions, Incomplete Contract, Weak Institution, Emerging Market

JEL Classification: M49, G34, L14

Macroeconomic Determinants of International Financial Reporting Standards (IFRS) Adoption: Evidence from the Middle East North Africa (MENA) Region

Revista Internacional Administracion & Finanzas, v. 9 (1) p. 39-48

10 Pages Posted: 16 Nov 2017 

Allan Graham
American University of Sharjah

Anup Menon Nandialath
Zayed University

Debra Skaradzinski
Zayed University

Elzotbek Rustambekov
Bryant University

Date Written: 2017


The adoption of International Financial Reporting Standards (IFRS) as a country’s Generally Accepted Accounting Principles (GAAP) has accelerated in the last 5 years with approximately 120 sovereign governments designating IFRS as the required financial reporting framework for at least some companies in the country. The American Institute of Certified Public Accountants (AICPA) reports that of these, about 90 countries have adopted it fully for all businesses, large and small. In an annual update, Pricewaterhouse Coopers (PwC) lists 147 countries that have some relationship with IFRS (the U.S. is listed, for instance, as it allows foreign companies with a capital market presence to use IFRS instead of converting their results to U.S. GAAP). Yet many of the world’s 201 recognized countries have resisted fully adopting IFRS, particularly in the Middle East North Africa (MENA) region of the world. This begs the question: what are the perceived benefits of adopting IFRS at the country level?

Keywords: International Financial Reporting Standards (IFRS), Generally Accepted Accounting Principles (GAAP), Middle East North Africa (MENA), Macroeconomics, Capital Flows, Disclosure

JEL Classification: M4, O53

Usage and Perceptions of Fraud Detection and Preventive Methods: Evidence from Mauritius

Revista Internacional Administracion & Finanzas, v. 9 (1) p. 87-96

10 Pages Posted: 16 Nov 2017

Subadar Agathee Ushad

University of Mauritius

Mootooganagen Ramen

University of Mauritius, Mauritius

Date Written: 2017


The aim of this study is to assess the extent to which junior auditors, senior auditors and professional accountants use fraud prevention and detection methods, and their opinions regarding the effectiveness of these methods in the Mauritian context. A questionnaire was designed and sent to ten most reputed companies including the Big 4 firms. 120 junior auditors, senior auditors and professional accountants responded successfully. The results shows that the techniques mostly adopted to combat fraud are bank reconciliation, staff rotation, cash reviews and password protection. However, virus protection, discovery sampling, reference checks on employees and vendor contract reviews were not often used. In contrast to other prior studies, methods which were frequently used on overall were the ones which have highest mean effectiveness ratings. This study sheds light on the least and most frequent fraud detection and prevention methods used in Mauritius by accounting practitioners. Organization should concentrate on creating an integrated strategy to combat and control any kind of potential risks instead of dealing with each issue separately. Also, organizations should weight up the significant intangible benefits against direct costs of combating fraud. Moreover, organizations should make sure that each abide to the policies and are well aware of the consequences of any malpractice. Finally, this study adds to the existing literature on perceptions of fraud detection methods. To the authors’ prior knowledge, this is the first formal study in the Mauritian context.

Keywords: Forensic Accounting, Internal Auditing, Fraud, Mauritius

JEL Classification: M40, M49

Accounting for Elimination-By-Aspects Strategies and Demand Management in Electricity Contract Choice

CERE Working Paper, 2017:7

23 Pages Posted: 16 Nov 2017

Aemiro Melkamu Daniel

University of Umea - Centre for Environmental and Resource Economics

Lars Persson

University of Umea - Centre for Environmental and Resource Economics

Erlend Dancke Sandorf

Swedish University of Agricultural Sciences (SLU) - Center for Environmental and Resource Economics (CERE)

Date Written: November 7, 2017


We report on a discrete choice experiment aimed at eliciting Swedish households’ willingness-to-accept a compensation for restrictions on household electricity and heating use during peak hours. When analyzing data from discrete choice experiments, we typically assume that people make rational utility maximizing decisions, i.e., that they consider all of the attribute information and compare all alternatives. However, mounting evidence shows that people use a wide range of simplifying strategies that are inconsistent with utility maximization. We use a flexible model capturing a two-stage decision process. In the first stage, respondents are allowed to eliminate from their choice set alternatives that contain an unacceptable level, i.e., restrictions on the use of heating and electricity. In the second stage, respondents choose in a compensatory manner between the remaining alternatives. Our results show that about half of our respondents choose according to an elimination-by-aspects strategy, and that, on average, they are unwilling to accept any restrictions on heating in the evening or electricity use, irrespective of time-of-day. Furthermore, we find that considering elimination-by-aspects behavior leads to a downward shift in elicited willingness-to-accept. We discuss implications for policy.

Keywords: Choice Experiment, Electricity Contract, Willingness-To-Accept, Household Electricity, Elimination-By-Aspects, Two-Stage Decision

JEL Classification: C25, Q41, Q51, R21

The Effect of Voluntary Use of an Online Homework Management System on Course Grades in Financial Accounting

Business Education & Accreditation, Vol. 9(1) p. 35-41, 2017

7 Pages Posted: 16 Nov 2017

Susan B. Wessels
Meredith College

Rebecca J. Oatsvall
Meredith College

Date Written: 2017


In previous studies of online homework systems in accounting courses, their use was mandatory for all participants. This paper presents the results of a small study in which financial accounting students had the option of completing homework by using an online homework manager (MyAccountingLab) or by using a traditional pencil-and-paper approach. The research project was conducted at a women’s college in the southeastern United States, and all participants were female. Controlling for GPA, major, and hours of study, those students who chose to use an online homework system were significantly more likely to have a lower course grade than those who did not.

Keywords: Online Homework, Grades, Financial Accounting

JEL Classification: M400, M490

Changes in IFRS 3 Accounting for Business Combinations: A Feedback and Effects Analysis

Global Journal of Business Research, Vol. 11(1) p. 61-70, 2017

10 Pages Posted: 16 Nov 2017

Walid Masadeh

The Hashemite University

Ebrahim Mansour

The Hashemite University

Wasfi AL Salamat

Hashemite University

Date Written: 2017


This research reviews the effect of IFRS (International Financial Reporting Standards) 3 with a focus on the changes in accounting procedures under business combinations. A content analysis research methodology was used to code and categories feedback data on the effects of IFRS as positive and negative. Results indicated that IFRS is considered successful by 71% of its users and unsuccessful by 29% of its users. IFRS success is credited to the enhancement of comparability of accounting information and streamlining of acquisition methods and goodwill under business combinations. Contrarily, IFRS is considered unsuccessful, because it is riddled with negative consequences, such as rising costs of compliance and preparation, especially in developing and less industrialized nations. We conclude that comparability of accounting information on an international scale is the most positive effect of IFRS 3, while increasing cost of compliance is the greatest negative effect of IFRS 3. We suggest that the International Accounting Standards Board (IASB), Financial Accounting Standards Board (FASB), and other bodies involved in setting global accounting standards should focus on finding ways to incentivize developing countries and companies to comply with the standards. We recommend further studies on ways to assist companies to reduce preparation costs resulting from IFRS changes.

Keywords: Business Combinations, Acquisition, Goodwill

JEL Classification: M16

Managing and Accounting for Multiple Stakeholders

Rutgers Business Review, Vol. 2, No. 3, 2017, pp. 395-401

7 Pages Posted: 15 Nov 2017

Ronald K. Mitchell

Texas Tech University - Rawls College of Business

Date Written: November 12, 2017


In this paper I argue that through the research summarized in this short article, substantial progress has been made in overcoming three fundamental barriers to the adoption of multiple corporate objectives, thereby to enable managing and accounting for multiple stakeholders. These three fundamental barriers are: (1) that top managers cannot be conceptualized philosophically as multiple-objective decision makers; (2) that there is no decision making mechanism to support multi-objective decision making by managers; and (3) that even if the first two barriers could be cleared, it appears not to be possible to account for the interests of stakeholders who are outside the corporate entity.

Keywords: stakeholder, stakeholder management, strategic management

Real Effects of Reporting Key Audit Matters on Auditors' Judgment of Accounting Estimates

48 Pages Posted: 15 Nov 2017

Karsten Asbahr

Freie Universität Berlin - Department of Finance, Accounting and Taxation

Klaus Ruhnke

Freie Universitaet Berlin - Department of Finance, Accounting and Taxation

Date Written: March 3, 2017


This experimental study analyses whether reporting an accounting estimate as a key audit matter (KAM) can influence auditors' judgment about the reported estimate under the varying condition of implicit or no client pressure. Using the theory of moral licensing, motivated reasoning and accountability, we find that auditors' professional judgment about the reasonableness of a biased accounting estimate is not affected by the KAM reporting requirement and client pressure. Professional action in the form of the likelihood and amount of proposed adjustments is significantly lower when the accounting estimate will be reported as a KAM. Instead of enhancing professional skepticism, our results provide preliminary evidence that the format of reporting KAM can serve as moral license to waive an adjustment. Overall, our study contributes to the current debate about the audit reporting model showing that reporting KAM might have diametrical 'real effects' on auditors' judgment.

Keywords: accountability, accounting estimates, auditor judgment, audit reporting, client pressure, key audit matters, moral licensing, real effects

JEL Classification: M40, M41, M42

Business School Alumni Perspectives on the Need for Legal Studies

Southern Law Journal, Vol. XXIII (Fall 2017)

13 Pages
Posted: 14 Nov 2017

Chase Jeremiah Edwards

University of Louisiana - Lafayette

John Tanner

University of Louisiana at Lafayette - College of Business Administration

Reece Theriot

University of Louisiana at Lafayette - College of Business Administration

Stacey Chamberlain

University of Louisiana at Lafayette - College of Business Administration

Date Written: November 10, 2017


Law professors who teach in schools of business have continually been forced to serve as advocates for their own presence in the business academy. Despite increasing rates of white-collar crime, ethical misconduct, and bankers run amuck, accrediting bodies for elite colleges and schools of business and, more surprisingly, accounting programs have repeatedly considered scaling back or eliminating requirements for basic legal training. This article adds a third decade of linear data as reaffirming testimony to business students’ continued need for more knowledge of the law. To this end, we survey 185 of our university’s business alumni using the same essential format used in 1990 and 2004. The alumni surveyed were asked to rank their perceived utility of the undergraduate business law course(s) they completed. Then the respondents were asked to rate specific business law topics in terms of their usefulness in the business world and the frequency at which they are encountered. The results of the survey clearly show that many topics which are taught to business students become and remain critically important to those students after they move on to the ranks of alumni and business leaders.



Keywords: business law, undergraduate law, business education, legal education, law business, aacsb, accounting education

JEL Classification: K00, K22, M00, K1, K2, M1, M4

The Role of the Audit Committee and the Informativeness of Accounting Earnings in East Asia

Pacific-Basin Finance Journal, Vol. 23, (2013) 1-24

57 Pages Posted: 14 Nov 2017

Tracie Woidtke

University of Tennessee, Haslam College of Business

Yin‐Hua Yeh

National Chiao-Tung University

Date Written: October 10, 2012


Policy makers around the world have focused on corporate governance reform since the Asian financial crisis and scandals in the United States such as the Enron debacle. In particular, policy makers have focused on the establishment of independent audit committees to improve investor confidence in reported accounting information. In a sample of East Asian companies, we find that the negative relation between concentrated control and earnings informativeness that was documented prior to the Asian financial crisis persists in a more recent period, even though many corporate governance reforms have been adopted since the crisis to improve financial disclosure. We do, however, find that earnings informativeness is strengthened by both fully independent audit committees and audit committees with a majority of independent directors with accounting financial or legal expertise. In addition, the increased reliability that is associated with these audit committee characteristics appears to more than offset the detrimental effect that is associated with concentrated control. The results in this paper suggest that an emphasis on audit committee independence alone may not be enough to enhance earnings informativeness. Instead, focusing on both complete independence and the financial or legal expertise of independent directors who are appointed to the audit committee may be a more fruitful way to increase investor confidence in accounting information, especially when ownership is concentrated.

Keywords: Corporate governance, Ownership, Earnings informativeness, Audit committee

JEL Classification: G34, G32

Imperfect Accounting and Reporting Bias

Journal of Accounting Research, Vol. 55, No. 4, 2017

Posted: 14 Nov 2017


Vivian W. Fang
University of Minnesota - Twin Cities - Department of Accounting

Allen Huang
Hong Kong University of Science and Technology - Department of Accounting

Wenyu Wang
Indiana University - Kelley School of Business - Department of Finance

There are 2 versions of this paper ---


Errors and bias are both inherent features of accounting. In theory, while errors discourage bias by lowering the value relevance of accounting, they can also facilitate bias by providing camouflage. Consistent with theory, we find a hump-shaped relation between a firm's propensity to engage in intentional misstatement and the prevalence of unintentional misstatements in the firm's industry for the whole economy and a majority of the industries. The result is robust to using firms' number of items in financial statements and exposure to complex accounting rules as alternative proxies for errors and to using the restatement amount in net income to quantify the magnitude of bias and errors. To directly test for the two effects of errors, we show that when errors are more prevalent, the market reacts less to firms' earnings surprises and bias is more difficult to detect. Our results highlight the imperfectness of accounting, advance understanding of firms’ reporting incentives, and shed light on accounting standard setting.

Keywords: accounting errors; reporting bias; fraud; accounting regulation; earnings response coefficient; fraud detection; textual analysis

Prompting the Benefit of the Doubt: The Joint Effect of Auditor-Client Social Bonds and Measurement Uncertainty on Audit Adjustments

Journal of Accounting Research, Vol. 55, No. 4, 2017

Posted: 13 Nov 2017

Steven J. Kachelmeier
University of Texas at Austin - Department of Accounting

Ben W. Van Landuyt
University of Arizona - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2017


We design an incentivized experiment to test whether measurement uncertainty elevates the risk that social bonds between auditors and reporters compromise audit adjustments. Results indicate that, when audit evidence is characterized by some residual uncertainty, the adjustments our auditor-participants require are sensitive to whether auditors have an opportunity to form a modest but friendly social bond with reporters. In contrast, although auditors do not adjust fully even when misstatements are known with certainty, social bonding has no effect in this scenario. Accordingly, our experiment contributes beyond the main effects of social bonding and measurement uncertainty demonstrated in prior research by showing that these forces interact. A practical implication is that regulators and practitioners should consider both the technical and the social challenges facing audits of complex estimates.

Keywords: Auditor Independence; Social Bonds; Measurement Uncertainty; Accounting Estimates; Leniency; Social Identity; Experimental Economics

JEL Classification: C92; D81; M41; M42

The Jobs Act and the Costs of Going Public

Journal of Accounting Research, Vol. 55, No. 4, 2017

Posted: 13 Nov 2017

Susan Chaplinsky

University of Virginia - Darden School of Business

Kathleen Weiss Hanley

Lehigh University - College of Business & Economics

S. Katie Moon

University of Colorado at Boulder - Leeds School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2017


We examine the effects of Title I of the Jumpstart Our Business Startups Act for a sample of 312 emerging growth companies (EGCs) that filed for an initial public offering (IPO) from April 5, 2012 through April 30, 2015. We find no reduction in the direct costs of issuance, accounting, legal, or underwriting fees for EGC IPOs. Underpricing, an indirect cost of issuance that increases an issuer's cost of capital, is significantly higher for EGCs compared to other IPOs. More importantly, greater underpricing is present only for larger firms that are newly eligible for scaled disclosure under the Act. Overall, we find little evidence that the Act in its first three years has reduced the measurable costs of going public. Although there are benefits of the Act that issuers appear to value, they should be balanced against the higher costs of capital that can occur after its enactment.

Keywords: IPOs; JOBS Act; Disclosure; Regulation; Underpricing

JEL Classification: D82; G24; G32; G38; M41

An Empire Built on a Lie – the Peregrine Fraud: A Case Study on Confirmations as Audit Evidence

Review of Business & Finance Studies, V. 8 (1), p. 49-55

7 Pages Posted: 13 Nov 2017

Maria H. Sanchez
Rider University - Department of Accounting

Kathleen Dunne
Rider University

Date Written: 2017


This study examines the real world case of the Peregrine fraud. In this fraud, the CEO Russell Wasendorf, Sr. duped the auditors and the public for years. Wasendorf was able to carry out a fraud using an unsophisticated scheme involving falsified bank statements and falsified audit evidence. Only when an electronic confirmation services was used by the auditors did the fraud unravel. This case provides interesting discussion points for an auditing, fraud detection and deterrence, forensic accounting or ethics class. Students typically need one to two hours of time outside of class to complete the case and instructors should budget approximately one to one and a half hours of class time to discuss the case after the students have completed it.

Keywords: Audit Evidence, Confirmations, Fraud

JEL Classification: M42

Virtual Issue on Tax Research Published in the Journal of Accounting Research

9 Pages Posted: 13 Nov 2017

Scott Dyreng
Duke University

Edward L. Maydew
University of North Carolina at Chapel Hill

Date Written: November 9, 2017


In this invited note, we provide a historical context and a brief review of tax research published in the Journal of Accounting Research over the past decade. We also describe six areas within tax research that are relatively poorly understood or sparsely researched, but have potential for significant advancement in the future.

Keywords: Tax Avoidance; Accounting; Disclosure; Tax Planning; Asset Pricing

Financial Development and Economic Growth in the Organization of Islamic Conference Countries

Journal of King Abdulaziz University: Islamic Economics, Vol. 24, No. 1, 2011

28 Pages
Posted: 12 Nov 2017

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Benito Sanchez

University of New Orleans - College of Business Administration - Department of Economics and Finance

Jung-Suk Yu

School of Urban Planning & Real Estate Studies, Dankook University

Date Written: 2011


This study provides evidence on the role of financial development in accounting for economic growth in OIC countries. To document the relationship between financial development and economic growth, we estimate not only unbalanced panel regressions, but also variance decompositions of annual GDP per capita growth rates to examine what proxy measures are most important in economic growth over time and how much they contribute to economic growth among OIC countries. We find positive association between financial development and economic growth in OIC developing countries. Moreover, short-term multivariate analysis implies one-way causality that runs from growth to finance.

Rising Wage Inequality in Germany: Increasing Heterogeneity and Changing Selection into Full-Time Work

ZEW - Centre for European Economic Research Discussion Paper No. 17-048

44 Pages Posted: 11 Nov 2017

Martin Biewen

University of Tuebingen; Institute for the Study of Labor (IZA)

Bernd Fitzenberger

Humboldt University of Berlin - School of Business and Economics

Jakob de Lazzer

Humboldt University of Berlin

Multiple version iconThere are 2 versions of this paper

Date Written: September 2017


This study revisits the increase in wage inequality in Germany. Accounting for changes in various sets of observables, composition changes explain a large part of the increase in wage inequality among full-time workers. The composition effects are larger for females than for males, and increasingly heterogenous labor market histories play an important role. Furthermore, we find strong effects of education for males and strong effects of age and experience for females. Changes in industry and occupation explain fairly little. Extending the analysis to total employment confirms the basic findings, while revealing substantial negative selection into part-time work.

Keywords: Wage Inequality, Reweighting, Composition Effects, Germany

The Accounting Equation and Revisiting the Theory of Double-Entry Bookkeeping

“Accounting and Mathematics: Revisiting the Theory of Double Entry” (Warsono, December 2017)

17 Pages Posted: 10 Nov 2017

Sony Warsono

Universitas Gadjah Mada (UGM) - Faculty of Economics and Business (FEB)

Date Written: November 7, 2017


Paton’s theory of double-entry system (hereafter, “DES”) inspired the development of current accounting. This paper uses a mathematical perspective to review Paton’s and existing theory of DES called the law of property or assets. Using syntactic language, this paper proposes another theory of DES, called the “law of funds.” The paper contributes to the current literature by proposing the development of DES theory from a mathematical perspective, as DES was originally written in mathematical text and documented by a mathematics professor.

Keywords: Theory of double-entry system; Law of property or assets, Law of funds, Mathematics, Syntactic language, Semantics language.

Accounting Research Readings Groups

Advances in Accounting Education, 2018, Vol. 22

34 Pages Posted: 9 Nov 2017

Denton Collins

Texas Tech University - School of Accounting

Kirsten A. Cook

Texas Tech University - Area of Accounting

Matt Hart

Texas Tech University

Date Written: October 27, 2017


Research readings groups represent a recent innovation in accounting doctoral education that appears to be spreading at research-oriented universities. In this paper, we describe how accounting research readings groups can serve as a mechanism to engage doctoral students in the consumption and discussion of research throughout all phases of the doctoral program. An accounting research readings group supplements the breadth of knowledge gained in doctoral seminars by adding depth of knowledge in a focal research area. We offer insights from the educational psychology literature to justify research readings groups as a form of team-based learning and then offer suggestions on the formation and operation of these groups. We enumerate the many benefits that these groups afford to both doctoral students and faculty members. We also distribute a survey to faculty organizers of existing accounting research readings groups and share the results of this survey to supplement our advice with their firsthand experiences. Our goal is to encourage the use of accounting research readings groups to inspire, foster, and enhance the research culture within accounting departments and doctoral programs.

Keywords: doctoral education, readings groups, team-based learning

The Association between SFAS No. 157 Fair Value Hierarchy Information and Conditional Accounting Conservatism

The Accounting Review, Forthcoming

Posted: 8 Nov 2017

Jonathan Black
Purdue University - Department of Accounting

Jeff Zeyun Chen
Texas Christian University

Marc Cussatt
Washington State University

Date Written: November 6, 2017


Investors demand conditional conservatism to restrict managers’ ability to opportunistically exploit unverifiable accounting estimates. The fair value estimation process is subject to verifiability concerns when market prices are unavailable, and thus susceptible to managerial discretion. We explore whether banks’ exposure to less-verifiable fair value estimates is associated with conditional conservatism. General and bank-specific conservatism measures indicate that banks with greater proportions of less-verifiable fair value assets exhibit more conditional conservatism. Cross-sectional analyses provide evidence that this relation varies predictably with investor-demand and manager-supply proxies. Further analyses indicate that monitoring institutional investors drive the demand for conservatism. We identify high-quality auditors and board independence as two mechanisms used to invoke conservatism. Findings are robust to the exclusion of fair value earnings components, suggesting that the effect is not confined to fair value accounts. Together, our results indicate that less-verifiable fair value estimates generate demand for conditional conservatism in the financial industry.

Keywords: SFAS No. 157, fair value hierarchy, conditional conservatism, verifiability

JEL Classification: M41, G21

How Does the FASB Make Decisions? A Descriptive Study of Agenda-Setting and the Role of Individual Board Members

Accounting, Organizations and Society, Forthcoming

59 Pages Posted: 7 Nov 2017

John (Xuefeng) Jiang

Michigan State University - Department of Accounting & Information Systems

Isabel Yanyan Wang

Michigan State University

Daniel Wangerin

Michigan State University

Multiple version iconThere are 2 versions of this paper

Date Written: November 5, 2017


This study provides descriptive evidence on how the Financial Accounting Standards Board (FASB) sets Generally Accepted Accounting Principles (GAAP). Based on 211 financial accounting standards issued between 1973 and 2014, we summarize the reasons that the FASB adds or removes projects from its agenda, the entities most frequently bringing issues to the FASB’s attention, and commonly recurring topics across different standards over time. We find that reducing diverse practices and inconsistent guidance is the most frequent reason cited by the FASB to take on a project and more than half of the standards are intended to enhance comparability. We find that the SEC, AICPA, and large public accounting firms are identified most frequently by the FASB as the parties bringing issues to its attention. Accounting for financial instruments is the most frequent recurring topic across accounting standards, which potentially explains the growth in fair value measurement in U.S GAAP over time. We analyze the dissenting opinions written by Board members and find some evidence that the stated reasons for disagreements are associated with their professional backgrounds. However, our analyses indicate Board members’ positions on fair value accounting are context-specific and cannot be fully explained by their professional backgrounds.

Keywords: The Financial Accounting Standards Board, The FASB, Accounting Standards, Standard-Setting, Fair Value

JEL Classification: D78, M41, M48, M50

Journal of Accountancy
Expect the unexpected: Risk assessment using Monte Carlo simulations ---

Updates From MAAW's Table of Contents Service

MIT Sloan Management Review 2017

MIT Sloan Management Review 2001-2017

The CPA Journal January - October 2017

The CPA Journal January 2008 - October 2017

Judge Kozinski On The 'Timeless And Tiresome' Debt/Equity Distinction ---


Skepticism training for auditors

The online self-study course “Applying Professional Skepticism in an Audit” features case studies to help auditors and managers apply professional skepticism and techniques that enhance their judgment during audit engagements.

Tom Selling
A Perspective on Skepticism

Also see
A model and literature review of professional skepticism in auditing
Mark W. Nelson
Auditing: A Journal of Practice & Theory, 2009

PCAOB identifies 3 areas with most frequent 2016 audit issues ---

PCAOB inspectors identified three areas where audit deficiencies were most frequently identified in 2016, according to a board staff inspection brief published Friday.

The areas with most common deficiencies were:

Assessing and responding to risk of material misstatement. For example, in some cases the auditor did not perform tests of details specifically related to fraud risks assessed by the auditor.

Auditing internal control over financial reporting. Consistent with previous years' results, this was the area with the most frequent deficiencies. The most common deficiency in this area was insufficient testing of the design and operating effectiveness of selected controls, particularly those controls that included a review element.

Auditing accounting estimates, including fair value measurements. Common deficiencies in this area related to evaluating impairment analyses for goodwill and the valuation of assets and liabilities acquired in business combinations.

Continued in article

How to prepare for FASB's hedge-accounting update ---

Jensen Reference
Detailed history and and terminology for FAS 133 and IAS 39 and all the amendments to these standards ---

Sharpe Ratio for Risk Adjusting in Investment ---

How to Properly Use the Sharpe Ratio (According to Dr. Sharpe Himself)
Wall Street Journal
By Norb Vonnegut
Oct. 31, 2017

Most investment professionals are familiar with the formula known as the Sharpe Ratio. The calculation is so omnipresent in financial circles that it even features as a sales objection on the television series “Billions”: “My people have a few questions. Your Sharpe Ratio’s very low.”

The power of the Sharpe Ratio is what it conveys in one simple number—incremental investment reward per unit of risk. Or said more colloquially, it communicates how much bang investors are getting for the bucks they risk.

There are several variations of the Sharpe Ratio. But for this column let’s think of it as [average portfolio returns - the risk-free rate] / standard deviation, where “excess return” is calculated in the numerator as the average of portfolio returns for a given period, like a month or a year, minus the risk-free rate (usually, Treasury bills). The denominator is the standard deviation of excess return, and the resulting quotient is the Sharpe Ratio. The bigger the number, the better the risk-adjusted performance.

But guess again if you think funds with high Sharpe Ratios are all it takes to build client portfolios.

I recently sat down with the ratio’s namesake, Nobel laureate and Stanford University finance professor emeritus Dr. William Sharpe. I asked him to put himself in the shoes of a financial adviser and explain the right way to use his calculation.

In his unassuming manner, Dr. Sharpe referred to it as the “reward-to-variability ratio.” He also addressed active versus passive management, hedge funds and the human touch. And several of his observations might affect how you think about risk—or position your investment advice.

Not a Sales Pitch

Go to Google Finance, Yahoo Finance, and many other repositories for financial data, and you will find Sharpe Ratios for virtually all the mutual funds and exchange-traded funds. There is a tendency in the world of financial advice (and, apparently, on the set of “Billions”) to cite the ratio as a reason to hire or fire individual money managers.

Not so fast.

“The Sharpe Ratio, in its traditional form, ought to be used primarily for one’s whole portfolio,” Dr. Sharpe says.

True to his professorial core, he forwarded me reading material, including his 1994 paper published by the Journal of Portfolio Management. In it, he stresses the importance of correlation to manager selection and explains why a fund with a low Sharpe Ratio might be the better investment choice for client portfolios.

“It is entirely possible that a fund with a smaller Sharpe Ratio could have sufficiently smaller correlation with the investor’s other assets that it would provide a higher expected return on assets for any given level of overall asset risk,” he wrote in the paper.


The Math of Active Management

While working through my homework assignment, I noticed Dr. Sharpe’s focus on fund expenses. So I asked him to weigh in on active-versus-passive investments given that some ETFs have expense ratios as low as 3 or 4 basis points.

“The average active manager, net of costs, will underperform the passive manager by the difference” of their expenses, he says, describing cost differentials as the “arithmetic of active management.”

Fees, therefore, create barriers to outperformance. And if there’s one sector where the math really comes into play, it’s with hedge funds. In my view, “2 and 20” fees that take a fifth of any profit on top of the management fee make them more of a pig-out than compensation schedule.

Continued in article

Enterprise Resource Planning (ERM) Systems ---

Accounting and ERP systems: A look inside drillable financial statements ---

EY:  Year-End Issues for Audit Committees --- 2017 YE issues for Acs

EY:  SEC Reporting Update Spotlight on cybersecurity disclosures ---$FILE/SECReportingUpdate_06544-171US_Cybersecurity_16November2017.pdf

What you need to know

• With the increase in cyber threats and attacks, SEC Chairman Jay Clayton has signaled that the SEC staff will increase its scrutiny of companies’ disclosures about cyber incidents and their cybersecurity programs.

 • The SEC staff’s guidance states that companies need to consider disclosing the risks associated with cyber attacks and breaches in registration statements and periodic reports. The SEC staff has said that it expects the SEC to update and expand that cybersecurity guidance very soon. 

• The type of disclosure and the level of detail depend on a registrant’s facts and circumstances, including the probability of an incident occurring and the potential magnitude of its effects on the company.

• This publication outlines factors that companies can consider in making these disclosures and examples of what some companies have disclosed.

Overview After the Securities and Exchange Commission (SEC or Commission) said its EDGAR filing system had been compromised, SEC Chairman Jay Clayton issued a statement about the importance of cybersecurity to the Commission and registrants. While he acknowledged that “even the most diligent cybersecurity efforts will not address all cyber risks that enterprises face,” Chairman Clayton said “that reality does not make adequate disclosure less important.”

EY:  Updated FRD on income tax accounting (over 500 pages) ---$FILE/FinancialReportingDevelopments_BB1150_IncomeTaxes_3November2017.pdf

EY:  A closer look at the new guidance on recognizing and measuring financial instruments ---$FILE/TechnicalLine_06214-171US_RecogMeasureFinancialInstruments_2November2017.pdf

What you need to know

• The new recognition and measurement guidance requires entities to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income.

• The standard doesn’t change the guidance for classifying and measuring investments in debt securities or loans.

• Entities have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option (FVO) in other comprehensive income.

 • This publication has been updated to address clarifications the FASB proposed on transition, application of the measurement alternative and presentation of financial liabilities measured using the FVO as well as questions companies have raised.

• The guidance is effective for calendar-year public business entities beginning in 2018. For all other calendar-year entities, it is effective for annual periods beginning in 2019 and interim periods beginning in 2020.

The final guidance1 the Financial Accounting Standards Board (FASB) issued in 2016 changes how public and private companies, not-for-profit entities and employee benefit plans recognize, measure, present and make disclosures about certain financial assets and financial liabilities.

NY Times: Columbia, Dartmouth, Duke, Stanford, Texas & USC Are Among Colleges Using 'Blocker Corporations' To Avoid Taxes On Endowment Income ---

List Of 140 Colleges With Endowments Greater Than $100,000 Per Student That Would Be Subject To GOP's Proposed 1.4% Tax On Investment Income ---

The following chart shows the 200 private institutions with enrollments of 500 or more, ranked by the value of their endowment per student. Institutions marked in yellow would have endowments subject to taxation:



Endowment value (2014)

Full-time enrollment (2015)

Endowment value per student

Princeton University




Yale University




Harvard University




Stanford University




Pomona College




Amherst College




Swarthmore College




Massachusetts Institute of Technology




Grinnell College




Williams College





. . .

Trinity University (Tex.)




University of Chicago




Hamilton College (N.Y.)




Duke University




University of Pennsylvania




Northwestern University




Berry College




Middlebury College




Wabash College




Vassar College




Colby College




Haverford College




Carleton College




Earlham College and Earlham School of Religion




Columbia University




Reed College




Davidson College




Denison University




Whitman College




Macalester College




Harvey Mudd College




Vanderbilt University




Brown University




Mount Holyoke College




Lafayette College





Why do perpetual bonds cut debt "on paper?

Chinese firms turn to perpetual bonds to cut debt on paper ---

Jensen Comment
It will be useful for accounting students to compare journal entries for perpetual bonds versus Junk bonds versus AAA bonds versus preferred stock.

The SEC eased up on enforcement actions against public companies in the second half of fiscal year 2017 ---



From the CFO's Morning Ledger on November 30, 2017

Trump administration questions validity of SEC judges.
The Trump administration on Wednesday abandoned its defense of the  U.S. Securities and Exchange Commission’s in-house judicial system, siding with opponents who say the hiring process for the SEC’s judges is unconstitutional.

From the CFO's Morning Ledger on November 30, 2017

FASB votes to ease lease accounting standard
. The Financial Accounting Standards Board on Wednesday voted to simplify the implementation of the upcoming lease accounting standard in an effort to reduce costs associated with the new rules.
The board will issue a final update on land easements that will provide a practical expedient to transition to the new standard.
FASB also directed staff to draft a proposal, subject to a 30-day comment period, that would allow an organization to not provide comparative period financial statements, and instead apply transition provisions of the leases standard at its effective date. The proposal would also add a practical expedient to permit lessors to not separate nonlease components from the the related lease if certain conditions are met.


Also see

From the CFO's Morning Ledger on November 28, 2017

Good morning. U.S. Supreme Court justices on Tuesday expressed skepticism that whistleblowers who report corporate wrongdoing internally instead of to the U.S. Securities and Exchange Commission are protected from retaliation under the 2010 Dodd-Frank regulatory-overhaul law, writes WSJ's Dave Michaels.

The question stems from a lawsuit filed by a whistleblower, Paul Somers, who says he was fired from Digital Realty Trust Inc. after complaining internally about accounting irregularities. Mr. Somers argues he was protected by a Dodd-Frank provision that encourages people to inform the SEC about corporate misconduct and shields them from retaliation.

Digital Realty, the operator of a real-estate investment trust, argues Mr. Somers didn’t qualify for protection because he didn’t meet the Dodd-Frank definition of a whistleblower: someone who reports a violation to the SEC.

The SEC and Justice Department say that 80% of whistleblowers report internally before they tell the SEC about a violation. If the justices eventually rule in favor of Digital Realty, the decision could prompt more whistleblower complaints to the SEC, which last year received more than 4,400, according to agency figures.

From the CFO's Morning Ledger on November 28, 2017

The patent case that is splitting corporate America
The U.S. Supreme Court on Monday appeared split along ideological lines in a high-stakes case over patents that is pitting pharmaceutical and biotechnology companies against tech titans like Alphabet Inc.’s Google and Apple Inc.

From the CFO's Morning Ledger on November 28, 2017

EU dispute over Monsanto Co. weedkiller settled