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

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

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

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

Choose a Date Below for Additions to the Bookmarks File

2017  

December 2017
 

November 2017
 

October 2017
 

December 2017

Bob Jensen's New Additions to Bookmarks

December 2017

Bob Jensen at Trinity University 

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

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

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

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

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

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

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

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

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

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

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

CPA exam will increase focus on higher-order skills
"What Higher Order Skills Will be Tested on the Next CPA Examination," by Ken Tysiac, Journal of Accountancy, April 4, 2016 ---
http://www.journalofaccountancy.com/news/2016/apr/new-cpa-exam-201614166.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Apr2016

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

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

SEC:  More Than $16 Million Awarded to Two Whistleblowers ---
https://www.sec.gov/news/press-release/2017-216

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 www.sec.gov/whistleblower.

IRS Whistleblower Awards Jump 322% ---
http://taxprof.typepad.com/taxprof_blog/2017/01/irs-whistleblower-awards-jump-322.html

Bob Jensen's threads on whistleblowing ---
http://faculty.trinity.edu/rjensen//FraudConclusion.htm#WhistleBlowing

Ten startups that died in 2017 — despite $1.7 billion in funding ---
http://www.businessinsider.com/startups-that-raised-148-billion-have-shut-down-or-may-soon-2017-11

A $250M ‘oasis’: Oil tycoon T. Boone Pickens puts prized Texas Panhandle ranch on the market ---
http://amarillo.com/news/local-news/business/2017-11-29/250m-oasis-oil-tycoon-t-boone-pickens-puts-prized-texas

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 ---
https://www.hiltonhyland.com/listings/924-bel-air-rd-bel-air-ca-90077/
For $410 million you can buy a house on a mere 35 acres in South France ---
https://www.bizjournals.com/sanjose/news/2017/10/12/most-expensive-home-villa-cedres-france-campari.html

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
https://zorba-research.blogspot.ca/2017/12/rapid-expansion-in-use-of-xbrl.html
Bob Jensen's XBRL threads ---
http://faculty.trinity.edu/rjensen/XBRLandOLAP.htm

Zorba:  AI Requires Good Data ---
https://zorba-research.blogspot.ca/

Zorba:  How Companies use Social Media for Corporate Reporting ---
https://zorba-research.blogspot.ca/2017/09/how-companies-use-social-media-for.html

XBRL History and Overview --- http://faculty.trinity.edu/rjensen/XBRLandOLAP.htm#TimelineXBRL

Zorba:  Corporate Actions should be reported in XBRL ---
https://zorba-research.blogspot.ca/2017/12/corporate-actions-should-be-reported-in.html

Lawyer who once advised Martin Shkreli has been convicted of helping him defraud a pharmaceutical company ---
http://www.businessinsider.com/martin-shkrelis-former-attorney-was-convicted-of-aiding-fraud-scheme-2017-12

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

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 ---
https://www.vox.com/policy-and-politics/2017/12/28/16818680/state-local-tax-deduction-income-payroll-trump-tax-reform-republican

Andrew Cuomo is waging an all-out assault on the GOP tax law to save New York's higher income and very wealthy residents ---
http://www.businessinsider.com/prepaying-property-tax-in-new-york-andrew-cuomo-fights-trump-tax-law-2017-12

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.’ ---
https://www.politico.com/magazine/story/2017/11/15/john-koskinen-taxes-215830
Trump's tax returns are locked away in a special safe.

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

How to buy and sell bitcoin using one of the most popular cryptocurrency apps on the iPhone ---
http://www.businessinsider.com/tech-finance-coinbase-buy-sell-trade-bitcoin-app-coinbase-2017-1

Bitcoin Futures Trading Gets Green Light from USA Regulators ---
http://www.businessinsider.com/bitcoin-price-futures-trading-exchanges-cftc-2017-12

Bitcoin's Six Biggest Risks ---
http://www.businessinsider.com/bitcoins-6-biggest-risks-2017-11

The Unlucky Man Who Accidentally Threw Away Bitcoin Worth $100 million ---
http://www.walesonline.co.uk/news/wales-news/unlucky-man-who-accidentally-threw-13989640

Interest in Bitcoin Is Spreading ‘Like a Contagion,’ Says Nobel-Winning Economist Who Predicted the Housing Bubble ---
http://time.com/money/5060167/nobel-winning-economist-robert-shiller-bitcoin/?utm_source=time.com&utm_medium=email&utm_campaign=the-brief&utm_content=2017121219pm&xid=newsletter-brief

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 ---
https://www.marketwatch.com/story/new-rule-forces-big-car-makers-into-big-changes-in-how-they-count-revenues-2017-07-27

GAAP and the Federal Budget Deficit, by Tom Selling, The Accounting Onion, December 5, 2017 ---
http://accountingonion.com/2017/12/gaap-and-the-federal-deficit.html

. . .

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 ---
http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1218220144453&acceptedDisclaimer=true

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.

Thanks,
Bob Jensen

December 11, 2017 reply from Tom Selling

Bob:

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.

 

Best,

Tom

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 ---
http://www.kawaller.com/alternative-hedge-accounting-treatments-for-foreign-exchange-forwards/

Ira summarizes FX accounting and hedging things to consider in general at in general in an excellent short article at
http://www.kawaller.com/hedging-currency-exposures-by-multinationals-things-to-consider/

Ira discusses cross-currency swap hedge accounting for multinationals at
http://www.kawaller.com/hedging-currency-exposures-by-multinationals-things-to-consider/

Also see
http://www.kawaller.com/foreign-exchange-hedging-currency-risk-for-foreign-assets-and-liabilities/

An excellent summary of cross-currency swaps is at
http://www.kawaller.com/the-new-world-under-fas-133-cross-currency-interest-rate-swaps/

Complying with FAS 133 when there are FX hedges ---
http://www.kawaller.com/complying-with-fas-133/

Fintech --- https://en.wikipedia.org/wiki/Financial_technology

Fintech could be bigger than ATMs, PayPal, and Bitcoin combined ---
http://www.businessinsider.com/fintech-ecosystem-financial-technology-research-and-business-opportunities-2016-2

Will The Lawyers Ring the Death Knell for Football (USA style football)?
https://www.insidehighered.com/news/2017/12/01/avalanche-football-related-concussion-lawsuits-against-ncaa-and-conferences-could?utm_source=Inside+Higher+Ed&utm_campaign=b5ef334b09-DNU20171201&utm_medium=email&utm_term=0_1fcbc04421-b5ef334b09-197565045&mc_cid=b5ef334b09&mc_eid=1e78f7c952

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 ---
http://ritholtz.com/2017/12/mib-jeremy-schwartz-hedge-currency-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
http://faculty.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#ForeignCurrencyHedge

The CPA Journal
Interest Rate Swaps: Simplified Accounting for a Perfect Fair Value Hedge ---
https://www.cpajournal.com/2017/11/27/interest-rate-swaps-simplified-accounting-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
http://www.cs.trinity.edu/~rjensen/Calgary/CD/JensenPowerPoint/

Also see Bob Jensen's hedge accounting glossary at
http://faculty.trinity.edu/rjensen/acct5341/speakers/133glosf.htm

One of the most difficult aspects of interest rate swap hedge accounting is the valuation of interest rate swaps ---
http://faculty.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm

The CPA Journal
Characteristics of Financial Restatements and Frauds An Analysis of Corporate Reporting Quality from 2000–2014 ---
https://www.cpajournal.com/2017/11/20/characteristics-financial-restatements-frauds/

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 ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm

Audit Firm Charged With Fraud in Audits of Penny Stock Companies ---
https://www.sec.gov/litigation/admin/2017/34-82206.pdf

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

The (London) Times:  Big payouts for victims of tracker mortgage scandal ---
https://www.thetimes.co.uk/edition/ireland/big-payouts-for-victims-of-tracker-mortgage-scandal-xfvkwxtm6

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 ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm

Affinity Fraud --- https://en.wikipedia.org/wiki/Affinity_fraud

FBI Warns About Affinity Fraud ---
https://www.fbi.gov/news/stories/beware-of-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 ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm 

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

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3087998
10 Pages Posted: 19 Dec 2017  

Scott David Hakala

ValueScope, Inc.

Date Written: December 14, 2017

Abstract

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

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3082489
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

Abstract

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

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3090679
54 Pages Posted: 20 Dec 2017  

Date Written: December 19, 2017

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

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3088733
28 Pages Posted: 19 Dec 2017  

William Miles

Wichita State University - W. Frank Barton School of Business

Date Written: December 15, 2017

Abstract

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

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3087669
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

Abstract

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

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3086824
41 Pages Posted: 18 Dec 2017  

Date Written: December 12, 2017

Keywords: Liabilities Versus Equity, Financial Reporting, Capital Structure

Value Relevance and the Adoption of IFRS: The Canadian Experience

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3089834
Posted: 18 Dec 2017  

Date Written: December 18, 2017

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

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3088225
16 Pages Posted: 17 Dec 2017  

Ross Taplin

Curtin University - School of Accounting

Date Written: December 2017

Abstract

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.

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

The Accounting Review, Forthcoming
SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3082333

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

Abstract

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
SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3080873

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

Independent

Date Written: May 1, 2017

Abstract

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
SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3080985

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

Abstract

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

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

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3080965
26 Pages Posted: 6 Dec 2017  

Date Written: October 6, 2017

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 ---
https://www.cpajournal.com/2017/11/21/proper-risk-based-approach-search-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 ---
https://www.cpajournal.com/2017/12/01/essentials-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 ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

The CPA Journal
A Non-GAAP Reporting Sampler ---
https://www.cpajournal.com/2017/09/19/non-gaap-reporting-sampler/

Baruch Lev recently reported in his article, “Surprise: Investors Like Non-GAAP Earnings” (Seeking Alpha, Apr. 6, 2017, http://bit.ly/2uDDqo9) 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, http://bit.ly/2uMNkEz) 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 http://www.sec.gov. (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 (http://bit.ly/2ufae62).

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. .

QUESTIONS: 

	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.

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"GE Numbers Game Puzzles Investors," by Michael Rapoport, The Wall Street Journal, October 31, 2017
https://www.wsj.com/articles/ges-numbers-game-pick-from-four-earnings-figures-1509364801?mod=djem_jiewr_AC_domainid

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 ---
https://www.reuters.com/article/us-russia-budget/russian-budget-deficit-almost-doubles-in-a-month-idUSKBN1E62J6
Jensen Comment
Russian accounting throughout history always leaves a lot to be doubted.

EY:  Third parties and related risks ---
http://www.ey.com/us/en/issues/governance-and-reporting/ey-oversight-of-third-party-risk?utm_source=aanews&utm_medium=email&utm_campaign=Oversight_of_third_party_risk

EY:  Accounting for the effects of the Tax Cuts and Jobs Act ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_07172-171US_TaxReform_19December2017/$FILE/TechnicalLine_07172-171US_TaxReform_19December2017.pdf

EY:  Comment Letter on Codification Improvements ---
http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_06871-171US_CodificationImprovements_4December2017/$FILE/CommentLetter_06871-171US_CodificationImprovements_4December2017.pdf

EY: Financial Reporting Briefs for December 2017 ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingBriefs_07031-171US_14December2017/$FILE/FinancialReportingBriefs_07031-171US_14December2017.pdf

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

Bob Jensen's threads on pro forma reporting ---
http://faculty.trinity.edu/rjensen/theory02.htm#ProForma

EY:  Accounting for Effects of Tax Cuts and the Jobs Act---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_07172-171US_TaxReform_19December2017/$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 ---
http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_06850-171US_SelectedProcedures_1December2017/$FILE/CommentLetter_06850-171US_SelectedProcedures_1December2017.pdf

The CPA Journal
Not All PCAOB Inspections Are Created Equal ---
https://www.cpajournal.com/2017/08/30/not-pcaob-inspections-created-equal/

The PCAOB’s Role in Improving Audit Quality ---
https://www.cpajournal.com/2017/08/21/pcaobs-role-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)
http://aaajournals.org/doi/abs/10.2308/iace-51722

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)
http://aaajournals.org/doi/abs/10.2308/iace-51753

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)
http://aaajournals.org/doi/abs/10.2308/iace-51741

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)
http://aaajournals.org/doi/abs/10.2308/acch-51801

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)
http://aaajournals.org/doi/abs/10.2308/acch-51777

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)
http://aaajournals.org/doi/abs/10.2308/accr-51721

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 ---
https://www.journalofaccountancy.com/newsletters/2017/dec/why-auditing-on-site.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=08Dec2017

Paul Ryan: 'Twas The Night Before Taxmas ---
http://taxprof.typepad.com/taxprof_blog/2017/12/paul-ryan-twas-the-night-before-taxmas.html
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 ---
https://www.justice.gov/usao-sdny/press-release/file/1014381/download

Question
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 ---
http://faculty.trinity.edu/rjensen/FraudRottenPart2.htm#Ponzi

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.

Question
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 --- https://en.wikipedia.org/wiki/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 --- https://en.wikipedia.org/wiki/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 ---
https://www.bloomberg.com/news/articles/2017-11-24/tesla-s-newest-promises-break-the-laws-of-batteries?cmpid=BBD112417_BIZ&utm_medium=email&utm_source=newsletter&utm_term=171124&utm_campaign=bloombergdaily

Former GM exec calls Tesla a 'losing enterprise,' and says it's 'going out of business' ---
http://www.businessinsider.com/bob-lutz-former-gm-exec-says-tesla-is-a-losing-enterprise-2017-11

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?
https://hbr.org/2017/12/case-study-should-a-hotel-giant-eliminate-some-brands-and-refocus?utm_medium=email&utm_source=newsletter_daily&utm_campaign=dailyalert&referral=00563&spMailingID=18661463&spUserID=MTkyODM0MDg0MAS2&spJobID=1161144570&spReportId=MTE2MTE0NDU3MAS2

IMA Case Journal
Volume 10 Issue 4

IMA Educational Case Journal

ISSN 1940-204X
https://www.imanet.org/educators/ima-educational-case-journal/iecj-index/2017/volume-10-issue-4?ssopc=1

Articles

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)
http://aaajournals.org/doi/abs/10.2308/iace-51845

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 https://www.rolls-royce.com/~/media/Files/R/Rolls-Royce/documents/investors/2017-hy-press-release.pdf), 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 https://www.rolls-royce.com/~/media/Files/R/Rolls-Royce/documents/investors/results/2016-full-year-appendices-data-pack-doc.pdf) 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

QUESTIONS: 

	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?

READ THE ARTICLE

 

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
https://www.wsj.com/articles/new-accounting-rule-to-revamp-companies-financials-1510960723?mod=djem_jiewr_AC_domainid

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.

QUESTIONS: 

	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.

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Stop Using Excel, Finance Chiefs Tell Staffs," by Tatyana Shumsky, Nov 22, 2017
https://www.wsj.com/articles/stop-using-excel-finance-chiefs-tell-staffs-1511346601?mod=djem_jiewr_AC_domainid

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 https://www.sec.gov/Archives/edgar/data/37996/0000037996170 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.

QUESTIONS: 

	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 https://www.sec.gov/Archives/edgar/data/37996/000003799617000086/a8-kdated10x18x2017.htm. 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.

READ THE ARTICLE

 

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
https://www.wsj.com/articles/recalls-mount-during-fords-reinvention-push-1511701201?mod=djem_jiewr_AC_domainid

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.

QUESTIONS: 

	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?

READ THE ARTICLE

 

RELATED ARTICLES: 
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
https://www.wsj.com/articles/supreme-court-questions-whether-dodd-frank-protects-all-whistleblowers-1511902391?mod=djem_jiewr_AC_domainid

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.

QUESTIONS: 

	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.

READ THE ARTICLE

 

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
https://www.wsj.com/articles/how-i-beat-math-phobiaand-became-a-better-entrepreneur-1511751960?mod=djem_jiewr_AC_domainid

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.

QUESTIONS: 

	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.

READ THE ARTICLE

 

RELATED ARTICLES: 
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
https://www.wsj.com/articles/sec-aims-to-advance-nominees-for-audit-regulator-1512487367?mod=djem_jiewr_AC_domainid

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

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

This graphic (scroll down) shows the craziness of the cryptocurrency craze ---
https://www.fastcodesign.com/90154223/this-graphic-explains-just-how-ridiculous-the-cryptocurrency-bubble-is

How to buy and sell bitcoin using one of the most popular cryptocurrency apps on the iPhone ---
http://www.businessinsider.com/tech-finance-coinbase-buy-sell-trade-bitcoin-app-coinbase-2017-1

Bitcoin Futures Trading Gets Green Light from USA Regulators ---
http://www.businessinsider.com/bitcoin-price-futures-trading-exchanges-cftc-2017-12

Bitcoin's Six Biggest Risks ---
http://www.businessinsider.com/bitcoins-6-biggest-risks-2017-11

The Unlucky Man Who Accidentally Threw Away Bitcoin Worth $100 million ---
http://www.walesonline.co.uk/news/wales-news/unlucky-man-who-accidentally-threw-13989640

Interest in Bitcoin Is Spreading ‘Like a Contagion,’ Says Nobel-Winning Economist Who Predicted the Housing Bubble ---
http://time.com/money/5060167/nobel-winning-economist-robert-shiller-bitcoin/?utm_source=time.com&utm_medium=email&utm_campaign=the-brief&utm_content=2017121219pm&xid=newsletter-brief

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

How to buy and sell bitcoin using one of the most popular cryptocurrency apps on the iPhone ---
http://www.businessinsider.com/tech-finance-coinbase-buy-sell-trade-bitcoin-app-coinbase-2017-1

Bitcoin Futures Trading Gets Green Light from USA Regulators ---
http://www.businessinsider.com/bitcoin-price-futures-trading-exchanges-cftc-2017-12

Bitcoin's Six Biggest Risks ---
http://www.businessinsider.com/bitcoins-6-biggest-risks-2017-11

The Unlucky Man Who Accidentally Threw Away Bitcoin Worth $100 million ---
http://www.walesonline.co.uk/news/wales-news/unlucky-man-who-accidentally-threw-13989640

Interest in Bitcoin Is Spreading ‘Like a Contagion,’ Says Nobel-Winning Economist Who Predicted the Housing Bubble ---
http://time.com/money/5060167/nobel-winning-economist-robert-shiller-bitcoin/?utm_source=time.com&utm_medium=email&utm_campaign=the-brief&utm_content=2017121219pm&xid=newsletter-brief

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.

QUESTIONS: 

	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?

READ THE ARTICLE

 

RELATED ARTICLES: 
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,
https://www.wsj.com/articles/secs-cyber-unit-charges-canadian-firm-with-coin-offering-fraud-1512400168?mod=djem_jiewr_AC_domainid

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.

QUESTIONS: 

	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?

READ THE ARTICLE

 

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
https://www.wsj.com/articles/why-sexual-harassment-matters-to-investors-1512495760?mod=djem_jiewr_AC_domainid

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.

QUESTIONS: 

	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?

READ THE ARTICLE

 

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
https://www.wsj.com/articles/the-retirement-part-timer-where-to-start-1512151822?mod=djem_jiewr_AC_domainid

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, mylifestylecareer.com, 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 encore.org, 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.

QUESTIONS: 

	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?

READ THE ARTICLE

 

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
https://www.wsj.com/articles/companies-push-to-repeal-amt-after-senates-last-minute-move-to-keep-it-alive-1512435711?mod=djem_jiewr_AC_domainid

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 Amazon.com 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.

QUESTIONS: 

	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?

READ THE ARTICLE

 

RELATED ARTICLES: 
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
https://www.wsj.com/articles/steinhoff-adds-advisers-after-accounting-irregularities-1512979815?mod=djem_jiewr_AC_domainid

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.

QUESTIONS: 

	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]...to be heard." What do you think this means?

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Government Cleans House at Audit Regulator," by Dave Michaels, The Wall Street Journal, December 13, 2017
https://www.wsj.com/articles/government-cleans-house-at-audit-regulator-1513110178?mod=djem_jiewr_AC_domainid

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.

QUESTIONS: 

	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 https://www.sec.gov/cgi-bin/viewer?action=view&cik=1326801&accession_number=0001326801-17-000007&xbrl_type=v# 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?

READ THE ARTICLE

RELATED ARTICLES: 
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
https://www.wsj.com/articles/facebook-to-give-countries-a-chance-to-tax-its-profits-from-local-ads-1513106868?mod=djem_jiewr_AC_domainid

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.

Amazon.com 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.

QUESTIONS: 

	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."

READ THE ARTICLE

 

RELATED ARTICLES: 
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
https://www.wsj.com/articles/corporate-accountants-must-make-swift-complex-changes-to-adhere-to-tax-overhaul-1513391850?mg=prod/accounts-wsj?mod=djem_jiewr_AC_domainid&mg=prod/accounts-wsj

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.

QUESTIONS: 

	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?

READ THE ARTICLE

 

VIEW THE VIDEO

 

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
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
https://www.wsj.com/articles/tax-overhaul-leaves-little-time-for-adapting-to-the-changes-1513806864?mod=djem_jiewr_AC_domainid

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.

QUESTIONS: 

	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.

READ THE ARTICLE

 

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
https://www.wsj.com/articles/as-food-costs-rise-grocers-strain-to-keep-customers-from-sharing-the-pain-1513512000?mod=djem_jiewr_AC_domainid

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 Amazon.com 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.

QUESTIONS: 

	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?

READ THE ARTICLE

 

RELATED ARTICLES: 
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
https://www.wsj.com/articles/stitch-fixs-customers-and-sales-rise-but-profits-are-pinched-1513723951?mod=djem_jiewr_AC_domainid

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 cash...is 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.

QUESTIONS: 

	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.

READ THE ARTICLE

 

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
https://www.wsj.com/articles/harvard-endowment-chief-pushed-for-steeper-devaluation-of-assets-1513252800?mod=djem_jiewr_AC_domainid

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 --- http://www.darwinawards.com/

Smart Kid Figures Out Santa is Fake ---
https://www.youtube.com/watch?v=_b31Td-HTT8

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

THE 6 BEST SMART ASS ANSWERS .......... 

 
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. 

SMART ASS ANSWER #5 
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.' 

SMART ASS ANSWER #4 
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.' 

SMART ASS ANSWER #3 
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. 

SMART ASS ANSWER #2 
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.' 

SMART ASS ANSWER OF THE YEAR 2007 
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

We ALL GET OLD IN THE END....

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And that's the way it was on December 31, 2017 with a little help from my friends.

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

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

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

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

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

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

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

November 2017

Bob Jensen's New Additions to Bookmarks

November 2017

Bob Jensen at Trinity University 

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

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

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

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

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

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

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

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

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

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

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

CPA exam will increase focus on higher-order skills
"What Higher Order Skills Will be Tested on the Next CPA Examination," by Ken Tysiac, Journal of Accountancy, April 4, 2016 ---
http://www.journalofaccountancy.com/news/2016/apr/new-cpa-exam-201614166.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Apr2016

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

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

Wikibooks is a source of evolving free textbooks ---
https://en.wikibooks.org/wiki/Subject:Books_by_subject

For example, here's what's available and planned for accountancy ---
https://en.wikibooks.org/wiki/Accountancy

One of the Best Sources of Free Learning Videos in Various Disciplines is the Ever-Growing Khan Academy ---
https://www.khanacademy.org/

For Example this is What's Available in Accountancy and Taxation ---

https://www.khanacademy.org/economics-finance-domain/core-finance/accounting-and-financial-stateme

https://www.khanacademy.org/economics-finance-domain/core-finance/taxes-topic

More than 100 colleges have set up channels on YouTube --- http://www.youtube.com/edu
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 ---
http://faculty.trinity.edu/rjensen/ElectronicLiterature.htm

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

Microsoft Word: Enable Word’s AutoRecovery tool ---
https://www.journalofaccountancy.com/issues/2017/nov/enable-word-auto-recovery-tool.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=21Nov2017

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 ---
http://aaahq.org/Portals/0/documents/misc/Issues in Accounting Education_Future_Call_For_Papers.pdf

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

QuickBooks jumps on the chatbot bandwagon ---
https://www.accountingtoday.com/news/quickbooks-jumps-on-the-chatbot-bandwagon

Here's a super-short history of 2,400 years of emerging markets ---
http://www.businessinsider.com/history-of-emerging-markets-investing-2017-11

A Brief History of the Corporation: 1600 to 2100 by Venkatesh Rao ---
http://www.ribbonfarm.com/2011/06/08/a-brief-history-of-the-corporation-1600-to-2100/
Links to accounting history over the same time periods ---
http://faculty.trinity.edu/rjensen/theory01.htm#AccountingHistory

Dennis Elam on Globalscape GSB
A Real-World Lesson on Earnings Reporting ---
http://professorelam.typepad.com/my_weblog/2017/11/a-real-world-lesson-on-earnings-reporting.html

Question
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 ---
http://www.businessinsider.com/voice-assistant-report-2017-3

Jensen Comment
I'm betting that the next big thing in education technology will be Chatbots ---
https://en.wikipedia.org/wiki/Chatbot

Second Life Virtual World --- https://en.wikipedia.org/wiki/Second_Life

The Atlantic:  The Digital Ruins of a Forgotten Future ---
https://www.theatlantic.com/magazine/archive/2017/12/second-life-leslie-jamison/544149/

Bob Jensen's threads on Second Life and Other Virtual Worlds (including accounting education and IRS experiments) ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#SecondLife

California's government workers have a whole range of ways to game the pension system ---
http://reason.com/archives/2017/11/10/cynical-bill-shows-why-public-sector-abu

The Washington Post
A team of archaeologists was able to analyze 12,000 clay tablets detailing business transactions mentioning 26 ancient cities ---
https://www.washingtonpost.com/news/wonk/wp/2017/11/13/ancient-data-modern-math-and-the-hunt-for-11-lost-cities-of-the-bronze-age/?utm_term=.7655f41b20e4

From David Giles

Econometrics Reading List for November
http://davegiles.blogspot.com/2017/11/econometrics-reading-list-for-november.html

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. 

Big Data and Analytics in the Modern Audit Engagement: Research Needs
AUDITING: A Journal of Practice & Theory
Article Volume 36, Issue 4 (November 2017
http://aaajournals.org/doi/abs/10.2308/ajpt-51684

Authors
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
http://aaajournals.org/doi/abs/10.2308/ajpt-51629

Authors

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.

Corporate Deleveraging and Financial Flexibility

Fisher College of Business Working Paper No. 2017-03-028
Charles A. Dice Working Paper No. 2017-03-028

SSRN
73 Pages Posted: 17 Nov 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3069653

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

Abstract

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

SSRN
48 Pages Posted: 16 Nov 2017 Last revised: 17 Nov 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3070885

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

Abstract

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

SSRN
10 Pages Posted: 16 Nov 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3025011 

Allan Graham
American University of Sharjah

Anup Menon Nandialath
Zayed University

Debra Skaradzinski
Zayed University

Elzotbek Rustambekov
Bryant University

Date Written: 2017

Abstract

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

SSRN
10 Pages Posted: 16 Nov 2017  
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3025067

Subadar Agathee Ushad