New Bookmarks
Year 2018 Quarter 1:  January 1 - March 31 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

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

2018

January

February

March

March 2018

        Bob Jensen's New Additions to Bookmarks

March 2018

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

***Year-End Closing Out of Bob Jensen's Three Long-Time Blogs

Current and past editions of my blog called Tidbits --- http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm


Current and past editions of my accounting education, research, and teaching cases blog called New Bookmarks --- http://faculty.trinity.edu/rjensen/bookurl.htm


Current and past editions of my blog called Fraud Updates --- http://faculty.trinity.edu/rjensen/FraudUpdates.htm
 

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

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

AICPA:  Phone scams and phishing featured in 2018's Dirty Dozen tax scams ---
https://www.journalofaccountancy.com/news/2018/mar/2018-tax-scams-201818623.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=21Mar2018

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

Francine:  The investors duped by the Theranos fraud never asked for one important thing ---
https://www.marketwatch.com/story/the-investors-duped-by-the-theranos-fraud-never-asked-for-one-important-thing-2018-03-19
Founder Holmes raised $700 million from investors but never hired accountants to produce audited financial information

AICPA:  Three Possible $15,000 Audit Research Grants
Accounting educators who submit an approved research proposal are eligible for up to $15,000 in funding and, where applicable, access to peer reviewers and firm personnel or anonymized firm data provided by the AICPA Peer Review
https://www.aicpa.org/interestareas/peerreview/assuranceresearchadvisorygroup-home.html?cid=email:AAA:ARAGwinners2018:learnmore:aicpa&utm_medium=email&utm_source=AAA&utm_campaign=ARAGwinners2018&utm_content=learnmore

PwC’s millennial employees led a rebellion—and their demands are being met ---
https://work.qz.com/1217854/pwcs-millennial-employees-led-a-rebellion-and-their-demands-are-being-met/

A few years ago, PwC recruiters noticed a change on the blue-chip campuses that produced so many of the consulting behemoth’s new hires.

For decades, fresh graduates had simply accepted they’d be signing away nights, weekends, and any semblance of a normal family life or social calendar in exchange for bragging rights at a big-name firm, a big paycheck at the outset, and the promise of a much bigger one when they made partner later on. It was a deal new recruits were willing to take.

Until, suddenly, they weren’t anymore.

“We sort of pride our selves on, ‘Ah, we don’t need to have lives, we just forge ahead,’” says Anne Donovan, the company’s US “people innovation leader,” summarizing the mindset that prevailed at PwC for most of her 34 years there.

But millennial employees, who by 2013 represented two-thirds of the company’s workforce, were no longer so willing to shelve their personal lives indefinitely for the possibility of a lucrative partnership years down the road. And those who did start as associates were far more likely than their predecessors to complain when flexibility promised in the recruiting process failed to materialize. The old model was broken.

This is where moaning about millennials typically starts: Ugh, they’re so entitled! But when executives at PwC stepped back, they realized that the concerns of the company’s youngest employees were not all that different from those of older colleagues. A new generation of workers was simply pointing out a truth that management had been willing to ignore, as long as everyone was still staying late and the work was still getting done: Virtually everything about the economy that PwC serves has changed in the last 20 years. Why couldn’t its culture?

From one kind of crisis to another

Like a lot of workplace conventions, the grind awaiting young consultants was a holdover from an era when the rank and file was dominated by men from single-earner households. But as the workforce evolved, so did its priorities.

Continued in article

Jensen Comment
This article does not extrapolate well to smaller firms, especially local firms. Our son is a tax accountant for a small CPA firm in a relatively small California town. In tax season a he works long hours seven days a week. Can he be easily replaced if and when he retires? The term "easily replaced" depends a lot on luck and circumstances. Local firms in small town depend heavily on capturing new employees who want out of the larger cities, especially those seeking rural communities among wealthy land-owning clients and prospering small businesses in need of accounting services. Why do some lawyers, doctors, and accountants want out of the big cities. Among the top reasons are to get away from lousy public schools and/or long commutes. Some want out of cities like San Francisco due to exceptionally high living costs even in the safe suburbs.

I might add that most new hires of international CPA firms are not really expecting or even hoping to partners in those firms --- partners often have even longer work hours under lots of stress. What new hires want is valuable training and experience that leads to job offers from clients.

The situtation may be a little different for lawyers. These days there are so many unemployed law school graduates the law firms may not be as inclined to shower them with benefits and short hours. For example, I'm told that PwC now pays $1,500 extra each year to new hires with burdensome student loan payments. I'm don't know if law firms are this generous, but I have my doubts.

From Deloitte's Paid Advertisement in a Chronicle of Higher Education Newsletter on March 2, 2018
http://ops.deloitteconference.com/publichighereducationatacrossr

Join us for a discussion on the future of public higher education

You are invited to join Deloitte’s Center for Higher Education Excellence on Monday evening, March 12 for Public Higher Education at a Crossroads, a forum on the future of public higher education in America.

 

Join us to hear from best-selling author, award-winning columnist and former editor of the Chronicle of Higher Education Jeff Selingo and a panel of distinguished guests, including University of Virginia president Teresa Sullivan, West Virginia University president E. Gordon Gee, George Mason University president Ángel Cabrera, and Arizona State University President Michael M. Crow, among others.

 

We’ll gather higher education leaders like yourself, along with policymakers, to discuss:

     •  What would a new model for public higher education look like?

     •  Who would finance it and how?

     •  What would its mission be?

     •  Who would it serve?

 

The conversation will take place at Acadiana from 5:30PM–7:30PM. We'd be delighted to count you among our distinguished group of guests.

 

About Deloitte’s Center for Higher Education Excellence

Deloitte’s Center for Higher Education Excellence focuses on groundbreaking research to help colleges and universities navigate the challenges they face and reimagine how they achieve innovation in every aspect of the future college campus: Teaching, learning, and research.

Continued in the article with pictures of the the speakers
http://ops.deloitteconference.com/publichighereducationatacrossr

Register --- http://ops.deloitteconference.com/publichighereducationatacrossr#rsvp

The CPA Journal:  An Introduction to Data Analysis for Auditors and Accountants ---
https://www.cpajournal.com/2018/03/08/icymi-introduction-data-analysis-auditors-accountants/

Internet Sales Tax Bill Dead for 2018 ---
https://www.statedatalab.org/news/detail/internet-sales-tax-bill-dead-for-this-year-after-filibust

Anecdotal Evidence --- https://en.wikipedia.org/wiki/Anecdotal_evidence

How to Mislead With Anecdotal Evidence ---
Time Magazine:  It's Time to Tell Your Kids It Doesn't Matter Where They Go To College (or what they earned in grades)
http://time.com/5210848/prestigious-college-doesnt-matter/?utm_source=time.com&utm_medium=email&utm_campaign=the-brief&utm_content=2018032610am&xid=newsletter-brief&eminfo=%7b%22EMAIL%22%3a%22MOt2LMJiSIk%2fSjadSWyB4I9Monw61fXF%22%2c%22BRAND%22%3a%22TD%22%2c%22CONTENT%22%3a%22Newsletter%22%2c%22UID%22%3a%22TD_TBR_9341E248-F74B-4FC4-8A5B-F29E5D8E9ECB%22%2c%22SUBID%22%3a%2224083557%22%2c%22JOBID%22%3a%22690767%22%2c%22NEWSLETTER%22%3a%22THE_BRIEF%22%2c%22ZIP%22%3a%22035864237%22%2c%22COUNTRY%22%3a%22%22%7d

Jensen Comment
We can also find anecdotes where successful people did not even graduate from high school. That does not mean that high school and MIT diplomas "do not matter."

The author is obviously not an academic, because this author did not conduct research into the statistics of what matters in education. Evidence such as evidence of learning by students who take pass/fail courses  shows repeatedly that students put more time and effort into learning when grading is competitive. Evidence shows time and time again that a diploma from a prestigious university opens career doors. An MIT degree really matters when seeking to become a professor of engineering.

And yes, occasionally chain smokers and morbidly obese people live to be over 100 years of age. This does not mean that healthier life styles "do not matter."

Time should be more responsible and not publish misleading articles like this

UC Berkeley:  Four inspiring faculty honored as Distinguished Teachers (one is a finance professor)
http://news.berkeley.edu/story_jump/four-inspiring-faculty-honored-as-distinguished-teachers/

Data Science --- https://en.wikipedia.org/wiki/Data_science

Ride the New Data Science Wave
Data Scientists in Demand:  New programs train students to make honest sense of numbers ---
https://www.chronicle.com/article/Colleges-Rush-to-Ride/242674?cid=wc&utm_source=wc&utm_medium=en&elqTrackId=78c0fa2e90194abfa18e568d430b9e47&elq=8663aee144d04dff8b4dfaf200d21888&elqaid=18160&elqat=1&elqCampaignId=8100

As officials at Ohio State University worked on improving their program offerings, they encountered one need over and over: more people who can manipulate and make sense of data.

They heard it from the Obama administration, and from consultants like McKinsey & Company, which in 2011 projected that the United States could face a shortage of as many as 190,000 people with those skills by 2018. They heard it from business leaders, who described having to retrain new hires to make them versatile data scientists.

But when they looked at Ohio State’s offerings, they found expertise scattered across campus. There was no unified undergraduate pipeline for producing the workers that companies wanted, says Christopher M. Hans, an associate professor in the department of statistics. In response, Hans and a professor of computer science, Srinivasan Parthasarathy, joined with other colleagues to start an interdisciplinary undergraduate major in data analytics. The major, which began in 2014, now enrolls 104 students, with 165 additional "pre-majors" chipping away at the prerequisites they must take before formal admission to the program.

Ohio State is one of numerous universities jostling to plant their flags in the increasingly crowded data-science-education landscape. The growth of new data sources and data-analysis techniques, the abundance of jobs, the "big data" media hype — all propel the trend.

At the graduate level, nearly 200 analytics and data-science programs have sprung up over the past decade, according to figures compiled by Michael Rappa of the Institute for Advanced Analytics at North Carolina State University. It may be "the biggest and fastest-growing new graduate degree in the U.S. in a generation," he wrote in an email.

Among the latest to jump on the bandwagon is Harvard University, which this fall will welcome students into a new master’s program in data science. More than 1,300 people applied for what will probably be 40 to 45 slots, says Daniel S. Weinstock, who oversees the admissions process. Each will pay about $75,000 in tuition for the three-semester program, which does not offer financial aid.

If the past is a guide, those students might anticipate earning more than $100,000 upon graduation. That’s about the average annual salary for new graduates of a related five-year-old master’s program in computational science and engineering, Weinstock says. The decision to start a new program, he says, was "partially a response to sort of wanting to have something that had ‘data science’ in the name, frankly."

What does that name mean, exactly?

Continued in article

Data Science in MIT Open Courseware ---
https://search.mit.edu/search?site=ocw&client=mit&getfields=*&output=xml_no_dtd&proxystylesheet=https%3A%2F%2Focw.mit.edu%2Fsearch%2Fgoogle-ocw.xsl&requiredfields=WT%252Ecg_s%3ACourse+Home%7CWT%252Ecg_s%3AResource+Home&sectionlimit=WT%252Ecg_s%3ACourse+Home%7CWT%252Ecg_s%3AResource+Home&as_dt=i&oe=utf-8&departmentName=web&filter=0&courseName=&q=Data+science&btnG.x=20&btnG.y=15

Algorithms for Big Data: A Free Course from Harvard ---
http://www.openculture.com/2017/12/algorithms-for-big-data-a-free-course-from-harvard.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

2017:  Coursera Partners with Leading Universities to Offer Master’s Degrees at a More Affordable Price
Includes University of Illinois masters degrees in entrepreneurship, MBA, accountancy, and data science programs---
http://www.openculture.com/2017/10/coursera-partners-with-leading-universities-to-offer-masters-degrees-at-a-more-affordable-price.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

The Use Of Big Data Analytics By The IRS ---
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3120741

The Use of Big Data Analytics by the IRS: What Tax Practitioners Need to Know

Houser, Kimberly and Sanders, Debra, The Use of Big Data Analytics by the IRS: What Tax Practitioners Need to Know (February, 2018). Journal of Taxation, Vol. 128, No. 2, 2018. Thomas Reuters/Tax & Accounting.

16 Pages Posted: 1 Mar 2018  

Kimberly Houser

Washington State University

Date Written: February 8, 2018

Abstract

With the budget reductions and losses in staff over the past several years, the IRS has been forced to do more with less. In turn, the IRS has turned to big data analytics make up for its loss of personal and the impact of the budget reductions. In 2011, the IRS created the Office of Compliance Analytics in order to create analytics programs that could identify potential refund fraud, detect taxpayer identity theft, and become more efficient in handling noncompliance issues. The IRS uses a wide range of analytic methods to mine public and commercial data including social media sites such as Twitter, Facebook, and Instagram. The data collected from this mining is combined with IRS’s own proprietary information and analyzed using pattern recognition algorithms, which help to identify potential noncompliant taxpayers. The current ability to continuous monitor financial and personal behavior facilitates the building of exhaustive histories of individuals. Knowing that the IRS is utilizing public internet data from websites such as Facebook, taxpayers should consider that their posts could impact their probability of audit.

Keywords: big data, IRS, privacy, audit, predictive analytics, algorithms,

ACT --- https://en.wikipedia.org/wiki/ACT_(test)

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

WSJ: The Truth About The SAT And ACT
http://taxprof.typepad.com/taxprof_blog/2018/03/wsj-the-truth-about-the-sat-and-act.html

Sexual harassment is a bigger problem than accountants think ---
https://www.accountingtoday.com/news/sexual-harassment-in-accounting-may-be-more-prevalent-than-accountants-think

Nordic 'Glass Ceiling' Shows How Gender Equity Suffers From Government Overreach ---
http://reason.com/blog/2018/03/08/nordic

Norwegian Companies Morph to Avoid Gender-Balance Law

One of the consequences of Norway’s law mandating that at least 40% of the directors of public limited companies be female is that numerous firms have switched their organizational form, sometimes at significant cost, so that they are no longer public limited companies, say Øyvind Bøhren and Siv Staubo of Norwegian Business School. Among the companies in that category when the law was passed in 2003, 51% chose to become private limited-liability firms by the time it became binding five years later. However, Norway may further extend the board-representation rule to other corporate forms.

SOURCE:
Does mandatory gender balance work? Changing organizational form to avoid board upheaval
http://links.mkt3142.com/ctt?kn=14&ms=MTAyNjY5MjMS1&r=MTkyODM0MDg0MAS2&b=0&j=NDQyMzY1ODgzS0&mt=1&rt=0

Norway’s Exemplary Gender Quota? Just Don’t Ask About CEOs ---
https://blogs.wsj.com/moneybeat/2014/05/22/norways-exemplary-gender-quota-just-dont-ask-about-ceos/

An introduction to The Nordic Gender Equality Paradox ---
http://nordicparadox.se/

Female CEOs are at record level in 2016, but it's still only 5% ---
http://money.cnn.com/2016/09/29/investing/female-ceos-record-high/index.html

Where Are the Women CEOs:  Myth Versus Reality ---
https://www.ircsearchpartners.com/thought-leadership/where-are-women-ceos-myths-and-reality/
The date on this study must be a typo

Tax Insider:  The Tax Court held recently that a taxpayer's Roth IRA transaction did not serve any legitimate business purpose, applying Internal Revenue Service guidance from 2004 identifying similar arrangements as abusive and upholding penalties against the taxpayer
https://mail.google.com/mail/u/0/#inbox/16252f202096e2ed

AICPA Quiz: How much do you know about governmental auditing and single audits?
https://www.journalofaccountancy.com/news/2018/mar/governmental-auditing-single-audits-201818428.html

Jensen Comment
It's not hard to beat my score.

Embracing the Robot ---
https://aeon.co/essays/programmed-to-love-is-a-human-robot-relationship-wrong?utm_source=Aeon+Newsletter&utm_campaign=8063c93bb4-EMAIL_CAMPAIGN_2018_03_19&utm_medium=email&utm_term=0_411a82e59d-8063c93bb4-68951505

Value-Added Tax (VAT) --- https://en.wikipedia.org/wiki/Value-added_tax

Three-quarters of the world’s population live in a country in which a value-added tax (VAT) is collected on sales of goods and services.---
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3135076

On the Threshold: Smallness and the Value-Added Tax

Columbia Journal of Tax Law, Forthcoming

68 Pages Posted: 9 Mar 2018  

Emily Satterthwaite

University of Toronto Faculty of Law

Date Written: March 5, 2018

Abstract

Three-quarters of the world’s population live in a country in which a value-added tax (VAT) is collected on sales of goods and services. The registration threshold determines which businesses — typically as measured by their annual revenues — remain exempt from the obligation to register for and collect VAT on their sales. Among VAT economists, there is broad consensus that setting thresholds higher rather than lower (such that more rather than fewer businesses are exempt) increases the economic efficiency of a VAT. Despite these high stakes and the longstanding expert consensus in favor of high thresholds, real-world thresholds vary widely and skew low, even within OECD and European countries. This article leverages the insights of the economic model to address an issue that lies outside of it but is central to lawyers and policymakers: distributional equity. Numerous studies show that smaller businesses’ costs of complying with the VAT are disproportionately higher than larger businesses. To the extent that lower-income entrepreneurs internalize those costs or pass them on to lower-income consumers, there is a vertical equity rationale for raising thresholds. Moreover, where there are more small firms than large firms, setting thresholds higher rather than lower while offering exempt firms an election to voluntarily register for VAT can minimize the (horizontal) unfairness of drawing an arbitrary bright line between taxable and non-taxable firms. Under these conditions, higher registration thresholds can improve the equity and the efficiency of a VAT.

Keywords: taxation, value-added tax, entrepreneurship, small business, elections

AICPA's Cybersecurity Fundamentals for Finance and Accounting Professionals Certificate ---
https://www.aicpastore.com/ManagementAccounting/EthicsandResponsibleBusiness/cybersecurity-fundamentals-for-finance-and-account/PRDOVR~PC-162200/PC-162200.jsp?utm_source=mnl:cpald&utm_medium=email&utm_campaign=08Mar2018

AICPA on Pivot Tables:  9 PivotTable enhancements in Excel 2016 ---
https://www.journalofaccountancy.com/issues/2018/mar/pivot-table-enhancements-in-excel-2016.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=20Mar2018

Financial Management:  How to craft the best Excel spreadsheet models ---
https://www.fm-magazine.com/news/2018/mar/best-excel-spreadsheet-models-201818473.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=19Mar2018

AICPA: Excel's Versatile Convert Function
 https://www.journalofaccountancy.com/issues/2018/mar/excel-convert-function.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=15Mar2018

 PC World:  Excel filters: How to use number, text and date filters to extract only the data you need ---
https://www.pcworld.com/article/3238288/office-software/excel-filters-how-to-use-number-text-and-date-filters.html

AICPA:  Factoring in the time value of money with Excel ---
https://www.journalofaccountancy.com/issues/2018/mar/excel-functions-calculate-time-value-of-money.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=08Mar2018

Excel Applications at the Khan Academy ---
https://www.khanacademy.org/search?search_again=1&page_search_query=microsoft+excel
Especially note the following:

Finance and Capital Markets
https://www.khanacademy.org/economics-finance-domain/core-finance

Fixed, variable, and marginal cost video

Jonathan Ziesner

Normal Distribution

Fitting a Line to Data

Linear Models

Many others

Explain the Illustrated Excel Functions at
http://www.cs.trinity.edu/~rjensen/Excel/FUNCLONG.XLS

Show how the basics of speculation and hedging and graphing using Excel ---
http://www.cs.trinity.edu/~rjensen/Calgary/CD/Graphing.xls 
 

Six Simple, No-Nonsense Accounting Apps for Microbusinesses ---
https://readwrite.com/2018/03/06/accounting-apps-microbusinesses/

Forbes:  Tech Trends for 2018 ---
https://www.forbes.com/sites/forbesfinancecouncil/2018/03/27/whats-on-tap-in-finance-and-accounting-automation-for-2018/#32ed1e907106

The Worst Corruption Scandal in Each State ---
https://247wallst.com/special-report/2018/03/27/worst-corruption-scandal-in-each-state/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=MAR282018A&utm_campaign=DailyNewsletter

Jensen Comment
This is tough, because of definitions and money versus lives criteria. For example, the worst corruption scandal in Massachusetts was about lives rather than money. The worst scandal in New York may not have been the worst money scandal after victims received settlements.
Corruption, like beauty, is in the eyes of the beholder.

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

What Joe Hoyle Learned from Many Years of Teaching ---
http://joehoyle-teaching.blogspot.com/2018/02/what-i-have-learned-from-many-years-of.html

Jensen Comment
The Number One think he learned is the Boy Scout Motto --- "Be Prepared" (for teachers and students)
Also if you know Joe he preaches to stay enthused about daily teaching and advising

Forbes:  Ten Trends That Are Changing Finance --- Forbes

1. Higher Interest Rates

Predicting macro trends is foolish and notoriously ineffective. However, I would guess that a sustained rise in interest rates could be the most powerful force we'd have to reckon with from 2018 onward. Higher interest rates would have key implications for our growth rate, the price of the dollar, financial institutions' profitability and the prices of virtually all assets in the U.S. economy. - Gabriel Grego, Quintessential Capital

2. Business Credit Boom

Ten years ago, if you asked consumers if they knew their FICO scores, you’d elicit a blank stare. Today, FICO scores are at an all-time high and free personal scores are everywhere. This awareness, along with technology that allows transparency into business credit, points toward business credit scores going mainstream even faster. Business credit is ripe for an awareness surge in 2018. - Levi King, Nav

3. Tax Reform

Everyone is on pins and needles to see how the new tax bill will impact our planning strategies. The bill includes major changes to individual and business taxes, which will certainly affect our business and many of our clients. - Stacy Francis, Francis Financial, Inc.

4. The Rise Of The 'Bionic' Adviser

While much has been made of the emergence of robo investing solutions, the most successful firms will be "bionic," leveraging technology and marrying it with a high-quality human touch to deliver advice and help clients stay committed to their goals. Robo investing platforms have not been tested in a severe down market like 2008-2009. How will robo investors fare when the next bear comes? - Erik Christman, Oxford Financial Partners

5. Productivity Through Automation

Basic, repetitive duties and simple managerial decisions can become more simple, more efficient and more accurate using office automation software. Data can be generated and analyzed by a human resource only if needed. Automation is not supplanting humans with computers and machines. It's about eradicating stagnant processes that workers employ daily, so as to improve performance and efficiency. - Ross Garcia, PREI Capital Group / Divorce Mortgage Advisors

6. Larger AI Role

I would expect artificial intelligence to start playing a more meaningful role. The technology is constantly improving and will likely infiltrate many financial areas, which has not historically been done before. - David Frisch, Frisch Financial Group, Inc.

7. Banking On Fintech

Today’s young consumers expect the facility to conduct banking on their mobile phones, not in a branch. Though notoriously conservative and slow to react, look for the big banks to partner with (or acquire) startups in the fintech space in an effort to improve their outdated online business and consumer platforms. - Ismael Wrixen, FE International

8. Demand For Personal Finance Transparency

We’re inundated with data, information and technology that serves and fuels products that impact people’s lives. As a fintech or financial institution, it is our responsibility to do everything humanly possible to protect consumers in this environment. Consumers’ demands for a simple and transparent approach to their finances will drive the field more than ever before in 2018. - Adam Dell, Clarity Money

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

9. Fee-Based Fiduciary Investment Advisers

Investors are doing their homework and becoming more educated on the different relationships they can obtain in our industry. Although they may not be right for everyone, fee-based fiduciary advisers seem to work well with affluent families looking to handle the complexities of creating wealth. Most families need financial planning -- not just investment management or being sold a product. - Lance Scott, Bay Harbor Wealth Management

10. Roaming 'Bears'

I expect the "bears" to roam. In the last year, we've seen AI come about, tax reform, geopolitical issues, political circumstances and markets running at an all-time high. Sure, we had some naysayers out there, but I think we will see more people trying to time the market from a bear perspective. So, invest for your goals and don't let the pundits sway your investment strategies. - Justin Goodbread, Heritage Investors

Continued in article

Jensen Comment

Not mentioned are some changes happening in academic finance and accounting

 p-value --- https://en.wikipedia.org/wiki/P-value
The looming change is the loss in religious faith in p-values, especially in academe's beloved regression models ---
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong

CAPM --- https://en.wikipedia.org/wiki/Capital_asset_pricing_model
The worry over that past and future research that relied or will rely on a flawed CAPM

The unrealistic simplifying assumptions of traditional finance theory in an environment of enormously complicated human behavior ---
https://en.wikipedia.org/wiki/Finance#Financial_theory

The rise of blockchain and cryptocurrency uncertainties in the theory as well as the street profession of finance that still is unsure whether cryptocurrencies are really Ponzi schemes ---
Blockchain --- https://en.wikipedia.org/wiki/Blockchain
Cryptocurrency --- https://en.wikipedia.org/wiki/Cryptocurrency
Bitcoin --- https://en.wikipedia.org/wiki/Bitcoin
Ethereum --- https://en.wikipedia.org/wiki/Ethereum

Sarbanes-Ocley Act (SOX) --- https://en.wikipedia.org/wiki/Sarbanes–Oxley_Act
The watering down of SOX (pending) and finance regulation in general will reduce the amount and reliability of research data (e.g., due to weakened auditing and internal controls)

Academic finance will be drawn into the complicated debate of how to introduce nationalized healthcare in the USA and how to keep nationalize healthcare from imploding worldwide in the face of aging populations
https://en.wikipedia.org/wiki/Socialized_medicine

With bankruptcy looming for some states (think Illinois) academic finance will be challenged to provide new models for financing social services and infrastructure
https://www.statedatalab.org/

Gig Economy --- https://en.wikipedia.org/wiki/Temporary_work
This is under the category "Temporary Work," but that's misleading since more and more gig workers are going full time.

1 in 3 Workers Employed in Gig Economy, But Not All By Choice ---
https://www.usnews.com/news/articles/2016-10-11/1-in-3-workers-employed-in-gig-economy-but-not-all-by-choice
Jensen Comment
The gig workers are fairly evenly divided between men (49%) and women (51%). Only 8% are seniors, and 23% are youths.
What is especially surprising is that only 21% are from low income households.
This suggests that many gig workers are getting gigs for reasons other than financial desperation. Some may just want to get out of the house or to add to their work skills.

The Gig Economy:  What a Stanford University Labor Economist Is Learning by Driving for Uber ---
https://www.gsb.stanford.edu/insights/what-economist-learning-driving-uber?utm_source=Stanford+Business&utm_campaign=27713b1378-Stanford-Business-Issue-132-3-4-2018&utm_medium=email&utm_term=0_0b5214e34b-27713b1378-70265733&ct=t(Stanford-Business-Issue-132-3-4-2018)  
Jensen Comment
Why is the "gig economy" becoming such a big deal in the takeover of traditional employer-employee labor market and what are the consequences?

Not addressed in these articles is how colleges and universities are increasingly tapping into the adjunct teaching market for various reasons including budget constraints, avoiding tenure locks, and need for professional specialties and experience that are not taught in Ph.D. programs.

Global audit inspection findings show modest improvement ---
https://www.journalofaccountancy.com/news/2018/mar/global-audit-inspection-findings-show-improvement-201818537.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=09Mar2018

A more effective approach for internal audit:  Fostering collaboration across 3 lines of defense can optimize resources and technology for risk management.---
https://www.journalofaccountancy.com/issues/2018/mar/effective-internal-audit.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=09Mar2018

Zero-Based Budgeting --- https://en.wikipedia.org/wiki/Zero-based_numbering

Zero-based budgeting gains traction ---
http://ww2.cfo.com/budgeting/2018/03/zero-based-budgeting-surging/

 Did you know that articles from the following journals are available for no extra fee to all AAA members?

·         The Accounting Review

·         Accounting Horizons

·         Issues in Accounting Education

·         Accounting and the Public Interest

·         Behavioral Research in Accounting

·         Journal of Emerging Technologies in Accounting

·         Journal of Financial Reporting

·         Journal of Forensic Accounting Research

·         Journal of Information Systems

·         Journal of International Accounting Research

·         Journal of Management Accounting Research

Visit the Digital Library to explore the AAA journal collection today!

The “New Statistics” and Nullifying the Null: Twelve Actions for Improving Quantitative Accounting Research Quality and Integrity
By Dan N. Stone
Accounting Horizons: March 2018, Vol. 32, No. 1, pp. 105-120.
https://doi.org/10.2308/acch-51949 
An earlier draft of this manuscript received the “Best Theoretical Research Award” at the 2016 21st Annual Ethics Research Symposium.

Leveraging accounting scholars' expertise in the integrity of information and evidence, and in managers' self-interested discretion in information collection and reporting, offers the possibility of accounting scholars creating, promoting, and adapting methods to ensure that accounting research is of exemplary integrity and quality. This manuscript uses the six principles from the recent American Statistical Association (ASA) report on p-values as an organizing framework, and considers some implications of these principles for quantitative accounting research. It also proposes 12 actions, in three categories (community actions, redefining research quality, and ranking academic accounting journals) for improving quantitative accounting research quality and integrity. It concludes with a clarion call to our community to create, adopt, and promote scholarship practices and policies that lead in scholarly integrity.

. . .

Dyckman (2016, Abstract) observes: “Accounting as an empirical research discipline appears to be the last of the research communities to face up to the inherent problems of significance test use and abuse.”

The recent American Statistical Association (ASA) statement on the appropriate use of NHST and p-values (Wasserstein and Lazar 2016) offers a starting point for considering the limited potential for NHST and p-values to contribute to quantitative accounting research. I initially describe the six principles and, following this, link their continued use to the future of accounting research. The ASA statement begins by observing that the continued use of NHST and p-values, despite common knowledge of their deep flaws, likely results from a cultural circularity: statisticians teach NHST because that is what scholars and journal editors use. And scholars and journal editors use NHST because that is what statisticians teach. Sound familiar? I have been teaching the introductory Ph.D. class in accountancy research for about 25 years. As a former AAA journal editor, I am (mostly) guilty as charged. For 25 years I have reviewed NHST in my introductory class (although, for the past ten years I have also discussed its deep flaws and substantial limits). As a journal editor, I expected authors to use NHST methods. However, for at least ten years, I have recommended, at a minimum, the supplemental reporting procedures that I discuss herein, often to resistant editors and authors.

Table 1 presents the six ASA principles. The first acknowledges the common use of p-values and their embeddedness, typically, in NHST. Specifically, p-values allow one to opine on the extent to which data adhere to a “null” hypothesis of no difference (i.e., when applied to comparing two or more groups) or no relationship (i.e., when applied to relations between two or more variables). When the assumptions of the model hold, smaller p-values provide less support for the no difference hypothesis, while larger p-values provide greater support for the no difference hypothesis. The second principle states what a p-value is not, by refuting two common misconceptions about p-values, i.e., that a p-value tests whether a tested hypothesis is “true,” and “the probability that the data were produced by random chance alone.”

. . .

When It Is Not an “Empirical Question”—The Criticality of Triangulated Methods and Diverse Scholars to Knowledge Production

Within accounting research, the misuse of p-values as arbiters of truth is often found in the regrettable bromide, “it's an empirical question,” used in relation to a research question that is tested using only NHST and p-values. Such a formulation, when operationalized in NHST and p-values, is exactly the misuse identified in Principle No. 2 of the ASA. Specifically, “it's an empirical question” implies that the NHST enterprise produces truth—that the method resolves the uncertainty regarding a real-world question; it does not, for reasons articulated in the ASA statement (Principle No. 2 of the ASA, p. 131):

Researchers often wish to turn a p-value into a statement about the truth of a null hypothesis, or about the probability that random chance produced the observed data. The p-value is neither. It is a statement about data in relation to a specified hypothetical explanation, and is not a statement about the explanation itself.

Stated differently, NHST examines the extent to which the observed data are consistent with an odd, often irrelevant (null) hypothesis. In a strict sense, the null hypothesis can never be true, since differences always exist between two groups, and there is always some relationship between two variables. Hence, the relevant pragmatic question, which is unrecognized in NHST, is how big the difference is between two groups, and how big the relationship is between two variables. Pragmatically, p-values heavily depend on sample sizes and statistical power, i.e., ceteris paribus, p-values decrease as statistical power (and sample size) increases (Cohen 1992).³ Hence, with the “Big Data” (i.e., very large) samples that are increasingly common in much archival accounting research, small p-values often obtain since the statistical power of tests usually approaches 1.0. Nevertheless, the relevant practical questions that matter in an applied discipline are not answered by a p-value. And if the research method and reporting stops with a p-value, the relevant practical question remains uninvestigated. As Cohen (1990) states, “the primary product of a research inquiry is one or more measures of effect size, not p values” (see also Ellis 2010).

As with all quantitative research methods, the NHST depends upon a set of epistemological (about truth), ontological (about reality), and statistical (about the data) assumptions (cf. Chua 1986). In a few cases, a p-value is one potentially useful bit of evidence that bears on a research question, but this exercise, in isolation, never produces “truth” or provides much insight into a practical question. To claim otherwise is to misunderstand the weak validity of single study, mono-method, and mono-measure research (Shadish, Cook, and Campbell 2002). One implication of the failings of NHST—in isolation—to produce truth is the necessity of “triangulated” methods to scientific scholarship (Jick 1979). The form of method triangulation considered herein is the use of multiple methods (e.g., an experiment and archival data or a survey and interviews) in investigating a critical research question. This approach to method triangulation helps ensure that the observed variation in a phenomenon results from true variation in the phenomenon and related data, and not from the idiosyncratic properties of a single measure or method (Campbell and Fiske 1959). For example, accounting scholars, in applying triangulation, might investigate the use (and misuse) of discretion by corporate managers through archival investigation, experiments, surveys, and interviews. Our confidence in the results increases to the extent that multiple methods and results, and differing investigators, produce similar conclusions.

But the trend in accounting scholarship is the exact opposite; i.e., toward a single research method, i.e., large-sample evidence using general linear models (GLMs) and standardized financial and auditing databases (Tuttle and Dillard 2007). This trend contradicts a shared goal of producing a cumulative body of scientific evidence that bears on critical accounting questions. Any single method, i.e., a scientific “monoculture,” produces procrustean “truths” about a phenomenon just as a “monoculture” ecological environment fails to represent the scientific diversity of an environmental ecology because of its, usually artificial, domination by a single species. A community of scholars seeking to generate science must, necessarily, be a methodologically diverse community not due to “political correctness” (i.e., diversity for its own sake), but because its ability to understand a complex phenomenon, and generate accurate descriptions of it, requires diverse methods and data (Weick 1983). Following Weick (1983), imagine a camera lens that has only one setting. Such a camera will capture, with clarity, objects at exactly the distance setting of the lens. All other objects will be out of focus. Similarly, a scientific community with only one methodological tool, e.g., financial, archival research using standardized datasets, will be constrained to studying only a fraction of the richness of the ecology of accounting information. Capturing a richer ecological space requires richer methods and questions.

. . .

Research on the tragic deaths of firefighters notes a curious paradox. Firefighters who are near safety will often retain their tools and perish in the growing flames, rather than drop their now-useless tools and flee to safety (e.g., Weick 1996). Why do firefighters hold onto their (useless) tools and die? Although the reasons are varied and complex, one crucial factor is the experience of vu jade, i.e., of experiencing that which one has never seen before, that for which one is under trained, and that which calls for actions that contradict deeply learned behavior. Partly, firefighters retain useless tools and perish because, to drop one's long-held tools and run is to admit defeat, to admit that familiar, long-used technologies are now useless, and to admit a profound misjudgment of relevant risks.

Sound familiar? Scholarship, and accounting scholarship, is now in a vu jade world. We retain our familiar but now antiquated tools to the demise of our credibility, relevance, and legitimacy. p-values and NHST are now the metaphoric equivalent of the tools that firefighters, who facing immediate death, kept, rather than admitting the tools' obsolescence in the face of new, unfamiliar risks. In short, it is time to drop our familiar tools and quickly learn their replacements, which are adapted to the emerging “Big Data,” “big computing” world

Jensen Comment
Bob Jensen's threads on what went wrong in accountics science ---
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong

The Effect of the SEC's XBRL Mandate on Audit Report Lags
by Keval Amin, John Daniel Eshleman, and Cecilia (Qian) Feng 
Accounting Horizons: March 2018, Vol. 32, No. 1, pp. 1-27
https://doi.org/10.2308/acch-51823

There is considerable debate about whether the adoption of eXtensible Business Reporting Language (XBRL) will result in timelier SEC filings. We provide empirical evidence on this debate by investigating the effect of XBRL adoption on audit report lags. Using a hand-collected panel of S&P 1500 clients' XBRL financial report filings and both levels and difference-in-differences analyses, we show that audit report lags decrease following the mandatory adoption of XBRL. These results are robust to various subsamples and model specifications. On average, audit report lags decrease anywhere from 0.4 to 3.4 percent (0.21 to 1.93 days) in the post-adoption period, depending on the specification used. We further document that these results are concentrated among filers with strong internal control systems and no prior XBRL reporting experience. We also find that audit report lags continue to decline in the years following adoption, which is indicative of a learning curve and improvements in XBRL reporting quality. Additional tests reveal that XBRL is negatively associated with audit fees, suggesting that the XBRL effect is at least partially driven by auditor efficiency gains. Our findings are informative for assessing the economic consequences of requiring XBRL adoption, which should be of interest to regulators, managers, and researchers.

Bob Jensen's threads on XBRL ---
http://faculty.trinity.edu/rjensen/XBRLandOLAP.htm

How to Mislead With Statistics
A New Tool Breaks Down Earnings Potential for Different Majors. Here’s What You Need to Know ---
https://www.chronicle.com/article/A-New-Tool-Breaks-Down/242944?cid=at&utm_source=at&utm_medium=en&elqTrackId=77d1f968d25640e3a6571e17b61f4a53&elq=2b645888afdb4e0d916c42586604c57c&elqaid=18364&elqat=1&elqCampaignId=8223
Warning:  This software requires Adobe Flash that many of you have stopped using due to security concerns.

Jensen Comment
It's misleading not to also compare variances and circumstances. One "circumstance" is living cost. For example, high-salaried electrical engineering and computer science graduates may have to live in high-cost urban centers to earn their high salaries.

Teachers having low salaries may also be able to work in rural areas having much cheaper home prices, local taxes, and commuting expenses. Compare the median home prices in Redding or Anderson versus San Francisco or Anaheim. For graduates in law and masters of accounting programs incomes are high in urban large firms and less in rural small firms.

Some majors are conducive to becoming entrepreneurs such as those professions allowing graduates to set up their own store fronts (think law and tax accounting) or their own small partnerships. Income from such a worker-owned business is highly variable, including sky-is-the-limit success stories that John Grisham likes to write about. Years and years ago I actually considered hanging out my CPA shingle in Aspen before I eventually decided to enter a Ph.D. program. One discouragement for the Aspen alternative was that tax season conflicts with ski season. Now that's a circumstance to consider for a young and single accountant-hot dog skier.

BAR Passage Rates Versus CPA Exam Passage Rates
90% Of Students Pass The Bar Within 2 Years of Law School Graduation, But 10% Of Law Schools Have Fail Rates > 25% ---
http://taxprof.typepad.com/taxprof_blog/2018/03/88-of-law-students-pass-the-bar-withing-2-years-of-graduation.html

Here are the top 20 law schools with the best overall bar passage rates for the Class of 2015:

1.       Baylor: 100%

2.       Wisconsin: 100%

3.       Pennsylvania: 99.57%

4.       Marquette: 99.55%

5.       Virginia: 99.44%

6.       Yale: 98.97%

7.       Chicago: 98.96%

8.       University of Washington: 98.95%

9.       Stanford: 98.91%

10.   Iowa: 98.50%

11.   Harvard 98.43%

12.   Michigan: 98.28%

13.   Florida: 98.03%

14.   Florida International: 97.87%

15.   Campbell: 97.83%

16.   Connecticut: 97.83%

17.   UC-Berkeley: 97.75%

18.   Kansas: 97.67%

19.   Missouri: 97.58%

20.   Ohio State: 97.53%

Jensen Comment
Unlike law I never heard of an accounting program with such high passage rates of the CPA exam.
Has there ever been an accounting program with such a record among graduates who repeatedly tried to pass the CPA examination?
Having said this, it should be noted that CPA passage rates have markedly increased in the 21st Century, but never to the degree of Bar passage rates among law graduates ---
http://ipassthecpaexam.com/cpa-exam-pass-rate
Also see
https://nasba.org/media-resources/publications/
Also see
https://nasba.org/blog/2017/02/02/candidate-performance-publications-2016/

Of course there could possibly be some anomalies such as when a particular small program for a given exam has too small a sample to be relevant.

CPA Exam Performance: A 10- Year Analysis of Colleges and Universities in Eleven Southern/South Central States
By Michael Watters
Journal of Accounting and Finance

The author utilizes data obtained from the National Association of State Boards of Accountancy (NASBA) Candidate Performance Reports for the ten -year period 2006- 2015 to analyze CPA Exam performance of candidates from 213 colleges and universities located in eleven states in the southern and south central region of the United States. The study examines school performance by state and overall and also examines the state-level performance of the el even states. The top performing institution is Vanderbilt University and the top performing state is South Carolina.

. . .

OVERALL RANKING
Table 12, also located in the appendix, shows CPA exam performance data for all 213 schools included in the study, with institutions ranked and listed according to the per cent pass rate. Table 12 shows for each institution its location, “State,” the total number of candidates sitting for the exam over the 10- year period 2006-2015, “Candidates Total” and the total number of sections attempted over the ten years, “Sections Total.” It also shows the 10 -year percent pass rate, “Percent Pass” for each of the 213 colleges and universities included in the study and the 10- year average score for each institution, “Average Score.” Finally, “Candidate Years” represents the number of years that candidates from a school sat for a section of the exam. For example, Covenant College (ranked 5th) did not have candidates sit for the exam in 2006, 2014 and 2015 while Vanderbilt had candidates sit in each of the years 2006- 2015. Vanderbilt recorded the highest percent pass rate of all the schools studied, 75.6%, and so received the highest overall ranking. The University of Georgia had the second-highest percent pass rate, 75.4%. Washington University St. Louis was third with a pass rate of 75.0% and had the highest 10-year average score of 80.2. Fourth was also a private university, Furman, with a pass rate of 72.9%. Covenant College, a small, private school located on the Georgia-Tennessee border near the city of Chattanooga was fifth with its candidates posting a percent pass rate of 72.5%. The top twenty institutions producing the highest percent pass rates and average scores were more likely to be larger public schools or were independent schools. Seven of the top ten institutions ranked in Table 12 are independent colleges or universities. Most of the public institutions included in the top twenty would likely be considered large public institutions in term s of enrollment and resources. One exception in size in terms of enrollment is Missouri’s Truman State University (ranked 9 th ), with an overall student enrollment in 2015 of approximately 6,200 undergraduate and graduate students. Truman produced 815 candidates over the 10- year period which is more than that produced by some of the larger schools.

Continued in article

A judge in 2018 ordered the bankruptcy estate of Lehman Brothers Holdings to pay $2.38 billion in an award stemming from the mortgage crisis. Trustees had pushed for $11.4 billion at trial ---
https://www.bloomberg.com/news/articles/2018-03-08/lehman-brothers-payout-on-crisis-era-mortgage-claims-in-sight

Bob Jensen's threads on the mortgage crisis and subsequent bailout ---
http://faculty.trinity.edu/rjensen/2008Bailout.htm

What Dana Hermanson Learned From Many Years of Research and Journal Editing

Article Citation: Dana R. Hermanson (2018) 25 Reflections on Accounting Research. Issues in Accounting Education: February 2018, Vol. 33, No. 1, pp. 3-15.
https://doi.org/10.2308/iace-51883  Journal of Accounting and Finance, 2016 - search.proquest.com

Self-Reflective Insights 25 Reflections on Accounting Research
Dana R. Hermanson
Kennesaw State University

ABSTRACT

In this essay, I reflect on my roughly 25 years in accounting research by discussing 25 topics related to (1) the journal review process, (2) specific types of accounting research, and (3) the research process. I hope that these observations will prompt additional thought and discussion, help accounting doctoral students and faculty to publish their research, and potentially challenge some readers.

 

How do you know when it is time to write a retrospective piece? At a recent conference, I looked around and wondered, “Where are the ‘old timers'? Everyone looks so young.” I finally found a few people my age, and we all wondered, “Where are the ‘old timers'?” Then it hit us, “We are the ‘old timers'!” One colleague looked at our group and said, “I'm going to say what we are all thinking: ‘I look the same, but you all look [terrible]!'” When that happens, you are old enough to write a retrospective piece.

The purpose of this essay is to offer 25 thoughts about accounting research to promote discussion about what we do in accounting research and how we do it.¹ In the roughly 25 years that I have been involved in accounting research, I have seen a lot, done a lot, and served in a wide variety of research roles, including author, reviewer, associate editor, and coeditor of both Current Issues in Auditing and Accounting Horizons. Like many people, I entered the academic profession to teach. The greatest surprise of my career is how rewarding the research has been, and how central research has become to my career.

At the undergraduate and graduate levels, I teach courses on fraud, forensic accounting, and corporate governance. I primarily “teach about research,” having the students read academic papers and professional publications that they can handle. In addition, my professional presentations in recent years are almost exclusively about academic research and its implications for practice (Hermanson 2015). In other words, “research is the center of my professional life” (Hermanson 2015, 139), and I bring research into my undergraduate teaching, graduate teaching, and professional outreach through presentations and professional publications. Thus, research is my core product, and I deliver it to a variety of audiences beyond academic journal readers (Hermanson 2008, 2015).

In the following sections, I first discuss the journal review process, as it has such an important impact on our research and careers. Journal reviews also seem to generate much of the frustration that academics experience. Second, I offer some perspectives on specific types of accounting research and issues I see in certain areas. Third, I discuss the research process, with a primary focus on research productivity and contribution. Finally, I offer concluding comments.

Jensen Comment

The article only superficially acknowledges the biggest problem with academic accounting research --- professors don't generate research that interests practitioners
He does state the following:

Maybe we can learn something from other scholarly professions, such as medicine and law, where the links between practice
and academia appear to be stronger than in accounting. The American Accounting Association (AAA 2014, 9) observed:

Dana did not mention the lack of interest in top academic accounting research journals among a teachers of accountancy and tax. His father Roger Hermanson studied this problem in 1983
http://faculty.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm

Fleming et al. [2000, p. 48] report that education articles in TAR declined from 21 percent in 1946-1965 to 8 percent in 1966-1985. Issues in Accounting Education began to publish the education articles in 1983. Garcha, Harwood, and Hermanson [1983] reported on the readership of TAR before any new specialty journals commenced in the AAA. They found that among their AAA membership respondents, only 41.7 percent would subscribe to TAR if it became unbundled in terms of dollar savings from AAA membership dues. This suggests that TAR was not meeting the AAA membership’s needs. Based heavily upon the written comments of respondents, the authors’ conclusions were, in part, as follows by Garcha, Harwood, and Hermanson [1983, p. 37]:

The findings of the survey reveal that opinions vary regarding TAR and that emotions run high. At one extreme some respondents seem to believe that TAR is performing its intended function very well. Those sharing this view may believe that its mission is to provide a high-quality outlet for those at the cutting-edge of accounting research. The pay-off for this approach may be recognition by peers, achieving tenure and promotion, and gaining mobility should one care to move. This group may also believe that trying to affect current practice is futile anyway, so why even try?

At the other extreme are those who believe that TAR is not serving its intended purpose. This group may believe TAR should serve the readership interests of the audiences identified by the Moonitz Committee. Many in the intended audience cannot write for, cannot read, or are not interested in reading the Main Articles which have been published during approximately the last decade. As a result there is the suggestion that this group believes that a change in editorial policy is needed.

After a study by Abdel-khalik [1976] revealed complaints about the difficulties of following the increased quantitative terminology in TAR, editors did introduce abstracts at the beginning of the articles to summarize major findings with less jargon [Flesher, 1991, p. 169]. However, the problem was simultaneously exacerbated when TAR stopped publishing commentaries and rebuttals that sometimes aided comprehension of complicated research. Science journals often are much better about encouraging commentaries, replications, and rebuttals.

Continued in article

Dana's article fails to mention that empirical research favored in top academic accounting research is not suited for discovery research, especially concerning things that interest the practicing profession. Heck and Jensen state the following at
http://faculty.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm

A number of AAA presidents have asserted that empirical research is not always well suited for “discovery research.” These AAA presidents urged in their messages to the membership and elsewhere that accounting research become more diverse in terms of topics and methods. Examples include Bailey [1994], Langenderfer [1987], Rayburn [2006], and Dyckman and Zeff [1984]. The following is a quote from the President’s Message of Sundem [1993, p. 3]:

Although empirical scientific method has made many positive contributions to accounting research, it is not the method that is likely to generate new theories, though it will be useful in testing them. For example, Einstein’s theories were not developed empirically, but they relied on understanding the empirical evidence and they were tested empirically. Both the development and testing of theories should be recognized as acceptable accounting research.

 

Dana's article only superficially acknowledges what I think is an enormous problem over the history of academic accounting research --- lack of replication and encouragement to replicate
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

Dana's article fails to mention the enormous problem of reliance on flawed p-values in significance testing ---
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong

In Dana's article I don't think Dana really saw the forest of problems while looking at the trees.
He gives a wink wink to all the enormous problems accountics scientists have created by not working closer with the practicing profession.
Dana was just not critical enough of the accountics science dominance of academic accounting research.

Bob Jensen's threads on accoutics research and what went wrong ---
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong

Francine:  New accounting rules trim Tesla deficit and promise faster future revenues ---
https://www.marketwatch.com/story/new-accounting-rules-trim-tesla-deficit-and-promise-faster-future-revenues-2018-02-27

Watch: “Shark Tank” judges reject the idea Amazon just spent $1 billion on ---
https://qz.com/1217898/watch-shark-tank-judges-reject-jamie-siminoffs-idea-for-ring-that-amazon-just-spent-1-billion-on/

Up To Now:  The Impact of the New Revenue Recognition Rules ---
http://ww2.cfo.com/revenue-recognition-accounting-tax/2018/03/asc-606-whats-impact-far/

Capital Assets and Romney Versus Clinton Taxes ---
http://taxprof.typepad.com/taxprof_blog/2018/03/lesson-from-the-tax-court-the-tax-lawyers-wedding-toast.html

Social Security benefits stolen by hackers, leaving families with bill ---
https://www.freep.com/story/money/personal-finance/susan-tompor/2018/02/28/identity-theft-crooks-steal-social-security-benefits/354307002/

Equifax breach could be most costly in corporate history ---
https://www.reuters.com/article/us-equifax-cyber/equifax-breach-could-be-most-costly-in-corporate-history-idUSKCN1GE257

Jensen Comment
On occasion some lesser breaches are more troubling than the Equifax breach. The huge Blue Cross Anthem breach allowed criminals to access medical records that are still exploiting such as the many scam phone calls we get trying to sell back braces to my wife --- the callers really only want credit card information and will never actually send a back brace. The 2014 TurboTax leak revealed social security numbers, IRS PIN numbers, and tax return information about employers, portfolios, etc. This allowed criminals to create and collect enormous refunds from the IRS --- in 2015 a bad guy filed my income tax return before I filed my return such that the IRS would not let me file my return electronically. I finally got my refund, but the IRS probably took a big loss by letting a bad guy collect a refund in my name. Many company breaches revealed credit card numbers that allowed millions of scammers to make fraudulent purchases.

Harvard Study: When CEOs’ Equity Is About to Vest, They Cut Investment to Boost the Stock Price ---
https://hbr.org/2018/02/study-when-ceos-equity-is-about-to-vest-they-cut-investment-to-boost-the-stock-price?utm_medium=email&utm_source=newsletter_daily&utm_campaign=dailyalert&referral=00563&spMailingID=19107171&spUserID=MTkyODM0MDg0MAS2&spJobID=1220042201&spReportId=MTIyMDA0MjIwMQS2

Bob Jensen's threads on earnings management ---
http://faculty.trinity.edu/rjensen/theory02.htm#Manipulation

Artificial Intelligence:  KPMG offers new IBM Watson-enabled accounting tools ---
https://www.accountingtoday.com/news/kpmg-offers-new-ibm-watson-enabled-accounting-tools

Internal Intangible Asset Effect on Firm Valuation

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3134117
27 Pages Posted: 4 Mar 2018  

Zane L. Swanson

University of Central Oklahoma

Date Written: March 2018

Abstract

The concept that accounting represents the economics of the firm is a premise for the allocation of scarce resources. In recent years, firm intangible assets seem to have become an increasingly important driver of firm economic value, and yet they are difficult to measure. This study conducts an exploratory data analysis into currently unrecorded firm internal intangible value and then employs the insight to create system equations. Initially, a structural equation model (SEM) is utilized that employs a latent variable for the internally generated intangible value. The SEM analysis starts with a clean surplus model as a basis for the conceptual framework. The current study finds that a measure of internally generated intangible assets affects firm value. Then, this information is incorporated in a two equation simultaneous regression of firm value and net income. Both equations have explanatory power and the internally generated asset factors are significant. In the process, this study opens a new research frontier for SEM financial accounting research and internally-generated intangible asset valuation analyses.

Keywords: Internal Intangible Assets, SEM, Latent Variable

The Effect of ASU 2014-08 on the Use of Discontinued Operations to Manage Earnings

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3141713
44 Pages Posted: 16 Mar 2018  

Yuan Ji

The Hong Kong Polytechnic University

James Potepa

The George Washington University

Oded Rozenbaum

George Washington University - School of Business

Date Written: March 15, 2018

Abstract

Accounting regulations require firms to separately disclose the profits and losses from portions of the company that have been or will be eliminated, as they should not persist into the future. These discontinued operations are, not surprisingly, typically excluded from the definition of income used by investors, analysts, and other users of the financial statements. Barua et al. (2010) show that the accounting treatment of discontinued operations allows managers to manipulate earnings by shifting core expenses into discontinued operations. In light of recent changes in the regulations pertaining to this item, we re-examine this relationship and discover that significant changes have occurred. The new rules, which impose tighter restrictions on certain aspects of what can be considered discontinued and loosen other requirements, eliminate any significant evidence of earnings management. In addition, the new rules reduce the frequency, persistence, and predictive ability of discontinued operations. Finally, the stock market starts to react to discontinued operations and analysts more regularly exclude discontinued operations after this new regulation.

Keywords: ASU 2014 - 08, Discontinued Operations, Earnings Management

Feelings, Needs, Challenges and Adjustments of Newly Hired Accountants As Instructors Toward Successful Transition

Proceedings Journal of Education, Psychology and Social Science Research

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3139738
8 Pages Posted: 16 Mar 2018  

Amadeo P. Cristobal, Jr.

Saint Paul School of Professional Studies

Date Written: August 30, 2016

Abstract

Using a qualitative-phenomenological research design this study is focused on the experiences encountered by the newly hired accounting instructors in terms of the common feelings, needs, challenges and the adjustments applied leading to a successful transition purposely to lower the turn-over rate of accounting faculty.

It was found out that the newly hired accounting instructors have mixed emotions, the feeling of happiness and confusion. They encountered various needs and challenges during the transition period. The common needs are: Conduct of Trainings; English Proficiency; Personal Management; Adequate Teaching Resources; Convenient Academic Rooms; Personality Development; Professional Growth; and Additional Benefits. The common challenges encountered are: Instructional Competence; Personal Competence; Student’s Concern; and Management Effectiveness. The newly hired accounting instructors have applied effective transition adjustments: Quality Preparations; Mastery of the Lesson; Practical Practices; Effective Teaching Methods; Building Rapport; and Personal Adjustments. The participants have a successful transition based from the changes of their feelings such that the feeling of happiness was increased, and that the feeling of confusion was abated.

For the management of colleges and universities to avoid high-turnover rates of accounting instructors it is recommended that a very effective Induction Program and Strategic Management Plan must be formulated to meet the needs of the newly hired instructors and proactively prepare them to the challenges they may encounter.

R. J. Chambers on Securities and Obscurities: Making a Case for the Reform of the Law of Company Accounts in the 1970s

Abacus, Vol. 54, Issue 1, pp. 36-65, 2018

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3140845

SSRN
 

30 Pages Posted: 15 Mar 2018  

Martin Emanuel Persson

Ivey School of Business, University of Western Ontario

Christopher J. Napier

University of London - Royal Holloway College - School of Management

Date Written: March 2018

Abstract

This study examines the contribution of Raymond J. Chambers to the British inflation accounting debate in the early‐to‐mid 1970s, from the perspective of the reception of his book, Securities and Obscurities: A Case for Reform of the Law of Company Accounts, published in 1973. To structure the empirical narrative, drawing on previously unpublished documents from the R. J. Chambers Archives, we employ Czarniawska and Joerges’ ([Czarniawska, B., 1996]) notion of the ‘travel of ideas’, and Mumford’s ([Mumford, M. J., 1979]) observation of the existence of ‘inflation accounting debate cycles’. The result is a narrative that traces the environmental and material circumstances that led to Chambers’ book having a lesser impact on the British inflation debate than one would expect based on the international exposure of his ideas, his influence at the time, and the empirical rigour of his proposal. The purpose of this exercise is to assess how contextual factors, such as the choice of publisher, use of promotional material, and distribution methods, can be as (or more) important than the substance of the proposed ideas, arguments, and solutions.

HP and Autonomy: Who's Accountable?

Darden Case No. UVA-C-2408

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3140854

17 Pages Posted: 15 Mar 2018  

Justin Hopkins

University of Virginia – Darden Graduate School of Business Administration

Gerry Yemen

University of Virginia - Darden School of Business

Abstract

Written using public sources, this case uses Hewlett-Packard's (HP) purchase of Autonomy Corporation (Autonomy) to analyze the accounting treatment for the acquisition and subsequent goodwill impairment. While the case focuses on the accounting for mergers and acquisitions, it also provides for a variety of other discussion topics such as the effect of managerial incentives and CEO succession on accounting outcomes, managerial “spin” on disclosure of bad news, strategy in changing institutional environments, and financial reporting limitations of new economy firms with heavy investments in intangible assets.The case opens during the fall of 2011 (when HP purchased Autonomy). Some analysts applauded the shift in strategy that the Autonomy purchase signaled for HP. Others were unsure how Autonomy's cloud computing software fit HP's businesses. From there, events at HP suggested a sense of division and frustration between HP leadership, the board, and Autonomy executives. The board replaced HP CEO Leo Apotheker with Meg Whitman. For the next few quarters, Autonomy missed expected results, and by May 2012, HP removed Autonomy's CEO Michael Lynch. Shortly after, HP announced an impairment charge of $8.8 billion related to the Autonomy acquisition, driving the company to report a loss for the year, the first in 10 years. The HP disclosure emphasized the Autonomy acquisition (which occurred prior to Whitman's tenure as CEO) and accused Lynch and Autonomy executives of cooking the books to inflate the purchase price. However, analysis of the financial statements and related footnote disclosures reveal that this $8.8 billion was less than half the $18 billion total impairment that HP recorded in 2012.

Excerpt

UVA-C-2408

Feb. 27, 2018

HP and Autonomy: Who's Accountable?

In the fall of 2011, Hewlett-Packard (HP) purchased Autonomy Corporation (Autonomy), a British software leader in processing, managing, and delivering unstructured information for real-time analysis. Some analysts applauded the shift in strategy that the Autonomy purchase signaled for HP. “Given lackluster growth in PCs long term and increasing trends towards data and analytics,” Credit Suisse analysts wrote, “the transformation is necessary.” Others on the street were unsure how Autonomy's cloud computing software fit HP's businesses, and were less positive following the acquisition announcement and ensuing HP's stock price decline of 20%. Meanwhile, Autonomy's stock bumped up 79% following the announcement (see Exhibit1).
 

Keywords: intangible assets and goodwill, impairment, mergers and acquisitions, CEO succession, adverse news disclosure

The Promise and Challenges of New Datasets for Accounting Research

Accounting, Organizations, and Society 2017 Conference on New Corporate Disclosures and New Media

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3136029
2 Pages Posted: 12 Mar 2018  

Siew Hong Teoh

University of California, Irvine - Accounting Area

Date Written: 2017

Abstract

I describe a brief summary of the development of databases used in accounting research and discuss the research questions addressed in traditional databases and ‘new’ databases. The new data include online searches such as Google Trends data; textual data from corporate disclosures, analyst reports, conference call transcripts, earnings press releases, and news media articles; social network and social media data from Twitter, LinkedIn, Glassdoor, and other data. New data holds promise for research on attention or cognitive processing constraints; on tone/valence, affect, deceptiveness and credibility for capital market and financial reporting outcomes. I examine the econometric challenges of new data and suggest the potential for new data to offer new auditing tools to detect poor financial reporting, which will help to discourage earnings management.

Keywords: Big Data, Google Trends, Twitter, LinkedIn, Glassdoor, social network, limited attention, behavioral bias, psychological bias, tone management, textual data, stock market returns, earnings, analysts

JEL Classification: G02, G14, M40, M41, M42

Contracting on GAAP Changes: Large Sample Evidence

Journal of Accounting Research, Vol. 55, No. 5, 2017

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3136023
SSRN

Posted: 12 Mar 2018  

Hans Bonde Christensen

University of Chicago - Booth School of Business

Valeri V. Nikolaev

University of Chicago Booth School of Business

There are 2 versions of this paper

Date Written: December 1, 2017

Abstract

We explore revealed preferences for the contractual treatment of changes to GAAP in a large sample of private credit agreements issued by publicly held U.S. firms. We document a significant time-trend toward excluding GAAP changes from the determination of covenant compliance over the period from 1994 to 2012. This trend is positively associated with proxies for standard setters’ shift in focus toward relevance and international accounting harmonization. At the firm level, borrowers facing higher uncertainty are more likely to write contracts that include GAAP changes, but these firms also show a more pronounced time-trend toward excluding GAAP changes. While this evidence is broadly consistent with an efficiency role for GAAP changes in debt contracting, it is also consistent with a shift in standard setters’ focus offering a partial explanation of why fewer contracts rely on GAAP changes in 2012 than in 1994.

Keywords: standard setting; GAAP changes; debt contracting; incomplete contracts theory

Do Mandatory Accounting Disclosures Impair Disclosing Firms’ Competitiveness? Evidence from Mergers and Acquisitions

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3138584
50 Pages Posted: 12 Mar 2018  

Daniel W. Collins

University of Iowa - Department of Accounting

Jaewoo Kim

University of Rochester - Simon Business School

Heejin Ohn

University of Iowa - Department of Accounting

Date Written: March 12, 2018

Abstract

This paper examines whether mandatory accounting disclosures in financial reports impair disclosing firms’ competitiveness by inducing competitors to take actions. To capture firm-level variation in product market competition, we rely on the product similarity measure developed by Hoberg and Phillips (2016). Using M&A-related disclosures that are mandated by materiality thresholds, we find that disclosing firms experience a disproportionate increase in product similarity subsequent to M&A transactions relative to non-disclosing M&A firms. Cross-sectional analyses reveal that the effect is more pronounced when the firms obtain greater synergy gains via M&A or achieve greater product differentiation in the year of an M&A. We also document that rivals of disclosing firms are more likely to engage in an M&A transaction in the following year relative to rivals of non-disclosing firms, and that competition between an acquirer and rivals increases both when the acquirer discloses and when rivals conduct M&A. Collectively, our findings suggest that mandatory M&A-related sales and profit disclosures have an adverse impact on disclosing firms’ competitiveness in product markets.

Strategic Subsidiary Disclosure

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3137138
49 Pages Posted: 10 Mar 2018 Last revised: 14 Mar 2018

Scott Dyreng

Duke University

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill

Patrick Langetieg

Government of the United States of America - Internal Revenue Service (IRS)

Jaron H. Wilde

University of Iowa - Henry B. Tippie College of Business

Date Written: March 1, 2018

Abstract

We use data multinational firms provide to the Internal Revenue Service regarding their foreign subsidiary locations to explore whether some firms fail to publicly disclose subsidiaries in some countries, even when the subsidiaries are significant and should be disclosed per Security and Exchange Commission rules. The propensity to omit significant subsidiaries is especially strong when subsidiaries are in tax havens and when the firm is more highly scrutinized by the media, suggesting firms believe there are reputational costs associated with operations in tax havens. Additionally, we find evidence that firms omitting significant subsidiaries are more likely to misstate their financial results and are more likely to receive an SEC comment letter as compared to firms that do not omit significant subsidiaries. These results suggest that subsidiary omission may be indicative of firms’ broader disclosure and accounting choices.

Keywords: financial disclosure, corporate tax, reputational costs of tax planning

JEL Classification: M41, M48, H25, H26

Engaging Non Governmental Organizations and Actors in Sustainable Development: The Role of Environmental Accounting

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3135023
10 Pages Posted: 9 Mar 2018  

Marianne Ojo

American Accounting Association; The Institute for Business and Finance Research, LLC

Date Written: March 5, 2018

Abstract

Amongst several initiatives aimed at contributing to current and present literature on the topic of sustainable development, this presentation aims to highlight why anticipated and expected success was not generated as expected in previous protocols, conferences and climate conventions such as the Kyoto Protocol. Major and fundamental challenges to environmental sustainability – expanding beyond the scope of traditional concerns which are affiliated to free trade.

Further, it aims to illustrate how the concepts and definitions attributed to the term “sustainable development” has expanded over the years to embrace more concepts and actors which were not catered for in original concepts and definitions – as well as their relevance to the evolving need to embrace non-governmental actors and organizations in achieving sustainable development.

Is There a Confidence Interval for That? A Critical Examination of Null Outcome Reporting in Accounting Research

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3131251
39 Pages Posted: 4 Mar 2018  

William M. Cready

University of Texas at Dallas - Naveen Jindal School of Management

Jiapeng He

University of Texas at Dallas, Naveen Jindal School of Management, Students

Wenwei Lin

University of Texas at Dallas, Naveen Jindal School of Management, Students

Chengdao Shao

Xiamen University

Di Wang

University of Texas at Dallas, Naveen Jindal School of Management, Students

Yang Zhang

University of Texas at Dallas, Naveen Jindal School of Management, Students

Date Written: February 27, 2018

Abstract

This study examines how null outcomes are analyzed and reported by accounting researchers based on an examination of two years of publications in The Accounting Review. As null outcomes reflect an inability to reject a null they, unlike rejections, do not lend themselves to specifically conclusive interpretations. Rather, substantive descriptive analyses are needed to draw useful inferences from such outcomes. For the set of substantive null outcomes we identify in our review of published empirical accounting research articles we find that conclusive interpretations border on monolithic and scant attention is given to providing the descriptive analyses needed to draw useful insights from such outcomes. Our analysis, in particular, points to the importance of employing interval based analyses (e.g., Dyckman and Zeff, 2014) when interpreting null outcomes.

Keywords: Null Hypothesis, Null Outcome, Confidence Interval

Returns to Scaling: Inter-Field Comparability of Citations to Business Scholarship

SSDRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3128269
12 Pages Posted: 4 Mar 2018  

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

Date Written: January 25, 2015

Abstract

Citation measures are often employed to evaluate scholarship in business schools. We document here that citation practice as measured by the number of references per published article varies systematically across top-ranked journals in business school fields (accounting, economics, finance, management, marketing, MIS, and operations). We develop a set of scale factors, based on references per article and inter-field citation patterns, for making citation measures comparable across fields. Because economics articles tend to cite literature sparingly, raw citation measures are systematically biased against economic scholarship.

Keywords: citation analysis; business school

JEL Classification: A12

The Interplay between Related Party Transactions and Earnings Management: The Role of Audit Quality

Journal of International Accounting, Auditing and Taxation, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3128124
Number of pages: 45 Posted: 02 Mar 2018

Moataz El-Helaly

Olayan School of Business, The American University of Beirut

Ifigenia Georgiou

Aston University - Aston Business School

Alan Lowe

School of Accounting; Aston University - Aston Business School - Finance and Accounting Group

Date Written: February 22, 2018

Abstract

Related party transactions (RPTs) are considered a potential tool for shareholders’ wealth expropriation, as they offer opportunities to transfer wealth between the firm and related parties. While considerable evidence has been reported on the negative consequences of RPTs (declines in shareholder wealth, lowered accounting quality and an increased likelihood of financial fraud), studies examining how RPTs may be used in earnings management are relatively rare. Therefore, we aim to provide evidence on how RPTs and earnings management are related. Consequently, we investigate whether RPTs are associated with real or accrual earnings management or used as a third alternative to manage reported earnings. Our study employs a sample of firms listed on the Athens Stock Exchange during the period between 2009 and 2014. Our results confirm that, on average, real earnings management and RPTs appear to be used as substitutes. However, additional tests show that this substitution is not significant if the firm is audited by one of the Big 4 auditors. Contrarily, we do not find any significant association between accrual earnings management and RPTs. Our evidence adds to understanding around the interplay between RPTs and earnings management and how audit quality can affect the relationships investigated.

Keywords: Related Party Transaction, Earnings Management, Greece

JEL Classification: M41, M42, M48, K20

Accounting and Economic Consequences of CEO Paycuts

Journal of Accounting and Public Policy, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3126052
55 Pages Posted: 2 Mar 2018  

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Hariom Manchiraju

Indian School of Business (ISB), Hyderabad

Swaminathan Sridharan

Northwestern University - Kellogg School of Management

Date Written: April 8, 2016

Abstract

Boards sometimes cut a CEO’s pay following poor performance. This study examines whether such CEO paycuts really work. We identify 1,496 instances of large CEO paycuts during the period 1994-2013. We then create a propensity-score-matched control group of firms that did not cut their CEOs’ pay and employ a difference-in-differences approach to examine the consequences of paycuts. Our results show that, following a paycut, CEOs are likely to engage in earnings management in an attempt to accelerate improvement in the reported performance and to achieve a speedier restoration of their pay to pre-cut levels. Further, we find that improvement in long-term performance after a paycut occurs only for those firms with lower levels of earnings management after the paycut. Finally, we show that paycuts are more likely to lead to unintended value-destroying consequences in the absence of high institutional ownership or when the CEO is sufficiently entrenched, thereby impairing the effectiveness of internal monitoring by boards.

ACCT3323: Strategic Management Accounting

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3126609
85 Pages Posted: 1 Mar 2018  

Stijn Masschelein

University of Western Australia

Date Written: February 20, 2018

Abstract

These notes discuss four different accounting tools to manage an organisation’s strategy: budgets, incentive contracts, cost accounting, and the balanced scorecard. The first one, budgets, are a quantitative expression of a business plan for a specific period of time (p.184 in Horngren et al. 2012 or p.387 in Langfield- Smith et al. 2008). Budgets typically permeate the entire organisation and most employees collect information to put in the budget or they might even be directly responsible for managing a subset of the budget. Cost accounting is the domain of the accountants. Product cost calculations are a large input into the budgeting process but these cost calculations are also directly used to evaluate the viability and efficiency of investments, production lines, outsourcing decisions.

When employees manage part of the budget and make decisions on how to implement the firm’s strategy, the headquarters will want to make sure that employees work in the best interest of the firm. Firms will introduce explicit and implicit incentive contracts to reward good behaviour and punish bad behaviour.

Budgeting and costing aims to quantify all the information that goes into strategic decision making and strategy implementation. That does not mean that all business decisions are only driven by these figures. Managers often use their own experience and intuition to augment the quantitative information. The balanced scorecard tries to formalise the interplay between objective information and subjective knowledge by summarising the firm strategy in a limited set of causally linked financial and non-financial measures. While budgeting and costing are often seen as merely strategy implementation tools, the balanced scorecard also serves as a way to form and evaluate an organisation’s strategy. Nevertheless, a full balanced scorecard implementation requires careful planning. While the balanced scorecard for top management should be concise, more complexity is introduced when each lower level department needs its own balanced scorecard to aid in fulfilling its part of the overall strategy.

Keywords: balanced scorecard; budget; cost accounting

Accounting and Philosophy: The Construction of Social Reality Framework

Elkhashen, E.M. and Ntim, C.G. (2018). Accounting and Philosophy: The Construction of Social Reality Framework. Journal of Accounting and Taxation, Forthcoming.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3124933
SSRN

23 Pages Posted: 27 Feb 2018  

Emad Elkhashen

University of Huddersfield

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Date Written: February 16, 2018

Abstract

Accounting scandals and their severe consequences shed light on the ambiguity of accounting. This paper attempts to explore philosophical roots of accounting in an attempt to remove, or at least mitigate, this ambiguity. The study employs Searle’s social construction framework (1995) as an approach to achieve this aim. It is argued that the main problem of accounting is its failure to faithfully represent economic reality. The evaluation of recent developments in accounting suggests that although these attempts are a step towards reaching a better representation of economic reality, they are insufficient. A great deal of accounting ambiguity still exists, and thus future accounting scandals are likely. It is therefore suggested that a deeper understanding of the philosophical aspects of accounting should be taken into consideration by the setters of accounting standards.

Keywords: accounting ambiguity; Searle’s construction of social reality; representational faithfulness; accounting standards

JEL Classification: M1

Cryptocurrency-Portfolios in a Mean-Variance Framework

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3124832
12 Pages Posted: 27 Feb 2018  

Alexander Brauneis

University of Klagenfurt

Roland Mestel

University of Graz

Date Written: February 16, 2018

Abstract

By the end of 2017, 27 cryptocurrencies topped a market capitalization of one billion USD. Bitcoin is still shaping market and media coverage, however, recently we faced a vibrant rise of other currencies. As a result, 2017 has also witnessed the advent of a large number of cryptocurrency-funds. In this paper, we use Markowitz' mean-variance framework in order to assess risk-return-benefits of cryptocurrency-portfolios. We relate risk and return of different portfolio strategies to single cryptocurrency investments. In an out-of-sample analysis accounting for transaction cost we find that combining cryptocurrencies in a portfolio enriches the set of 'low'-risk cryptocurrency investment opportunities.

Keywords: cryptocurrencies, portfolio optimization, Markowitz, naive diversification

JEL Classification: G11

Zorba:  Digital Transformation - A Major Shift  ---
https://zorba-research.blogspot.ca/2018/03/digital-transformation-major-shift.html

Zorba:  The Web Needs Fixing ---
https://zorba-research.blogspot.ca/2018/03/the-web-needs-fixing.html

ntegrated Reporting --- https://en.wikipedia.org/wiki/Integrated_reporting

SAP --- https://www.sap.com/integrated-reports/2017/en/financial-highlights.html
Note that the reporting of revenue is non-IFRS revenue

Zorba on SAP's Leadership in Integrated Reporting ---
https://zorba-research.blogspot.ca/2018/03/sap-and-integrated-reporting.html

Connecticut is one of the Five States With the Highest Taxpayer Burdens ---
https://www.statedatalab.org/

As pensions grow, state struggling to pay ---
https://www.statedatalab.org/news/detail/as-pensions-grow-state-struggling-to-pay

The CPA Journal:  Connecticut Legislative Update Personal, Corporate, and Estate and Gift Tax Changes ---
https://www.cpajournal.com/2018/02/27/connecticut-legislative-update/

TIA --- Truth in Accounting

Taxpayer Burden grading varied: 23 cities earned a C grade; 34 a D, and seven an F grade. It also states that TIA could not grade two of the most populous cities, 'Newark and Jersey City in New Jersey – because they do not issue annual financial reports that follow generally accepted accounting principles, or GAAP.' ---
https://www.statedatalab.org/news/detail/nevada-receives-a-c-in-truth-in-accounting-report

Kentucky is one of the Five States With the Highest Taxpayer Burdens ---
https://www.statedatalab.org/

Kentucky House takes $480.6 million from public workers’ health plan to balance budget --
http://www.kentucky.com/news/politics-government/article202872444.html#storylink=cpy

Jensen Comment
Perhaps the Kentucky House learned from years of depleting the Social Security Trust Funds in Washington DC to pay for general expenses ---
https://en.wikipedia.org/wiki/Social_Security_Trust_Fund

Excess funds are used by the government for non-Social Security purposes, creating the obligations to the Social Security Administration and thus program recipients. However, Congress could cut these obligations by altering the law

How to Mislead With Statistics
Jeff Bezos is now making an astonishing $230,000 every minute ---
http://www.businessinsider.com/jeff-bezos-is-now-making-an-astonishing-230000-every-minute-2018-3

Jensen Comment
This is misleading in that the $230,000 includes transitory ups and downs in market value of his portfolio, much of it being Amazon stock that he does not have discretion in selling with every change in market value. The number also excludes the transactions costs of eventually realizing growth in value of his portfolio. He might make 90% of it one minute and lose it the next and vice versa.

Jeff Bezos also owns an enormous amount of real estate for which market value changes minute-to-minute are virtually impossible to measure reliably. Under USA accounting rules fair market value adjustments are mostly limited to those that can be reliably measured. There's also a huge difference in value affected by how much is sold. For example, selling a 1% portion of a million acres commands a different price than selling the entire million acres. The same can be said for selling 100 Amazon shares versus 50 million Amazon shares in one transaction.

When it comes to a company like Amazon or General Motors there's a huge difference in the cost value of its enormous inventory versus retail value. Except in the case of damaged or obsolete inventory the financial statement value is based on cost rather than eventual sales revenue in large measure due to reluctance to measure earnings that have not been earned plus the difficult task in many instances of estimating selling costs and timing. There are of course exceptions such as in the case of very long-term contracts.

AICPA:  As Seen on CNN and TED Talks ---
https://www.aicpaengage.com/?utm_source=mnl:cpald&utm_medium=email&utm_campaign=28Feb2018

How to Mislead With Statistics
The New York Times concluded that their fictional family would owe a whopping $3,896 more in taxes under the new law. But on Friday, the Times blamed TurboTax and published the following correction to the story:
http://taxprof.typepad.com/taxprof_blog/2018/03/the-new-york-times-turbotax-defense-and-liberal-law-professor.html#more

In a much earlier article the New York Times claimed about 75% of Americans would get a tax cut. Most of the other 25% do not pay any taxes to cut ---
http://taxprof.typepad.com/taxprof_blog/2018/03/the-new-york-times-turbotax-defense-and-liberal-law-professor.html#more
One thing you have to take into consideration that with NYT articles much depends upon who writes the article.

Harvard's $1 billion losing bet. The university’s highly paid money managers thought they could manage risks other schools avoided. Not so. Harvard bet the farm on natural resources around the world, including tomatoes, sugar, and eucalyptus. It didn't go too well. ---
https://www.bloomberg.com/news/articles/2018-03-01/harvard-blew-1-billion-in-bet-on-tomatoes-sugar-and-eucalyptus?cmpid=BBD030118_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180301&utm_campaign=bloombergdaily
Jensen Comment
This can happen when you don't hedge high-risk speculations in commodities. Diversification of a portfolio of speculations is not the same as hedging those speculations with derivative financial instruments.

The (Sad) State of the IRS ---
http://taxprof.typepad.com/taxprof_blog/2018/03/olson-presents-the-state-of-the-irs-today-at-minnesota.html
Jensen Comment
The IRS was in deep trouble even before Trump came to town, and afterwards things got worse.

AICPA:  Revised compilation and review report requirements to be included in SSARS No. 24 ---
https://www.journalofaccountancy.com/news/2018/feb/compilation-and-review-report-ssars-24-201818423.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=07Mar2018

How the super-wealthy hide billions using tax havens and shell companies ---
http://www.businessinsider.com/jake-bernstein-panama-papers-offshore-banking-shell-companies-2018-2

Malcolm Gladwell --- https://en.wikipedia.org/wiki/Malcolm_Gladwell

Malcolm Gladwell to Teach His First Online Course: A Master Class on How to Turn Big Ideas into Powerful Stories ---
http://www.openculture.com/2018/02/malcolm-gladwell-to-teach-his-first-online-course.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

The first woman to head a multinational company in South Africa is an accountant and she counts on her values to grow the business ---
https://www.accountancysa.org.za/cover-story-staying-authentic/

Norway’s Exemplary Gender Quota? Just Don’t Ask About CEOs ---
https://blogs.wsj.com/moneybeat/2014/05/22/norways-exemplary-gender-quota-just-dont-ask-about-ceos/

An introduction to The Nordic Gender Equality Paradox ---
http://nordicparadox.se/

Female CEOs are at record level in 2016, but it's still only 5% ---
http://money.cnn.com/2016/09/29/investing/female-ceos-record-high/index.html

Where Are the Women CEOs:  Myth Versus Reality ---
https://www.ircsearchpartners.com/thought-leadership/where-are-women-ceos-myths-and-reality/
The date on this study must be a typo

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

Stanford University:  Should We Stop Licensing Doctors and Lawyers (and accountants and barbers)?
 https://www.gsb.stanford.edu/insights/should-we-stop-licensing-doctors-lawyers?utm_source=Stanford+Business&utm_campaign=19faf7fa63-Stanford-Business-Issue-133-3-18-2018&utm_medium=email&utm_term=0_0b5214e34b-19faf7fa63-70265733&ct=t(Stanford-Business-Issue-133-3-18-2018)

Jensen Comment
I strongly disagree with the conclusions of this paper. There's just too much at stake in nearly all these fields where the consumer is too easily ripped off and even injured. If anything the professions are too lenient in protecting the public from their licensed professionals. There are just too many horror stories where insiders (think colleagues, assistants) kept silent about an incompetent licensed professional.

Licensing also discourages the poor academic performers from choosing a profession such as when marginal students choose to major in management rather than accounting because of fear of passing the CPA examination. Sure we lose a few good accountants this way but we also lose a lot of potential lousy accountants.

And there are a lot more technical accounting courses in a curriculum than in other business majors because those courses are required to sit for the Uniform (national) CPA Examination. Even in times of budgetary distress colleges cannot drop some of those courses if they want to keep graduates eligible to take the CPA exam. The same is true in other licensing disciplines like law, nursing, pharmacy, engineering, etc. Without licensing requirements it might be tempting to drop some of the technical and relatively expensive courses in a curriculum.

Licensing is not a perfect hurdle. Some bridges designed and/or inspected by licensed engineers do come crashing down on occasion, but I prefer to have licensing requirements to prevent more widespread bridge failures.

Licensing is not a perfect hurdle as evidenced by reputations of professionals among insiders. My wife was a surgical nurse for 20+ years. Insiders like her had their informal surgeon rating systems even if they seldom discussed those ratings in public. When I broke my hip years ago riding a bicycle she chose what she and other insiders at the Northeast Baptist Hospital in San Antonio considered the best hip surgeon relative to some others that were better avoided even if they were licensed. One of the huge problems in this type of performance evaluation, however, is that the system has better performance data on surgeons who operated in that hospital for 20+ years in the same hospital relative to newcomers.

It was interesting for me, as an outsider, to discover what specialty the nurses had the strongest feelings about regarding surgeons. The strongest feelings feelings seemed to be directed at plastic surgeons, perhaps because the messy plastic surgery mistakes were more observable in the operating room relative to some other types of surgeries like brain surgery.

It was also interesting to discover that some of the best surgeons were the hardest to work for in the operating room in terms of bad temperaments and rudeness. Some nurses chose to have their own surgeries from the surgeons they preferred not to work with in the operating rooms. Nice professionals aren't always the best professionals

California is taking a cooling off period after generating too much energy from the sun ---
https://qz.com/1224296/california-is-taking-a-cooling-off-period-after-generating-too-much-energy-from-the-sun/

Jensen Comment
This suggests that one day there may be too much of a good thing for homeowners who invest in solar expecting to sell more electricity than is needed by the homeowner.

There may eventually be too many homeowners doing the same thing such that prices of that type of solar power may crash due to too much supply relative to demand.

South Africa is now also notorious for white-collar crime ---
https://www.theatlas.com/charts/SJs_xpf_M 

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

AICPA:  How blockchain might affect audit and assurance ---
https://www.journalofaccountancy.com/news/2018/mar/how-blockchain-might-affect-audit-assurance-201818554.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=16Mar2018

This Interactive Simulation Will Teach You How Blockchain Works ---
http://www.businessinsider.com/sc/ibm-blockchain-think-conference-2018-3

IBM told investors that it has over 400 blockchain clients — including Walmart, Visa, and Nestlé ---
http://www.businessinsider.com/ibm-blockchain-enterprise-customers-walmart-visa-nestl-2018-3

"Blockchain" is meaningless ---
https://www.theverge.com/2018/3/7/17091766/blockchain-bitcoin-ethereum-cryptocurrency-meaning

How Quantum Computing Threatens Blockchain ---
https://www.nationalreview.com/2018/02/quantum-computing-blockchain-technology-threat/

There has been a lot of hype concerning Bitcoin and cryptocurrencies of late. But it is blockchain, the electronic architecture on which cryptocurrencies run, that is the truly revolutionary technology.

Blockchain is a decentralized accounting system that verifies records through a shared ledger of transactions. Each computer in the network hosts a copy of the ledger, and when a transaction is completed, it is verified against the ledger stored on all the other network computers. If all the ledgers match, then that transaction is encrypted with others into what’s known as a block. The new block is then added to existing blocks to form a chain of blocks, or a blockchain.

The potential uses of blockchain extend far beyond cryptocurrencies. They include securing electronic heath records, creating smart contracts, and electronic voting. Blockchain is even being touted as the potential solution to the Department of Defense’s (DoD) logistics challenges—from DoD’s perspective, the consensus structure of blockchain mitigates the security risks of a single point of failure and allows for inventory suppliers both large and small to track their shipments. And in December, President Trump signed a bill calling for exploration into the potential benefits of blockchain for the federal government.

The dirty little secret, though, is that the technology could be rendered useless by a quantum computer hack.

Quantum computers, currently in development, will be more powerful than today’s classical computers because they are driven by quantum physics. Rather than using a binary system of bits, where each bit is 1 or 0, quantum computers use quantum bits or “qubits” composed of physical particles, often single photons. Because a bit is only ever 1 or 0, a classical computer calculates in a linear fashion. In contrast, the quantum physical properties of superposition and entanglement mean a qubit is both 1 and 0 at the same time, which allows for exponentially greater computing power.

At the same time, quantum computers pose a major threat to the asymmetric encryption system used to secure most electronic data, including blockchain. This system relies on math problems that take too long for a classical computer to solve. The only way to crack this encryption is to reverse factor a large semi-prime number to its original primes. Such a calculation takes eons for a classical computer, but will be instantaneous for a large universal quantum computer—even against blockchain. Charles Harvey Jr., senior adviser for American Defense International, has said, “I call the day quantum computers are able to break classic computer encryption methods ‘Q-Day.’ Q-Day is coming.”

But if a quantum computer poses a threat to blockchain as it exists now, quantum cybersecurity promises a solution. In fact, incorporating emerging quantum cybersecurity in three stages can save blockchain from the fate of other systems made obsolete by new technologies.

The first and most immediate solution is to strengthen existing encryption algorithms by adding in truly random numbers, or so-called quantum keys, which are the world’s strongest encryption keys. True randomness can only be found in nature, which is why scientists measure the crackle of energy in the fabric of the universe as it spontaneously creates and self-destructs. Quantum physicists harness this crackling quantum noise and convert it into true random numbers.

Quantum random-number generators are already being implemented today by banks, governments, and private cloud carriers. Adding quantum keys to blockchain software, and all encrypted data, will provide added security against both a classical computer and a quantum computer.

The next step is to develop quantum-resistant algorithms. The National Institute of Standards and Technology, part of the U.S. Department of Commerce, is currently reviewing submissions for these next-generation algorithms. Just as asymmetric encryption uses difficult math problems to stump classical computers, quantum-resistant algorithms will use difficult math problems to stump a quantum computer. The challenge lies in creating useful math problems that actually can stump a quantum computer. This is the approach being adopted by U.K.-based Quantum Resistant Ledger, initiated by Dr. Peter Waterland, a medical professional by day and champion of quantum resistant cryptocurrency by night. Another U.K.-based company, Ubiquicoin, has also announced its goal to “become the first blockchain resistant to quantum computing cyberattacks.”

Continued in article

A good place to start reading
AICPA:  Blockchain was made to solve one problem and here's what it is ---
http://blog.aicpa.org/2018/02/blockchain-was-made-to-solve-1-problem-heres-what-that-is.html#sthash.NHgU1LDZ.dpbs

Even Congress is jumping on the blockchain bandwagon --- and IBM is urging it on
http://www.businessinsider.com/congressional-hearing-explored-uses-of-blockchains-in-government-2018-2

All at once, it seems, corporate treasury departments are embracing the distributed-ledger technology to manage Foreign Exchange more efficiently, among other reasons ---
http://ww2.cfo.com/cash-management/2018/02/blockchain-suddenly-hot/

Scams & stupidities around 'blockchain stocks' ---
http://www.businessinsider.com/bitcoin-blockchain-stocks-price-moves-2017-12

Knowledge @ Wharton
Blockchain, The Bard and Building More Inclusion in Blockchain ---
http://knowledge.wharton.upenn.edu/article/blockchain-the-bard-and-building-more-inclusion-for-banking/

A soybean shipment to China became the first commodity deal to use blockchain tech ---
http://www.businessinsider.com/energy-and-commodity-companies-use-blockchain-tech-for-trading-2018-1

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

Deloitte’s new blockchain lab in New York anticipating make-or-break year ---
http://www.big4.com/big4-thought-leader-interviews/deloittes-new-blockchain-lab-in-new-york-anticipating-make-or-break-year/

Zorba:  Blockchain ledgers are not accounting ledgers ---
https://zorba-research.blogspot.ca/2018/01/blockchain-ledgers-are-not-accounting.html

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

The SEC just made it clearer that securities laws apply to most cryptocurrencies and exchanges trading them ---
https://www.cnbc.com/2018/03/07/the-sec-made-it-clearer-that-securities-laws-apply-to-cryptocurrencies.html

From the CFO Journal's Morning Ledger on March 1, 2018

SEC launches cryptocurrency probe
The SEC has issued scores of subpoenas and information requests to technology companies and advisers involved in the red-hot market for digital tokens, according to people familiar with the matter.

San Antonio Accountant enters guilty plea for wire fraud, tax evasion ---
http://www.kristv.com/story/37627170/accountant-enters-guilty-plea-for-wire-fraud-tax-evasion

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

IRS sees 60% increase in data thefts from tax pros ---
https://www.accountingtoday.com/news/irs-sees-60-increase-in-data-thefts-from-tax-pros-and-warns-of-new-client-scam

SEC Settlement with Elizabeth Holmes:  Blood, Fraud and Money Led to Theranos CEO's Fall From Grace ---
https://www.bloomberg.com/news/articles/2018-03-14/theranos-ceo-holmes-accused-of-fraud-by-sec-jeraxw6a?cmpid=BBD031418_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180314&utm_campaign=bloombergdaily

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

Target's quest to catch Amazon is failing miserably — and traders saw it coming ---
http://www.businessinsider.com/target-stock-price-earnings-report-quest-to-catch-amazon-failing-traders-saw-it-coming-2018-3

Audits Are Meant to Protect Investors --- But Almost Half Have Problems ---
http://www.businessinsider.com/ifiar-auditing-survey-2017-global-audit-problems-2018-3

Bob Jensen's threads on audit problems ---
http://faculty.trinity.edu/rjensen/fraud001.htm

AICPA Resources:  Tax pros: How are you protecting your clients’ data?
http://blog.aicpa.org/2018/03/tax-pros-how-are-you-protecting-your-clients-data-.html#sthash.9SVVAETc.dpbs

CNBC: Guide to Encrypting Text Messages
https://www.cnbc.com/2018/03/09/how-to-encrypt-your-messages-on-iphone-and-android.html

Auditing:  A Journal of Practice and Theory (long on the theory part, short on the practice part)
Volume 37, Issue 1 (February 2018) 
http://aaajournals.org/toc/ajpt/current

Main Articles

1

The Mismatch between Expectations and Realities of AS4 Audits: A Post-Implementation Research Analysis Sanaz Aghazadeh and Marietta Peytcheva Abstract | Full Text | PDF (196 KB)

 

21

Bank Audit Fees and Asset Securitization Risks Grant Cullen, Dominic Gasbarro, Gary S. Monroe, Greg Shailer and Yuyu Zhang Abstract | Full Text | PDF (1035 KB)

 

49

Are Audit-Related Factors Associated with Financial Reporting Quality in Nonprofit Organizations? Sarah A. Garven, Amanda W. Beck and Linda M. Parsons Abstract | Full Text | PDF (222 KB)

 

69

The Impact of the Auditor Selection Process and Audit Committee Appointment Power on Investment Recommendations Anna Gold, Patrick Klynsmit, Philip Wallage and Arnold M. Wright Abstract | Full Text | PDF (308 KB) | Supplemental Material

 

89

The Effect of Industry-Specialist Auditors on SEO Underpricing Before and After the Global Financial Crisis Soo Young Kwon, Jongwon Park and Jaeyoon Yu Abstract | Full Text | PDF (240 KB)

 

115

The Effect of Auditor Characteristics on the Value of Diversification Shu-Miao Lai and Chih-Liang Liu Abstract | Full Text | PDF (249 KB)

 

139

Is Operational Control Risk Informative of Financial Reporting Deficiencies? Alastair Lawrence, Miguel Minutti-Meza and Dushyantkumar Vyas Abstract | Full Text | PDF (332 KB)

 

167

The Role of the Audit Committee in Their Oversight of Whistle-Blowing Gladys Lee and Neil L. Fargher Abstract | Full Text | PDF (420 KB)

 

191

The Colonization of Public Accounting Firms by Marketing Expertise: Processes and Consequences Claire-France Picard, Sylvain Durocher and Yves Gendron Abstract | Full Text | PDF (455 KB)

 

215

Disentangling the Trait and State Components of Professional Skepticism: Specifying a Process for State Scale Development Shani N. Robinson, Mary B. Curtis and Jesse C. Robertson Abstract | Full Text | PDF (933 KB)

 

Phillips Curve --- https://en.wikipedia.org/wiki/Phillips_curve
The Death of the Phillips Curve?
http://ritholtz.com/2018/03/death-phillips-curve/

NOVA: Prediction by the Numbers Mathematics (Law of Large Numbers) ---
www.pbs.org/wgbh/nova/physics/prediction-numbers.html

EY:  March 2018 Reporting Briefs ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingBriefs_01499-181US_22March2018/$FILE/FinancialReportingBriefs_01499-181US_22March2018.pdf

EY:  FASB issues ASUs to amend SEC guidance in the Codification

 The FASB issued ASU 2018-04 to supersede SEC paragraphs in ASC 320, Investments – Debt Securities, as a result of the issuance of SEC Staff Accounting Bulletin (SAB) 117. The amendments are effective when a registrant adopts ASU 2016-01. The ASU also updates the Codification for a 2011 SEC release.

 

The FASB also issued ASU 2018-05 to amend SEC paragraphs in ASC 740, Income Taxes, to reflect SAB 118, which provides guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Cuts and Jobs Act in the period of enactment. For more information about SAB 118, see our Technical Line, A closer look at accounting for the effects of the Tax Cuts and Jobs Act.

EY:  A closer look at the new guidance on recognizing and measuring financial instruments ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_06214-171US_RecogMeasureFinancialInstruments_15March2018/$FILE/TechnicalLine_06214-171US_RecogMeasureFinancialInstruments_15March2018.pdf

What you need to know

The new recognition and measurement guidance requires entities to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income.

The standard doesn’t change the guidance for classifying and measuring investments in debt securities or loans.

Entities have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option (FVO) in other comprehensive income.

This publication has been updated to address clarifications the FASB issued on transition, application of the measurement alternative and presentation of financial liabilities measured using the FVO. Answers to questions companies have raised have also been updated.

The guidance is effective for calendar-year public business entities beginning in 2018. For all other calendar-year entities, it is effective for annual periods beginning in 2019 and interim periods beginning in 2020.

Overview The final guidance1 the Financial Accounting Standards Board (FASB or the Board) issued in 2016 changes how public and private companies, not-for-profit entities and employee benefit plans recognize, measure, present and make disclosures about certain financial assets and financial liabilities.

EY:  Updated US GAAP/IFRS accounting differences identifier tool and US GAAP versus IFRS – The basics
http://www.ey.com/Publication/vwLUAssetsAL/IFRSBasics_00901-181US_23February2018/$FILE/IFRSBasics_00901-181US_23February2018.pdf

Our US GAAP/IFRS accounting differences identifier tool (DIT) and our US GAAP versus IFRS – The basics publication (Basics book) have been updated to generally reflect guidance that went into effect in 2017 and guidance finalized by the FASB and the IASB as of 31 May 2017. The DIT was developed to help entities that are converting from US GAAP to IFRS or are evaluating the effects of IFRS adoption. The Basics book provides an overview of common differences between US GAAP and IFRS. Both updated publications also discuss current standard-setting activities at the FASB and the IASB and reflect the following significant new standards: ASC 606, Revenue from Contracts with Customers (created by ASU 2014-09); IFRS 15, Revenue from Contracts with Customers; ASC 842, Leases, (created by ASU 2016-02); IFRS 16, Leases; ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities; and IFRS 9, Financial Instruments.

Table of Contents

Introduction.................................................................................. 1

Financial statement presentation.............................................. 3

3Interim financial reporting........................................................ 7

Consolidation, joint venture accounting and equity
       method investees/associates ..........................................  8

Business combinations........................................................... 14

Inventory................................................................................... 18

Long-lived assets..................................................................... 20

Intangible assets...................................................................... 23

Impairment of long-lived assets, goodwill and
     intangible assets................................................................. 25

Financial instruments.............................................................. 29

Foreign currency matters....................................................... 38

Leases — before the adoption of ASC 842 and IFRS ....... 40

Leases — after the adoption of ASC 842 and IFRS 16...... 43

Income taxes............................................................................ 47

Provisions and contingencies................................................ 51

Revenue recognition— after the adoption of ASC606
     and IFRS 15 ....................................................................... 53

Share-based payments ......................................................... 57

Employee benefits other than share-based payments........ 61

Earnings per share................................................................  63

Segment reporting.................................................................. 65

Subsequent events................................................................  67

Related parties....................................................................... 69

IFRS resources...................................................................... 70

EY:  A Closer Look at the FASB's New 2018 Hedge Accounting Standard  ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_01008-181US_HedgeAccounting_28February2018/$FILE/TechnicalLine_01008-181US_HedgeAccounting_28February2018.pdf

What you need to know

The final guidance issued by the FASB on hedge accounting is intended to enable entities to better portray their risk management activities in their financial statements.

The amendments expand the strategies that qualify for hedge accounting, change how many hedging relationships are presented in the financial statements and simplify the application of hedge accounting in certain situations.

New or modified disclosures are required, primarily for fair value and cash flow hedges.

For public business entities, the guidance is effective for annual periods beginning after 15 December 2018, and interim periods within those years. For all other entities, it is effective for annual periods beginning after 15 December 2019, and interim periods the following year. Early adoption is permitted in any interim or annual period.

Overview The amendments1 the Financial Accounting Standards Board (FASB or Board) made to the hedge accounting model in Accounting Standards Codification (ASC) 8152 are intended to enable entities to better portray the economics of their risk management activities in their financial statements. The amendments expand the strategies that qualify for hedge accounting and simplify the application of hedge accounting in certain situations.

 

EY:  FASB amends new guidance on recognizing and measuring financial instruments ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_01156-181US_RMTechCorrections_28February2018/$FILE/TothePoint_01156-181US_RMTechCorrections_28February2018.pdf

What you need to know

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

The amendments also clarify that an entity that voluntarily discontinues using the measurement alternative for an equity security without a readily determinable fair value must measure that security and “all identical or similar investments of the same issuer” at fair value.

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

The amendments are effective for calendar-year public business entities for annual periods beginning in 2018 and interim periods beginning in the third quarter of 2018. Early adoption is permitted

NY Times: Tax Law’s Errors Upset Companies As Congressional Leaders Feud --- 
http://taxprof.typepad.com/taxprof_blog/2018/03/ny-times-tax-laws-errors-upset-companies-as-congressional-leaders-feud.html 

Quesion
Why aren't more companies refinancing their fading  low-interest debt before interest rates rise again and again and again?

Jensen Question
Suppose you only have three years left on your 15-year 3.1% mortgage. If you can refinance for another 15-year mortgage at 3.5% or a 30-year mortgage at 4.4% should you do it just to get a somewhat low rate today into a longer future? If you're going to have trouble taking advantage of itemized deductions in future tax years without a mortgage-interest itemized deduction you may want to grab the low refinancing rates today rather than face even higher rates when your mortgage ends. Or you may be better off with the more generous standard deductions of the new tax law. Decisions like this entail what finance experts call sensitivity testing. Be careful not to make a dumb mistake like the one recently made by the New York Times ---
http://taxprof.typepad.com/taxprof_blog/2018/03/the-new-york-times-turbotax-defense-and-liberal-law-professor.html#more

 It will be easier to do sensitivity testing when the tax software companies rewrite the software for the forthcoming 2018 tax code revisions

Companies are probably doing a great deal of sensitivity testing to decide whether or not to refinance their very low interest rate debt at the moment. Of course they consider much more than just tax expenses when doing so. .There's also a great deal of interest rate hedging and speculating going on at the moment with interest rate swaps and other derivative financial instruments like options.

From the CFO Journal's Morning Ledger on March 7, 2018

Good morning. U.S. and European companies have raised less money at the start of 2018 than for many years, a sign that companies are holding back on refinancing their debt despite the threat of higher financing costs, write the WSJ’s Nina Trentmann and Tasos Vossos.

For years, companies have taken advantage of ultralow rates and loaded up on debt, with some European firms even borrowing at negative rates. But the central bank stimulus that helped lower rates is now being withdrawn.

“There is always the risk of a quick increase in rates which might make you feel sorry that you did not raise more debt making use of these abnormal conditions,” said Philippe Gaston H. Capron, Chief Financial Officer at Veolia Environnement SA, a French environmental services firm. Still, Mr. Capron does not believe there will be a jump in rates. The company has bonds maturing this year.

There are a number of reasons why companies are waiting, including February's market correction. Firms have held off from issuing new debt as they consider the effects of President Trump’s tax changes, said Frazer Ross, a bond syndicate manager at Deutsche Bank AG. The changes encourage companies to repatriate overseas cash, which could replace money raised in public markets.

Continued in article

From the CFO Journal's Morning Ledger on March 28, 2018

SEC charges Wedbush in ‘pump-and-dump’ scheme
The Securities and Exchange Commission said broker-dealer Wedbush Securities Inc. failed to properly supervise an employee who was allegedly involved in a long-running “pump-and-dump” scheme aimed at retail investors.

From the CFO Journal's Morning Ledger on March 28, 2018

The Clock is ticking faster at Tesla.
Moody’s Investors Service downgraded Tesla’s debt, citing persistently negative cash flow and continued production issues with the Model 3 mass-market sedan.

From the CFO Journal's Morning Ledger on March 28, 2018

IASB, IFRS foundation chairmen call on constituents to participate in EC consultation
International accounting standards setters are asking constituents to respond to the European Commission’s questionnaire on the European Union framework for public reporting by companies.

The survey includes questions as to whether the EU should introduce a mechanism to allow changes to be made to the international accounting rules as used in the E.U., or carve-ins. This would be in addition to the EU’s existing, though rarely used, powers to opt not to endorse a section or part of a section of the rules, or carve-outs.

“We believe that the introduction of EU carve-ins to IFRS Standards is in many ways a solution looking for a problem,” the chairmen of the International Accounting Standards Board and the International Financial Reporting Standards Foundation Trustees said in a letter. “There is no  compelling evidence to show why it is needed, while the costs to EU companies―adding accounting friction to European capital markets―would undoubtedly exceed the benefits, the opposite of what the European Capital Markets Union project has set out to achieve.”

The EC’s consultation period is open until July 21, 2018.

Trump's Conflicts to the USA media are "Stormier" than with China
From the CFO Journal's Morning Ledger on March 26, 2018

Good morning. Company executives concerned about escalating tensions between the U.S. and China might breathe a sigh of relief, report the WSJ’s Lingling Wei and Bob Davis. The two governments have quietly started to negotiate better U.S. access to Chinese markets, potentially avoiding a trade war.

The talks come after the Trump administration last week set out specific requests that include lower Chinese tariffs on U.S. cars, higher orders for U.S. semiconductors from China and greater access to China’s financial sector for American firms.

President Trump on Thursday threatened to impose tariffs on as much as $60 billion of Chinese imports, while China on Friday rolled out penalties against $3 billion in U.S. goods as Washington’s levies on imported steel and aluminum took effect.

Business leaders over the weekend warned about additional punitive trade measures. Apple Inc. CEO Tim Cook urged the U.S. to embrace open trade, while Larry Fink, chief executive of investment firm BlackRock Inc., said the U.S. and China should not fight a trade war.

Meanwhile, governments across the globe scrambled to lessen the impact of the steel and aluminum tariffs on their industries. The WSJ’s William Mauldin and Rhiannon Hole explain how some countries managed to get temporary exemptions.

 

From the CFO Journal's Morning Ledger on March 23, 2018

SEC to probe crypto-focused hedge funds
The U.S. Securities and Exchange Commission is preparing to examine as many as 100 hedge funds focused on cryptocurrencies, according to a person familiar with the matter.

From the CFO Journal's Morning Ledger on March 22, 2018

Internal Audit --- https://en.wikipedia.org/wiki/Internal_audit

U.S. firms slow to integrate analytics into internal audit
U.S. companies are trailing their counterparts in Europe and Asia in the crucial task of integrating data analysis tools into the expanding role of internal auditors, according to a survey by management consulting firm Protiviti Inc. Some 76% of survey takers in both the Asia-Pacific and Europe regions said that new data analytic tools are in use by their auditors, compared to 63% in North America, reports Mr. Minaya.

From the CFO Journal's Morning Ledger on March 21, 2018

New accounting rule moves Moody's to reevaluate leases
Moody’s Investors Service Inc. is proposing changes to how it treats leases in response to new U.S. and international accounting rules, the credit ratings . . .

From the CFO Journal's Morning Ledger on March 20, 2018

SEC approves 2018 reporting taxonomies
The U.S. Securities and Exchange Commission has accepted the 2018 GAAP Financial Reporting Taxonomy and the 2018 SEC Reporting Taxonomy, the Financial Standards Board said Monday, reports Accounting Today.

From the CFO Journal's Morning Ledger on March 20, 2018

SEC announces its biggest whistleblower awards
The U.S. Securities and Exchange Commission on Monday announced its biggest-ever whistleblower awards, with roughly $83 million combined going to three whistleblowers who helped the regulator reach a $415 million settlement with Bank of America Corp., according to an SEC statement and a lawyer representing the whistleblowers.

From the CFO Journal's Morning Ledger on March 16, 2018

Whistleblower says Walmart, eyeing Amazon, cheated on e-commerce
Walmart Inc. was sued on Thursday by a former executive who accused the world’s largest retailer of issuing misleading e-commerce results, amid growing pressure from Amazon.com Inc., and firing him for complaining about it, Reuters reports.

Jensen Comment
Walmart's new killer bee robots are after him ---
http://www.businessinsider.com/walmart-robot-bees-farming-patent-2018-3

From the CFO Journal's Morning Ledger on March 16, 2018

Merkel to throw cold water on Macron’s plans to overhaul European Union
German Chancellor Angela Merkel will push back on Emmanuel Macron’s ambitious plans to overhaul the European Union at a meeting in Paris on Friday, reaffirming her country’s longstanding skepticism about the pooling of fiscal resources and liabilities among eurozone member states.

From the CFO Journal's Morning Ledger on March 15, 2018

Europe tightens screws on U.S. tech firms.
Europe is zeroing in on U.S. tech companies amid rising trans-Atlantic trade tensions. France on Wednesday petitioned to fine Apple Inc. and Alphabet Inc.’s Google for allegedly taking advantage of smaller French software developers. In Brussels, the European Union next week plans to unveil two legislative proposals to increase taxes on tech giants.

Jensen Comment
The EU continues to milk USA companies other than by  raising tariffs.

From the CFO Journal's Morning Ledger on March 15, 2018

Toys 'R' Us says it will likely close all U.S. stores.
Toys 'R' Us Inc. told employees Wednesday it will sell or close all its U.S. stores, a collapse that threatens up to 33,000 jobs in the coming months. The struggling retail chain filed for bankruptcy protection in September and has more than 700 remaining U.S. locations.

Jensen Comment
I think Toys "R" Us is another Amazon victim. Amazon offers wider selections, ease of shopping, and ease of returns. I'm not sure about pricing but Amazon probably has better prices as well.

Toys "R" Us offers the ability to see and touch the item before buying. But with the ease of free returns Amazon in a way offers the same advantage --- it's called online window shopping.

From the CFO Journal's Morning Ledger on March 15, 2018

Sears' sales tumble
Sears Holdings Corp. announced $540 million in new loan agreements and reported another dismal quarter in which sales fell by nearly a third as the retailer continued to close stores.

Jensen Comment
Sears is probably more of a victim of failing shopping malls. Toys "R" Us often located its own stores near those malls but not so much in the malls. Sears has an added problem of often being large anchor stores in failing shopping malls.

One problem with shopping malls is weather. Today we're having our third snow storm day in a row. I certainly will not venture out to shop in a mall, but I can shop with ease at Amazon for a new battery-operated chain saw.

From the CFO Journal's Morning Ledger on March 14, 2018

Volkswagen aims to overtake Tesla
Germany’s Volkswagen AG has vowed to overtake electric car pioneer Tesla Inc. with a massive rollout of battery and hybrid models over the next five years and production facilities around the world.

Elon Musk delivered the first electric semi-trucks even though factory line production is not scheduled for a couple of years ---
https://pubs.acs.org/doi/10.1021/acsenergylett.7b00432

The current outlook is pretty good (not cheaper over the long-term) for delivery vehicles within a city, but real questions remain about long-haul heavy duty loads over hill and vale
Carnegie Mellon Department of Engineering:  Performance Metrics Required of Next-Generation Batteries to Make a Practical Electric Semi Truck ---
https://pubs.acs.org/doi/10.1021/acsenergylett.7b00432

From the CFO Journal's Morning Ledger on March 14, 2018

Carillion collapse highlights accounting shortcomings -- Moody’s
U.K. construction and services company Carillion PLC was able to hide nearly half a billion pounds in liabilities due to lax accounting rules for a financing tactic, according to a report from Moody’s Investors Service Inc., writes CFO Journal's Nina Trentmann.

Jensen Comment
Auditor KMPG is facing fines and huge lawsuits.

From the CFO Journal's Morning Ledger on March 7, 2018

Accounting firms' setup complicates matters
Each of the four big accounting firms is actually a network of independent firms in some 150 countries - a setup that can limit the global firms’ ability to crack down on bad-apple affiliates. But it can help shield the network and U.S. partners from liability. For KPMG, this structure means it is facing trouble on three fronts, at three legally separate firms.

From the CFO Journal's Morning Ledger on March 7, 2018

GE to unveil new battery platform
General Electric Co. plans to unveil a new battery platform Wednesday as it seeks to become a leader in the emerging market of storing electricity.

Jensen Comment
In spite of recent setbacks, GE has enormous access to cash whereas Elon Musk burned most of his away. This does not bode well for spendthrift Elon Musk. On the other hand, Elon might welcome a cheaper source for batteries needed to power his electric cars, trucks, and energy-efficient homes.

From the CFO Journal's Morning Ledger on March 6, 2018

Heavy-duty truck orders soar
North American fleet owners ordered 76% more vehicles used to haul goods long distances in February compared to the same month of 2017, according to preliminary figures from freight analysts FTR. The jump comes as U.S. domestic shipping demand rose 12% year over year in January.

Carried Interest --- https://en.wikipedia.org/wiki/Carried_interest

From the CFO Journal's Morning Ledger on March 6, 2018

IRS puts hedge funds on notice about closing loophole in new tax law
The Internal Revenue Service’s announcement that it plans to issue regulations clarifying the limitations on carried interest serves notice to hedge funds that have been making moves to take advantage of a seeming loophole in the new tax law, reports Accounting Today.

From the CFO Journal's Morning Ledger on March 2, 2018

GE plans massive wind turbine
General Electric Co. said it is planning to build what would be the world's largest offshore wind turbine -- a behemoth nearly three times as tall as the Statue of Liberty

Jensen Comment
Rising tides, worse storms, and ever more towering windmills make me glad I chose not to retire on the coast.

From the CFO Journal's Morning Ledger on March 2, 2018

Good morning. U.S. President Donald Trump on Thursday announced plans to impose tariffs of 25% on imported steel and 10% on imported aluminum, advancing his campaign to pursue a newly aggressive “America First” trade policy, write the WSJ’s Peter Nicholas, Louise Radnofsky and Jacob M. Schlesinger.

The move sparked worries of a looming global trade war, sending stocks tumbling, drawing protests from a broad swath of American industries dependent on the metals, and prompting threats of retaliation across Asia, Europe, and North America.

A cascade of industry trade groups moved quickly to denounce the planned tariffs, including beer and boat makers worried about costlier aluminum, and manufacturers of chemicals, air conditioners, and oil pipelines all concerned about pricier steel inputs.

The president however said the introduction of tariffs was necessary due to what he described as a trade imbalance benefiting other countries. “When it comes to a time when our country can’t make aluminum and steel, you almost don’t have much of a country,” he added.

From the CFO Journal's Morning Ledger on March 1, 2018

Trump defends tariffs
President Donald Trump defended on Tuesday his planned tariffs following criticism from allies including the European Union, saying the U.S. had been “taken advantage of” for decades. Meanwhile, Treasury Secretary Steven Mnuchin told lawmakers the new tariffs wouldn’t apply to Canada and Mexico if the U.S. is able to successfully renegotiate the North American Free Trade Agreement

Gary Cohn (a free-trade advocate) resigns as Trump's top economic advisor ---
https://www.cnbc.com/2018/03/06/gary-cohn-plans-to-resign-as-trumps-top-economic-advisor-new-york-times.html
Jensen Comment
I'm also a free-trade advocate except when it makes our military vulnerable to supply disruptions. However, Trump's recent initiative toward tariff negotiations does give the USA some leverage such as when protecting our large tech giants from a proposed 5% (just for openers) surtax in the EU. I don't think that critics at the moment are considering that the outside world likes to kick USA firms (think taxation) harder and harder. The EU was originally formed to reduce tariffs among EU nations while building tariff walls against the outside world. At the moment there's a huge movement within the EU to tax USA companies. The EU is hardly a poster child for lower taxation and tariffs.

Tariffs at the moment are power moves in politics and not as naive as the liberal media would like us to believe.

From the CFO Journal's Morning Ledger on March 1, 2018

SEC launches cryptocurrency probe
The SEC has issued scores of subpoenas and information requests to technology companies and advisers involved in the red-hot market for digital tokens, according to people familiar with the matter.

From the CFO Journal's Morning Ledger on March 1, 2018

Deloitte’s $150 million mortgage headache
Accounting firm Deloitte & Touche LLP agreed Wednesday to pay $149.5 million to settle U.S. Justice Department allegations that it failed to head off a huge fraud at a mortgage company Taylor Bean & Whitaker Mortgage Corp. that collapsed during the financial crisis, writes the WSJ’s Michael Rapoport.

Bob Jensen's threads on Deloitte's woes ---
http://faculty.trinity.edu/rjensen/fraud001.htm

From the CFO Journal's Morning Ledger on March 1, 2018

Good morning. U.S. companies are buying back their shares at an aggressive pace, fueling concerns that savings from the U.S. corporate tax overhaul could predominantly benefit shareholders, report the WSJ's Akane Otani, Richard Rubin and Theo Francis.

Share buybacks announced by large U.S. companies have exceeded $200 billion in the past three months, more than double the prior year, according to a Wall Street Journal analysis of data for companies in the S&P 500.

Of the companies in the index, about 44% have said they plan to reinvest some portion of their tax gains into capital expenditures or wages, while 28% said they would use them to increase shareholder returns, Morgan Stanley found in an analysis of earnings transcripts.

“Companies are feeling some pressure not to just spend their savings on buybacks,” said Joseph Amato, president and chief investment officer for equities at Neuberger Berman Group LLC. “But at a time when we’re already seeing double-digit earnings growth around the world, they can’t hurt.

From the CFO Journal's Morning Ledger on February 28, 2018

Corporate appetite for divestments at record - EY. The ranks of companies planning to sell an asset is at a record high as more executives view divestments as a strategic means of redeploying capital and driving growth, according to a study by Ernst & Young LLC.The share of companies planning to divest assets within the next two years rose to 87%, from 43%, writes CFO Journal’s Tatyana Shumsky. EY interviewed 900 senior corporate executives and 100 private equity executives globally who have been involved in a major divestment in the past three years. Roughly a quarter of the corporate executives represent companies with revenues of between $1 billion and $5 billion, and 42% represent companies with revenues that exceed $5 billion.

For years, many executives viewed the sale of a business unit as “an admission of failure,” said Paul Hammes, head of EY’s global divestiture advisory. But a new approach that posits portfolio review as an opportunity to refine company strategy and reroute capital to drive future growth has helped shift that mindset, Mr. Hammes said.

 

Elon Musk delivered the first electric semi-trucks even though factory line production is not scheduled for a couple of years ---
https://pubs.acs.org/doi/10.1021/acsenergylett.7b00432

The current outlook is pretty good (not cheaper over the long-term) for delivery vehicles within a city, but real questions remain about long-haul heavy duty loads over hill and vale
Carnegie Mellon Department of Engineering:  Performance Metrics Required of Next-Generation Batteries to Make a Practical Electric Semi Truck ---
https://pubs.acs.org/doi/10.1021/acsenergylett.7b00432

. . .

The cost for the above-estimated pack size is shown in Figure 2(c), and we observe larger bounds around the cost of the battery packs for a longer driving range. The cost estimates use the uncertainties associated with the pack size and the cost per unit of energy ($/kWh). For current Li-ion systems, the cost of the pack is in the range of $160 000–$210 000 for a driving range of 300 miles, and with beyond Li-ion systems, the value could be lower than $100 000. For 600 miles, current Li-ion could cost as much as $400 000, but with a vehicle redesign to a low C_d of 0.45, a C_rr of less than 0.0045, the pack would cost $320 000 at $190/kWh, which is the current estimate for the price of a Tesla battery pack. The longest range considered of 900 miles would be commercially impractical, costing over $450 000. With a “beyond Li-ion” battery pack placed in a “well-designed” vehicle with optimal values of design parameters mentioned before, a 600-mile capable battery pack would cost $250 000, which is around 25% higher than the mean value of a current Li-ion battery pack capable of a short 300 mile range. It should be noted that each of these values is the cost of the battery pack alone, and the entire vehicle would include several other costs. For comparison, an equivalent diesel-powered vehicle would cost only $120 000, but a true comparison should include the operating costs of the vehicle and not only the initial costs in order to account for the difference in the price of electricity and fossil fuels as well as the significantly higher efficiency of electric drivetrains.

The payload capacity of these vehicles, as stated before, is an important parameter for the trucking industry, and in a fully electric vehicle, the payload capacity would be reduced significantly because the battery pack weight forms a significant fraction of the GVW. The estimates for the maximum payload capacity can be seen in Figure 2(d). For 600 miles, the vehicle would house about 11 000 kg (12 tons) of payload, which is about three-fourths of the current average payload carried by Class 8 trucks, 14 500 kg (16 tons) as mentioned before. For the same range, we could have a maximum payload of about 13 600 kg (15 tons) if the vehicle is designed with the lowest coefficient of drag, rolling resistance, and vehicle weight and the battery with the highest possible specific energy with current Li-ion systems. Another important observation is that a 600-mile capable battery pack would weigh over 16 000 kg (18 tons), which is much more than the available payload capacity of 12 tons. The weight of the battery pack in comparison to the payload carried provides the point for an interesting discussion, if the battery pack is much heavier than the payload, then it implies that a greater fraction of the energy consumed to move the vehicle is spent on moving the battery pack rather than the payload. Only at a shorter range of under 600 miles would the vehicle be practical considering the average required payload capacity of over 16 tons.

A key conclusion from this analysis is that, with current Li-ion batteries, we would have no meaningful payload capacity if we need a driving range of 900 miles since the battery pack and the vehicle weight together would account for nearly the entire GVW limit of 36 000 kg (40 tons). The payload capacity would increase significantly with a transition to beyond Li-ion systems, which show a mean payload capacity of 23 500, 20 000, and 16 300 kg (26, 22, and 18 tons) for 300, 600, and 900 miles respectively due to the much higher specific energy with a mean value of 500 Wh/kg equivalent to an advanced Li-ion or Li-S battery. The current required driving range close to 600 miles would have feasible payload capacity only with much higher specific energy, and current Li-ion batteries are clearly not suitable for longer driving range.

The results of the optimistic scenario considered are shown in Figure 3. With the high battery-to-wheels efficiency and no road gradient, the energy consumption is reduced to a range of 1.6 and 2.2 kWh/mile with a mean value of 1.9 kWh/mile or 47.5 Wh/ton-mile. The pack required, shown in Figure 3(a) is now reduced to 700, 1400, and 2000 kWh for 300, 600, and 900 miles respectively. The pack weight, in Figure 3(b) is consequently lower but still remains over 12 tons for a driving range of 600 miles or greater with current Li-ion batteries. The pack cost, in Figure 3(c) also remains at very high values, where the pack required for 600 and 900 miles costs over $250 000 and $350 000 respectively. In comparison to the payload capacity of the earlier scenario shown in Figure 2(d), the payload capacity of the optimistic scenario in Figure 3(d) is about 5 to 10 tons higher, depending on the driving range. The zero road grade assumption for the optimistic scenario reduces a significant amount of the energy consumption, but it is important to quantify this assumption which translates to ignoring an energy consumption increase of ∼1.6r kWh for every mile traveled at a road grade of r%, for a GVW of 36 000 kg (40 tons). The ∼1.6r kWh per mile quantity is derived from the road gradient term in eq 1.

With all of the parameters considered, as we attempt to design heavy-duty vehicles with a longer range the limitations of current Li-ion batteries are evidently magnified. Current Li-ion batteries would not be technically feasible solutions because of their lower specific energy values, and the longer driving range and higher payload capacity required by the trucking industry would be met only by beyond Li-ion solutions to the battery pack. Although there exists a large uncertainty in the cost of the battery pack due to the increased Li-ion production by the Tesla Gigafactory, the initial investment cost for the battery pack would be the most significant limiting factor when compared against the cost of existing diesel-powered vehicles. The targets needed for a driving range of 600 miles and to carry a payload of over 10 tons are a specific energy well in excess of 400 Wh/kg at the cell level costing less than $100/kWh along with a vehicle designed with a Cd of 0.45, a Crr of under 0.005, and an empty vehicle weight of under 7000 kg. We end with a word of caution that autonomous driving could potentially play a crucial role in changing the landscape of the trucking industry, because a drastic change from the current known driving patterns could have significant impact on the energy and power requirements of the vehicle; an analysis of these effects is well beyond the scope of the present study.

From the CFO Journal's Morning Ledger on March 7, 2018

GE to unveil new battery platform
General Electric Co. plans to unveil a new battery platform Wednesday as it seeks to become a leader in the emerging market of storing electricity.

Jensen Comment
In spite of recent setbacks, GE has enormous access to cash whereas Elon Musk burned most of his away. This does not bode well for spendthrift Elon Musk. On the other hand, Elon might welcome a cheaper source for batteries needed to power his electric cars, trucks, and energy-efficient homes.

I predict that electric vehicles have a brighter future in nations much smaller than Canada, China, Russia, and the USA (think Norway, Finland, Holland, Germany, Japan etc.) Those nations currently have efficient electric trains (not using batteries) connecting towns and cities. Electric semi-trucks can pick up freight delivered by electric trains and deliver that freight over relatively short distances. In the USA the train service is a mess, and very little of it is electric. Part of the problem is that we've come to depend up long-haul, heavy duty diesel trucks and our efficient airline services (think UPS and FedEx) to deliver over long distances in the USA. It will take much longer in bigger nations for electric trucks to replace diesel except for inner-city deliveries that can often be served with medium electric trucks and vans rather than semi-trucks.

Huge advances in the battery power and cost will upend the diesel industry and possibly even trains that require expensive track maintenance.

Teaching Cases from Issues in Accounting Education
Volume 33, Issue 1 (February 2018)
http://aaajournals.org/toc/iace/current

Instructional Resources

17

Can Management Accounting Help Aid Associations Make Tough Choices in Haiti? Kip R. Krumwiede, Gyung H. (Daniel) Paik and W. Darrell Walden Abstract | Full Text | PDF (273 KB)

 

29

Toomer's Energy Drinks: Fueling Earnings Management? James H. Long, Lasse Mertins, DeWayne L. Searcy and Brian Vansant Abstract | Full Text | PDF (2174 KB) | Supplemental Material

 

45

Two Short Case Studies in Staff Auditor and Student Ethical Decision Making Christine Cheng and Renee Flasher Abstract | Full Text | PDF (92 KB)

 

53

Dynamic Divestures: A Codification Exercise on the Reporting of Discontinued Operations Casey J. McNellis Abstract | Full Text | PDF (108 KB)

 

65

A Bargain $60 Million Company for $240: A Case Examining the Impact of Convertible Debt, Warrants, and Anti-Dilution Provisions Natalie Tatiana Churyk, Paul de Lange, Stephani Mason, Guy M. Gross and Robert Stoettner Abstract | Full Text | PDF (102 KB)

 

75

Minimizing Cognitive Load in Representing Processes in a Business Process Diagram: Capturing the Process and Making Inferences About It A. Faye Borthick and Gary P. Schneider Abstract | Full Text | PDF (377 KB)

 

ZeroBased Budgeting --- https://en.wikipedia.org/wiki/Zero-based_budgeting

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 2, 2018

Global Companies Extend Use of Zero-Based Budgeting to Slash Costs

By Nina Trentmann | Feb 27, 2018

TOPICS: Zero-Based Budgeting

SUMMARY: The article describes zero-based budgeting as a "decades-old financial tactic once used primarily in the consumer goods sector...." The technique is defined and compared to a traditional, incremental budgeting approach. The article is based on an Accenture PLC study due to be released on Wednesday from a survey of 85 of companies included in the Forbes Global 2000 list of top public companies worldwide. Many are using zero-based budgeting in order to find savings and redirect resources to strategic initiatives.

CLASSROOM APPLICATION: The article may be used when discussing budgeting in a managerial accounting course.

QUESTIONS: 

	1. (Advanced) Who did the report on which this article is based? Describe the company and explain why you think they undertake such a research project.
	2. (Advanced) What is zero-based budgeting? In your answer, also name and describe an alternative method of budgeting.
	3. (Introductory) What is unusual about the new implementation of zero-based budgeting techniques as reported in this study?
	4. (Introductory) What changes did companies make as a result of implementing zero-based budgeting? Do you think it is only the budgeting system which drove these changes? Explain your answer.

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Global Companies Extend Use of Zero-Based Budgeting to Slash Costs," by Nina Trentmann , The Wall Street Journal, February 27, 2018
https://blogs.wsj.com/cfo/2018/02/27/global-companies-extend-use-of-zero-based-budgeting-to-slash-costs/?mod=djem_jiewr_AC_domainid

A decades-old financial tactic once used primarily in the consumer goods sector has gained popularity among a broader range of companies seeking to slash costs, according to an Accenture PLC study due to be released on Wednesday.

Around 300 large global companies currently use the technique called zero-based budgeting, Accenture said. The professional services firm surveyed 85 of those companies that are included in the Forbes Global 2000 list of top public companies in the world. The surveyed group reported a 57% increase in the usage of zero-based budgeting in 2017 compared to the prior year.

Firms on average saved $280 million per year with the help of zero-based budgeting — a tool that helps finance managers plan each year’s budget as if starting their department from scratch. The approach is contrary to the prevailing method of adjusting the previous year’s spending and forces managers to justify costs and evaluate benefits every 12 months.

Kraft Heinz Co., Mondelez International Inc., Unilever PLC and Diageo PLC are among the many companies that rely on zero-based budgeting. But usage of ZBB has spread beyond the realm of consumer goods companies, said Kris Timmermans, head of Accenture’s supply chain and operations strategy unit.

“ZBB is not linked to any particular industry anymore. It is everywhere,” he said. Companies featured in the study come from the consumer goods, life sciences, chemicals, automotive and retail sectors.

U.K. supermarket giant Tesco PLC, for example, is deploying zero-based budgeting to achieve its cost-saving target.

Companies also make the budgeting technique applicable to a wider number of tasks, Mr. Timmermans said. More than 90% of surveyed firms used it to reduce their spend on travel, facilities, legal and professional services.

Over half of companies cut their sales and marketing budget applying ZBB. More than 40% of companies slashed their headcount (43%) and their cost of goods sold (42%) by deploying ZBB, the study said.

CFOs can unlock even more savings by combining ZBB with big data analysis and artificial intelligence, Mr. Timmermans said.

Companies are pressed to reduce their cost base despite robust economic growth in the U.S., Europe and Asia, Mr. Timmermans said. “The only option you have is to take out waste in your core business and to use it to fund growth,” he said. Higher input costs and rising wages across a number of large economies including the U.S., the U.K., and Germany further increase the pressure, he added.

Half of the companies surveyed did not pursue a staged approach when introducing ZBB but launched it simultaneously across all of their markets, Mr. Timmermans said. “It was surprising to see so many companies rolling it out with a big bang,” he said.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 2, 2018

Tesla Begins Taking Model 3 Orders From First-Time Reservation Holders

By Tim Higgins | Feb 23, 2018

TOPICS: Budgeting

SUMMARY: "Tesla has received about 500,000 reservations for the Model 3 since revealing the sedan in 2016.... Production on the Model 3 began in July last year, and Tesla has struggled to meet its ambitious goals." Until last week, the company limited sales of the Model 3 to employees and those who already owned a Tesla. "The milestone suggests production of the vehicle at Tesla's assembly plant is picking up steam after a turbulent beginning..."

CLASSROOM APPLICATION: Questions tie these public disclosures about Tesla production to the process of setting budgets.

QUESTIONS: 

	1. (Advanced) What is a production budget? Explain the components of this budget and how it drives determination of other components of a master budget.
	2. (Introductory) What production targets did Tesla miss in 2017?
	3. (Advanced) Why do you think Tesla publicly discloses information related to its production budgets?

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Tesla Begins Taking Model 3 Orders From First-Time Reservation Holders," vy Tim Higgins, The Wall Street Journal, February 23, 2018
https://www.wsj.com/articles/tesla-begins-taking-model-3-orders-from-first-time-reservation-holders-1519318801?mod=djem_jiewr_AC_domainid

Move suggests production of the Model 3 is accelerating after a rough start

Tesla Inc. TSLA -0.53% for the first time is notifying some reservation holders new to the electric-car brand that they can begin configuring and ordering their Model 3 sedan.

The milestone suggests production of the vehicle at Tesla’s assembly plant is picking up steam after a turbulent beginning in July. Previously, the Silicon Valley auto maker had limited opening orders to reservation holders who were employees or had been previous Tesla customers.

The Model 3 represents a key part of Chief Executive Elon Musk’s strategy to remake Tesla from niche luxury-car company into a mainstream player that sells electric vehicles, solar panels and storage batteries.

Tesla confirmed a small group of customers are receiving notifications Thursday based on when they placed their reservations. The company traditionally has rolled out invitations in small groups and over time aligned them to production rates.

Tesla has received about 500,000 reservations for the Model 3 since revealing the sedan in 2016. The company expects that customers invited to complete their design will receive their cars about four weeks after placing their order.

Production on the Model 3 began in July last year, and Tesla has struggled to meet its ambitious goals.

In January, the company reported delivering about 1,600 Model 3 vehicles during the final three months of 2017—well below its goal of a build rate of 5,000 Model 3s on a weekly basis. Tesla pushed back that goal until the end of the first half. A rate of 5,000 vehicles a week would equal about 250,000 cars a year.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 2, 2018

JPMorgan Says Tax Changes Will Lead to Higher Profitability

By Emily Glazer | Feb 27, 2018

TOPICS: Earnings Forecasts, Financial Statement Analysis, Forecasting

SUMMARY: t's not earth-shattering news that lower tax rates will lead to increased profitability. The article is useful in describing the expected impact of a fall in tax rates on return on equity-in this case, the metric return on tangible equity. JP Morgan increased its forecast of this metric of achievement to 17% from 15% due to reduced tax rates. Overall bank profitability and reported target financial ratios over the past two years are shown in a graph associated with the article. Further, the earnings presentation was led by Finance Chief Marianne Lake, rather than CEO Jamie Dimon, for the first time.

CLASSROOM APPLICATION: The article may be used to discuss financial statement analysis, or banking in general, as impacted by the new tax law.

QUESTIONS: 

	1. (Introductory) What financial statement items did JPMorgan forecast in its recent presentation to investors?
	2. (Introductory) What financial statement ratios did JPMorgan forecast?
	3. (Advanced) Which of these financial statement items and financial statement ratios is directly impacted by the reduction in corporate tax rates recently enacted in U.S. law?
	4. (Advanced) Who made this presentation to investors? Why you think this information is important enough for the author of the article to comment on it?

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"JPMorgan Says Tax Changes Will Lead to Higher Profitability," by Emily Glazer, The Wall Street Journal, February 27, 2018
https://www.wsj.com/articles/jpmorgan-says-tax-changes-will-lead-to-higher-profitability-1519745489?mod=djem_jiewr_AC_domainid

U.S. bank increases a key profitability metric to roughly 17% from 15%

JPMorgan JPM 1.54% Chase & Co. says it is optimistic about 2018 and the impact the new U.S. tax law will have on its financial outlook.

The largest U.S. bank by assets shared new targets and expectations in its annual investor day presentation Tuesday, which for the first time included benefits from changes to the tax law.

Most notably, JPMorgan moved its medium-term target—over the next two to three years—for return on tangible common equity, a key profitability metric, to roughly 17% compared with its prior target of 15%. That is in line with Credit Suisse analyst Susan Katzke’s 15% to 18% expectation, she wrote in a Tuesday research note. Excluding tax reform, the bank said its return on tangible common equity target over the next two to three years would be around 15%.

Already, the bank’s traders are off to a strong start this year. Daniel Pinto, the bank’s co-president and head of its corporate and investment bank, said trading is expected to rise “mid to high single digits” in the first quarter of 2018—based on strong performance in foreign exchange, emerging markets and equities—compared with the same period last year. He added that activity in the beginning of 2018 has been “strong” and that “markets are correcting quite fast after the selloff” earlier this year.

Still, the bank noted “significant uncertainty around how competitive dynamics evolve,” and wrote that it expects “some benefit to pass to customers over time,” according to its presentation for investor day, which was at the company’s Park Avenue headquarters in Manhattan.

The bank’s chairman and chief executive, James Dimon, said his biggest worry at the moment is the impact of policy and geopolitics. “Brexit, which will have an effect…[and could be] damaging to countries,” he said. He said other “bad public policy...would catch us the most off-guard” compared with interest-rate moves.

Finance Chief Marianne Lake, who spearheaded the presentation for the first time, said each of the bank’s main businesses—consumer banking, corporate and investment banking, commercial banking and wealth and asset management—has increased medium-term targets “reflecting tax reform but also reflecting growth.”

JPMorgan said its medium-term, pretax income is expected to increase to a range of $44 billion to $47 billion from $40 billion in 2017. The bank also expects around 7% noninterest revenue growth in 2018 and 3% compound annual growth rate going forward, depending on market conditions.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 2, 2018

Trump's SEC Makes Slow Progress on Trimming Rules

By Tatyana Shumsky | Feb 26, 2018

TOPICS: Regulation

SUMMARY: Changing regulatory requirements in ways that reduce costs without taking away investor protection is the approach that Securities and Exchange Commission (SEC) is trying to take. Chairman Jay Clayton has led efforts to do so by implementing smaller changes that fall under the SEC's ability to write regulations, and enforce them, in support of enacted laws. For example, the SEC "allowed companies to exclude financial information from draft registration statements if they reasonably expect it would be stale by the time the securities become public-eliminating a costly preparation of financial statements that won't been seen by the public." In related actions, the first article reports that the SEC also is allowing all companies, not just smaller ones, to "test the waters" on the possibility of going public by holding discussions with investors about "revenue sources, corporate strategy, and the background of top management" and selling shares privately. The law now prohibits selling shares before providing investors with required financial disclosures. Another proposal is to raise the market capitalization which defines a smaller reporting entity from the current threshold of less than $75 million in float to less than $250 million in float. Relaxing such regulations is the strategy designed to boost the number of IPOs in U.S. markets, which have fallen steadily since the 1990s.

CLASSROOM APPLICATION: The article may be used in any level of class to discuss regulation of financial information and publicly traded companies.

QUESTIONS: 

	1. (Introductory) What is an initial public offering of stock?
	2. (Advanced) Must all corporations file documents with the SEC for an initial public offering? Explain.
	3. (Advanced) What is costly about preparing financial reports? List all components of an annual report and describe your understanding of the work required to produce such reports.
	4. (Introductory) What has the SEC done to reduce the regulatory burden, particularly costs of producing financial reporting, when planning an initial public offering of stock?

READ THE ARTICLE

 

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SEC Weights Relaxing Rule on Public Launch
by Dave Michaels
Feb 23, 2018
Page: B1

SEC Says All Companies Can Now File Secretly for IPOs
by Dave Michaels
Jun 29, 2017
Page: ##

Reviewed By: Judy Beckman, University of Rhode Island

 

"Trump's SEC Makes Slow Progress on Trimming Rules," by Tatyana Shumsky, The Wall Street Journal, February 26, 2018
https://www.wsj.com/articles/trumps-sec-makes-slow-progress-on-trimming-rules-1519641000?mod=djem_jiewr_AC_domainid

Incremental gains stand in contrast to early days of Trump administration, which were punctuated by a swift succession of executive orders aimed at deregulation

Jay Clayton, President Donald Trump’s pick to lead the U.S. Securities and Exchange Commission, can point to a series of small, targeted actions aimed at easing the regulatory burden for companies nearly 10 months into his tenure.

The SEC’s incremental progress stands in contrast to the early days of the Trump administration, which were punctuated by a swift succession of executive orders aimed squarely at deregulation. One order told regulators that any new rule would require the elimination of two old rules, while another called on the Treasury and Congress to roll back the Dodd-Frank financial overhaul law.

However, those early announcements have yielded modest impact in the realm of financial regulation. The most ambitious effort to revoke and replace the Dodd-Frank law— Rep. Jeb Hensarling’s (R., Texas) Financial Choice Act—passed the House in June but failed to clear the Senate.

The SEC has signaled more gradual action aimed at streamlining regulations for the coming year.

“Modernizing the rules without in any way taking away investor protection is the best thing that we can do,” Mr. Clayton told CFO Journal on the sidelines of the Practicing Law Institute’s “SEC Speaks” conference in Washington on Friday. The agency is looking at all rules to see what could be pruned back, the SEC chairman said.

In making changes, the SEC is limited by its mission to enforce securities law and protect investors, current and former SEC commissioners say.

Moreover, only Congress can revoke statutes such as Dodd-Frank and the Sarbanes-Oxley corporate governance law, which many business groups say raise the cost of compliance.

Still, the SEC has some flexibility around its interpretation of statutes and the rules the agency writes and enforces under the law. That has allowed Mr. Clayton and his newly installed team to give companies limited relief and reduce friction in select areas, particularly surrounding access to capital markets.

Such efforts include allowing all companies to secretly file initial public offering paperwork. The SEC also allowed companies to exclude financial information from draft registration statements if they reasonably expect it would be stale by the time the securities become public. This eliminated the need to prepare financials that would never be seen by the public.

The agency also gave companies relief through guidance, including for how to implement the new executive-pay-ratio rule. The new guidelines allow companies to determine their own method for calculating the ratio, rather than prescribing a standard approach.

“The fact that there has been any sort of deregulation or burden easing is remarkable, given what we’d suffered the prior eight years,” said Daniel Gallagher, a Republican former SEC commissioner.

The SEC is considering a proposal to raise the cap on the definition of a smaller reporting company to those with a float of less than $250 million, up from $75 million currently. Such a move would reduce disclosure requirements and compliance costs for those companies.

The regulator also plans to revisit rules that require issuers of guaranteed securities to provide details about the guarantor in their financial statements. It will also review rules around the disclosures an acquirer is expected to provide about a target and update guidance for risk-factor disclosures.

While those efforts began under the previous administration, “they’re not done and they need to get done,” said Hester Peirce, a Republican SEC commissioner, speaking on the sidelines of the conference.

Mr. Clayton’s tenure at the agency is more likely to be marked by a reticence to make new rules, rather than a dramatic rollback of existing ones, said Harvey Pitt, a Republican former SEC chairman.

“The start of deregulation is not overloading things with new regulation,” Mr. Pitt said. He pointed to the SEC’s approach to regulating cryptocurrencies as one example.

The skyrocketing popularity of bitcoin and other tokens among main street investors, alongside concerns about fraud, have prompted calls for the SEC to make new rules to govern the nascent market.

Mr. Clayton has instead suggested that initial coin offerings have many of the hallmarks of securities, and thus would fall under the SEC’s existing rules.

“They’re just not going to be making new rules,” said Roel Campos, a Democratic former SEC commissioner. “They will be looking very carefully at scrutinizing whether new regulations, new rules are required and whether they can do with less, and whether they can do with more guidance.”

The SEC also could sidestep another issue: whether to allow companies to include a mandatory arbitration clause in their registration documents. The move would eliminate investor class-action lawsuits. “It’s not part of our agenda,” Mr. Clayton said when asked about the issue on a panel at the PLI conference.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 2, 2018

Regulators to Pull Back on Obama-Era Mutual-Fund Rules

By Dave Michaels | Feb 23, 2018

TOPICS: Disclosure, Disclosure Requirements, Mutual Funds

SUMMARY: Securities regulators are planning to pare back Obama-era requirements that mutual funds tell shareholders about large holdings of hard-to-sell assets, in what would be a significant concession to the industry. The rule is called the "liquidity-scoring system" or, by some analysts, the "bucketing" requirement and was implemented "following the meltdown of a $789 million mutual fund with a high concentration of holdings in junk bonds and distressed debt." It was scheduled to be implemented in 2019. "The mutual-fund industry...[says] it requires them to make imperfect judgments about liquidity that could expose them to second-guessing by regulators and influential fund analysts...."

CLASSROOM APPLICATION: The article may be used to discuss disclosure requirements in general or disclosures about investments in a financial reporting course.

QUESTIONS: 

	1. (Advanced) What is a mutual fund?
	2. (Advanced) Define the term liquidity in relation to financial topics.
	3. (Introductory) What information must mutual funds report to regulators about potentially illiquid investments?
	4. (Introductory) What disclosure requirement about this information was about to be implemented in 2019?
	5. (Introductory) Why is this disclosure requirement being repealed?

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Regulators to Pull Back on Obama-Era Mutual-Fund Rules," by Dave Michaels, The Wall Street Journal, February 23, 2018
https://www.wsj.com/articles/regulators-to-pull-back-on-obama-era-mutual-fund-rules-1519338039?mod=djem_jiewr_AC_domainid

In major industry concession, SEC to revise disclosures on liquidity of hard-to-sell assets

WASHINGTON—Securities regulators plan to pare back Obama-era requirements that would require mutual funds to tell shareholders about large holdings of hard-to-sell assets, in what would be a significant concession to the industry.

The Securities and Exchange Commission had planned to propose rolling back the disclosures, set to go into effect in 2019, on Wednesday. But it postponed the action because commissioners have splintered over the scope of the rollback, people familiar with the matter said. The SEC said in a notice posted Thursday that it anticipates holding a vote in the future.

The revisions would represent the first time a major securities rule passed during the Obama administration has come under the knife of Trump administration appointees at the commission. The SEC finished the measure toward the end of the Obama presidency, following the meltdown of a $789 million mutual fund with a high concentration of holdings in junk bonds and distressed debt.

The SEC is preparing to allow funds to keep private their quarterly estimates of how much of their portfolio includes hard-to-sell debt or other securities, these people said. The data would still have to be shared with regulators.

The disclosures mandated by the SEC would tally fund assets into four buckets, ranging from stocks and bonds that are easy to sell, to ones that can’t be quickly unloaded without crushing the price.

An SEC spokesman declined to comment.

The mutual-fund industry has panned what some analysts called the “bucketing” requirement, saying it requires them to make imperfect judgments about liquidity that could expose them to second-guessing by regulators and influential fund analysts such as Morningstar Inc.

“It is the industry’s single greatest concern with the rule,” said John Baker, a lawyer specializing in mutual funds at Stradley Ronon Stevens & Young LLP in Washington. “It’s very difficult to implement, it’s consuming a disproportionately large amount of resources, and there is real doubt as to how valuable this information will be to the SEC.”

While the SEC delayed a meeting to change the disclosures this week, commissioners voted Wednesday to postpone the deadline for compliance with a related rule.

The delay gives funds another six months—until June 2019—to implement the liquidity-scoring system. The SEC cited concerns that mutual funds will rely on outside analysts to help assess the liquidity of certain bonds and derivatives, and the analysts’ models aren’t ready.

The Trump administration, in an October deregulatory report, said the SEC’s approach to judging liquidity was too rigid and called on the SEC to postpone the requirements. The Treasury Department’s report called on the SEC to give mutual funds more flexibility to judge liquidity, which it said was more fluid and subjective than the SEC’s rule recognized. Regulators have said the liquidity estimates will help them detect areas of emerging risks. The SEC has long lacked standardized information about funds’ investments, including how readily they can convert securities into cash to meet redemptions.

“Many of our current reporting requirements…have not been substantially changed in decades,” former SEC Chairman Mary Jo White said in October 2016 when the commission approved the rules.

More broadly, the reporting seeks to address worries that mutual funds could suffer destabilizing runs if shareholders demand their money back faster than funds can sell underlying assets. Some financial-stability watchdogs have raised alarms that funds have piled into less-liquid bonds during an extended era of low interest rates, which could make it harder to exit those positions in stressed markets.

The Investment Company Institute, the trade group representing mutual funds, has said the worry is overblown. It has said that outside of a few fund failures, there is no history of widespread problems meeting withdrawal demands.

The SEC acknowledged in 2016 that disclosing too much information about funds’ investments could be counterproductive. Predatory traders could, for instance, sell short the securities owned by funds experiencing big outflows, knowing they could buy back the assets at a steep discount as the fund is forced to sell.

As a compromise, the SEC in 2016 only required funds to disclose the liquidity of assets by aggregating them into four classes, instead of listing how long it would take to sell every position they hold. It completed the requirement over the industry’s objections in 2016, when the commission had three commissioners, two short of the number stipulated by law.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 7, 2018

Boom in Share Buybacks Renews Question of Who Wins From Tax Cuts

By Akane Otani, Richard Rubin and Theo Francis | Mar 02, 2018

TOPICS: Earnings Per Share, Tax Law, Treasury Stock

SUMMARY: "The corporate [tax] rate cuts [enacted in 2017], combined with investment incentives in the new law, are meant to boost business spending and broader economic growth and increase wages over time. Some of the money is also being returned directly to investors in the form of bigger dividends and buybacks. And some companies have announced one-time bonuses for employees...Of the companies in the S&P 500, about 44% have said they plan to reinvest some portion of their tax gains into capital expenditures or wages, while 28% said they would use them to increase shareholder returns, Morgan Stanley found in an analysis of earnings transcripts. "

CLASSROOM APPLICATION: The article may be used when discussing treasury stock transactions (share buybacks) in any level of financial accounting course.

QUESTIONS: 

	1. (Advanced) What is another name for "share buybacks"?
	2. (Introductory) What is the concern with companies announcing the use of tax savings for share buybacks?
	3. (Advanced) How do share buybacks improve reported earnings results for each shareholder? In your answer, define the term earnings per share (EPS).
	4. (Introductory) How did Morgan Stanley determine what companies are planning to do with the tax savings they now expect?

READ THE ARTICLE

 

Reviewed By: Linda Christiansen, Indiana University Southeast

 

"Boom in Share Buybacks Renews Question of Who Wins From Tax Cuts," by Akane Otani, Richard Rubin and Theo Francis, The Wall Street Journal, March 2, 2018
https://www.wsj.com/articles/boom-in-share-buybacks-renews-question-of-who-wins-from-tax-cuts-1519900200?mod=djem_jiewr_AC_domainid

Large U.S. companies announced over $200 billion in repurchases in past three months

U.S. companies are buying back their shares at an aggressive pace, stirring questions in Washington and on Wall Street about the way that the new corporate tax cuts are being used.

Share buybacks announced by large U.S. companies have exceeded $200 billion in the past three months, more than double the prior year, according to a Wall Street Journal analysis of data for S&P 500 companies.

Among the biggest: Cisco Systems Inc. at $25 billion, Wells Fargo & Co. at about $21 billion, PepsiCo Inc. at $15 billion, AbbVie Inc. and Amgen Inc. at $10 billion apiece, and Alphabet Inc. at $8.6 billion.

 

Announced buybacks surged in December and continued at a robust pace in January and February. Near the end of the year lawmakers in Washington finished writing a bill to cut U.S. taxes by $1.5 trillion over a decade. It was signed by President Donald Trump shortly before Christmas.

“Companies are feeling some pressure not to just spend their savings on buybacks,” said Joseph Amato, president and chief investment officer for equities at Neuberger Berman Group LLC. “But at a time when we’re already seeing double-digit earnings growth around the world, they can’t hurt.”

The tax overhaul cut the tax rate on large corporations from 35% to 21%. It also included a low one-time tax on profits stockpiled abroad to encourage companies to repatriate more than $2 trillion held in overseas subsidiaries, and it included incentives for investment.

The early moves are spurring a political debate about how companies are using the savings from the tax cut; the full answer won’t be fully understood for months or years as the new money moves through the economy.

The corporate rate cuts, combined with investment incentives in the new law, are meant to boost business spending and broader economic growth, and increase wages over time. Some of the money is also being returned directly to investors in the form of bigger dividends and buybacks. And some companies have announced one-time bonuses for employees.

 

Kevin Hassett, chairman of Mr. Trump’s Council of Economic Advisers, said at a White House briefing that the buyback boom is being driven by companies encouraged to repatriate funds from overseas.

Of the companies in the S&P 500, about 44% have said they plan to reinvest some portion of their tax gains into capital expenditures or wages, while 28% said they would use them to increase shareholder returns, Morgan Stanley found in an analysis of earnings transcripts. Its own analysts expect companies to spend about 43% of their savings on buybacks and dividends, and 30% on capital expenditures and labor.

Cisco last month said it would bring back $67 billion of its foreign cash holdings to the U.S. this quarter and would spend much of it on buybacks and dividends. Amgen added $10 billion to its buyback program and said it would also spend $300 million on a new U.S. manufacturing plant in response to the tax changes. Hewlett Packard Enterprise Co. said last week it would return $7 billion to shareholders through buybacks and dividends by the end of fiscal 2019, as well as increasing its match to employees’ 401 (k) contributions. Chief Executive Antonio Neri cited the tax-law change related to offshore cash.

A surge in share repurchases could give the nearly nine-year bull market a boost at a time when many investors are concerned about how much longer it will last. By buying back shares, companies reduce the amount of shares held by the public and thus boost their per-share earnings, a metric followed closely by investors.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 7, 2018

The (Right) Envelope, Please: PwC Plans for an Uneventful Oscars

By Michael Rapoport | Mar 02, 2018

TOPICS: Auditing Services

SUMMARY: The apparent distraction of the partner responsible for handing envelopes with award winners' information to the presenters at the 2017 Oscars may have been a factor leading to the incorrect announcement of the winner of best picture. Control procedures instituted for the 2018 ceremony are discussed in the article.The article may be used to discuss how a seemingly fun role and minor error can have a devastating impact on both an accounting firm overall and individuals' careers.

CLASSROOM APPLICATION: The article may be used in an auditing class or any class focused on the public accounting profession.

QUESTIONS: 

	1. (Advanced) What is the role of an auditor in relation to the Academy Awards (the Oscars) and other artistic awards ceremonies?
	2. (Introductory) For how long has PwC been the auditor for the Oscars ceremony?
	3. (Introductory) What happened at the 2017 Oscar awards ceremony?
	4. (Introductory) Who are the partners who will hold and distribute the envelopes containing the Oscar award winners for announcement? Who were they in 2017?
	5. (Advanced) Were both 2017 partners that were present at the awards ceremony in 2017 responsible for the mix up? How did the mix up affect both?
	6. (Introductory) What control procedures have been put in place to ensure that the events of 2017 are not repeated at another Oscar awards night? Are the control procedures foolproof? Explain.

READ THE ARTICLE

 

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PwC Partners Amid Best Picture Mix-Up Won't Work on Show Again
by Michael Rapoport
Mar 01, 2017
Online Exclusive

Can We Please Have More Oscar Show Screw-Ups?
by Jason Gay
Mar 02, 2018
Page: ##

Reviewed By: Linda Christiansen, Indiana University Southeast

 

"The (Right) Envelope, Please: PwC Plans for an Uneventful Oscars," by Michael Rapoport, The Wall Street Journal, March 2, 2018
https://www.wsj.com/articles/the-right-envelope-please-pwc-plans-for-an-uneventful-oscars-1519835571?mod=djem_jiewr_AC_domainid

Among the changes for the 2018 Academy Awards: New people, new safeguards and no cellphones

No matter which movie wins best picture at Sunday’s Academy Awards, PricewaterhouseCoopers LLP is determined that this year’s show ends with less unscripted drama than 2017’s.

The accounting giant and its predecessor firms have tabulated Oscar votes and acted as keeper of the winners’ names for more than 80 years. But because of PwC, last year’s ceremony concluded with the gaffe seen ‘round the world: “La La Land” was announced as the winner of best picture, instead of the actual winner, “Moonlight,” after a PwC partner gave presenter Warren Beatty the wrong envelope. The mistake was corrected a few minutes later, as hundreds of millions of television viewers watched the chaos unfold live.

PwC apologized for the error and continues to oversee the ballot process for the Academy of Motion Picture Arts and Sciences. At this year’s awards, however, there will be some changes, according to people familiar with the matter: an overhaul of PwC’s Oscar team, new safeguards to prevent mistakes and respond more quickly if they do occur, and a no-cellphones rule for the PwC partners handing the envelopes to presenters, after it emerged that the partner’s backstage tweeting may have contributed to last year's flub.

Among the changes for the 2018 ceremony:

New faces: Two different PwC partners will be backstage at the Oscar ceremony holding onto and distributing the envelopes that name the winners: Rick Rosas, part of PwC’s Oscar team for 14 years before moving away from that role in 2015, and Kimberly Bourdon, a partner in the firm’s Los Angeles office. They replace Brian Cullinan and Martha Ruiz, the partners in charge in 2017, though Mr. Cullinan and Ms. Ruiz are still partners at PwC.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 7, 2018

Where Corporate Taxes Are Poised to Rise Because of Tax Overhaul: States

By Richard Rubin | Mar 06, 2018

TOPICS: Corporate Income Tax, State Income Tax

SUMMARY: The article reports on a study prepared by EY and commissioned by The Council on State Taxation and the State Tax Research Institute. The former is a nonprofit trade association of multistate corporations and the latter is a nonprofit organization established to "provide educational programs and conduct research designed to enhance public dialogue relating to state and local tax policy." The Executive summary of the report states, "All states levying a corporate income tax reference the IRC in some fashion. Most start with taxable income from the federal Form 1120, then apply specific adjustments which vary by state. A small number of states take different approaches starting with federal gross receipts, while several states do not levy a tax based on net income....In some "rolling conformity" states which conform directly to the IRC as it is amended, the changes in the [Tax Cuts and Jobs Act of 2017 (P.L. 115-97)] (TCJA) are already part of that state's tax law. In others, known as "fixed" or "static" conformity states, the TCJA changes will generally be incorporated when the state's legislature enacts legislation to conform. This study provides estimates of the potential impact on state corporate tax bases over the next decade if all states (rolling and fixed conformity) update their conformity dates to link to the TCJA, but remain coupled to specific provisions as they have in the past. The estimated nationwide overall increase in state corporate income tax bases is 12% over the 10-year period, with significant variations between the states. The impacts on state corporate tax bases will fluctuate over the 10-year period. The average expansion in the state corporate tax base is estimated to be 8% from 2018 through 2022, which increases to 13.5% for the period 2022 through 2027." Increases to the corporate income tax base are estimated from states' corporate net income tax collections in fiscal 2016 as reported by the U.S. Census Bureau, divided by the statutory state tax rate. The EY report is available at http://www.ey.com/Publication/vwLUAssets/ey-the-impact-of-federal-tax-reform-on-state-corporate-income-taxes/$File/ey-the-impact-of-federal-tax-reform-on-state-corporate-income-taxes.pdf

CLASSROOM APPLICATION: The article may be used in a corporate income tax class. Questions ask students to understand how state corporate taxes are tied to the Federal Internal Revenue Code (IRC) and how the new tax law impacts the expected state taxes.

QUESTIONS: 

	1. (Advanced) Who wrote the report on which this article is based? You may access the report directly http://www.ey.com/Publication/vwLUAssets/ey-the-impact-of-federal-tax-reform-on-state-corporate-income-taxes/$File/ey-the-impact-of-federal-tax-reform-on-state-corporate-income-taxes.pdf
	2. (Introductory) What is the unintended consequence of the reduction in federal corporate income taxes enacted in December 2017?
	3. (Introductory) What is the relationship between state tax systems and the federal Internal Revenue Code? How did this relationship result in unintended consequences after the new tax law was enacted?
	4. (Advanced) How are companies expected to try to fend off these state tax increases?

READ THE ARTICLE

 

Reviewed By: Linda Christiansen, Indiana University Southeast

 

"Where Corporate Taxes Are Poised to Rise Because of Tax Overhaul: States," by Richard Rubin, The Wall Street Journal, March 6, 2018
https://www.wsj.com/articles/where-corporate-taxes-are-poised-to-rise-because-of-tax-overhaul-states-1520278893?mod=djem_jiewr_AC_domainid

After the federal tax law, state taxable income went up and state rates didn’t change

WASHINGTON—The amount of income subject to corporate taxes on the state level will increase by 12% because of the federal-tax overhaul, which removed or limited tax breaks, according to a business-backed study.

When the top federal corporate-tax rate was 35%, state corporate-tax rates ranging from 3% to 12% were relatively insignificant for many big companies. But now, with the federal rate at 21% and fewer breaks available, state corporate taxes are becoming increasingly important.

After the federal government limited deductions and changed foreign-tax rules late last year, state taxable income went up and state rates didn’t change. The estimate that the state corporate -tax base will grow by 12% on average over the next decade comes from an Ernst & Young LLP study conducted for the Council on State Taxation, a business group.

“The state tax increase for corporations is totally inadvertent,” said Karl Frieden, vice president and general counsel at Cost.

The federal tax law imposed new restrictions on companies’ ability to deduct interest payments, exchange property without paying capital-gains taxes, deduct some fringe benefits and immediately write off future research costs. At the federal level, those changes were far outweighed by the rate cut.

States typically calculate corporate taxable income starting with some version of the federal definition, but details vary. Many states haven’t allowed faster write-offs for capital investments known as bonus depreciation. Even though Congress expanded that write-off to a full and immediate deduction, states aren’t likely to follow.

“We’ve got 50 states with 50 different ways of doing things,” said Steve Wlodychak, a state-and-local tax policy expert at Ernst & Young and the study’s co-author.

Many states are adjusting their tax codes in response to the federal law. At the high end, the study projects a 14% increase in the state corporate-tax base in Arizona, Pennsylvania and Vermont; at the other end, Mississippi’s increase is projected to be 4%. In some cases, that may not translate into higher revenue because companies can use up accumulated state tax breaks.

Some states could cut corporate tax rates to bring revenue back to its prior levels. Georgia last week cut its corporate income tax rate to 5.75% from 6%.

Others could choose a piecemeal approach, picking up some federal changes but not others. Other states could spend additional revenue or use it to lower individual taxes.

States are trying to decipher the new law and many may wait until 2019 for significant corporate tax changes, said Max Behlke, director of budget and tax at the National Conference of State Legislatures.

Especially in Democratic-leaning states, he said, “There hasn’t been a whole lot of sympathy toward corporations at the state level, considering they got a 40% cut federally.”

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 7, 2018

Questions to Ask When Picking a Financial Adviser

By Glenn Ruffenach | Mar 05, 2018

TOPICS: Accounting Careers

SUMMARY: Two questions written by readers are answered in this article; this review covers just the first. The first query is about the best questions to ask in choosing a financial adviser. The author responds, "Ideally, you want more than a list of questions; you also want a sense of what makes for good, or better, answers. A common question, for instance, involves asking about an adviser's credentials...By the way, some of the best credentials are certified financial planner, or CFP; chartered financial analysts, or CFA; and certified public accountant, or CPA."

CLASSROOM APPLICATION: Questions focus on students' career planning towards one of these preferred adviser certifications.

QUESTIONS: 

	1. (Introductory) What is the nature of this column? Who writes it?
	2. (Introductory) What designations does this author list as the best credentials to seek in those serving as a financial planner?
	3. (Advanced) Explain what you know about each of the three credentials. You may find information at the following websites: CFP: http://www.letsmakeaplan.org/ CFA https://www.cfainstitute.org/pages/index.aspx CPA https://nasba.org/education/becomingacpa/
	4. (Advanced) Are you interested in becoming a financial adviser? What career steps must you take to follow this career path?

READ THE ARTICLE

 

Reviewed By: Linda Christiansen, Indiana University Southeast

 

"Questions to Ask When Picking a Financial Adviser," by Glenn Ruffenach, The Wall Street Journal, March 7, 2018
https://www.wsj.com/articles/questions-to-ask-when-picking-a-financial-adviser-1520009112?mod=djem_jiewr_AC_domainid

Retirement columnist Glenn Ruffenach also answers a reader’s question on charitable contributions and IRAs

In a recent column you talked about the value of working with a financial planner. What are the most important questions I should ask when sizing up a prospective adviser? Can you recommend a good list of questions?

Ideally, you want more than a list of questions; you also want a sense of what makes for good, or better, answers.

A common question, for instance, involves asking about an adviser’s credentials or experience. But if you don’t know which credentials are more valuable than others, the question won’t help much. (By the way, some of the best credentials are certified financial planner, or CFP; chartered financial analyst, or CFA; and certified public accountant, or CPA.)

With that in mind, here are two of my favorite lists:

Henry K. “Bud” Hebeler started and wrote the Analyze Now website and contributed hundreds of articles about retirement finances to numerous publications, including The Wall Street Journal. This generous and thoughtful man died last year, but much of his work is still available online. For our purposes, check out “25 Questions for a Potential Financial Adviser.”

As noted above, I like this list because Bud explained the thinking behind each question and why each is important. It’s a smart way of looking at this exercise (as Bud was wont to do).

• Jason Zweig, who writes The Intelligent Investor column in the Journal, devoted two pieces last year to finding a financial adviser. Both columns—“The 19 Questions to Ask Your Financial Adviser” and “The Special Trick to Find the Right Financial Adviser”—are available at jasonzweig.com.

Jason provides a list of questions, as well as thoughts about possible answers. Example: “How often do you trade?” A good answer, according to Jason, would be something along the lines of: “As seldom as possible, ideally once or twice a year at most.”

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 14, 2018

KPMG Acts Globally but Keeps Scandals Local

By Michael Rapoport | Mar 07, 2018

TOPICS: Big Four Accounting Firms, International Business, Liability, PCAOB

SUMMARY: The Big Four accounting firms promote themselves as unified entities, each with one global brand. That implies common leadership and one standard of quality. But how they are organized tells a different story. Each of the four - KPMG, Deloitte Touche Tohmatsu, PricewaterhouseCoopers, and Ernst & Young - is actually a network of independent firms in some 150 countries. Global umbrella organizations head each network, setting overall strategy and overseeing the brand with input from the member firms. But the member firms are the ones that do the audits, and they generally have wide latitude over how they conduct their business. They aren't obligated to or responsible for each other, and the global organizations generally shy away from claiming control over them. It isn't just an arcane corporate-structure issue. Without top-down control, critics say, local audit affiliates are more likely to produce flawed work, possibly affecting the networks' multinational clients.

CLASSROOM APPLICATION: This article is appropriate for auditing classes, and also for students going into corporate accounting as well. Also, it is also good for our students, as future investors, to know about these auditing issues.

QUESTIONS: 

	1. (Introductory) What is meant by Big Four accounting firms? Please name each of the Big Four firms.
	2. (Advanced) What is the PCAOB? What are its areas of responsibility and authority? How is its work affected by these types of disputes and settlements?
	3. (Introductory) What are the details of the legal issues and investigations presented in the article? What do these situations have in common? What are the ramifications for the firms?
	4. (Advanced) What is the business model of the Big Four accounting firms? How are they structured? How can this structure help clients? How can it help the firms obtain and profit from accounting and consulting work?
	5. (Advanced) What is meant by the title of the article - the firms act globally but keep scandals local? How can this affect and protect the firms?
	6. (Advanced) What are the differences between the Big Four firms and regional or local firms? What are the career opportunities in each? What are the strengths and weaknesses of working at each type of firm?

READ THE ARTICLE

 

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"KPMG Acts Globally but Keeps Scandals Local," by Michael Rapoport, The Wall Street Journal, March 7, 2018
https://www.wsj.com/articles/kpmg-acts-globally-but-keeps-scandals-local-1520418601?mod=djem_jiewr_AC_domainid

Affiliates spread across countries help shield accounting firms from liability, but setup also limits their control

Accounting firm KPMG is under fire over three different scandals in the U.S., South Africa and the U.K. Or is it?

KPMG does face trouble on three fronts—but technically it is happening at three legally separate firms. KPMG LLP, a New York-based U.S. partnership, is dealing with the indictment of former partners on charges they helped steal secret regulatory information.

In South Africa, KPMG’s local affiliate faces a criminal complaint, and is under fire over its ties to a politically connected family. Meanwhile, KPMG’s London-based firm is under regulatory investigation over its auditing of construction company Carillion PLC, which collapsed in January.

The Big Four accounting firms promote themselves as unified entities, each with one global brand. That implies common leadership and one standard of quality. But how they are organized tells a different story.

Each of the four—KPMG, Deloitte Touche Tohmatsu, PricewaterhouseCoopers and Ernst & Young —is actually a network of independent firms in some 150 countries. Global umbrella organizations head each network, setting overall strategy and overseeing the brand with input from the member firms. But the member firms are the ones that do the audits, and they generally have wide latitude over how they conduct their business. They aren’t obligated to or responsible for each other, and the global organizations generally shy away from claiming control over them.

It isn’t just an arcane corporate-structure issue. Without top-down control, critics say, local audit affiliates are more likely to produce flawed work, possibly affecting the networks’ multinational clients.

A recent U.S. rule change could bring new attention to the setup. The Public Company Accounting Oversight Board last year started requiring accounting firms with U.S.-traded clients to start disclosing when affiliates work with them on a company’s audit. Information is being added to the PCAOB’s site for many companies after they release annual reports this spring.

The fragmented setup can limit what the global firms can do to crack down on bad-apple affiliates, even as it helps shield their networks and U.S. partners from liability.

“You’ve got personnel and technology crossing borders all the time,” said Jim Peterson, an attorney and author of a book about the Big Four firms. But when they run into trouble, “they do everything they can to firewall the problem.”

Deloitte faces regulatory investigations in South Africa and the Netherlands over client Steinhoff International Holdings NV—a scandal that has caused more than $1 billion in losses for U.S. banks, even as it may not touch Deloitte’s U.S. firm. Deloitte says it raised “a series of questions” about Steinhoff during its audit, and that Steinhoff’s independent investigation is now pursuing the answers.

Continued in article

Bob Jensen's threads on KPMG ---
http://faculty.trinity.edu/rjensen/fraud001.htm

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 14, 2018

Why Estate-Tax Changes Won't Diminish Clients' Philanthropy

By Gerry Joyce | Mar 13, 2017

TOPICS: Estate Planning, Estate Tax, Tax Cuts and Jobs Act

SUMMARY: The new estate-tax exemptions outlined in the tax overhaul are historic, doubling what were already historic highs. Between 2018 and 2025, when the law expires, an individual can give up to $11.2 million to their heirs free from the estate and gift taxes. Some experts think that the increase would motivate the wealthy to keep more of their money for themselves and give less of it to charitable causes. The logic: Individuals with estates that exceeded the previous exemption of $5.5 million often used giving as a way to reduce the size of their taxable estate. Now that the exemption is higher, they will no longer feel compelled to use giving as a tax strategy. Others think the changes offer more reasons and to give to charities.

CLASSROOM APPLICATION: This article is a good discussion of the changes in the estate tax law and the impact those changes could have on charitable gifting and estate tax planning.

QUESTIONS: 

	1. (Introductory) What is the estate tax? How is it calculated? What are the tax rates?
	2. (Introductory) What recent tax law was enacted that affected estate tax? How was estate tax law changed?
	3. (Advanced) What impact could the changes to the estate tax have on charitable giving? Why do some say it might be reduced? What are the strengths of this position? Do you agree?
	4. (Advanced) What does Mr. Joyce think will happen with charitable giving under the new estate tax law? Why? Is this a reasonable position?
	5. (Advanced) How did the tax law change the standard deduction? How is charitable giving affected by those changes? Could that change cause an increase or decrease in charitable giving? Why? How can a taxpayer plan to maximize the deduction of charitable giving?

READ THE ARTICLE

 

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by Journal Reports
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Reviewed By: Linda Christiansen, Indiana University Southeast

 

"Why Estate-Tax Changes Won't Diminish Clients' Philanthropy," by Gerry Joyce, The Wall Street Journal, March 13, 2018
https://www.wsj.com/articles/why-estate-tax-changes-wont-diminish-clients-philanthropy-1520866802?mod=djem_jiewr_AC_domainid

Strategies may need adjusting, but willingness and desire to give remain

The new estate-tax exemptions outlined in the tax overhaul are historic, doubling what were already historic highs. Between 2018 and 2025, when the law expires, an individual can give up to $11.2 million to their heirs free from the estate and gift taxes.

For the past few months I’ve heard a number arguments over the potential impact of those exemptions on the philanthropic efforts of high-net-worth individuals—namely, that the increase would motivate the wealthy to keep more of their money for themselves and give less of it to charitable causes. The logic: Individuals with estates that exceeded the previous exemption of $5.5 million often used giving as a way to reduce the size of their taxable estate. Now that the exemption is higher, they’ll no longer feel compelled to use giving as a tax strategy.

That might be the case for some, but I have my doubts that the law will have any significant impact on people’s willingness to give. For most high-net-worth families, the tax benefit of philanthropy is secondary to its use as a means of expressing their values and leaving a legacy for future generations. While I can potentially see the change becoming a factor in how much money some individuals choose to give, I don’t see it causing anyone to abandon their charitable impulses altogether. In fact, the law might even inspire some to give more than they’ve planned to or have given in the past.

There are close to 15 million households that had been subject to estate tax under the old exemption and no longer are. Those households could now use their tax savings to increase charitable contributions without reducing the amount they previously planned to leave to their heirs.

Still, the tax law is likely to have an impact on some of the tactical decisions people make about when and how they give. In the past, itemizing deductions provided many filers with additional tax savings—given, that is, if the value of their deductible expenses was greater than their standard deduction. Given the new limits imposed on some deductions—including mortgage-interest payments—coupled with an increased standard deduction, it could be harder for some clients to take advantage of those savings.

In those cases, gifting could be a way for clients to increase their total annual deductions to the point where they exceed the standard deduction, and clients could benefit from those superior tax savings. In a situation like this, a client planning on making a large one-time contribution to charity might be better served making a series of smaller contributions, and reaping the tax benefits, over a number of years.

What’s important for advisers to remember is that many of the major changes in the bill are temporary, and our clients’ philanthropic impulses are not. Increasingly, as a culture, we’re recognizing the power of wealth as a tool for bringing about change in the world.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 14, 2018

Buying a Home With an LLC: A Primer

By Robyn A. Friedman | Mar 08, 2018

TOPICS: Business Structure, Corporate Income Tax, Forms of Doing Business, LLC, Tax Cuts and Jobs Act

SUMMARY: Many home buyers and real-estate investors form limited-liability companies with cryptic names when purchasing property. This appeals to the publicity shy, but LLCs also help homeowners avoid scams, identity theft and frivolous lawsuits. LLCs have long been popular. In Florida, for example, two-thirds (66.6%) of all new business entities formed in 2017 were domestic LLCs, according to the Florida Department of State. But because the Tax Cuts and Jobs Act, in effect since Jan. 1, provides favorable tax treatment to so-called pass-through business entities such as partnerships, S corporations and LLCs, the use of LLCs is expected to explode.

CLASSROOM APPLICATION: This article is useful for showing some advantages and disadvantages of the LLC business structure. It is also appropriate for use in a corporate tax class to show how changes in tax law can change the dynamics of the business structure decision.

QUESTIONS: 

	1. (Introductory) What is an LLC? What are the features of an LLC?
	2. (Advanced) What are the other forms of doing business? Please state advantages and disadvantages of each.
	3. (Advanced) What is the Tax Cut and Jobs Act? When was it enacted? How did the act affect taxation of LLCs? How did that affect the decision-making process for choosing a business structure? Which forms are more attractive as a result of the act? Which forms were not benefited by the law changes?
	4. (Advanced) How does the choice of business structure affect the accounting for a business? How could it affect financing? What other factors should a business owner consider?

READ THE ARTICLE

 

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"Buying a Home With an LLC: A Prime," by Robyn A. Friedman, The Wall Street Journal, March 8, 2018
https://www.wsj.com/articles/buying-a-home-with-an-llc-a-primer-1520435063?mod=djem_jiewr_AC_domainid

Limited-liability corporations help homeowners maintain privacy, and the new tax law makes them more attractive

In the age of the internet, privacy is an especially valuable commodity.

To that end, many home buyers and real-estate investors form limited-liability companies with cryptic names when purchasing property. This appeals to the publicity shy, but LLCs also help homeowners avoid scams, identity theft and frivolous lawsuits.

LLCs have long been popular. In Florida, for example, two-thirds (66.6%) of all new business entities formed in 2017 were domestic LLCs, according to the Florida Department of State. But because the Tax Cuts and Jobs Act, in effect since Jan. 1, provides favorable tax treatment to so-called pass-through business entities such as partnerships, S corporations and LLCs, the use of LLCs is expected to explode.

Investors like Scott Wood use LLCs to take title to their real-estate holdings. Mr. Wood, an employee-benefits consultant from Scottsdale, Ariz., sold an insurance business in 2006 for “eight figures” and invested the proceeds in commercial and residential real estate. Each property was purchased in the name of a separate LLC he set up for that purpose.

“My main objective was to be able to safely invest funds and have my assets protected,” he says. “Real estate comes with various unknown risks, and I didn’t want to do it in my own name so people were able to monitor and track what I was investing in. An LLC is simple, easy, inexpensive and protective.”

LLCs are relatively easy to set up, but specific requirements vary by state.

In Delaware, for example—a state popular for business formations of all types—the state Division of Corporations offers a downloadable form that asks the name of the LLC, as well as the name and address of a registered agent in Delaware. A Delaware LLC must pay $300 in annual taxes.

Although Delaware is among the states that maintain the confidentiality of an LLC’s members, other states require disclosure. In those states, even if a property is purchased under an LLC, it may be possible to discover the names of the true owners of the property.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 14, 2018

In Search of Blockchain's Killer-Apps

By Irving Wladawsky-Berger | Mar 09, 2018

TOPICS: Blockchain

SUMMARY: Blockchain, the technology behind bitcoin, is coming of age. It's being applied in a lot of new realms. Blockchain is beginning to cross the chasm from technology enthusiasts and visionaries to the wider marketplace that's more interested in business value and applications. There's considerable research on blockchain technologies, platforms and applications as well as market experimentation in a number of industries, but blockchain today is roughly where the internet was in the mid-late 1980s: full of promise but still confined to a niche audience. Blockchain is all about the creation, exchange and management of valuable assets, and has great potential for usage in accounting.

CLASSROOM APPLICATION: Blockchain has the potential to change the mechanics behind accounting and most areas of business. The main article and the related articles can help us create awareness for our students so they are ready to apply this knowledge when they enter the business world. Please make sure to review the diagrams included in the related articles to share with students for greater understanding of blockchain.

QUESTIONS: 

	1. (Introductory) What is blockchain? Who can use it? How is blockchain bigger than just its application to bitcoin?
	2. (Advanced) How can blockchain be more efficient than the systems and tools it could replace?
	3. (Advanced) How is blockchain more secure than the current systems in place?
	4. (Advanced) How can blockchain apply to accounting functions? What tasks and jobs could the implementation and use of blockchain eliminate?
	5. (Advanced) The article discusses the application of blockchain to complex transactions among institutions. How could that be incorporated into accounting? How could it change how accounting interrelates to other areas of business?
	6. (Advanced) What is identity management and data sharing? How could the use of this application of blockchain help in accounting and accounting-related activities?
	7. (Advanced) What concerns might you have about the use of blockchain?
	8. (Advanced) How could knowledge about blockchain and its applications help you in your career?

READ THE ARTICLE

 

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"In Search of Blockchain's Killer-Apps," By Irving Wladawsky-Berger, The Wall Street Journal, March 9, 2018
https://blogs.wsj.com/cio/2018/03/09/is-search-of-blockchains-killer-apps/?mod=djem_jiewr_AC_domainid

Blockchain has yet to cross the chasm from technology enthusiasts to the wider marketplace

Blockchain has been in the news lately, but beyond knowing that it has something to do with payments and digital currencies, most people don’t know what blockchain is or why they should care. A major part of the reason is that we still don’t have the kind of easy-to-explain blockchain killer-apps that propelled the internet forward.

Blockchain has yet to cross the chasm from technology enthusiasts and visionaries to the wider marketplace that’s more interested in business value and applications. There’s considerable research on blockchain technologies, platforms and applications as well as market experimentation in a number of industries, but blockchain today is roughly where the internet was in the mid-late 1980s: full of promise but still confined to a niche audience.

In addition, outside of digital currencies, blockchain applications are primarily aimed at institutions. And, given that blockchain is all about the creation, exchange and management of valuable assets, its applications are significantly more complex to understand and explain than internet applications.

The management of information is quite different from the management of transactions. The latter, especially for transactions dealing with valuable or sensitive assets, requires deep contractual negotiations among companies and jurisdictional negotiations among governments. Moreover, since blockchain is inherently multi-institutional in nature, its applications involve close collaboration among companies, governments and other entities.

In my opinion, there will likely be two major kinds of blockchain killer-apps: those primarily aimed at reducing the friction and overheads in complex transaction involving multiple institutions; and those primarily aimed at strengthening the security and privacy of the internet through identity management and data sharing. Let me discuss each in turn.

Complex transactions among institutions. “Contracts, transactions, and the records of them are among the defining structures in our economic, legal, and political systems,” wrote Harvard professors Marco Iansiti and Karim Lakhani in a 2017 HBR article.

With blockchain, “every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared… Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction.”

Blockchain holds the promise to transform the finance industry and other aspects of the digital economy by bringing one of the most important and oldest concepts, the ledger, to the internet age. Ledgers constitute a permanent record of all the economic transactions an institution handles, whether it’s a bank managing deposits, loans and payments; a brokerage house keeping track of stocks and bonds; or a government office recording the ownership and sale of land and houses.

Over the years, institutions have automated their original paper-based ledgers with sophisticated IT applications and data bases. But while most ledgers are now digital, their underlying structure has not changed. Each institution continues to own and manage its own ledger, synchronizing its records with those of other institutions as appropriate, – a cumbersome process that often takes days. While these legacy systems operate with a high degree of robustness, they’re rather inflexible and inefficient.

In August of 2016, the WEF published a very good report on how blockchain can help reshape the financial services industry. The report concluded that blockchain technologies have great potential to drive simplicity and efficiency through the establishment of new financial services infrastructure, processes and business models.

However, transforming the highly complex global financial ecosystem will take considerable investment and time. It requires the close collaboration of its various stakeholders, including existing financial institutions, fintech startups, merchants of all sizes, government regulators in just about every country, and huge numbers of individuals around the world. Getting them to work together and pull in the same direction is a major undertaking, given their diverging, competing interests. Overcoming these challenges will likely delay large-scale, multi-party blockchain implementations.

Supply chain applications will likely be among the earliest blockchain killer-apps, increasing the speed, security and accuracy of financial and commercial settlements; tracking the supply chain lifecycle of any component or product; and securely protecting all the transactions and data moving through the supply chain. The infrastructures and processes of supply chains are significantly less complex than those in financial services, healthcare, and other industries and there are already a number of experimental applications under way.

A recent WSJ CIO Journal article noted that blockchain seems poised to change how supply chains work. The article cites examples of projects with Walmart and British Airways where blockchain is used to maintain the integrity of the data being shared across the various institutions participating in their respective ecosystems. Earlier this year IBM and Maersk announced a joint venture to streamline operations for the entire global shipping ecosystem. Their joint venture aims to apply blockchain technologies to the current stack of paperwork needed to process and track the shipping of goods. Maersk estimates that the costs to process and administer the required documentation can be as high as 20 percent the actual physical transportation costs.

Identity management and data sharing. The other major kind of blockchain killer-apps will likely deal with identity management and data security.

As we move from a world of physical interactions and paper documents, to a world primarily governed by digital data and transactions, our existing methods for protecting identities and data are proving inadequate. Internet threats have been growing. Large-scale fraud, data breaches, and identity thefts are becoming more common. Companies are finding that cyberattacks are costly to prevent and recover from. The transition to a digital economy requires radically different identity systems.

A major reason for the internet’s ability to keep growing and adapting to widely different applications is that it’s stuck to its basic data-transport mission.  Consequently, there’s no one overall owner responsible for security, let alone identity management, over the internet. These important responsibilities are divided among several actors, making them significantly harder to achieve.

Blockchain technologies should help us enhance the security of digital transactions and data, by developing the required common services for secure communication, storage and data access, along with open source software implementations of these standard services, supported by all major blockchain platforms, such as Hyperledger and Ethereum.

Identity is the key that determines the particular transactions in which individuals, institutions, and the exploding number of IoT devices, can rightfully participate, as well as the data they’re entitled to access. But, our existing methods for managing digital identities are far from adequate.

To reach a higher level of privacy and security we need to establish a trusted data ecosystem, which requires the interoperability and sharing of data across the various institutions involved. The more data sources a trusted ecosystem has access to, the higher the probability of detecting fraud and identity theft. However, it’s not only highly unsafe, but also totally infeasible to gather all the needed attributes in a central data warehouse. Few institutions will let their critical data out of their premises.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 14, 2018

Despite U.S. Tax Overhaul, Ohio-Based Dana Considers a Move Abroad

By Chester Dawson and Theo Francis | Mar 10, 2018

TOPICS: Corporate Taxation, International Business, Tax Cuts and Jobs Act, Tax Inversions

SUMMARY: Ohio-based auto parts supplier Dana Inc. plans to relocate its corporate address to the U.K. for tax purposes if a takeover bid is successful, a move that comes just weeks after passage of U.S. tax legislation designed to discourage American companies from doing just that. The deal calls into question one of the primary rationales for December's tax overhaul: making it less attractive for U.S. companies to engage in so-called tax inversions, in which they shift their tax homes abroad in pursuit of lower taxes. In general, U.S. tax law penalizes companies for inversions if more than 60% of the resulting company is owned by shareholders of the original U.S. company, and still more if at least 80% is. Dana's merger would not trigger those penalties. The Dana CFO say even with the new tax legislation, there is a benefit for the company to relocate to the tune of $600 million. As part of a proposed $6.1 billion offer for GKN PLC's axle business for automobiles, Dana would reestablish itself in the U.K. even though its physical headquarters would remain outside Toledo and its stock would stay listed on the New York Stock Exchange.

CLASSROOM APPLICATION: This article is appropriate for tax classes. It is particularly interesting that a company would continue to pursue something like a tax inversion (Dana management points out this merger is not "technically" an inversion) after the recent tax law changes under the Tax Cuts and Jobs Act.

QUESTIONS: 

	1. (Advanced) What is a tax inversion? Who chooses to participate in inversions? Why would a party make this choice?
	2. (Advanced) How did tax inversions highlight the problems with U.S. tax law before the recent changes? How did corporate tax rates affect or encourage inversions?
	3. (Introductory) What are the details of Dana's proposed merger?
	4. (Advanced) How did the Tax Cuts and Jobs Act change corporate tax law? What are the goals of these changes?
	5. (Advanced) How did the recent tax law changes tax-planning options for corporations? How did they change the incentives associated with tax inversions?
	6. (Advanced) Why is Dana continuing to pursue the merger despite the changes in tax law? How is the company structuring the deal so it is advantageous for tax purposes? Are there legitimate non-tax business reasons for the merger?
	7. (Advanced) Dana management says this merger is not technically a tax inversion. How is that true? Why is the company making that distinction?

READ THE ARTICLE

 

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The Wall Street Journal Guide to the New Tax Law
by Journal Reports
Feb 13, 2018
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Reviewed By: Linda Christiansen, Indiana University Southeast

 

"Despite U.S. Tax Overhaul, Ohio-Based Dana Considers a Move Abroad By Chester Dawson and Theo Francis, The Wall Street Journal, March 10, 2018
https://www.wsj.com/articles/dana-to-take-over-gkns-automotive-driveline-business-1520614366?mod=djem_jiewr_AC_domainid

U.S. auto supplier’s bid to buy a U.K. business would involve shift of tax home

Ohio-based auto parts supplier Dana Inc. plans to relocate its corporate address to the U.K. for tax purposes if a takeover bid announced Friday is successful, a move that comes just weeks after passage of U.S. tax legislation designed to discourage American companies from doing just that.

As part of a proposed $6.1 billion offer for GKN PLC’s axle business for automobiles, Dana would reestablish itself in the U.K. even though its physical headquarters would remain outside Toledo and its stock would stay listed on the New York Stock Exchange.

The deal, which is far from assured, would create the world’s largest supplier of axles and other driveline components, but it also will result in a lower tax bill.

“Even with the new tax legislation, there is a benefit for us” to the tune of $600 million, Dana CFO Jonathan Collins said in an interview. Those savings are spread over several years, he said.

Dana reported an effective tax rate of 33% last year. Company executives said last month they expect the new tax law’s lower corporate tax rate to contribute about 10 cents of an expected 23 cents in per-share profit growth this year, excluding unusual items. The legislation reduced the federal corporate tax rate to 21% from 35%.

Dana executives did not specify how much they expect to pay in taxes if their deal for GKN’s driveline business goes through, but the corporate tax rate in the U.K. is 19%.

The deal calls into question one of the primary rationales for December’s tax overhaul: making it less attractive for U.S. companies to engage in so-called tax inversions, in which they shift their tax homes abroad in pursuit of lower taxes.

In general, U.S. tax law penalizes companies for inversions if more than 60% of the resulting company is owned by shareholders of the original U.S. company, and still more if at least 80% is. Dana’s merger would not trigger those penalties.

But the company’s shareholders could still get hit with a tax bill on their own shares under a separate provision that applies if the end company is at least 50% owned by the U.S. firm’s shareholders. Dana said the deal will give it nearly 53% ownership of the merged entity.

These provisions, which predate December’s tax legislation, were intended to make tax inversions less appealing to companies and shareholders alike. Dana’s Mr. Collins said the planned merger isn’t “technically” an inversion because a new company is being established and half of its business will remain in the U.K.

Tax experts say that is a distinction without a difference.

U.S. lawmakers last fall repeatedly cited inversions as they debated and passed last year’s tax changes. The final version does relatively little to directly penalize inverted companies or stop the transactions.

The law’s supporters argued that the lower corporate tax rate and lighter taxes on U.S. companies’ foreign income would reduce the incentive to move abroad.

Robert Willens, a New York City tax consultant, called Dana’s explanation of tax savings surprising.

A combination of the lowered U.S. corporate tax rate and earlier regulations, which limited the degree to which foreign companies could “strip” profits from U.S. subsidiaries, seemed to remove the incentive for such deals, he said. “I didn’t think we’d ever see another inversion.”

“The U.K. tax rates are very close to U.S. tax rates,” Mr. Willens said. “Now, with the corporate benefits of an inversion being difficult to identify, you’re creating a tax for your shareholders which seems unnecessary.”

Dana executives say the tax strategy is designed to take advantage of a lower tax rate and to assuage concerns about its commitment to GKN’s manufacturing operations in the U.K.

GKN, listed in London, is turning its attention to aerospace and seeking to sell its auto business. Under the Dana deal, GKN shareholders would receive 47.25% of a new entity called Dana PLC.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 21, 2018

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

PwC Has an Answer for the Blockchain: Audit It

By Michael Rapoport | Mar 17, 2018

TOPICS: Auditing Services, blockchain technology

SUMMARY: "PricewaterhouseCoopers unveiled a new offering to audit companies' use of the blockchain-making sure companies are implementing and using it properly, and allowing people within a company to continuously monitor its blockchain transactions."

CLASSROOM APPLICATION: The article may be used in any level of financial reporting class or an auditing class to discuss the basics of blockchain technology and an accounting firm's audit services for this new technology.

QUESTIONS: 

	1. (Introductory) What is blockchain technology? You may refer to the definition given in the article.
	2. (Advanced) What is a ledger? How is a ledger used in a traditional accounting system? How are ledgers used in blockchain technology?
	3. (Introductory) According to the article, why is the public accounting firm PwC offering to provide audit services over companies' use of blockchain technology?
	4. (Advanced) Refer to the inset article (listed as a related article below). Why are three cryptocurrencies under investigation?

READ THE ARTICLE

 

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Reviewed By: Judy Beckman, University of Rhode Island

 

"PwC Has an Answer for the Blockchain: Audit It," y Michael Rapoport, The Wall Street Journal, March 17, 2018https://www.wsj.com/articles/pwc-has-an-answer-for-the-blockchain-audit-it-1521194401?mod=djem_jiewr_AC_domainid
https://www.wsj.com/articles/pwc-has-an-answer-for-the-blockchain-audit-it-1521194401?mod=djem_jiewr_AC_domainid

Accounting firm unveils new service for clients’ use of blockchain

If blockchain technology can validate transactions the way an auditor traditionally does, what’s left for an auditor to do?

PricewaterhouseCoopers LLP’s answer: Validate the validators.

The Big Four accounting firm unveiled a new offering Friday that will provide an outside look at clients’ use of the blockchain—making sure companies are implementing and using it properly, and allowing people within a company to continuously monitor its blockchain transactions. The move will facilitate and encourage companies’ use of the new technology, PwC says. Attesting that all is going as planned will help ease any internal concerns about blockchain and get people to feel more comfortable with its use, it adds.

“There’s a natural predilection for people with new technology to be distrustful of it,” said A. Michael Smith, a PwC partner in charge of internal technology audit solutions, in an interview with The Wall Street Journal. “There’s going to have to be some kind of independent validation that the technology is functioning as intended.”

Blockchain provides an unchangeable record of transactions by using decentralized digital ledgers. So far it’s most closely associated with the rise of cryptocurrencies like bitcoin, but the technology can be used in online identity verification, supply-chain management and many other ways. To the extent it’s used to verify the accuracy of a company’s financial transactions, it can handle part of an auditors’ job.

But the still-new technology faces a host of obstacles to adoption, PwC says—legal and compliance concerns within companies and other organizations, issues of corporate controls and risk management. Blockchain itself is often billed as tamper-proof, but adopting it poses the same kind of challenges a company faces with any implementation of information technology.

“The compliance teams don’t know what to do with it,” said Vicki Huff, PwC’s global innovation leader.

Those sorts of concerns at PwC clients starting to use blockchain led the firm to formulate its new offering. As transactions occur on the blockchain, PwC logs them and applies controls and testing criteria, and allows users within a company to monitor, view and test transactions in near real time.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 21, 2018

Thousands of Investors Got Big Tax Breaks for Land-Rights Donations, IRS Finds

By Richard Rubin | Mar 15, 2018

TOPICS: Charitable Contributions, Charitable Deductions

SUMMARY: The article describes charitable donations of land after creating an easement which limits development. While such donations by individual landowners are not controversial, syndications in which groups of investors purchase land parcels have been generating tax deductions which exceed the amount of original investments. The article describes results of a WSJ review of IRS data from "the first wave of disclosures" about syndicated conservation easements. The disclosures are newly required from 2016 when the value of the tax deduction for land donation is at least 2.5 times the taxpayer's investment, "roughly the point where the tax deduction exceeds the original investment for many taxpayers." A letter sent with answers to specific question to Senate Finance Committee ranking Democrat Ron Wyden (Oregon) is also linked in the article.

CLASSROOM APPLICATION: The article may be used in a personal income tax class discussing charitable donation deductions or in an entity related taxation class covering syndicates.

QUESTIONS: 

	1. (Introductory) According to the article, what is a conservation easement?
	2. (Introductory) How can a landowner create a tax deduction from a conservation easement? For what purpose was the law allowing such easement-related deduction established?
	3. (Advanced) What is a "syndicated conservation easement"? Why is this practice controversial while the practice of taking an individual deduction for a conservation easement is not?
	4. (Advanced) What disclosures about these transactions are provided under recent IRS regulations?
	5. (Advanced) Refer to the letter sent by Acting IRS Commissioner David J. Kautter to Senator Ron Wyden and its attachment, available, respectively, at https://www.wsj.com/public/resources/documents/easementdocument0314-1.pdf and https://www.wsj.com/public/resources/documents/easementdocument0314-2.pdf What types of information did Senator Wyden and his committee request of the IRS in regards to these transactions?

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Thousands of Investors Got Big Tax Breaks for Land-Rights Donations, IRS Finds," by Richard Rubin , The Wall Street Journal, March 15, 2018
https://www.wsj.com/articles/thousands-of-investors-got-big-tax-breaks-for-land-rights-donations-irs-finds-1521053766?mod=djem_jiewr_AC_domainid

Lawmakers scrutinize syndicated conservation easements that let people profit quickly

WASHINGTON—More than 15,000 investors have participated in certain tax deals involving charitable contributions of land rights, according to new IRS data that was given to lawmakers who are scrutinizing the practice, which is estimated to cost the government more than $1 billion in revenue annually.

The data provide the clearest big-picture look yet at the opaque world of syndicated conservation easements, transactions giving some investors tax breaks worth more than the amount they originally invested in the property. In late 2016, the Internal Revenue Service began requiring participants and advisers to alert the agency to the transactions to aid in determining who should be audited.

The new data, provided to senators and reviewed by The Wall Street Journal, come from the first wave of those disclosures. The reports show 552 separate transactions covering several years and exceeding previous estimates. The Brookings Institution has estimated that the total revenue loss from syndicated easement deals was between $1.3 billion and $2.4 billion in 2016.

The total value of claimed deductions over several years was $230 billion, far beyond previous estimates. That figure itself may be significantly overstated, with the same deduction appearing on disclosures from multiple entities that were required to file forms with the IRS, and the IRS document notes that it hasn’t been verified as accurate.

“What started as a critical tool for land preservation has been systematically exploited by bad actors peddling tax shelters to the highest bidder,” said Sen. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, who is asking the IRS for further analysis. “Congress must act swiftly to protect the integrity of the conservation easement program. American taxpayers could be on the hook for billions and billions of dollars.”

Under U.S. law, land owners can donate the development rights to their property to land trusts, other charities or governments. For example, a farmer with a $5 million piece of land in a fast-growing area can place an easement on the property that restricts development. By donating the easement to a charity and getting an appraisal, the farmer could show that the land’s value has diminished by $3 million and thus can claim that amount as a deduction.

That is relatively noncontroversial in Congress, though the break skews to wealthier households. President Donald Trump has used this type of deal in at least four states.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 21, 2018

Big Water Companies Set to Merge

By Cara Lombardo | Mar 15, 2018

TOPICS: business combinations

SUMMARY: The article describes a merger transaction between SJW Group (parent of San Jose Water which serves residents of San Jose, CA, and Canyon Lake, TX) and Connecticut Water Service Inc. The value of the deal will be about $750 million and "would create the nation's third-largest publicly traded water utility." Neither entity is explicitly described as the acquirer in this transaction billed as a merger.

CLASSROOM APPLICATION: The article may be used in a class discussing business combinations. Questions ask students to identify the factors indicating which entity is the acquirer in this equity exchange transaction based on authoritative accounting guidance. FACULTY MUST REMOVE THE FOLLOWING SOLUTION BEFORE DISTRIBUTING TO STUDENTS: "Paragraph 805-10-25-1 requires that a business combination be accounted for by applying what is referred to as the acquisition method." The first step in the requirements is to identify an acquirer (ASC 810-10-25-2). • The guidance in the General Subsections of Subtopic 810-10 related to determining the existence of a controlling financial interest shall be used to identify the acquirer-the entity that obtains control of the acquiree. If a business combination has occurred but applying that guidance does not clearly indicate which of the combining entities is the acquirer, the factors in paragraphs 805-10-55-11 through 55-15 shall be considered in making that determination. 55-10 ... If a business combination has occurred but applying that guidance does not clearly indicate which of the combining entities is the acquirer, paragraph 805-10-25-5 requires the factors in paragraphs 805-10-55-11 through 55-15 to be considered in making that determination. 55-12 In a business combination effected primarily by exchanging equity interests, the acquirer usually is the entity that issues its equity interests. ...Other pertinent facts and circumstances also shall be considered in identifying the acquirer in a business combination effected by exchanging equity interests, including the following: • a. The relative voting rights in the combined entity after the business combination. The acquirer usually is the combining entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity.... • b. The existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest. ... • c. The composition of the governing body of the combined entity. The acquirer usually is the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity. • d. The composition of the senior management of the combined entity. The acquirer usually is the combining entity whose former management dominates the management of the combined entity. • e. The terms of the exchange of equity interests. The acquirer usually is the combining entity that pays a premium over the precombination fair value of the equity interests of the other combining entity or entities. 55-13 The acquirer usually is the combining entity whose relative size (measured in, for example, assets, revenues, or earnings) is significantly larger than that of the other combining entity or entities. 55-14 In a business combination involving more than two entities, determining the acquirer shall include a consideration of, among other things, which of the combining entities initiated the combination, as well as the relative size of the combining entities, as discussed in the preceding paragraph. 55-15 A new entity formed to effect a business combination is not necessarily the acquirer. If a new entity is formed to issue equity interests to effect a business combination, one of the combining entities that existed before the business combination shall be identified as the acquirer by applying the guidance in paragraphs 805-10-55-10 through 55-14.....

QUESTIONS: 

	1. (Introductory) What is a merger? An acquisition?
	2. (Advanced) Do the requirements in accounting for business combinations differ between merger and acquisition transactions? Explain your answer with reference to authoritative accounting standards contained in the FASB Accounting Standards Codification (ASC).
	3. (Introductory) What factors are listed in the article that would be used to define which of the two companies is the acquirer in this business combination?
	4. (Advanced) How does defining the acquirer in a business combination impact the accounting for the transaction? Explain with reference to authoritative accounting literature.

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Big Water Companies Set to Merge," by Cara Lombardo , The Wall Street Journal, March 15, 2018
https://www.wsj.com/articles/big-water-companies-set-to-merger-1521086460?mod=djem_jiewr_AC_domainid

Combination of SJW Group and Connecticut Water Service would create third-largest water company in U.S.

SJW Group plans to merge with Connecticut Water Service Inc. CTWS -1.78% in a roughly $750 million deal that would create the nation’s third-largest publicly traded water utility and represents a rare tie-up among such companies.

Under the terms of the deal announced Thursday, Connecticut Water shareholders are set to receive 1.1375 shares of SJW Group stock for each share. Based on Wednesday’s closing prices, that would work out to about $61.86 a share, an 18% premium over Connecticut Water’s closing price.

The Wall Street Journal reported the two companies were in advanced talks earlier Thursday.

SJW shareholders are to own about 60% of the combined company, which would serve more than 1.5 million customers across four states.

SJW and subsidiaries including San Jose Water serve more than one million people in and around San Jose, Calif., and Canyon Lake, Texas.

It has a market capitalization of around $1.1 billion and in 2017 had revenue of more than $389 million.

Connecticut Water and subsidiaries provide water to more than 450,000 people in Connecticut and Maine and wastewater services to more than 10,000 people in Connecticut. The company has a market capitalization of around $630 million, and reported 2017 revenue of about $114 million.

The new company would be the third-largest water and wastewater utility based on rate base and enterprise value. American Water Works Co. and Aqua America Inc. are the first- and second-largest.

The combined company will be better positioned to expand its geographic reach by acquiring more municipal utilities and service contracts around the country, according to people familiar with the deal.

There has been a frenzy of deal activity in the broader utility sector as companies diversify across geographic areas. Utilities have also grown as cash-strapped municipalities with aging infrastructures sell their systems or outsource management.

But municipalities still own most water utilities in the U.S. and the expected tie-up would be the first of its kind between publicly traded ones in about 20 years, one of the people said.

Water utilities have been trading at relatively rich valuations, due in part to the steady earnings they generate, potentially encouraging deal making.

SJW Chief Executive Eric Thornburg, who led Connecticut Water for more than 11 years before departing for his current job late last year, would be chairman and CEO of the combined company, the company said.

Connecticut Water CEO David Benoit, who officially took over last week, would be president of its New England region. The combined company’s board will include seven directors appointed by SJW and five by Connecticut Water.

The companies don’t plan to cut jobs or increase water rates following the merger. The combined company is expected to establish a dividend at least equal to SJW’s announced 2018 dividend of $1.12 a share. Both companies have long paid regular dividends. SJW and its predecessor have paid a dividend for 74 consecutive years and Connecticut Water has paid quarterly dividends since its founding 62 years ago.

The companies expect the deal to close by the end of the year, subject to regulatory and shareholder approvals.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 21, 2018

Toy Makers Stare at $11 Billion Hole With Death of Toys 'R' Us

By Paul Ziobro and Lillian Rizzo | Mar 16, 2018

TOPICS: Bankruptcy

SUMMARY: The article focuses on the impact of liquidating Toys 'R' Us likely following its filing of liquidation papers Wednesday, March 14, in advance of a bankruptcy court hearing on Thursday, March 15, 2018. "UBS estmates that Hasbro would lose close to 3% of its sales for the year if Toys 'R' Us liquidates, while Mattel stands to lose slightly more...Toys 'R' Us was primarily responsible for uncovering what would become the next big thing...'There aren't going to be as many breakout hits'....Toy sales may be concentrated in the other two large retailers...in the near term." The related article describes CEO David Brandon's discussion with company employees from its Wayne, NJ, headquarters of its plans. "In addition to shutting down U.S. operations, Mr. Brandon told staffers the company was likely to liquidate in France, Spain, Poland, and Australia. It plans to sell its operations in Canada, Central Europe, and Asia. The company is also trying to package its Canadian business with 200 U.S. stores and find a buyer....'Frankly, all anyone has to do is offer one dollar more' than is being offered by liquidation firms."

CLASSROOM APPLICATION: The article may be used to discuss the bankruptcy and liquidation process with a company likely familiar to students. It also may be used to discuss supply chain in a management accounting course.

QUESTIONS: 

	1. (Introductory) According to the main and related articles, what factors led to the demise of Toys 'R' Us?
	2. (Advanced) Define the terms bankruptcy and liquidation.
	3. (Advanced) Does filing for bankruptcy necessarily imply that a company will be liquidated? Explain your answer.
	4. (Introductory) Why is the liquidation of Toys 'R' Us expected to have such a significant impact on Hasbro Inc. and Mattel Inc.? In your answer, specifically describe how much revenue these companies generated through Toys 'R' Us.
	5. (Advanced) Refer to the related graphic "Game Over." What will happen to the amounts owed by Toys 'R' Us to Mattel, Hasbro, and others in liquidation?

READ THE ARTICLE

 

RELATED ARTICLES: 
Toys 'R' Us Set to Close All U.S. Stores
by Paul Ziobro and Lillian Rizzo
Mar 15, 2018
Page: B1

Reviewed By: Judy Beckman, University of Rhode Island

 

"Toy Makers Stare at $11 Billion Hole With Death of Toys 'R' Us," b Paul Ziobro and Lillian Rizzo, The Wall Street Journal, March 16, 2018
https://www.wsj.com/articles/with-death-of-toys-r-us-toy-makers-brace-for-major-hit-1521116575?mod=djem_jiewr_AC_domainid

Retailer, which filed plans to liquidate U.S. operations, was a major testing ground for new products

The liquidation of Toys “R” Us Inc. has sent the toy industry reeling, leaving Mattel Inc., MAT 2.56% Hasbro Inc. HAS -0.52% and other manufacturers without a large chain devoted to selling games and dolls and forcing them to scramble to secure other outlets to carry their items.

Toys “R” Us, which had more than $11 billion in revenue in its last fiscal year, is one of the retail chains that were once seen by vendors as “category killers” and have emerged as crucial checks on the power of Amazon.com Inc. AMZN -3.19% Stores like Best Buy Co. BBY -0.85% and Barnes & Noble Co. provide electronics manufacturers and book publishers with vast networks of physical showrooms.

The likely death of Toys “R” Us, which early Thursday filed plans to liquidate its U.S. operations and other businesses, means the $27 billion U.S. toy industry will no longer have a national partner to showcase its wares year-round, test experimental products and find the next Shopkins or ZhuZhu Pet.

 

It was a quick unraveling for Toys “R” Us since its September chapter 11 bankruptcy filing. In a call with employees Wednesday, Toys “R” Us Chief Executive David Brandon described a cascading series of events, starting with what he described as a “devastating” holiday season that led to plans to close more stores and then to exit from the baby-products business to focus on toys.

“The hole that we dug in the holiday season put us in a position where our lender became justifiably nervous as the company was continuing to consume cash,” Mr. Brandon said.

Ultimately, the company is expected to liquidate its entire U.S. operation, a decision that would affect 33,000 jobs. The company also is liquidating operations in other countries, and plans to sell its business in Canada, Central Europe and Asia.

Now, 70 years after Charles Lazarus opened what would become America’s main toy destination, its stores may disappear from U.S. soil.

“This industry has been devastated,” said Tom Murdough, founder of Simplay3 Co. , which makes plastic play sets and ridable vehicles. “This is a major, major hit to the industry.”

In five decades of selling toys, Mr. Murdough hasn’t known a day without Toys “R” Us. He founded and sold both Little Tikes Co. and Step2 Co. in the past and he now is the CEO of Simplay3, which he said gets between 20% and 30% of its sales through Toys “R” Us.

Continued in article

Teaching Case From The Wall Street Journal Weekly Accounting Review on March 21, 2018

Surplus or Deficit? Trump Quarrels With Canada Over Trade Numbers

By William Mauldin | Mar 16, 2018

 

TOPICS: Revenue Recognition

SUMMARY: "The U.S. is asking Canada for a litany of changes in the [North American Free Trade Agreement] NAFTA talks, from big shifts in auto-industry rules to the elimination of dispute-settlement system, and Canada officials are responding with an argument tailored to Mr. Trump: Trade between the two countries is balanced, so no major changes are needed to existing NAFTA provisions." President Trump argues that there is imbalance in trade between the two countries; the U.S. faces trade deficits of merchandise only when considering exchange with Canada. In a recent fundraising activity at which he spoke, President Trump acknowledged that he had "'no idea' if that was indeed the case" when he first made the argument with PM Trudeau.

CLASSROOM APPLICATION: The article may be used to discuss different types of revenue-sales versus services revenue-and their measurement for purposes of international trade negotiations.

QUESTIONS: 

	1. (Introductory) What are the two measures of economic activity between the U.S. and Canada that are discussed in this article?
	2. (Introductory) Which of the two measures shows a surplus for the U.S. over Canada and which shows a deficit? Which of the two measures is favored by President Trump and which is favored by Prime Minister Justin Trudeau?
	3. (Advanced) What is NAFTA? How does the choice of measure impact the Trump administration's effort to initiate NAFTA negotiations?
	4. (Advanced) As an accountant, which trade number do you think is appropriate to measure relative economic activity between two countries? Support your answer.

READ THE ARTICLE

 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Surplus or Deficit? Trump Quarrels With Canada Over Trade Numbers," by William Mauldin, The Wall Street Journal, March 165, 2018 ---
https://www.wsj.com/articles/surplus-or-deficit-trump-quarrels-with-canada-over-trade-numbers-1521140488?mod=djem_jiewr_AC_domainid

Canada’s view that the U.S. has a surplus undercuts Trump administration’s push on Nafta

The Trump administration is fighting a war of numbers with Canada, further escalating economic tensions with one of the biggest U.S. trading partners.

President Donald Trump insisted on Thursday that the U.S. is at a trade disadvantage, while Canada denies anything of the sort.

The trade balance is Mr. Trump’s preferred yardstick for measuring whether the U.S. is gaining or losing from economic relationships with its partners. That differs from the views of many economists, who say countries benefit from imports as well as exports and that a country’s overall trade balance is based on broad economic factors including investment and savings rates.

The complexity of the statistics measuring U.S.-Canadian trade flows allows each side the ability to support its claim by choosing from an array of data.

Trump administration officials typically focus on merchandise trade balances with other countries, which don’t account for trade in services such as insurance or tourism.

The U.S. Census Bureau’s basic tally of merchandise trade with Canada lists U.S. exports at $282.4 billion and imports from Canada at $300 billion, indicating a deficit of $17.6 billion.

Canadian officials prefer to include services trade as well as merchandise. That method, which gives highly competitive American services industries credit, gives the U.S. a small surplus of $2.8 billion in 2017, according to the U.S. Commerce Department.

Continued in article

Humor for March 2018

MAAW's Jokes Pages --- http://maaw.blogspot.com/2018/02/dozens-of-additional-jokes.html

14 of the most hilarious fast food chain knockoffs around the world ---
http://www.businessinsider.com/knockoff-fast-food-chains-around-the-world-2018-2

When I was a kid in school we did not need cops or armed teachers --- we had nuns!
Thank you Paula

I know that my classmates would recognize a Falcon because they are older and mature. I'm not sure I can say that about their offspring. It is a beautiful sight to see one nesting high up in a magistic Eucalyptus tree! I've seen many remarkable nature photographs over the years but this photo of a nesting Falcon in an old tree is perhaps the most remarkable nature shot that I've ever seen ---
https://imgur.com/YW6Fufm

Bob, the Graduate School Dean here some years ago retired and went to truck-driving school to become an over-the-road trucker. I heard that he didn't stick with it for long, but I credit him with bringing new meaning to the term "semi-retirement."
Ed Scribner

Truths that come with age: 

 

1.. Sometimes I'll look down at my watch 3 consecutive times and still not know what time it is

 

2.. Nothing irks me more than that moment during an argument when you realize you're wrong

 

3.. I totally take back all those times I didn't want to nap when I was younger

 

4. There is great need for a sarcasm font

 

5.. How the hell are you supposed to fold a fitted sheet?

 

6.. Was learning cursive really necessary?

 

7.. Map Quest or Google Maps really need to start their directions on # 5. I'm pretty sure I know how to get out of my neighborhood

 

8... Obituaries would be a lot more interesting if they told you how the person died

 

9... I can't remember the last time I wasn't at least kind of tired

 

10. Bad decisions make good stories

 

11. You never know when it will strike, but there comes a moment when you know that you just aren't going to do anything productive for the rest of the day

 

12. Can we all just agree to ignore whatever comes after Blu-Ray? I don't want to have to restart my collection... again

 

13 I'm always slightly terrified when I exit out of Word and it asks me if I want to save any changes to my ten-page technical report that I swear I did not make any changes to

 

14. I keep some people's phone numbers in my phone just so I know not to answer when they call.

 

15. I think the freezer deserves a light as well

 

16. I disagree with Kay Jewelers. I would bet on any given Friday or Saturday night more kisses begin with Miller Light than Kay

 

17. I wish Google Maps had an "Avoid Ghetto" routing option

 

18. I have a hard time deciphering the fine line between boredom and hunger.

 

19. How many times is it appropriate to say "What?" before you just nod and smile because you still didn't hear or understand a word they said?

 

20. I love the sense of camaraderie when an entire line of cars team up to prevent a jerk from cutting in at the front. Stay strong, brothers and sisters!

 

21. Shirts get dirty. Underwear gets dirty. Pants? Pants never get dirty, and you can wear them forever.

 

22. Even under ideal conditions people have trouble locating their car keys in a pocket, finding their cell phone, and Pinning the Tail on the Donkey - but I'd bet everyone can find and push the snooze button from 3 feet away, in about 1.7 seconds, eyes closed, first time, every time.

 

23. The first testicular guard, the "Cup," was used in Hockey in 1874 and the first helmet was used in 1974. That means it only took 100 years for men to realize that their brain is also important.

 

(Ladies .. Quit Laughing!)

 

It just gets better as you get older, doesn't it? 

 

I was in a Starbucks Coffee recently when my stomach started rumbling and I realized that I desperately needed to fart. The place was packed, but the music was really loud so to get relief and reduce embarrassment I timed my farts to the beat of the music. After a couple of songs I started to feel much better. I finished my coffee and noticed that everyone was staring at me. I suddenly remembered that I was listening to my Ipod (with ear piece) - and how was your day? 

 

(This is what happens when old people start using technology!)

 

Stop laughing and go ahead and forward this - (you know you want to)

 

I Would Like To Add One.

 

At What Point-In-Life Do We Become "OLD PEOPLE "??

 

(It is a "Mental Thing")